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COLUMIBA UNIVERSITY
School of International and Public Affairs
PEPMU6223 Accounting and Finance
Dr. Mary Katherine Scucci
Prepared by Jie Zhang
Instructor: Dr. Mary Katherine Scucci
Nov 23, 2014
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CONTENTS
S1. EXECUTIVE SUMMARY.....................................................................................................................................................3
S2. GENERAL INTRODUCTION OF THE CARLYLE GROUP...................................................................................6
S3. CONDENSED FINANCIAL STATEMENTS ..............................................................................................................16
S4. COMMON-SIZED AND TREND ANALYSIS TABLES...........................................................................................19
S5. FINANCIAL RATIO ............................................................................................................................................................24
S6. FINANCIAL STATAMENT ANALYSIS........................................................................................................................25
S7. FINANCIAL RATIO ANALYSIS AND DUPONT ANALYSIS...............................................................................28
S8. FURTHER RECOMMENDATIONS...............................................................................................................................31
S9. MAJOR RECENT NEWS EVENTS AND IMPACT ON RATIOS .........................................................................33
S10. APPENDIX...........................................................................................................................................................................35
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S1. EXECUTIVE SUMMARY
1. Enterprise Name: The Carlyle Group
2. Financial Analysis
Profitability Strong / Average / Weak
The average ROS for the past two years is a little higher than 50% which is significant lower than that of its
competitors. As for the other indicators, such as ROA, ROE and investment yield rate, they are all less than these
of its major competitors. The main reason is that the carried interest distributed to its employees raised substantially,
especially the performance fee related to unrealized transactions even the total revenue increased around 50% in the
latest year.
Above all, Carlyle’s profitability is weak compared with its competitors and fluctuates significantly in 2013. However,
its profitability will be improved sharply once it starts controlling the total compensation and benefits. In general,
the profitability of Carlyle is almost in line with the market level, especially considering its strong growth of revenue.
Assets Management Efficiency Strong / Average / Weak
In terms of the ratios about management efficiency, Carlyle has almost the same level of management fee rate,
carried interest rate and even higher assets turnover rate with its competitors. In addition, the financial leverage of
Carlyle is only a little higher than industry level even it has a lot of credit-oriented fund. Therefore, Carlyle has its
own competitive advantage over its competitors on assets management efficiency.
Operation Performance Strong / Average / Weak
The three critical indictors for measuring the operation performance, AUM, ENI and Free Cash Flow, all increased
significantly in the past three years even there were different reasons for their increases.
The key driver for the significant growth of AUM is that Carlyle acquired AlpInvest to start stepping into the fund
of fund solutions in 2011. Carlyle has the ambitious to continue to expand its Solutions platform and traditional
corporate private equity business. As the key performance benchmark used in private equity industry. ENI could be
considered as another important indicator for operation performance. ENI of Carlyle increased 80% in 2013 which
was driven by increase in net performance fees and investment income. In addition, free cash flow of Carlyle raised
substantially in 2013, providing abundant capital for the general partner to expand.
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In general, Carlyle has strong operation performance on its core businesses and has the chance to keep its advantage
on this section.
3. DuPont Analysis of ROE:
DuPont Analysis of ROE
Ratio ROS
x Asset
Turnover
=ROA
x Financial
Leverage
=ROE
Type Profitability Efficiency Solvency
Carlyle (2013) 30.3% 0.1 3.8% 2.4 9.2%
- What is the primary driver of ROA? ( ROS / Assets Turnover)
- What is the primary driver of ROE? (ROA / Financial Leverage)
4. SIGNIFICANT current events and other information:
Carlyle Group Buys Diamond Bank Stake for Nigerian Expansion
This news implied that the investments of consolidated funds of its balance sheet would grow up and the revenue
contribution from this deal may be booked on its income statement of this fiscal year.
The Carlyle Group LP Buys Dealogic For $700 Million
From this news, we could conclude that Carlyle would also increase its exposure to the investments of consolidated
on the balance sheet without significant impact on its income statement.
Carlyle seeking $5 billion for fund with longer life
From this news, we could conclude that there will be a new trend for the fundraising strategy for Carlyle and its
AUM would have the chance grow up sharply.
5. RECOMMENDATIONS
Rating for The Carlyle Group BUY
Competitive advantage as one of the largest PE firms
Carlyle benefits from significant advantages of being among the largest PE firms and could still access to bank
financing even the banks see the regulatory pressure.
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Broad diversification of product leads to more consistent business performance
It is possible for Carlyle to raise, invest and harvest funds perpetually, as it manages so many different products
more so than its peers. In addition, Carlyle’s product diversity helps provide an element of stability to revenue and
cash flows.
Stable growth of AUM based on its excellent track record
Carlyle’s management forecasted that they would continue to target $15-20 billion in fundraising of carry funds per
year and tended to manage away from overlapping fundraises happened in 2013 due to the 2008 downturn.
Early mover in emerging markets create competitive advantage in returns and fundraising
Carlyle was one of the first private equity firms in China and has been steadily building its presence in Asian and
other emerging markets. It also enjoyed the benefit of the early move as the percentage of revenue attributed from
Asia pacific area in 2013 was much higher than that of the assets held in Asia.
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S2. GENERAL INTRODUCTION OF THE CARLYLE GROUP
1. Who is The Carlyle Group?
The Carlyle Group (Carlyle) is the American-based global asset management firm, specializing in private equity with
headquarter at Washington DC. It operates in four business areas, private equity, real assets, global market strategies
and fund of fund. As one of the world’s largest alternative asset management firms, Carlyle was launched in 1987,
has 189 billions assets under management across 118 funds and 106 fund of fund vehicles and hired 1,500
professionals operating in 34 offices in North America, South America, Europe, the Middle East, Africa, Asia and
Australia. In addition, Carlyle serves over 1,650 active fund investors from 76 countries. Across the Corporate
Private Equity and Real Assets divisions, Carlyle has invested in over 200 portfolio companies that employ more
than 600,000 people. 1
Global presence of Carlyle
As of 31 Dec, 2011. Source: Carlyle prospectus
1 http://en.wikipedia.org/wiki/The_Carlyle_Group
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Assets under Management, AUM (dollars in billions, 2006-2013)
As of 31 Dec, 2013. Source: annual report of Carlyle
2. What is the business of Carlyle?
As mentioned above, Carlyle operates in four business areas: (1) Corporate Private Equity, (2) Real Estate, (3)
Global Market Strategies and (4) Fund of Funds Solutions.
Corporate Private Equity
Carlyle’s Corporate Private Equity segment was established in 1990 to advise the buyout and growth capital funds,
pursuing a wide variety of investment sizes and industries. Currently, 31 active corporate private equity funds are
carry funds which are organized and operated by geography or industry and advised by the separate team of the
local investment professionals who invest in the local market where they have rich resources and networks.
The Corporate Private Equity segment has two primary areas of focus, buyout funds and growth capital funds. 23
active buyout funds are deployed to invest in particular geography or industry focused transactions. As of 31 Dec
2013, the AUM of buyout funds is around $60 billion. Growth capital team advises 8 funds to invest in middle-
market and expansion stage opportunities with considerations of the geography preferences. As of 31 Dec 2013,
the total growth funds are approximately $5 billion under management.
Global Market Strategies
The global market strategies of Carlyle was launched in 1999 with the first high-yield fund and advises 61 active
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funds that adopt various investment strategies, including long/short credit, macroeconomics strategies and
distressed debt etc. In 2013, the global market strategies expanded its AUM from $33 billion to $35billion due to
the organic growth of current funds and launch of new business development companies.
Real Assets
The real assets business was established in 1997, including investments in real estate assets, infrastructure, energy
and natural resources companies and projects. The investment approach of the team adopted by real assets team is
almost the same as that of the corporate private equity teams, such as opportunistic strategy, joint venture, sector-
specific strategies.
Fund of Fund solutions
The fund of fund solutions segment was launched in 2011 through acquisition of AlpInvest, one of the largest
private equity investors in the world with the business of advising global private equity fund-of-fund program and
related co-investment and secondary activities.
3. Who are the shareholder and stakeholder of Carlyle?
As the following graph shows, Carlyle holdings limited partners, senior Carlyle professionals and public
shareholders are all the stakeholders to Carlyle. Carlyle holdings limited partners are the holders of common units of
Carlyle Holdings partners who are entitled to all of the economic rights in the Carlyle Holdings partners, like the
wholly owned subsidiaries. Public investors, the holders of public shares of The Carlyle Group LLC, do not directly
hold equity interests in the Carlyle Holdings Partners.
The Carlyle Group L.P. is formed as a partnership and not as a corporation for U.S. federal income tax purposes as
an entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no
U.S. federal income tax liability. The Carlyle Group L.P. intends to conduct all of its material business activities
through Carlyle Holdings. Each of the Carlyle Holdings partnerships was formed to hold interests in different
businesses for the tax reasons.
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Carlyle organizational structure
As of 31 Dec, 2013 Source: Annual report
4. What is the incentive arrangement of Carlyle?
The interest distribution arrangement is one of the key characteristics for the private equity funds. Fund
management fees and performance fees are two most important factors that determine the interest distribution of
a fund.
Carlyle will generally receive an annual management fee from the carry fund that its investment team advises,
ranging from 1.0% to 2.0% of the investment fund or vehicle’s capital commitments (exclude fund of fund)
during the investment period. After termination of investment period, the management fees generally step-down
to between 0.6% and 2.0% of the unrealized investments. The management fees that we receive from our carry
funds typically are payable semi-annually in advance.
The general partner of each of carry funds also receives carried interest from the carry funds. Each general partner
is generally entitled to a carried interest equal to 20% (approximately 2% to 10% in the case of fund of funds
vehicles) of the net realized profit. For most carry funds, the carried interest is subject to an annual preferred
return of 8% or 9%, subject to a catch-up allocation to the general partner.
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5. Who is in charge of Carlyle?
Private equity is the industry that the funders play the most important role in raising the funds, designing the
investment strategy, sourcing the deals and closing the deals. Therefore, it is important to introduce the
professional and academic background of the three founders who are still in charge of the global private equity
firms.
William E. Conway, the founder and Co-Chief Executive Officer of Carlyle, is also the firm’s Chief Investment
Officer. Prior to forming Carlyle, Mr. Conway was the Senior Vice President and Chief Financial Officer of MCI
Communications Corporation (“MCI”). He received B.A. from Dartmouth College and M.B.A. in finance from
the University of Chicago, Graduate School of Business.
Daniel A. D’Aniello, the founder and Chairman of Carlyle, formed Carlyle in 1987. He was the Vice President for
Finance and Development at Marriott Corporation for eight years. Before joining Marriott, he was a financial
officer at PepsiCo, Inc. and Trans World Airlines. He is a 1968 magna cum laude graduate of Syracuse University
and graduated from Harvard Business School in 1974.
David M. Rubenstein is the founder and Co-Chief Executive Officer of Carlyle. Prior to forming Carlyle, He
worked for the law firm, Shaw, Pittman, Potts & Trowbridge LLP in Washington DC. Before this, he used to
work as Deputy Assistant to the President for Domestic Policy and lawyer at Paul, Weiss, Rifkind, Wharton &
Garrison LLP in New York. He is a 1970 magna cum laude graduate of Duke University and graduated from The
University of Chicago Law School in 1973.
6. Summary of the financial statement and audit report
Ernst & Young audited the consolidated balance sheets, income statement and cash flows of Carlyle in the past
three years from 2011 to 2013. According to the standards of the Public Company Accounting Oversight Board
(United States), Ernst & Young believes that its audits provide a reasonable basis for the opinion that the financial
statements referred to above present fairly, in all material respects, in conformity with U.S. generally accepted
accounting principles. In addition, Ernst & Young also audited the internal control over financial reporting in
2013 based on criteria established in Internal Control-Integrated Framework and expressed an unqualified opinion
thereon.
Even the Ernst & Young believed their opinions are present fairly and expressed an unqualified opinion on the
financial statement, it also proposed two potential flaws on the following two perspectives.
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- The internal control over financial reporting may not prevent misstatements due to the inherent limitations.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies may
deteriorate.
- Management’s assessment and conclusion on the effectiveness of internal control over financial reporting did
not include the internal controls of Urbplan, which is included in the 2013 consolidated financial statements
of Carlyle and constituted approximately 0.7% of total consolidated assets as of December 31, 2013 and
approximately 2% of total consolidated net income for the year then ended. Ernst & Young’s audit of internal
control over financial reporting also did not include an evaluation of the internal control over financial
reporting of Urbplan.
7. What are included and what are excluded in the financial statements?
All the four business segments are included in the financial statement. For entities that are determined to be variable
interest entities (“VIEs”), Carlyle consolidate those entities where it is deemed to be the primary beneficiary.
However, the DGAM of the fund of fund solutions segment is not included in the financial statement as it was
acquired on Feb 3, 2014.
8. What are off-balance-sheet items for Carlyle?
Carlyle has uncertain tax positions of $13.8 million at December 31, 2013 and outstanding commitments of Urbplan
for land development services with an estimated $125 million of future costs to be incurred as it is unable to
estimate when such amounts may be paid.
Except for the unpaid potential costs, Carlyle also enters into various off-balance sheet arrangements including
sponsoring and owning limited or general partner interests in consolidated and non-consolidated funds, entering
into derivative transactions, entering into operating leases and entering into guarantee arrangements.
In addition, Carlyle holds variable interests in certain VIEs that are not consolidated because it is not the primary
beneficiary. Carlyle’s maximum exposure to loss relating to non-consolidated VIEs was $497.2 million in 2013.
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9. How much debt and liability do Carlyle bear and what are the components?
As of 31 Dec, 2013 Amount ($ millions) Percentage
Loans payable and senior notes 940.6 4.5%
Loans payable of Consolidated Funds 15,220.7 72.9%
Loans payable of a consolidated real estate VIE at fair value 122.1 0.6%
Total liabilities 20,892.9 100%
10. What are major assets and liabilities for Carlyle?
The major assets for Carlyle is the investments of consolidated funds which accounts for around 75% of the total
assets. During 2013, Carlyle made equity investments of over $8 billion in more than 200 investments and realized
proceeds of over $17 billion through 45 funds. As for the main liability, it is the loans payable of consolidated funds,
representing around 73% of the total liabilities as of Dec 31, 2013.
11. Identify and define the assets of Carlyle
Item Definition Note
Investments
Investments include (i) Carlyle’s
ownership interests in the Funds, (ii)
the investments held by the
Consolidated Funds, (iii) strategic
investments made by the Carlyle and
(iv) certain credit-oriented
investments.
-
Restricted cash
Carlyle is required to withhold a
certain portion of the carried interest
proceeds from one of its corporate
private equity funds to provide a
reserve for potential giveback
obligations.
$ 129 million was withheld as the
restricted cash at Dec 31, 2013,
including $13.2 million for Carlyle’s
funds, $89.2 million for the cash
received on behalf of certain non-
consolidated Carlyle funds and $6.1
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million in escrow related to a tax
contingency etc.
Collateralized loan obligations
(CLOs)
A security backed by a pool of debt,
often low-rated corporate loans. In a
CLO, the investor receives scheduled
debt payments from the underlying
loans but assumes most of the risk in
the event that borrowers default.
Carlyle provides investment
management services to
collateralized loan obligations for
the investment of client as the
collateral manager, making day-to-
day investment decisions.
Accrued performance fee
The performance fees that is not
included in the revenue.
Accrued performance fees are
shown gross of the Carlyle’s accrued
giveback obligations.
Consolidated funds
All the entities that are controlled by
Carlyle through majority voting
interest or otherwise.
Following two kind of funds was
recognized as the consolidated funds
of Carlyle. 1) the funds that Carlyle
is the sole general partner and (2)
variable interest entities (“VIE”s)
and CLOs that Carlyle is deemed to
be the primary beneficiary
Variable interest entities
A term refers to an entity in which
the investor holds a controlling
interest that is not based on the
majority of voting rights.
-
12. What is the other comprehensive income of Carlyle?
Carlyle’s other comprehensive income (OCI) is comprised of unrealized gains and losses on cash flow hedges,
foreign currency translation adjustments and gains / losses on defined benefit plans sponsored by AlpInvest.
The other comprehensive income of Carlyle is comprised as follows (of 2013, millions):
Foreign currency translation adjustments 372.7
Cash flow hedges
Unrealized gains for the period 0.2
Less: reclassification adjustment for loss included in interest expense 3.8
Defined benefit plan
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Unrealized gains (loss) for the period 0.9
Less: reclassification adjustment for unrecognized loss during the period, net, included in
base compensation expense
0.8
Other comprehensive income 378.4
13. What is the valuation method used by Carlyle?
Financial instruments held by Carlyle are classified and measured based on the observability of inputs used in the
determination of fair values.
Business Sector Valuation method Comments
Private Equity and
Real Estate
Investments
discounted cash flow method, capitalization
rate analysis, comparable companies or
transactions
Significant portion of the transaction
targets in this asset class are private
companies or assets without direct or
indirect quoted prices, therefore, it is
appropriate to use the valuation
methods mentioned before to
measure.
Credit-oriented
Investments
prices provided by reputable dealers or
pricing services, valuations of comparable
investments (for distressed debt and
corporate loans and bonds)
It is easy to access to the quoted price
as there are such kind of dealers and
pricing agents who could provide the
real time price for this asset class.
CLO Investments and
CLO Loans Payable
price quotation from reputable dealers or
pricing services, valuation of similar
securities, discounted cash flows
Those analyses consider various
factors to determine the valuation of
this asset class, including position size,
liquidity, current financial condition of
the CLOs, the third-party financing
environment, reinvestment rates,
recovery lags, etc.
Loans Payable of a
Consolidated Real
Estate VIE
discounted cash flows analyses
It considers the liquidity and current
financial condition of the consolidated
real estate VIE
Fund Investments
valued based on Carlyle’s proportionate
share of the net assets provided by the third
party general partners of the underlying fund
It is impossible for Carlyle to value the
portfolio companies of its portfolio
funds independently as the number of
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partnerships based on the most recent
available information
the companies is huge.
Equity-Method
Investments
amounts invested by Carlyle with adjustment
for equity earnings or losses of the investee
allocated
It is used for investments in the
unconsolidated funds and strategic
investments.
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S3. CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheet 2013 2012 2011
ASSETS
Cash and cash equivalents 966.6 567.1 509.6
Cash and cash equivalents held at Consolidated Funds 1,402.7 1,646.6 566.6
Restricted cash 129.9 34.5 24.6
Restricted cash and securities of Consolidated Funds 25.7 36.3 89.2
Accrued performance fees 3,653.6 2,192.5 2,189.1
Investments 765.3 881.2 454.9
Investments of Consolidated Funds 26,886.4 24,815.7 19,507.3
Due from affiliates and other receivables, net 175.9 190.7 287.0
Due from affiliates and other receivables of Consolidated Funds, net 626.2 331.8 287.6
Receivables and inventory of a consolidated real estate VIE 180.4 - -
Fixed assets, net 68.8 63.6 52.7
Deposits and other 38.5 48.4 70.2
Other assets of a consolidated real estate VIE 60.1 - -
Intangible assets, net 582.8 691.1 594.9
Deferred tax assets 59.4 67.1 18.0
TOTAL ASSETS 35,622.3 31,566.6 24,651.7
Liabilities & Total Partners' Capital
Loans payable 42.4 886.3 860.9
Subordinated loan payable to affiliate - - 262.5
3.875% senior notes due 2023 499.8 - -
5.625% senior notes due 2043 398.4 - -
Loans payable of Consolidated Funds 15,220.7 13,656.7 9,689.9
Loans payable of a consolidated real estate VIE at fair value 122.1 - -
Accounts payable, accrued expenses and other liabilities 265.1 215.0 203.4
Accrued compensation and benefits 2,253.0 1,318.2 577.9
Due to Carlyle partners - - 1,015.9
Due to affiliates 403.7 332.1 108.5
Deferred revenue 64.1 59.4 89.2
Deferred tax liabilities 103.6 61.1 48.3
Other liabilities of Consolidated Funds 1,382.7 1,385.8 568.1
Other liabilities of a consolidated real estate VIE 97.7 - -
Accrued giveback obligations 39.6 69.2 136.5
TOTAL LIABILITIES 20,892.9 17,983.8 13,561.1
Commitments and contingencies
Redeemable non-controlling interests in consolidated entities 4,352.0 2,887.4 1,923.4
Partners' capital 357.1 235.1 -
Member's equity - - 873.1
Accumulated other comprehensive loss (11.2) (4.8) (55.8)
Partners' capital appropriated for Consolidated Funds 463.6 838.6 853.7
Non-controlling interests in consolidated entities 7,696.6 8,264.8 7,496.2
Non-controlling interests in Carlyle Holdings 1,871.3 1,361.7 -
TOTAL PARTNERS' CAPITAL 14,729.4 13,582.8 11,090.6
TOTAL LIABILITIES AND PARTNERS' CAPITAL 35,622.3 31,566.6 24,651.7
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Consolidated Income Statement 2013 2012 2011
Revenue
Fund management fees 984.6 977.6 915.5
Performance fees
Realized 1,176.7 907.5 1,307.4
Unrealized 1,198.6 133.6 (185.8)
Total performance fees 2,375.3 1,041.1 1,121.6
Investment Income
Realized 14.4 16.3 65.1
Unrealized 4.4 20.1 13.3
Total Investment Income 18.8 36.4 78.4
Interest and other income 11.9 14.5 15.8
Interest and other income of Consolidated Funds 1,043.1 903.5 714.0
Revenue of a consolidated real estate VIE 7.5 - -
TOTAL REVENUES 4,441.2 2,973.1 2,845.3
Expenses
Compensation and benefits
Base compensation 738.0 624.5 374.5
Equity-based compensation 322.4 201.7 -
Performance fee related
Realized 539.2 285.5 225.7
Unrealized 644.5 32.2 (122.3)
Total compensation and benefits 2,244.1 1,143.9 477.9
General, administrative and other expenses 496.4 357.5 323.5
Interest 45.5 24.6 60.6
Interest and other expenses of Consolidated Funds 890.6 758.1 453.1
Interest and other expenses of a consolidated real estate VIE 33.8 - -
Other non-operating (income) expenses (16.5) 7.1 32.0
TOTAL EXPENSES 3,693.9 2,291.2 1,347.1
Other income (losses)
Net investment gains (losses) of Consolidated Funds 696.7 1,758.0 (323.3)
Gain on business acquisition - - 7.9
Income before provision for income taxes (EBT) 1,444.0 2,439.9 1,182.8
Provision for income taxes 96.2 40.4 28.5
NET INCOME 1,347.8 2,399.5 1,154.3
Net income attributable to non-controlling interests in consolidated entities 676.0 1,756.7 (202.6)
Net income attributable to Carlyle Holdings 671.8 642.8 1,356.9
Net income attributable to non-controlling interests in Carlyle Holdings 567.7 622.5 na
Net income attributable to The Carlyle Group L.P. 104.1 20.3 na
18. 18
Changes in Capital
2013 2012 2011
Beginning Total Capital 13,582.8 11,090.6 2,892.6
Member's Equity - - 873.1
Partners' Capital 357.1 235.1 -
Accumulated Other Comprehensive Income (Loss) (11.2) (4.8) (55.8)
Partners' Capital Appropriated for Consolidated Funds 463.6 838.6 853.7
Non-Controlling Interests in Consolidated Entities 7,696.6 8,264.8 7,496.2
Non-Controlling Interests in Carlyle Holdings 1,871.3 1,361.7 -
Reedemable Non-Controlling Interests in Consolidated Entities 4,352.0 2,887.4 1,923.4
Ending Total Capital 28,312.2 24,673.4 13,983.2
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S4. COMMON-SIZED AND TREND ANALYSIS TABLES
Common-Sized Balance Sheet
2013 2012 2011
ASSETS
Cash and cash equivalents 2.7% 1.8% 2.1%
Cash and cash equivalents held at Consolidated Funds 3.9% 5.2% 2.3%
Restricted cash 0.4% 0.1% 0.1%
Restricted cash and securities of Consolidated Funds 0.1% 0.1% 0.4%
Accrued performance fees 10.3% 6.9% 8.9%
Investments 2.1% 2.8% 1.8%
Investments of Consolidated Funds 75.5% 78.6% 79.1%
Due from affiliates and other receivables, net 0.5% 0.6% 1.2%
Due from affiliates and other receivables of Consolidated Funds, net 1.8% 1.1% 1.2%
Receivables and inventory of a consolidated real estate VIE 0.5% 0.0% 0.0%
Fixed assets, net 0.2% 0.2% 0.2%
Deposits and other 0.1% 0.2% 0.3%
Other assets of a consolidated real estate VIE 0.2% 0.0% 0.0%
Intangible assets, net 1.6% 2.2% 2.4%
Deferred tax assets 0.2% 0.2% 0.1%
TOTAL ASSETS 100.0% 100.0% 100.0%
Liabilities & Total Partners' Capital
Loans payable 0.1% 2.8% 3.5%
Subordinated loan payable to affiliate 0.0% 0.0% 1.1%
3.875% senior notes due 2023 1.4% 0.0% 0.0%
5.625% senior notes due 2043 1.1% 0.0% 0.0%
Loans payable of Consolidated Funds 42.7% 43.3% 39.3%
Loans payable of a consolidated real estate VIE at fair value (principal amount of $305.3) 0.3% 0.0% 0.0%
Accounts payable, accrued expenses and other liabilities 0.7% 0.7% 0.8%
Accrued compensation and benefits 6.3% 4.2% 2.3%
Due to Carlyle partners 0.0% 0.0% 4.1%
Due to affiliates 1.1% 1.1% 0.4%
Deferred revenue 0.2% 0.2% 0.4%
Deferred tax liabilities 0.3% 0.2% 0.2%
Other liabilities of Consolidated Funds 3.9% 4.4% 2.3%
Other liabilities of a consolidated real estate VIE 0.3% 0.0% 0.0%
Accrued giveback obligations 0.1% 0.2% 0.6%
TOTAL LIABILITIES 58.7% 57.0% 55.0%
Commitments and contingencies
Redeemable non-controlling interests in consolidated entities 12.2% 9.1% 7.8%
Partners' capital 1.0% 0.7% 0.0%
Member's equity 0.0% 0.0% 3.5%
Accumulated other comprehensive loss 0.0% 0.0% -0.2%
Partners' capital appropriated for Consolidated Funds 1.3% 2.7% 3.5%
Non-controlling interests in consolidated entities 21.6% 26.2% 30.4%
Non-controlling interests in Carlyle Holdings 5.3% 4.3% 0.0%
TOTAL PARTNERS' CAPITAL 41.3% 43.0% 45.0%
TOTAL LIABILITIES AND PARTNERS' CAPITAL 100.0% 100.0% 100.0%
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Trend Analysis - Balance Sheet
2013 2012 2011
ASSETS
Cash and cash equivalents 189.7% 111.3% 100.0%
Cash and cash equivalents held at Consolidated Funds 247.6% 290.6% 100.0%
Restricted cash 528.0% 140.2% 100.0%
Restricted cash and securities of Consolidated Funds 28.8% 40.7% 100.0%
Accrued performance fees 166.9% 100.2% 100.0%
Investments 168.2% 193.7% 100.0%
Investments of Consolidated Funds 137.8% 127.2% 100.0%
Due from affiliates and other receivables, net 61.3% 66.4% 100.0%
Due from affiliates and other receivables of Consolidated Funds, net 217.7% 115.4% 100.0%
Receivables and inventory of a consolidated real estate VIE 100.0% - -
Fixed assets, net 130.6% 120.7% 100.0%
Deposits and other 54.8% 68.9% 100.0%
Other assets of a consolidated real estate VIE 100.0% - -
Intangible assets, net 98.0% 116.2% 100.0%
Deferred tax assets 330.0% 372.8% 100.0%
TOTAL ASSETS 144.5% 128.1% 100.0%
Liabilities & Total Partners' Capital
Loans payable 4.9% 103.0% 100.0%
Subordinated loan payable to affiliate 0.0% 0.0% 100.0%
3.875% senior notes due 2023 100.0% - -
5.625% senior notes due 2043 100.0% - -
Loans payable of Consolidated Funds 157.1% 140.9% 100.0%
Loans payable of a consolidated real estate VIE at fair value 100.0% - -
Accounts payable, accrued expenses and other liabilities 130.3% 105.7% 100.0%
Accrued compensation and benefits 389.9% 228.1% 100.0%
Due to Carlyle partners 0.0% 0.0% 100.0%
Due to affiliates 372.1% 306.1% 100.0%
Deferred revenue 71.9% 66.6% 100.0%
Deferred tax liabilities 214.5% 126.5% 100.0%
Other liabilities of Consolidated Funds 243.4% 243.9% 100.0%
Other liabilities of a consolidated real estate VIE na na 100.0%
Accrued giveback obligations 29.0% 50.7% 100.0%
TOTAL LIABILITIES 154.1% 132.6% 100.0%
Commitments and contingencies
Redeemable non-controlling interests in consolidated entities 226.3% 150.1% 100.0%
Partners' capital 151.9% 100.0% 0.0%
Member's equity 0.0% 0.0% 100.0%
Accumulated other comprehensive loss 20.1% 8.6% 100.0%
Partners' capital appropriated for Consolidated Funds 54.3% 98.2% 100.0%
Non-controlling interests in consolidated entities 102.7% 110.3% 100.0%
Non-controlling interests in Carlyle Holdings 137.4% 100.0% 0.0%
TOTAL PARTNERS' CAPITAL 132.8% 122.5% 100.0%
TOTAL LIABILITIES AND PARTNERS' CAPITAL 144.5% 128.1% 100.0%
21. 21
Common-Sized Income Statement
2013 2012 2011
Revenue
Fund management fees 22.2% 32.9% 32.2%
Performance fees
Realized 26.5% 30.5% 45.9%
Unrealized 27.0% 4.5% -6.5%
Total performance fees 53.5% 35.0% 39.4%
Investment Income
Realized 0.3% 0.5% 2.3%
Unrealized 0.1% 0.7% 0.5%
Total Investment Income 0.4% 1.2% 2.8%
Interest and other income 0.3% 0.5% 0.6%
Interest and other income of Consolidated Funds 23.5% 30.4% 25.1%
Revenue of a consolidated real estate VIE 0.2% 0.0% 0.0%
TOTAL REVENUES 100.0% 100.0% 100.0%
Expenses
Compensation and benefits
Base compensation 16.6% 21.0% 13.2%
Equity-based compensation 7.3% 6.8% 0.0%
Performance fee related
Realized 12.1% 9.6% 7.9%
Unrealized 14.5% 1.1% -4.3%
Total compensation and benefits 50.5% 38.5% 16.8%
General, administrative and other expenses 11.2% 12.0% 11.4%
Interest 1.0% 0.8% 2.1%
Interest and other expenses of Consolidated Funds 20.1% 25.5% 15.9%
Interest and other expenses of a consolidated real estate VIE 0.8% 0.0% 0.0%
Other non-operating (income) expenses -0.4% 0.2% 1.1%
TOTAL EXPENSES 83.2% 77.1% 47.3%
Other income (losses)
Net investment gains (losses) of Consolidated Funds 15.7% 59.1% -11.4%
Gain on business acquisition 0.0% 0.0% 0.3%
Income before provision for income taxes (EBT) 32.5% 82.1% 41.6%
Provision for income taxes 2.2% 1.4% 1.0%
NET INCOME 30.3% 80.7% 40.6%
22. 22
Trend Analysis - Income Statement
2013 2012 2011
Revenue
Fund management fees 107.5% 106.8% 100.0%
Performance fees
Realized 90.0% 69.4% 100.0%
Unrealized 897.2% 100.0% 0.0%
Total performance fees 211.8% 92.8% 100.0%
Investment Income
Realized 22.1% 25.0% 100.0%
Unrealized 33.1% 151.1% 100.0%
Total Investment Income 24.0% 46.4% 100.0%
Interest and other income 75.3% 91.8% 100.0%
Interest and other income of Consolidated Funds 146.1% 126.5% 100.0%
Revenue of a consolidated real estate VIE na na na
TOTAL REVENUES 156.1% 104.5% 100.0%
Expenses
Compensation and benefits
Base compensation 197.1% 166.8% 100.0%
Equity-based compensation 159.8% 100.0% -
Performance fee related
Realized 238.9% 126.5% 100.0%
Unrealized -527.0% -26.3% 100.0%
Total compensation and benefits 469.6% 239.4% 100.0%
General, administrative and other expenses 153.4% 110.5% 100.0%
Interest 75.1% 40.6% 100.0%
Interest and other expenses of Consolidated Funds 196.6% 167.3% 100.0%
Interest and other expenses of a consolidated real estate VIE 100.0% - -
Other non-operating (income) expenses -51.6% 22.2% 100.0%
TOTAL EXPENSES 274.2% 170.1% 100.0%
Other income (losses)
Net investment gains (losses) of Consolidated Funds -215.5% na 100.0%
Gain on business acquisition 0.0% 0.0% 100.0%
Income before provision for income taxes (EBT) 122.1% 206.3% 100.0%
Provision for income taxes 337.5% 141.8% 100.0%
NET INCOME 116.8% 207.9% 100.0%
23. 23
Common Size - Changes in Capital
2013 2012 2011
Beginning Total Capital 100.0% 100.0% 100.0%
Member's Equity 0.0% 0.0% 30.2%
Partners' Capital 2.6% 2.1% 0.0%
Accumulated Other Comprehensive Income (Loss) -0.1% 0.0% -1.9%
Partners' Capital Appropriated for Consolidated Funds 3.4% 7.6% 29.5%
Non-Controlling Interests in Consolidated Entities 56.7% 74.5% 259.2%
Non-Controlling Interests in Carlyle Holdings 13.8% 12.3% 0.0%
Reedemable Non-Controlling Interests in Consolidated Entities 32.0% 26.0% 66.5%
Ending Total Capital 108.4% 122.5% 383.4%
Trend Analysis - Changes in Capital
2013 2012 2011
Beginning Total Capital 122.5% 383.4% 100.0%
Member's Equity 0.0% 0.0% 100.0%
Partners' Capital 151.9% 100.0% 0.0%
Accumulated Other Comprehensive Income (Loss) 20.1% 8.6% 100.0%
Partners' Capital Appropriated for Consolidated Funds 54.3% 98.2% 100.0%
Non-Controlling Interests in Consolidated Entities 102.7% 110.3% 100.0%
Non-Controlling Interests in Carlyle Holdings 137.4% 100% 0.0%
Reedemable Non-Controlling Interests in Consolidated Entities 226.3% 150.1% 100.0%
Ending Total Capital 132.8% 122.5% 100.0%
24. 24
S5. FINANCIAL RATIO
Financial Ratio Analysis
Title of Ratio
Industry Ind to Comp Co Company Ratios
Ratios Cur Yr Cur to Pr Yr 2013 2012 2011
Profitability Ratios
Return on sales (ROS) 62.9% Weaker Weaker 30.3% 80.7% 40.6%
Return on assets (ROA) 11.9% Weaker Weaker 3.8% 7.6% 4.7%
Return on equity (ROE) 25.3% Weaker Weaker 9.2% 17.7% 10.4%
Investment yield rate 18.0% Weaker Stronger 8.8% 4.2% 5.7%
Management Efficiency
RatiosManagement fee % 0.8% Lower Lower 0.7% 0.8% 0.8%
Carried Interest to revenue 75.9% Higher Higher 77.8% 67.1% 67.8%
Asset turnover 0.2 Quicker Slower 0.1 0.1 0.1
Loan payable ratio 32.3% Higher Lower 42.7% 43.3% 39.3%
Financial Leverage 2.3 Higher Higher 2.4 2.3 2.2
Operation Performance
Assets Under Management 189,000 170,000 137,000
Economic Net Income 1,320.1 735.6 833.1
Free cash flow 2,859 1,902 2,573.2
DuPont Analysis of ROE
Ratio ROS
x Asset
Turnover
=ROA
x Financial
Leverage
=ROE
Type Profitability Efficiency Solvency
Carlyle (2013) 30.3% 0.1 3.8% 2.4 9.2%
Carlyle (2012) 80.7% 0.1 7.6% 2.3 17.7%
Carlyle (2011) 40.6% 0.1 4.7% 2.2 10.4%
Ratio Formula Also referred to as…
Profitability Ratios
Return on sales (ROS) Net Income / Revenue Net profit margin
Return on assets (ROA) Net Income / Total Assets -
Return on equity (ROE) Net Income / Total Equity -
Investment Yield Rate Carried Interest / Investment of consolidated funds -
Asset Management Ratios
Management fee % Management fee / Fee-earning Aessts Under Management -
Carried Interest to total revenue Carried Interest / Total Revenue -
Asset turnover Total Assets / Revenue -
Loan payable ratio Loan Payable / Total Assets -
Free cash flow Operating Cash Flow - Capital Expenditure -
Financial Leverage Total Assets / Total Equity -
25. 25
S6. FINANCIAL STATAMENT ANALYSIS
a) Stable growth of financial positions (Balance Sheet)
During the period of year 2011 to 2013, the total assets of Carlyle increased from $24.7 billion to $35.6 billion,
representing 45% increase in 2 years. Having a deep look at the break down of the balance sheet, we could find that
the changes of investments of consolidated funds and accrued performance fee make the major contribution to the
growth of total assets. As for the changes of liabilities, they are mainly driven by the growth of loans payable of
consolidated funds and accrued compensation and benefits.
For the assets portion of the balance sheet, the investments of consolidate funds kept accounting for around 75%
of total Carlyle’s assets in the past three years and increased by 38% in amount from 2011 to 2013, contributing
around 67% of the growth of total assets. In addition, the outperformance of accrued performance fee was also one
of the important fuels for the growth of total assets even it only accounted for 10% of the total assets. From 2011
to 2013, its amount has increased by 67%, bringing 13% of the growth of total assets.
Getting back to see the fundamental driver for the growth of all assets related items, it is the 6 new CLOs and 4
new CLOs launched by Carlyle in the fiscal year of 2013 and 2012 respectively. Carlyle has concluded that these 10
CLOs are VIEs and Carlyle is the primary beneficiary. Therefore, Carlyle consolidated the financial positions and
results of operations of the 10 CLOs into its consolidated financial statements beginning on their respective closing
dates. The total assets of these CLOs included in the Carlyle’s consolidated financial statements were approximately
$3.5 billion and $ 3 billion respectively.
For the liabilities of Carlyle in 2013, its growth was mainly due to the changes of loans payable of consolidated
funds and accrued compensation and benefits, increasing 57% and 289% in these two years respectively. Referring
to the historical data of these items, loans payable of consolidated funds accounted for around 73% of the amount
of total liabilities in the past three years and contributed around 75% of the growth of total liabilities.
In the financial statement of Carlyle, loans payable of consolidated funds represent amounts due to holders of debt
securities issued by the CLOs. Several of the CLOs issued preferred shares representing the most subordinated
interest, however these tranches are mandatorily redeemable upon the maturity dates of the senior secured loans
payable. Therefore, these tranches were classified as liabilities and were included in loans payable of consolidated
funds in the consolidated balance sheets, leading to the significant growth of Carlyle’s total liabilities.
26. 26
Selected Balance Sheet Historical data Common Size Trend
$ millions 2013 2012 2011 2013 2012 2011 2013 2012 2011
Accrued performance
fees
3,654 2,193 2,189 10% 7% 9% 167% 100% 100%
Investments of
Consolidated Funds
26,886 24,816 19,507 75% 79% 79% 138% 127% 100%
TOTAL ASSETS 35,622 31,567 24,652 100% 100% 100% 145% 128% 100%
Loans payable of
Consolidated Funds
15,221 13,657 9,690 43% 43% 39% 157% 141% 100%
Accrued compensation
and benefits
2,253 1,318 578 6% 4% 2% 390% 228% 100%
TOTAL LIABILITIES 20,893 17,984 13,561 59% 57% 55% 154% 133% 100%
b) Significant changes of income statement
As the alternative investment firm with four business sectors, Carlyle’s revenues primarily consist of fund
management fees, performance fees, investment income, including realized and unrealized gains of investments in
its funds and other trading securities, as well as interest and other income. In 2013, total revenues were $4.4 billion,
an increase of 49% over total revenues in 2012. However, net income only increased 17% in two years and even
dropped 17% compared with last year. In order to give a clear explanation for this “unusual” situation of Carlyle’s
income statement, we would break down the composition of revenue and expense to explore the real reasons.
The increase in revenues was primarily attributable to an increase in the unrealized performance fees and interest
and other income of consolidated funds, which increased $1.3 billion and $0.14 billion, respectively, for the year
2013 as compared to 2012. The increase in the unrealized performance was driven by asset performance and
operating projections as well as increases in market comparables according to the note of financial report. As for the
second driver, interest and other income of consolidated funds were increased due to increases in interest and
dividend income in the consolidated fund of funds vehicles and consolidated hedge funds.
The net income was dropped from $2.4 billion to $1.4 billion, 44% less than that in 2012. The drop of net income is
due primarily to an increase in total compensation and benefits, which increased $1.1 billion 2013, 96% of increase
from the previous year. The increase in compensation primarily reflects higher performance fee related
compensation corresponding to the increase in performance fees.
27. 27
Income Statement Historical data Common Size Trend
$ millions 2013 2012 2011 2013 2012 2011 2013 2012 2011
Realized 1,177 908 1,307 26% 31% 46% 90% 69% 100%
Unrealized 1,199 134 (186) 27% 4% -7% -645% -72% 100%
Total performance fees 2,375 1,041 1,122 53% 35% 39% 212% 93% 100%
Interest and other
income of CF
1,043 904 714 23% 30% 25% 146% 127% 100%
TOTAL REVENUES 4,441 2,973 2,845 100% 100% 100% 156% 104% 100%
compensation and
benefits
2,244 1,144 478 51% 38% 17% 470% 239% 100%
TOTAL EXPENSES 3,694 2,291 1,347 83% 77% 47% 274% 170% 100%
Net investment gains
(losses)
697 1,758 (323) 16% 59% -11% 40% 100% 0%
NET INCOME 1,348 2,400 1,154 30% 81% 41% 117% 208% 100%
c) Significant changes of Statements of Changes in Capital
Based on the statement of changes in capital, there are a few significant changes in the past three years. The obvious
changes are member’s equity, partners’ capital and the non-controlling interests in Carlyle Holdings due to the
reorganization of Carlyle for the IPO in 2012. Member’s equity disappeared in 2012 and 2013 and partners’ capital
and non-controlling interests started appearing from 2012 and increased in the past two years. These all changes are
mainly originated from the Carlyle’s IPO which required the company to comply with various regulations.
Therefore, they would not have obvious impact to the Carlyle.
28. 28
S7. FINANCIAL RATIO ANALYSIS AND DUPONT ANALYSIS
a) Financial Ratio Analysis
Financial Ratio Analysis
Title of Ratio
Industry Ind to Comp Co Company Ratios
Ratios Cur Yr Cur to Pr Yr 2013 2012 2011
Profitability Ratios
Return on sales (ROS) 62.9% Weaker Weaker 30.3% 80.7% 40.6%
Return on assets (ROA) 11.9% Weaker Weaker 3.8% 7.6% 4.7%
Return on equity (ROE) 25.3% Weaker Weaker 9.2% 17.7% 10.4%
Investment yield rate 18.0% Weaker Stronger 8.8% 4.2% 5.7%
Management Efficiency
RatiosManagement fee % 0.8% Lower Lower 0.7% 0.8% 0.8%
Carried Interest to revenue 75.9% Higher Higher 77.8% 67.1% 67.8%
Asset turnover 0.2 Quicker Slower 0.1 0.1 0.1
Loan payable ratio 32.3% Higher Lower 42.7% 43.3% 39.3%
Financial Leverage 2.3 Higher Higher 2.4 2.3 2.2
Operation Performance
Assets Under Management 189,000 170,000 137,000
Economic Net Income 1,320.1 735.6 833.1
Free cash flow 2,859 1,902 2,573.2
- Profitability Ratio
All the profitability ratios of Carlyle were lower than that of the industry level and slipped from that of previous
year. The main reason for this situation was that the net income of Carlyle dropped sharply as it distributed huge
compensations to its high level investment professionals. In addition, all the profitability ratios fluctuated in a wide
range during the past three years due to the changes of market conditions which are the bases for the valuation of
its financial instruments and investment vehicles. Therefore, the profitability ratios of Carlyle could be in line with
the industry level once it imposed constriction on the total compensation and benefit.
As for the investment yield rate, it is a good indicator to assess the ability of an alternative firm to generate revenue.
However, we would have to make some adjustment for this ratio as Carlyle has diversified business which collected
different percentage of management fee and carried interest from funds under management. In this table, the
investment yield rate of Carlyle is much lower than that of other competitors as it has some non-carry funds and
some funds in solution business which usually enjoy lower performance fee rate, such as fund of fund (performance
fees < 10% usually).
29. 29
- Management Fee & Carried Interest
Except for AUM, the management fee rate and share of carried interest are also two critical factors to incentive the
general partners, such as Carlyle. According to the table, Carlyle was rewarded almost the industry level incentives
of management fees, especially considering it has so much funds. In addition, the ratio of carried interest to revenue
of Carlyle increased stably from 68% to 78% in the past three years and was even higher than industry level,
indicating that Carlyle performed very well in equity or credit-orient investments and started to be a “money
producer” instead of just a “money collector”.
- Loan Payable Ratio
According to the table, Carlyle has higher loan payable ration compared with its competitors, implying higher risk
on paying interest. However, based on the information above, we would realize that the main reason for the higher
loan payable ratio is that Carlyle diversified its assets under management and stepped into more Credit-orient
investment or investment vehicles, causing more loan payable for the consolidated funds than the other private
equity firms which concentrated on equity-orientated investment, such as growth investment and leverage buyout.
- Financial leverage
According to the table, the financial leverage ratio of Carlyle is a little higher than the industry level and increased
stably in very small scale. As the variation of debt ratio, the high equity multiplier, a measurement of a company’s
financial leverage, indicates that Carlyle has strong ability to pay its liability and low risk to default its debt.
- Assets Under Management
Assets under management (“AUM”) is the icon characteristic for the description of most alternative firms. As of the
end of 2013, the AUM of Carlyle approached $ 189 billion, almost doubled in five years. During 2013, Carlyle raised
more than $22 billion in new commitments across their different platforms. However, the key driver for the
significant growth of AUM is that Carlyle acquired AlpInvest to start stepping into the fund of fund solutions in
2011. AlpInvest is one of the world’s largest investors in private equity and advises a global private equity fund of
funds program and related co-investment and secondary activities. In 2013, Carlyle continued to expand the
Solutions platform through the acquisitions of Metropolitan, one of the largest managers of indirect investments in
global real estate with $ 2billion under management. The Carlyle’s step for expansion did not stop at here and it
acquired DGAM, a global manager of hedge funds with $6.6 billion assets under management, on Feb 2014.
30. 30
- Economic Net Income
Economic net income or “ENI,” is a key performance benchmark used in private equity industry. ENI represents
segment net income which excludes the impact of income taxes, acquisition-related items including amortization of
acquired intangibles and contingent consideration taking the form of earn-outs, charges associated with equity-based
compensation grants issued in May 2012 upon completion of the initial public offering or grants issued in
acquisitions or strategic investments, corporate actions and infrequently occurring or unusual events. ENI could be
considered as another important indicator for operation performance. ENI was $1.3 billion for the year of 2013,
reflecting 80% increase as compared to that of 2012. The increase in ENI in the year of 2013 was driven by increase
in net performance fees and investment income as compared to 2012, partially offset by increase in equity-based
compensation.
- Free Cash Flow
Carlyle has strong cash free cash flow, providing abundant capital for the general partner to expand. Based on the
calculation of free cash flow, we could also conclude that Carlyle has rich cash flow from operating activities,
implying that Carlyle generated strong revenue from investment. As for another factor – cash used I the investment,
it kept stable in the past three years. However, the free cash flow could not keep increasing in the past three years as
it was significant influenced by the income related items, especially the proceeds from sale and settlements of
investments by consolidated funds and purchases of investments by consolidated funds, according to the cash flow
statement.
b) DuPont Analysis
DuPont Analysis of ROE
Ratio ROS
x Asset
Turnover
=ROA
x Financial
Leverage
=ROE
Type Profitability Efficiency Solvency
Carlyle (2013) 30.3% 0.1 3.8% 2.4 9.2%
Carlyle (2012) 80.7% 0.1 7.6% 2.3 17.7%
Carlyle (2011) 40.6% 0.1 4.7% 2.2 10.4%
According to the data shown in above table, the ROE plummeted in 2013, decreasing 48% from previous year.
After checking the change of the three parameters, we found that critical factor for the drop is ROS which also
decreased around 38% from previous year. Based on the information above, the change was mainly caused by the
drop of the net income due to the soared total compensation and benefit in 2013.
31. 31
S8. FURTHER RECOMMENDATIONS
I would initiate the grade of buy for Carlyle due to the following reasons:
1) Competitive advantage as one of the largest PE firms
Carlyle benefits from significant advantages of being among the largest PE firms. Even the banks see regulatory
pressure, Carlyle and other major alternative firms could still access to bank financing as they are large and have
highly active clients. The global platform of Carlyle brings it unique capabilities – for example, combining its
industry expertise in buyout transactions in US with the local knowledge of Asia to close the big deals such as ADT
(a recently announced $1.9 billion carve out of a Korean security firm from Tyco).
2) Broad diversification of product leads to more consistent business performance
As one of the global leading and largest alternative investment firms, Carlyle diversified its business by both
geographically and product. From the perspective of geographic location, Carlyle has 34 offices located in different
continents and manages various investment funds, such as corporate private equity fund, real estate, fund of fund
etc. It is possible for Carlyle to raise, invest and harvest funds perpetually, as it manages so many different products
more so than its peers. In addition, Carlyle’s product diversity helps provide an element of stability to revenue and
cash flows. Carlyle exhibited the growth in revenue even faced very challenging situations, increasing 56% of
revenue in the past two years.
3) Stable growth of AUM based on its excellent track record
According to the notice issued by equity research analyst, Carlyle’s management forecasted that they would continue
to target $15-20 billion in fundraising of carry funds per year. After experiencing the coincidence of raising several
funds in 2013 due to the 2008 downturn, Carlyle tends to manage away from overlapping fundraises. Despite strong
track records, its fundraising efforts in some strategies, such as real estate and market strategies, did not generate
obvious contribution for AUM in this part of the cycle year of 2012 to 2013, but we anticipate Carlyle’s track record
will be an advantage further down the line. Except for these strategies, the corporate private equity and solutions
were the engines for the growth of AUM based on its excellent performance in the past several years.
4) Early mover in emerging markets create competitive advantage in returns and fundraising
Carlyle was one of the first private equity firms in China and has been steadily building its presence in Asian and
other emerging markets. Today, Carlyle manages over $10 billion in emerging markets AUM, almost double that of
the closest competitor. Although such funds are smaller in size than U.S. buyout counterparts, these emerging
market focused funds have better opportunities to generate superior returns. In 2013, the revenue attributed to Asia
32. 32
pacific area was around $369 million, representing 8% of the total revenue, which was generated from $ 556 million
assets of Asia pacific that only accounted for 2% of the total assets.
33. 33
S9. MAJOR RECENT NEWS EVENTS AND IMPACT ON RATIOS
1) Carlyle Group Buys Diamond Bank Stake for Nigerian Expansion2
Carlyle Group LP invested $147 million in Lagos-based Diamond Bank Plc as it seeks to expand in Africa’s largest
economy. The investment, the first by Carlyle in Africa’s biggest oil producer, will give it a stake of about 18 percent
in Diamond Bank if the transaction is approved by regulators. The Carlyle fund has invested almost $300 million in
sub-Saharan countries including Mozambique, Zambia, Tanzania and the Democratic Republic of the Congo since
2011, Diamond Bank said. The bank sold shares in August as it sought to raise 50.4 billion naira ($284 million) for
investment in infrastructure, branch expansion and lending. Diamond Bank dropped 0.2 percent to 5.49 naira by
the close in Lagos, valuing the lender at 79.5 billion naira. The stock has declined 21 percent this year compared
with the 18 percent retreat by the Nigerian Stock Exchange All-Share Index. (By Emele Onu November 24, 2014)
Based on this news, the investments of consolidated funds of its balance sheet will grow up the amount that Carlyle
invested in this deal. In addition, the valuation for this company would change significant in a short time as the
public company. The revenue contribution from this deal may be booked on its income statement of this fiscal year
if the stock price grows up compared with the price offered by Carlyle in this round of investment.
2) The Carlyle Group LP Buys Dealogic For $700 Million3
Well-known international hedge fund The Carlyle Group LP (NASDAQ:CG) and several co-investors have signed
an agreement to acquire Dealogic, a global provider of data and analytics and market intelligence software solutions
for financial institutions, as well as two joint ventures, for approximately $700 million. Carlyle’s co-investors include
former hedge fund manager Randall Winn and Euromoney Institutional Investor PLC. The deal is anticipated to
close within the next 60 days. Dealogic is an industry leader in enterprise software for financial institutions. The
firm is headquartered in New York and London, with regional offices in Hong Kong, Budapest, Tokyo, Mumbai,
Sydney, Beijing, and São Paulo. The innovative software provider offers solutions to more than 500 clients globally
including all of the world’s top 50 investment banks.
From this news, we could conclude that Carlyle would also increase its exposure to the investments of consolidated
on the balance sheet without significant impact on its income statement. However, as the global leading software, it
has the chance to make contribution to the revenue of next year if there is a next round of financing with higher
valuation for this deal or trade sale to other investors with premium in next year.
2 http://www.bloomberg.com/news/2014-11-24/carlyle-group-buys-stake-in-diamond-bank-to-expand-in-nigeria.html
3 http://www.valuewalk.com/2014/11/the-carlyle-group-buys-dealogic/
34. 34
3) Carlyle seeking $5 billion for fund with longer life4
Private equity firm Carlyle Group LP is looking to raise about $5 billion for a fund that can hold stakes in
companies for as long as 20 years, Bloomberg reported. The company expects to make investments that do not fit
within the mandate of its sixth main buyout fund, which raised $13 billion last year, Bloomberg said, citing people
familiar with the matter. The fund would charge lower fees than its traditional buyout offering and the investments
could include taking minority stakes in companies and backing family-owned businesses. Carlyle plans to charge a 1
percent management fee and take 15 percent of the profits on the longer-life fund, according to the people.
From this news, we could conclude that there will be a new trend for the fundraising strategy for Carlyle. This fund
would definitely give Carlyle less constraint on deploying fund. This fund would also generate management fee and
carried interest to Carlyle even it has lower management fee and carried interest compared with the regular private
equity funds that it raised. In addition, the AUM of Carlyle would also increase significantly.
4 http://www.reuters.com/article/2014/11/24/us-carlyle-group-fundraising-idUSKCN0J812L20141124
