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Carlyle Group has reported its best quarterly results since Harvey Schwartz was recruited in early 2023 to revive the private equity group after years of underperformance and internal turmoil.
The US buyout group earned record fee-based profits in the third quarter and posted a sharp increase in operating margins, signalling that Carlyle is starting to recover as Schwartz approaches his third year as chief executive.
Carlyle’s better than expected results were bolstered by resurgent activity in financial markets, which allowed the group to list two large investments — aviation group StandardAero and Japanese manufacturing company Rigaku — and crystallise lucrative performance fees.
Realised performance fees, which the firm earns from the sale of successful investments, increased 52 per cent to $276mn as it sold $6.8bn of assets across its buyout, infrastructure, real estate and credit operations.
The asset sales come as Carlyle’s dealmakers have focused on using buoyant debt and equity markets to return cash to institutional investors suffering from an industry-wide drought of distributions in recent years.
Insiders at Carlyle believe the strong performance of the StandardAero listing, one of the largest initial public offerings of 2024, sets the stage for a wave of similar public offerings in the year ahead.
Carlyle hopes the asset sales will revive investor confidence in the firm, which, with $447bn in assets, is widely considered one of the pioneers of the private equity industry.
Before Schwartz joined, however, the group had endured a bungled succession from its billionaire founders, lacklustre fundraising and a sluggish share price.
Schwartz, a former Goldman Sachs banker, has elevated a new generation of leaders across Carlyle’s investment operations, and the company’s flagship US buyout funds recorded large mark-ups in the third quarter.
However, its 2018-era European buyout fund continues to struggle, generating a net annual return of just 4 per cent, well below expectations for annual returns of at least 15 per cent.
Large pension and sovereign wealth funds have started to increase their investments with Carlyle, with fundraising reaching $26bn in the first nine months of 2024, a figure the group believes puts it on track to achieve a $40bn annual fundraising target set by Schwartz earlier this year.
The results came as private equity groups’ shares on Wednesday soared because of investor optimism that US president-elect Donald Trump will minimise regulation and maintain the tax cuts he introduced during his first presidency.
Schwartz said the results “reflect the impact of strategic actions we have taken over the past 18 months”.
“These actions, combined with a pick-up in investment activity across our platform, helped generate one of the best quarters of performance in the firm’s history,” he added.
