Great. Well, good morning and thanks, everybody, for joining us. We're going to get started. It is my pleasure to welcome Harvey Schwartz, CEO of Carlyle. With almost $450 billion in assets under management, Carlyle is one of the largest global alternative asset managers across private equity, real assets, and private credit. Over the course of 2024, the firm has seen an accelerating level of activity, raising $27 billion of capital, deploying $13 billion into investments, and returning $19 billion to LPs. So, all generating strong returns, and the firm seems like it's picking up some momentum here. So, thank you for being here. Really looking forward to chatting with you about the environment, Carlyle, what's in store for 2025, and all that good stuff.
Great. Good to see everybody again. Thanks for being here.
All right. So, why don't we get started, Harvey, with a little bit of an outlook at a very sort of top-of-the-house level? You're coming up on your two years as CEO of Carlyle, and over this period, you made a number of strategic changes, including realigning the firm's compensation structure, appointing new leadership, pivoting capital management to be more focused on share repurchases, and a number of others. As you look out into 2025, talk to us a little bit about what your priorities are and what would make that a successful year for Carlyle.
Sure. Thanks, Alex. So, I think the way I would summarize the first two years is really systematically repositioning the firm for growth. And so, that was a process, a little bit textbook: come in, make an assessment, establish strategic priorities, targets, do a full assessment of literally every aspect of the firm from cost, expenses, capital deployment, resources, performance, where the real levers of growth were, obviously understanding the dynamics of the industry, which are pretty extraordinary, as we all know, in terms of what's happening in private capital, and then setting up the leadership team in a way that empowered them and allowed the firm for them to really mobilize against those targets.
As you said, at just about $450 billion of assets, at the two-year point, I'm super proud and appreciative of all the hard work that the team has done because we've now achieved record FRE, targeted at $1.1 billion, which we'll hit this year. That's up 33% year- over- year. We have record AUM at $450 billion. Margins have gone up 1,100 basis points. We targeted 40-50. We came in at 47. We'll hit that target ultimately at 50, but we're not in a rush to do that. I think you see it in the numbers. And obviously, we've also had record fundraising. We had a target of we put out a $40 billion to give all of you some clarity on the fundraising, and we'll be on either side of that. The momentum across the platform is quite significant at this point.
And so, I think we're really well positioned to continue to grow the platform. And you see it again in the environment in terms of monetizations, capital deployed. And you even saw it in the third quarter with the growth in accrued carry, which was very significant.
Yeah. Yeah. That was a big step up. Let's spend a couple of minutes on the environment. So, following the U.S. election, there's been clearly a lot of enthusiasm about the outlook for capital market activity. And you alluded to some of that on your last call. You were, I think, the only one to speak after the election, so you kind of provided some perspective on that. I guess, are you seeing some of this excitement around the markets translate into actually better deal pipeline, I guess, said another way? Have you noticed any change in your own activity levels post the November election? And what does that ultimately mean for 2025 deployment and monetization activity?
Coming into the election, we get a lot of pretty extraordinary information from the portfolio. We have across the portfolio companies in excess of one million employees, and we systematically roll up that proprietary data. We could see across 2024, seven, eight, nine, 10% EBITDA growth in those portfolio companies. You could also see some sectors starting to slow a little strain, but certainly not anything that was inconsistent with the public numbers you would ultimately see in terms of GDP growth. I think what the Fed was doing was quite smart. The environment was already quite good in 2024. You saw us have a record year in terms of our CLO business, which is the largest in the world. Spreads were tight.
I think the big element that was missing as you came into the end of 2024 was the uncertainty around the election, right? A lot of us were, and I don't think it was just that the expectation around the election was that it was a coin toss coming into the end, but it was more this notion that you might not even have a government. And the second you saw that uncertainty removed, obviously, the markets moved quite significantly. And that only adds momentum to what we were already seeing. But it's like the foundation was extraordinarily good. I mean, we already in the third quarter, we've already had a record capital markets year. This is not a record activity year.
Right.
And so, you're already seeing the operating leverage and everything coming through. So, I think that with President Trump coming in, the first thing we did is we took the uncertainty off the table around what did the election outcome mean. Now, we know because the administration has been very specific in terms of how they're going to approach business drivers: tax, corporate tax, regulatory environment. And all these things create a dialogue. And we're seeing it with our CEOs in their boardrooms around a sense of certainty. Now, we'll have to see how a lot of the geopolitical stuff plays out. There's an element of uncertainty in the world there, which I'm not trying to dismiss. But if you just narrowly define it in terms of the business environment, I think this is one of the best business environments we've seen in a long time for.
I know you guys have been doing this for many decades.
Great.
It's super favorable.
Great. Well, it's good to hear. Let's focus on fundraising for a couple of minutes. You mentioned that in the earlier point, you guys are going to be in and around kind of $40 billion for this year. As you look out into 2025, maybe spend a couple of minutes on what your expectations are for 2025 fundraising and what are some of the key building blocks you expect to contribute to that growth?
I think all of you know the firm, but just again, to break it down across the $450 billion, we have a segment we call private equity, which is corporate private equity. It's really, I think, if everybody thinks about Carlyle, I think of that as sort of the soul of the firm with its 40-year history. It's much more than that. It's a real estate business, which is growing. I think we'll be one of the few real estate businesses in the world that will actually grow this year. The performance is. I have to be quite careful here because they're still actively fundraising. That includes our infrastructure platform, our energy business. That's all in the bundle when we think about the private equity segment. Then we have our credit business, which has been growing plus 30% CAGR for five years. That's $200 billion.
There's our solutions business, which you should think of as our secondaries business. What you're seeing is dramatic growth in the secondaries business, which is really the counterbalance to what was happening and I think is now shifting in the private equity segment, where corporate private equity is a little bit slower in terms of fundraising. That's really an industry dynamic, as we've all seen, in terms of monetization. That's all picking up, as you pointed out. We've seen growth in credit. We've seen growth in the solutions business. We've seen growth in significant parts of the private equity platform. We put out the number of $40 billion for everyone because the firm historically hasn't put out these targets.
And I really felt, coming into my second year, that we had to give all of you some sense of perspective on sort of what we were driving at. So, a year ago, February, we announced the compensation changes, which really were all about alignment and giving the investors more carry, giving our shareholders a greater portion of the FRE in the fee pool. And I got to give John and the whole team an incredible amount of credit for implementing that in a very short period of time. Not an easy thing to do. John became CFO, and three months later, we got that in place. And so, it created basically the base upon which we felt comfortable giving all of you those numbers.
I think one thing in retrospect is when we said $40 billion, we shouldn't have said divide by four because that's just not how the business works. It just doesn't come in $10 billion segments.
Makes the model easy, though.
What was that?
Is it that makes the model easier?
Yeah. We could have helped you with that. But yeah, it does make modeling easier. But no, I think that was the mistake in terms of what we communicated. But no, I think the momentum is good. We'll be likely in the market at the end of next year with our large U.S. buyout fund. My expectation is that'll be larger than its predecessor fund. We'll start that fundraising coming into 2026. And we haven't talked about wealth, which has been up dramatically and has huge momentum.
Yeah. So, let's unpack a couple of these things, starting with private equity you mentioned earlier and the corporate private equity piece. We've seen a really nice acceleration in performance recently. You mentioned accrued carry is up obviously nicely last quarter. Carlyle generally has a history of marking their investments fairly conservatively. And as you kind of get closer to monetization activity, those returns tend to kind of pick up. I guess, given a more constructive monetization backdrop, how do you think this is likely to impact IRRs and just the exit activity in both CP7 and 8? And obviously, you mentioned that you guys sound pretty optimistic about the timing and size for CP9. But how do the two predecessor funds likely to shake out given the environment they're in?
Yeah. So, a couple of things. So, back to the environment just for a second. You already seen we had two significant IPOs in the last couple of months: StandardAero, which was, I think, at the time the third largest IPO of the year globally. Rigaku, which is a—we have an extraordinary Japanese franchise, been there for over 25 years. That's the largest-ever sponsor IPO in the history of Japan. They went public. You talked about the capital we've deployed. And you saw the big pickup in fund performance, adding almost a third to the carry in a quarter. This is all reflective of two things: one, market environment, but two years of really working this portfolio and making leadership changes. We eliminated a segment we didn't feel was our power zone.
We have returned to the core pillars of the things that make the firm really extraordinary in its performance and we made some other leadership changes and where we had people that weren't performing up to standard, they're no longer with the firm, so you're now seeing all of that translate through. Again, if you take the business environment I described, you should see this momentum carry into 2025. You should see monetizations continue to pick up and performance continue to pick up. As I said, you saw growth. The two U.S. buyout funds last quarter, I think they were up 7%-8%. The two Asia buyout funds were up 8%-9%, the two largest funds. And so, there's a lot of momentum in corporate private equity. And then at the end of next year, you'll see us launch our wealth product in private equity.
I think there'll be huge demand for that.
Great. All right. We'll touch on that in a minute as well. But I wanted to touch on private credit before we get into wealth. It's been the fastest growth area within alternative asset managers over the last couple of years. Asset-backed finance and private investment grade has really kind of emerged as the next leg of growth for this market, aside from just direct lending, which I think is what most people are used to thinking about when they hear private credit. Now, Carlyle has some unique capabilities within here, really with respect to originating partnerships with other financial institutions. You have your aircraft finance business. So, talk to us a little bit about the vision for private credit over the next couple of years. How much investment do you still need to make to help you achieve these goals?
Again, the largest portion of the platform is what we call credit insurance. We have an affiliate relationship with Fortitude Re, which was formed in 2018. That's grown to over $100 million in assets since then. And I think when we start thinking about private credit, and I think you said it perfectly, Alex, direct lending has gotten a disproportionate amount of headline attention because of the fact that private credit has grown. And I think the story sometimes doesn't get told accurately because there's almost a sense of, well, private credit just arrived on the scene. And that's really not the case. If you go about 15, 20 years, you can see the emergence of private credit. And all that's happened is natural forces for people seeking capital and best providers of that capital have been private credit providers.
And so, now we're seeing this next evolution in credit, which I really think we just need to start thinking about in terms of private investment grade. And I do think these lines are blurring now where instead of thinking private credit or private investment grade, we should really just be talking about provision of capital. And whereas institutions like Carlyle with great liability structures, how we can provide that capital. And that now has, and these are sort of natural evolutions in how capital formation works in the ecosystem of finance. You're just seeing this extension now where you have people that need capital, in this case, asset-based finance, one of the largest markets. And traditional capital providers are not able to provide that capital. And so, you saw that we did one of the largest transactions of the year, the Discover Card transaction.
And why is that, Carlyle? Where historically maybe eight, 10 years ago that wouldn't be the case, is because we have the right resources, the right people, the right understanding of that risk. We have a relationship with Monogram, which provides services to student loan companies. And that gives us all the pieces in the toolkit to deliver this transaction. And it's a $10 billion transaction. Of course, it does all the other things. It creates this flywheel effect around capital market fees. But most importantly, our investors want access to that return. This is the key. The key is on one side, you have people in need of capital. On the other side, you have clients. By the way, this ranges from wealth all the way through to institutions globally around the world who want to be providers of that capital.
Of course, this also ties in with insurance. You have this convergence of events, which is naturally creating this flywheel effect for the whole industry. I think, look, the world can change. We could be sitting here a year or two from now, and things could look dramatically different. These seem quite fundamental in terms of the evolution of how capital will be provided to these sectors. We're super well-positioned. We've been adding resources during the course of the year. I feel really good about the resource commitment. If you actually look back, I think you would say to us, in direct lending, we're smaller than some of the peer groups. There's a lot of reasons for that. The performance is quite good. That business will continue to grow. It's a bit more commoditized now, that segment of the marketplace.
But it's a very important part of the whole solution set that one needs to be if you're going to be a scale provider in credit.
In terms of, I guess, incremental investments that you still need to make in that business, especially when it comes to things origination and getting proprietary deal flow, how are you positioned on that? Are you fully built out, or do you still need to continue to add resources there?
No. We announced a number of partnerships in the past six months. We will be selective. What we want to make sure we're doing is that we're not. You don't want to be too isolated to one sector of the market. So, what do I mean by that? So, you don't want to. You have to have expertise, obviously, in your underwriting capability. But you don't want to be overly dependent on a particular sector. So, you have to have enough diversification to ensure that you have the proper portfolio construction for your investors. And you have to be really relevant as a capital provider. But no, I think we can continue to grow that. We will grow that selectively. There are no shortage of people that want to partner with us. So, the Carlyle brand carries a lot of weight there, and the team is excellent.
I don't feel like this is a question of investment. Where we think about this on the go forward is how do we strategically partner with people to accelerate capital formation? Because as these transactions get larger and larger, it's a really unique opportunity for us because we're a balance sheet light firm. Some of the peer group are much balance sheet heavier in terms of big general accounts. And so, how we strategically partner with people to deploy capital gives us an opportunity to build those relationships also. But that's sort of, again, that's on the capital providing side versus the sourcing side.
Origination. Great. You mentioned retail and wealth. Let's spend a couple of minutes on that. Clearly, a very important topic for the space. It's a really important topic for Carlyle as well. You're seeing pretty nice momentum there with your secondary products, CAPM. You mentioned earlier you're on track to launch private equity wealth product in 2025. Can you help us frame, I guess, the opportunity you see for both of these products? And more importantly, how are you differentiating Carlyle in the space given the fact it's become a little more crowded? The TAM is large, but we've clearly seen a lot of players come into the space over the last few years.
So, if you take a step back and you just think about strategically first principles in just an opportunity set. And the way I think about it is, on the one hand, you have what is your solution set that you can provide, whether it's private credit, private equity, secondaries? What is the suite of solutions that your investors want? And on the other spectrum, you would think about who are the providers of those capital and how can you best solve their solution set? And I personally think, again, the world could change. But over the next 10 years, the wealth channel doesn't feel crowded to me. I think this is a trajectory for the industry, which could go on for well over a decade plus. We have partnerships around the world.
We were the first to announce a partnership in Korea for distributing credit to wealthy individuals in Korea, and the opportunities, I think, to some degree are endless, so it's not so much about the size of the TAM. It's really about ensuring that you create durable solution set, high-performing, and to the extent to which you can, you really want this to be, in my opinion, a zero-defect space. You're dealing with a completely different client constituency, and you really have to make sure that you build systematically, you design your solutions in a way that makes the most sense for the individual clients. Because sovereign wealth funds are sovereign wealth funds, and institutions, to some degree, all bring a certain level of sophistication.
And in this particular case, when you start dealing with wealth and [ uncertain] , I think the level of care one has to apply is not different. But it's understanding your constituency and their needs, which are uniquely different. And so, this is an area where we will continue to invest aggressively and where we need to keep investing. But we'll do it in pace with our derivative, and as you said, with our product development. As you said, I think our evergreen funds are up 70% year- over- year. We have close to $2 billion in the third quarter alone. And so, there's great momentum. But the most important thing here is harnessing the brand. And you haven't done your own study, as far as I checked, on brand awareness. But UBS and B of A did. And I think Carlyle is.
To be fair, they have a slightly larger regional platform.
Carlyle, that wasn't a knock. As of this second, you are my favorite analyst.
13 minutes on the clock, everybody.
Yeah. With a buy rating, a little low on the price target. But anyway, but that's just my personal opinion. You take that for what you want. I think that, no, but it's always Blackstone and Carlyle one and two. And the firm, strategically, a number of years ago, this wasn't a priority. But this is a very, very significant priority. At one point during the past year, I would estimate I spent 25%, 30% of my own personal time in the space. So, I went out and met with, and maybe this is not interesting to all of you, but just as an anecdote, I've gone out and met with any number of regional advisory offices, hosted dinners. David Rubenstein and I, when we launched CAPM, that's our secondary interval fund.
He and I did a whole tour up and down the West Coast at Morgan Stanley and B of A offices, and so this is something that is top of the mind share of the firm for everyone.
Yeah, and I guess.
But excellence first.
Correct. If you think about the point you made, sort of the suitability and the market need, you guys obviously have a lot of capabilities outside of private equity, right? So, should we think about the next steps in this kind of wealth evolution, just launching other products within other sleeves of Carlyle, or you really need to see these two sort of succeed and get scale before you get out with something else?
No. I think it's so there's a lot in that question, but first of all, there's a flywheel effect, so I think you can approach this a number of different ways. You can try and be all things to all people. That is not our current approach. Our approach right now is to be targeted with partners that we work very, very closely with in solution design. And then, so if I go to a Morgan Stanley office or a B of A office and I'm meeting with the advisor, I want them to be in a position, because they've told me this, that when they're people on the phone with their clients, that they're having Carlyle offering, which resonates and can resonate again, so if we come out with CAPM, they can say, "Oh, yeah, I just talked to you about CTAC a few months ago.
Now I want to talk to you about CAPM, which in its first year had a 17% return," and so we want to have and leverage the name familiarity of Carlyle. Now, Carlyle is so global. In theory, we could be in all places. That's a very expensive proposition, so this is about how do you scale over an extended period of time in a very targeted way. Now, the building blocks for this, and that's why I said there's a lot in this question, the building blocks in this are, first of all, what is the solution set that the clients want? Most importantly, I do think there's a tendency in our industry to say, "Oh, we do this well. We'll give this to the institutional client, or we'll give this to the wealth client." That's not really, I don't think the right way to approach this.
The right way to approach this, I think in all cases, is to put the client in the center. And so, for example, we don't have an annuity platform. You know that, obviously. We're not a balance sheet heavy firm. But you could see us easily partner with one or more partners because the annuity is a wrapper. That's a delivery vehicle. But we have all the building blocks. And so, I think over some period of time, which I'm not going to specify, you'll see us do all these things. Because it's important to the end client. And then you get the flywheel effect of the name recognition and the performance. And I think over several years, this will prove to be, as a client constituency, I think, given the Carlyle brand, one of our most important initiatives for certain.
Yeah. Great. Well, you mentioned annuity. So, I did want to talk about insurance for a couple of minutes. Again, another important lane of growth for Carlyle and the rest of the space. Can you speak to both growth opportunities you see with Fortitude, where it sounds like they're seeing a pretty robust pipeline per kind of your last couple of comments? And also, when you think about other partnerships that you might seek outside of the Fortitude partnerships, a caveat to that, I guess, those can come in many forms. So, curious how you're thinking about the capital intensity of this partnership as well. So, capital light has been kind of the motto, and it sounds like you still like the capital light approach. But is there something that the right price at the right time that could change that?
Okay. So, this is a big question. So, let's just start with insurance. Insurance is really at the center of the Venn diagram of a lot of what's happening in the industry. And I don't mean the portion about the balance sheet or the annuity business. What I mean is the development of the regulatory framework globally for insurance clients, the competition that's occurring in insurance, the growth in annuity platforms globally with the rise of interest rates. And all of this has resulted in virtually all insurance companies, certainly everyone that I speak with and all the CEOs of insurance companies, evaluating how they think about their asset management process.
Because if you can provide incremental return of 25 basis points on an 8-10 times levered balance sheet at very minimal risk, it really begins to question the foundation of the 60/40 portfolio construction and how much of the fixed income component should be in something, let's just call it private credit. But I mean private investment grade predominantly. So, that's a very fundamental driver. There are also capital needs, which Fortitude is a solution provider for in terms of how to help people optimize their capital. That's the regulatory and growth dynamic in insurance. For us at Carlyle, it really is at the cross-section of everything we do with credit. Because the insurance clients are growing in significance and importance, their desire for asset management capability. And we have all the resources because of our multi-year relationship with Fortitude to do the analytics. We can partner.
We can do all those things. Now, in terms of the second half of your question, we can be a capital provider to insurance companies. They can be wrappers for us. We can simply provide the asset management relationship. So, again, I think this is a fascinatingly interesting space. And again, I think it'll be quite dynamic over the next couple of years. The capital light versus capital heavy , obviously, I ran trading at Goldman Sachs. I was the CFO of Goldman Sachs. I know what it's like to have a trillion-dollar-plus balance sheet. There's huge advantages and then periodically some challenges with that. I think that you should look for us to think about the question, not Alex as capital light or capital heavy . But when I think about this question, I think about what's the diversified nature of funding sources.
So, all of this is about creating a platform where we can deliver excellence to our clients in a diversified systematic way. So, insurance clients are important. Wealth clients are important. Institutional clients are important. I have no favorite kids when it comes to my clients. I just like to understand which of my kids have various issues. Okay? And so, when I think about partnerships with insurance entities versus partnerships with sovereign wealth funds or pension funds, in terms of that, I think, what's the nature of building out a diversified liability structure and what is the most efficient way to do that? And so, there's lots of ways to solve for balance sheet and stay predominantly balance sheet light. And I think you should expect us to pursue that degree of travel for a while.
Great. All right. Let's talk about a couple of other aspects of the business. I want to zone in on management fees. One of the key debates for the stock today is probably just the magnitude of Carlyle's management fee growth over time, and understanding that every given quarter, there could be some volatility and things will kind of bounce around. But how would you frame the firm's management fee growth algo over the next couple of years?
I feel quite good about it for all the things we've discussed. I think that the question mark, let's just cut to the chase, I think the question mark around the fee management growth is you see really strong management fee growth in the solutions business. You see really strong management fee growth in the credit business, where you saw a pause in management fee growth was really in the private equity business. A lot of that really was one portion of the business in Europe, where we've changed the leadership. I feel really good about the trajectory going forward there. I think, again, we'll come into the market in the end of 2025, 2026 with our large U.S. buyout fund. My expectation is that'll be larger than its predecessor fund. I think, again, you're going to continue to see this growth in management fees.
Because like I said, the firm is really well positioned for growth now in terms of the leadership team and everything we're building. Again, in a quiet year, there's two forms of capital market fees, right? There's the capital market fees that are created transactionally through the operating activities of the firm. And then there's where you commit your own capital. We don't commit capital. So, we're not looking to compete with Goldman Sachs or JP Morgan in that business. I know how excellent you are at that. There's a lot of growth just in those fees alone. And as I said, on a pretty quiet year, with the new systems we've put in place and the focus of the team, in the third quarter, we're already past our best year ever. So, I think there's a lot of fee generation capability, assuming the environment stays as is.
Yeah. Let's talk about the margins a little bit. You guys made a couple of really important changes, as we talked about in the beginning of this conversation, with respect to compensation structure and what that's done to the FRE margins and the profile of the company. So, FRE margins, I think, are tracking somewhere in the 47% year to date, so above the midpoint of the range that you talked about. And that's without monetization environment kind of firing all cylinders. So, presumably, there is upside to that as you get further into the remonetization cycle. But how do you think about FRE margins again over time as you start to think about this range that you've provided and what the ultimate destination could be?
So, we're not going to modify that. We're ahead of the plan, as you pointed out. I think that something that maybe has been a little bit lost in the discussion around this, which I just want to point out, because I think an extraordinary amount of work has gone on by John and his team and Lindsay, our COO, collectively across the firm. So, it's not just a change of the compensation structure story. It was a complete review of all expense line items, making adjustments to that, making adjustments to headcount. And they did that in an incredibly thoughtful and efficient way. So, that is a big component also of the performance that you're seeing. But obviously, a big driver is the FRE margin, which is up 1,100 basis points in a year, which is pretty remarkable. So, I think there's still upside there.
At this stage, this is not an efficiency story. This is a growth story. So, that's where we're really putting all of our energy. But we also announced, again, this is all part of the disciplined rethinking of the financial footings of the firm. We also announced the share repurchase a year ago, which we still have $900 million left on. And in the firm's history prior to my arrival, the share count had only gone up, and now it's gone down for two years. And we see a lot of value in the stock at these levels. And so, you should expect us to keep buying.
Yeah. So, I guess on that point, just to wrap up the conversation, that is, again, new leg of the stool, so to speak, for Carlyle. To your point, the share count has just gone up for years and years, and now it's on track to be stable to down slightly. How are you thinking about making, I guess, a more meaningful dent in the share count over the next couple of years? Is the goal to, I guess, more meaningfully reduce this or largely to kind of offset dilution as you progress over the next few years?
I think it's more modestly shrink the share count, certainly offset dilution. As I said, in the firm's history, there was only dilution. So, we reversed that immediately, particularly at this value. Again, the currency just looks way too cheap to me. This is your story to tell, really. But at this multiple, there's a lot of value in repurchasing the stock. And so, that'll be our focus for the foreseeable future.
Yeah. Great. Well, we're right about time. Harvey, thank you very much. Appreciate you joining us.
I'm good to be here.
Happy to see you.
Yeah. Everyone, great to see you. Thanks very much. Happy holidays to everybody.
Thank you.