NEW YORK, Aug 12 (Reuters) – Carlyle Group Inc.’s growth spurt after Cavesong Lee took over the reins in 2018, but the private equity firm continues to catch up to its larger and more diversified publicly traded peers, as people say are close to one. Position, analysts and investors.
Carlyle announced this week that Lee would step down as chief executive with no replacement. Sources familiar with the matter attribute the move to the company’s founders’ refusal to negotiate a more favorable employment contract with Lee, who together control 26% of Carlyle. Continue reading
The founders – David Rubenstein, William Conway and Daniel D’Aniello – believed some of the organizational decisions made angered some of the firm’s partners, according to sources, who spoke on condition of anonymity. Sources said those decisions include scrapping the co-head structure in some departments and tying compensation to the assets of the company as a whole rather than to individual funds.
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Sources said the founders also believed Lee didn’t take their views into account when running the firm and that their relationship cooled over time.
A Reuters review of Carlyle’s financial disclosures, along with interviews with investors, analysts, and current and former employees, show that Lee’s company has caught up with its publicly traded peers in terms of profitability, asset diversification, and valuations. Steps taken – there is still a big gap.
These results highlight the challenges Carlyle’s founders face in finding Lee’s successor. The company said Sunday it would work with a headhunting firm to find a new CEO and has not set a timeline for the process.
Representatives for Carlyle, Lee and the company’s founders declined to comment.
Carlyle’s shares have soared 66% since Lee took over at the helm of the company in early 2018 until he resigned on Sunday. He co-led the Washington-based company with Glenn Youngkin until September 2020, when he resigned and successfully ran for governor of Virginia, leaving Lee as sole CEO.
In comparison, shares in Carlyle Pearce Blackstone Inc. (BX.N), KKR & Company Inc. (KKR.N) and Apollo Group Inc. (APON) are up 213%, 146% and 73%, respectively. 2018
Of course, Carlyle’s stock performance has been better under Lee than under the leadership of its founders. Carlyle’s shares fell 12% before Lee took over, compared to shares in Blackstone, KKR, and Apollo, which rose 110%, 38%, and 121%, respectively.
This underperformance was caused by investor concerns about the slow growth of Carlyle’s assets under management and its heavy reliance on performance fees from its private equity business. These fees are attractive but unregulated, and are only booked when Carlyle sells companies in which it has investments or distributes dividends from them.
Lee tried to counteract this by growing Carlyle’s credit investing business, which generates management fees that are lower than performance fees but more reliable. They did this by buying small loan managers and signing contracts with insurance companies to manage their assets.
One of those deals, with reinsurer Fortitude Re, added $50 billion to Carlyle’s fee-paying assets this year.
As a result, Carlyle’s loan assets under management rose to $143 billion in June, Lee’s final quarter as CEO, from $33 billion in early January 2018 when he took the job. Borrowings accounted for 38% of Carlyle’s total assets at the end of June, up from 17% in early January 2018.
However, most of Carlyle’s assets are still in companies that generate performance fees, such as B. Private equity and real estate, which have also grown during this time.
Rufus Hohn, analyst at BMO Capital, said, “In this environment, investors want higher earnings guidance and Carlyle still derives a large percentage of its revenue from performance fees, which are volatile and likely to come under pressure in the near term.” Odds are good.”
retail money needed
Another reason Carlyle’s stock performance has lagged its peers, analysts, and investors is that the company doesn’t raise as much capital from high net worth individuals and other retail investors as its peers. It weighs on its stock because investors view the sector as growing faster than other more mature private equity firms.
According to regulatory filings, Carlyle’s fixed capital, which includes funds pledged by retail investors, accounts for just 15% of its asset base, 58% for Apollo, 38% for Blackstone, and 36% for KKR.
The company said last year it was focused on attracting capital from institutional investors, including public pension funds, insurance companies and sovereign wealth funds.
“The gap is that Carlyle’s growth strategy over the past 10 years has been very heavily biased toward private equity and institutional investors relative to its peers,” said Sumeet Modi, an analyst at Piper Sandler.
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Reporting by Chibuike Oguh and Angelique Chen in New York; Additional reporting by Anirban Sen in New York; Edited by Greg Rumeliotis and Jonathan Otis
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