In this article, I’m going to take a deeper look at Carlyle Group, an international PE firm that’s been involved in some of the largest LBOs (Leveraged buyouts) since 2005.
We’ll delve into operations, look at how the company makes money, and establish an overall valuation for the firm.
Learn why I think the Carlyle Group is a great investment – just not necessarily here.
Ekspansio/E+ via Getty Images I like financial companies – and not just big banks. I like insurance investments, asset managers, and similar businesses. PE firms, or private equity firms, are a subsector I’m a bit more careful when I get into. Because of the overall risk/reward ratio in these investments, we want to only pick the créme de la créme when it comes to these companies.
Now, thankfully, in this article, we’re going to be looking at The Carlyle Group (NASDAQ: CG ). This is one of the better companies in this sector.
Let’s look at what the company does, and what it might be worth.
(Source: Carlyle Group) What does the company do?
So, the Carlyle Group is a multinational PE firm based in DC in the US. The company offers asset management and financial services, real assets, and private credit. It’s the second-largest PE firm on the globe and has roots going back to 1987. The initial financial backing for the company was around $5M, and the founders quickly pursued aggressive LBOs to raise further capital, with a buyout fund at about $100M from investors in the early 90s, as well as early transactions in the hundreds of millions from the Saudi royal family.
Carlyle got an early rep for being active in the defense industry, and acquired the electronics division of General Dynamics (NYSE: GD ) in 1992, later selling it to Tracor in 1994. The company made several buyouts and M&As, each profitable and delivering further growth to the company. In recent years, the focus on the defense industry has been smaller.
Recently in 2020, the company transformed from an L.P into a Delaware Corporation, which changed some things about the common units and shareholders.
On a high level, the company manages an array of investment funds and vehicles across the spectrum of PE, including credit, real estate, and natural resources.
The company’s current operations can be divided into the following segments. Global Private Equity, or GPE, focuses on buyout, growth, real estate, and natural resource funds, including but not limited to corporate buyouts, minority investments, real estate funds, natural resources, and so forth. The GPE segment has an AUM of $132B.
Global Credit, having $55.9B in AUM, advises 7 funds that invest across the credit spectrum, including liquid, illiquid credit, and real assets credit. This is done through direct lending, Loans And Structured Credit, Opportunistic Credit, and Distressed Credit.
Investment Solutions focuses on investment opportunities in order to allow the building of private equity and real estate portfolios through fund of funds. This is executed through AlpInvest, one of the world’s largest investors in PE, and Metropolitan, one of the largest managers in global real estate. This segment includes private equity fund investments, private equity co-investments. and others, with over $58B worth of AUM as of 2020.
As of 2021 September, these are looking like this. (Source: Carlyle Group)
The company’s operations can also be seen in terms of its overall funds, called the “family of funds” for Carlyle, together with 2020 capital commitments and so forth. (Source: Carlyle Group)
As you can see, this company is massive, with extremely diversified operations and funds. Typically, the Carlyle group takes a high management fee for the services it provides to its funds, which is done primarily through limited partnerships. Management fees vary greatly depending on the segment, but they look something like 0.5-2% overall and are structured depending on the product or fund, with lower for structured products and higher for products such as closed-end carry funds.
For a company with this amount of AUM, Carlyle does not employ a whole lot of people. As of 2020, the company employed less than 2,000 people across 29 offices in five continents.Fundamentals for the company can be said to be very solid, though there’s definite volatility in earnings and history which we’ll go into later. Given what the company does, it’s unsurprising that market downturns and upticks, and the same in specific investments, can have more or less impact on earnings. However, investing in 2012 would have brought about an annual RoR of around 12.5%, outperforming the overall index. The current […]