The Carlyle Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 15 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Carlyle Group's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Daniel Harris, Head of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Norma. Good morning, and welcome to Carlyle's Q1 2024 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz and our Chief Financial Officer and Head of Corporate Strategy, John Redett. Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website. This call is being webcast and a replay will be available.

Speaker 1

We will refer to certain non GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10 ks that could cause actual results to differ materially from those indicated.

Speaker 1

Carlyle assumes no obligation to update any forward looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and then return to the queue for any additional follow ups. And with that, let me turn the call over to our Chief Executive Officer, Arby Schwartz.

Speaker 2

Thanks, Dan. Good morning, everyone, and thank you for joining us. I want to touch on 3 areas today. First, performance and an update on our 2024 targets. 2nd, Carlyle's ability to capitalize on improving macroeconomic environment.

Speaker 2

And third, progress on key strategic areas. 1st, our performance. Our Q1 results reflect continued momentum across the firm and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1,100,000,000 targeting FRE margins to increase to a range of 40% to 50% and targeting inflows of $40,000,000,000 in 2024. We once again set several financial records this quarter, including record quarterly FRE of $266,000,000 a mere 40% increase over Q1 last year and record FRE margin of 47%, more than 33% higher than last year. These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time enabling us to invest for growth.

Speaker 2

We anticipate a pickup in fundraising, deployment and realization throughout the year and we remain confident in our ability to achieve our financial targets for 2024. With respect to fundraising, we raised $5,300,000,000 in new capital in the quarter in line with our expectations after a near record quarter closing out 2023. Looking forward, we expect to see a pickup in fundraising over the next few quarters, again, keeping us in line with our target. While the macroeconomic environment remains somewhat fragile, we continue to see signs that the investment environment steadily improving. Capital from the banking system and private credit is more readily available.

Speaker 2

Private credit and syndicated loan spreads are at historically tight levels. Equity volatility is under long term averages and interest rates and inflation have generally stabilized. These are clear improvements from this time last year, which is driving increased investor confidence and if sentiment continues to improve, we expect a higher level of deal activity. Our deal teams are already starting to see the knock on effects of improved market sentiment. We had $5,900,000,000 of realized proceeds this quarter.

Speaker 2

We have to go back to the Q4 of 2022 to see a higher number. We've already announced additional exits in various strategies that will close in the coming quarters. We have $2,200,000,000 in net accrued carry across our portfolio and our global pipeline continues to increase. Curvile is well positioned to capitalize on these improving market conditions over the coming months. We have high quality assets in our portfolio ready to be monetized and $76,000,000,000 in dry powder ready to be deployed across our global franchise.

Speaker 2

Switching gears, I want to provide an update on our strategic areas of focus. In Global Wealth, we have strong momentum. Since inception, we raised nearly $50,000,000,000 of wealth assets. Our global scale and brand give us a competitive advantage in this rapidly growing distribution channel. I have witnessed the importance of our brand and quality of our funds firsthand in my personal interactions with wealth advisors.

Speaker 2

Want to ensure we're providing the most efficient access to alternative markets alongside the best funds for our end clients. Our credit fund, CTAC had another strong quarter and our secondary focused investment solutions product, CAPM, saw a ramp up in sales. These funds have historically provided strong performance for our investors. We continue to expand our footprint, adding new wealth distribution partners in the near term. More broadly in global credit, we're focused on driving growth and capturing share.

Speaker 2

We see opportunity to continue to scale our asset based asset backed finance offering, a trend that may persist for years as market participants increasingly look to partner with firms like Carlisle to address their capital solutions. We have mobilized and scaled our credit strategic solutions team to address this opportunity. The strategy has grown to more than $7,000,000,000 assets with good opportunity for continued growth. And finally, in Global Investment Solutions, we continue to see strong momentum. This is helping us both in the institutional channel as well as in the wealth channel with our secondary focused Cap M Fund.

Speaker 2

And obviously, this business is somewhat countercyclical to the rest of the franchise. To wrap things up, we entered 2024 with solid momentum. We continue to execute against our financial targets and strategic areas of focus. All of this positions us to deliver significant growth and shareholder value. With that, let me now turn the call over to John.

Speaker 3

Thanks, Harvey. Good morning, everyone. As Harvey said, our first quarter results were in line with our expectations and we remain on track to achieve the 2024 financial targets we outlined on last quarter's call. For the Q1, we generated record FRE of $266,000,000 nearly 40% higher than the Q1 last year. FRE margin of 47% was also a record and up from 35% in Q1 2023.

Speaker 3

We produced $431,000,000 in DE or $1.01 in DE per share, our best quarterly DE result since 2022. We finished the Q1 with $425,000,000,000 of assets under management, up 12% year over year. In the Q1, we completed the sales of McDonald's China and Neptune Energy, both of which produce attractive returns for LPs and strong performance revenues for our shareholders. Over the past year, we have returned $22,000,000,000 in capital to our LPs, highlighting the ability of our investment teams to find liquidity opportunities in difficult and challenging capital markets. We raised $5,300,000,000 of capital in the quarter and remain confident in achieving our target of $40,000,000,000 of inflows for the year.

Speaker 3

In Solutions, we raised $2,300,000,000 in the quarter and nearly $14,000,000,000 over the last 12 months, as we continue to have success attracting investors to our secondaries and co investment strategies. And we are starting to see momentum building in our global wealth product, Gapm. In Global Credit, where our CLO platform is one of the largest in the industry, we had an active quarter in a very active market. We priced 7 CLOs, including 3 new issue CLOs. We also saw strong inflow activity into our global wealth product, CTAC, and continue to see capital raise for our asset backed finance strategy.

Speaker 3

And in Global Private Equity, the fundraising environment remains somewhat challenging, but we do see some pockets of strength like real estate in Japan. Management fees totaled $516,000,000 in the 1st quarter, up about 2% compared to the prior year. We have $15,000,000,000 of pending fee earning AUM that has yet to activate fees. Capital Markets activity remains constrained, but it is showing signs of improvement. Transaction and advisory revenues of 27,000,000 dollars increased more than 60% from the Q1 last year.

Speaker 3

G and A expenses of $80,000,000 were lower compared to the Q1 last year as we benefited from expense discipline and had some one time items that lowered the quarterly G and A level. We expect G and A expense to shift back towards the recent run rate in the second quarter. Our net accrued carry balance of $2,200,000,000 declined relative to last quarter due to fund realizations and a relatively lower level of appreciation in our carry funds. And at $6 per share, it remains a substantial source of future earnings. We repurchased $150,000,000 of stock, decreasing our adjusted shares outstanding by 1%.

Speaker 3

Our remaining share repurchase authorization is approximately $1,250,000,000 and we remain active buyers of our stock. Wrapping up, we are optimistic about market conditions improving and we are on track to meet our financial targets for 2024. With that, let me turn the call over to the operator for your questions.

Operator

Thank Our first question will come from the line of Brian Bedell with Deutsche Bank. Your line is now open.

Speaker 4

Great. Thanks. Good morning. Thanks for taking my question. Good morning.

Speaker 4

Maybe just Good morning. Hey, good morning. Maybe you could just talk about how you're viewing the FRE trajectory for the balance of 2024 and maybe just the components on that, given the lower expenses, maybe if you can classify the help from the lower G and A expense in 1Q and where you see the expenses moving as we move through the year and then contrasting that with fee related revenue. So really the sort of the underlying components of how you see the FRE improving during the year?

Speaker 3

Thanks, Brian. So look, we're very pleased with the FRE for the quarter, 266. It was a record. It was up 40% over same period last year. The margin was very strong as well.

Speaker 3

That compared to 37% last year. In terms of the margin at 47%, and I alluded to this in my comments on the G and A, we did benefit from a lower G and A. Some of that was expense discipline on our end. Some of it was a little seasonality. Historically, if you look at our Q1, G and A is typically at a little lighter in Q1 and we did have a couple of one off items.

Speaker 3

So I expect the G and A number to increase to more normalized run rate levels in the second quarter. So I would expect the FRE margin in the next couple of quarters to be in the mid-40s versus the 47%. And look, the mid-40s is right in the middle of the range we put out in our 2024 financial targets of 40% to 50%. So we feel pretty good at 45%. In terms of management fees, I would say the number came in exactly as expected.

Speaker 3

There were no surprises positive or negative on our end. And I do think through the year given that we had a really strong Q4 in terms of fundraising nearly $17,000,000,000 and we have $15,000,000,000 of fee paying pending fee paying AUM, I would expect that number to start to accelerate throughout the year and I think that growth will accelerate as well.

Speaker 4

Okay, great. Thank you. Thank

Operator

you. One moment for our next question please. Our next question will come from the line of Kenneth Worthington with JPMorgan Securities. Your line is now open.

Speaker 5

Hi, good morning and thank you for taking the question. Fee paying AUM fell lower in both private equity and credit this quarter and we know things don't move in a straight line. Maybe first, can you talk about the drivers of the decline in private credit fee paying AUM this quarter? I think you highlighted some elevated outflows in the release. And based on your fundraising, fund activations and realizations, how should we think about fee paying AUM developing from current levels in both private equity and credit as we kind of migrate through the year?

Speaker 3

Yes. Ken, we have very good momentum in terms of fundraising. We have some products in the market that have real demand. Our secondaries business, our solutions business, we're seeing real good demand both in secondaries and co investment. I would expect that to continue.

Speaker 3

As we said in the past, we've had good momentum in Japan. We'll be wrapping that one up at some point this year. Real estate is another area where we think we'll have really strong demand. We'll start that fundraise this year as well and we do expect that to be a successful fundraise. So I would expect to see an acceleration in growth in the C Pain AUM as well.

Speaker 3

In terms of the kind of slight decline in fee paying AUM in credit, it was just no course runoff. And again, the runoff is outside of carry funds. So it was just a small amount of normal course business as usual runoff.

Speaker 6

Okay, great. Thank you.

Operator

Thank you. Thank you. One moment for our next question please. Our next question will come from the line of Ben Budish with Barclays. Your line is now open.

Speaker 7

Hi, good morning and thanks for taking the question. Maybe just following up on the $15,000,000,000 of pending fee paying AUM and John your comments and the confidence in achieving the $40,000,000,000 plus for the year. Can you sort of just unpack some major pieces? We know there's a lot of PE funds in the market. How much is left on the solutions fundraisers that you're doing?

Speaker 7

What are the key pieces of the credit side? If you could give us a little color there, that'd be great. Thank you.

Speaker 2

Yes. Maybe I'll jump in. And so we're not going to walk through fund by fund, which I'm sure you understand. But as John said, and I've been traveling the world the past 6 months, you can really feel the momentum in the pockets of strength that John hit on. So in solutions, in the wealth channel across credit, as I mentioned in my comments, we expect to be joining additional wealth platforms, new partners coming on in terms of CAPM and CTEQ.

Speaker 2

And so there's a lot of momentum around wealth, secondaries, credits. And as John mentioned, pockets of the private equity segment in real estate and other areas. I would say generally in private equity across the industry in this environment, you should maybe expect some headwinds. Now of course, I think over the next several years, the institutional channel might be a little over allocated, but the wealth channel is fully under allocated. And so we look forward to also bringing out our private equity wealth product in the first half of next year.

Speaker 2

And so it feels like across the franchise, momentum is quite good and that's why we reiterate the targets for this year. And also the other thing I'll say is, we understand the focus on the quarter over quarter. We focus on it for running a business. So just not really how we think about the fundraising. As John said, this was perfectly unplanned for us.

Speaker 3

Got it. Thank you very much.

Speaker 2

Thanks.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.

Speaker 8

Hey, good morning everybody. Thank you for the question as well. I was hoping we could spend a minute on your outlook for share repurchases for the rest of the year. Harvey, I think on the last call, you talked about obviously $1,400,000,000 now it's $1,200,000,000 in authorization being a function of kind of quarters, not years. Can we maybe get a little more specific here on the outlook for the rest of the year?

Speaker 8

And related to that, how should we be thinking about equity based compensation on a quarterly basis from here, I guess, given that it's stepped up quite meaningfully as well? Thanks.

Speaker 3

Alex, it's John. We repurchased $150,000,000 of stock, as I said in my remarks. Historically, we've averaged roughly $200,000,000 per year per annum. So the Q1 was pretty significant relative to what we've done in the past. We still have $1,250,000,000 left on the share repurchase authorization.

Speaker 3

And you should just assume we're active purchasers of the stock going forward. In terms of the equity based comp, this is really it got elevated due to the performance stock units we granted to key senior members of our investment teams, our team globally and these are the people that are driving growth. These are the people that are accountable for growth. And the accounting on these instruments are a bit different. So you're seeing a little bit of elevation from those performance stock unit grants.

Speaker 3

Remember these only vest if we have meaningful stock price appreciation. So I think these are very, very shareholder only instruments, great alignment. I would expect the equity based comp number to start trending down next year.

Speaker 1

Thanks, Alex.

Operator

Thank you. One moment for our next question please. Our next question comes from the line of Brian McKenna with Citizens JMP. Your line is now open.

Speaker 9

Thanks. Good morning, everyone. I appreciate the commentary on the buyback, but it seems like there's some capacity to increase the dividend given the earnings outlook moving forward, specifically if realizations remain healthy. So how are you thinking about the dividend moving forward? And do you see an opportunity to increase the payout ratio over time?

Speaker 2

So, hey, it's Arby. So, as John said, let me just take a step back and again go through how we're thinking about the capital allocation methodology here. And so, we're going to remain very flexible because we see very significant opportunities to invest in the business over the next couple of years. But we also see opportunities to return capital to shareholders and that was really the strategic decision about going with the buyback because it gives us that flexibility. In the immediate term, we expect no changes to the dividend.

Speaker 2

Of course, again, we're not tying ourselves in a mess here depending on how things move forward. But right now, it really is about positioning ourselves for dynamic flexibility around capital allocation. So we can invest in the business when we see the most accretive opportunities, which we're currently doing, and we can also return value to shareholders. And as John said, you should expect to see it be active in the stock.

Speaker 9

Helpful. Thanks, Harvey.

Speaker 2

Sure.

Operator

Thank you. One moment for our next question. Our next question comes from Brennan Hawken with UBS. Your line is now open.

Speaker 6

Thanks for taking my questions. Good morning.

Speaker 2

Hi, Brennan.

Speaker 6

Hey, how are you, Harvey? So guys flagged in the investment performance slide that there's an uptick in U. S. And European CLO default rates. So I'm curious about what your exposure is to Altice in the European or the global CLO business?

Speaker 6

And how should we be thinking about the risk of deterioration and increased defaults as far as the potential for management fee deferrals in that business? Thank you.

Speaker 3

Yes, Brendan, it's John. So look, we really like our CLO business. We're one of the largest in the world. At any given time, We're 1 or 2. Look, this business has great margins.

Speaker 3

They have a long term highly attractive track record. And when you look at kind of credit in the platform, it still looks very, very good. Our default rates in our U. S. Business are one half of the industry average.

Speaker 3

The credit stats in Europe are not quite as good as the U. S, but they are still better than European industry averages. So from a credit quality perspective, we feel very good about the credit quality in our CLO business.

Speaker 2

It really is a world class franchise with a world class team.

Speaker 6

Okay. Thanks for taking my question.

Speaker 10

Thanks,

Speaker 2

Brennan.

Operator

Our next question will come from the line of Daniel Fannon with Jefferies. Your line is now open.

Speaker 11

Thanks. Good morning. You talked about wealth and increasing partnerships and distribution through that channel. Can you give us what the number of flows were from the wealth channel this quarter and which products you see are driving those flows and where you see that kind of the outlook for that going forward?

Speaker 2

I've personally been spending increasing amounts of my time with our wealth partners. And I can tell you, I'm pretty close to the cold face on this. We've been really well received. The brand Carlyle, our history in the business, a long track record, the name recognition, the iconic aspect of the firm really resonates with the wealth advisors. Now of course, we've been in the wealth channel for a very long time.

Speaker 2

As I mentioned, we raised nearly $50,000,000,000 of assets, but this new shift in terms of how the market is really receiving and in the early days of whatever you want to call it, democratization, etcetera. But I personally been spending a lot of time with wealth advisors, truly trying to get very close understanding how we can be the best value partner to them. And with CTEQ growing steadily, APM picking up momentum, our secondaries product. We will be making some announcements in the near term of some new partnership launches. I feel really good about the momentum here.

Speaker 2

And again, obviously, first half of next year, we're targeting the private equity product. So I feel really good about how our business is being received. This is going to be a long journey for the industry, but I feel really optimistic about the long term growth trajectory.

Operator

Our next question will come from the line of Chris Kotowski with Oppenheimer. Your line is now open.

Speaker 10

Yes. Good morning and thank you for taking the question. And I realize you didn't want to go fund by fund, but when I look at the fund tables, it looks like your Asia V fund steps down in June and then Europe V in September. So should we be expecting kind of a new fund launch around those dates? Or do you effectively not have a flagship vehicle after those dates in Europe and Asia?

Speaker 2

A little confusing. We have flagship vehicles in those regions. I think again, Chris, the way to think about it is the way John addressed it, which is, we expect, I think he's giving you a pretty good color on this, a pickup in management fees across the platform throughout the rest of the year and everything remains on plan.

Speaker 10

Okay. We're

Speaker 2

happy to get into more detail with you offline. Okay.

Speaker 10

And then also can you give us any color on the it said, page, I think, 11 that there were some reversals of prior performance allocations. Can you just give us some color on what happened there? Or is that like related to European style waterfalls? Or what happened?

Speaker 3

The first thing I'd say is, Chris, we don't manage the business quarter to quarter in terms of performance. I came from the private equity side

Speaker 12

of the business where

Speaker 3

I spent 16 years, ran several funds there. I honestly never really focused on quarter to quarter performance. I always took a kind of a long term view, what is the long term trajectory. So, I know you guys focus quarter to quarter movement, but we don't really manage the business that way. So CP7 was barely in carry the previous quarter.

Speaker 3

It fell out of Cary this quarter. So that's the impact you're seeing. But look, we've been in this business, the private equity business for 35 years. We've generated very strong returns for our LPs, 26% over that period, 2.4 times our money. So we're very proud of those returns.

Speaker 3

We've and the only thing I'd tell you is we've always been very, very focused on performance. And not surprisingly going forward, we will continue to be very focused on performance.

Speaker 10

All righty. Thank you. That's it for me.

Operator

Thank you. Our next question will come from the line of Patrick Davitt with Autonomous Research. Your line is now open.

Speaker 13

Hey, good morning. Thanks. I want to circle back on the flow commentary. I understand there's some seasonality, but obviously just run rating to about $20,000,000,000 of flow this year versus $40,000,000,000 target. So maybe when you budget this, could you maybe help us understand what you see as the biggest incremental contributions to closing that gap between 2040 and what you think the cadence through the rest of the year of building to that 40 will be?

Speaker 13

Thanks.

Speaker 3

Yes. Again, Patrick, what Harvey said, we it's very tough to look at fundraising on a quarter by quarter basis, stuff slips, stuff moves forward. Again, the fundraising number for the Q1 came in as expected. So that should tell you something in terms of how we think we can get to the $40,000,000,000 We're still confident in the $40,000,000,000 And I think Harvey gave you some color around where that fundraising is coming from. We continue to see a lot of interest in our solutions business, both secondaries, co investment.

Speaker 3

In private equity, we're going to have some we'll have some demand strong demand for our real estate product. We have good demand for Japan. In credit. Our asset backed platform has gone from almost nothing to upsize in 2 years. On the wealth side, we're really starting to see more momentum in CTEQ, CAPM or solutions wealth product that's just kind of starting, but getting good momentum.

Speaker 3

So it's really, really across the platform. I wouldn't say one specific segment is an outlier.

Speaker 2

Yes, it's pretty different, but I wouldn't make we'd be misguiding you if we in any way suggested you should take the Q1 and multiply by 4. I think that's our point here. You should really hear us when we say we expect a significant momentum in that. This was exactly on plan for us. Thanks, Patrick.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Steven Chubak with Wolfe Research. Your line is now open. Hi.

Speaker 11

Good morning, Harvey. Good morning, John.

Speaker 2

Good morning, Steve.

Speaker 11

So in the past, you had spoken about the significance of the IPO market reopening, certainly starting to see some green shoots. But just concerning the PE transaction environment, I was hoping you could speak to whether that recent pickup supports more durable improvement in realization activity or is it still too early to call an inflection?

Speaker 3

Hey, it's John. I think it's helpful just to kind of level set where we are. We're coming out of a very, very complex environment and having spent most of my career in private equity, it was one of the more complex environments I've seen. Yet our team has been able to generate $22,000,000,000 of realizations through that period in some pretty choppy markets. As I said in my comments, we had a strong quarter in terms of realizations.

Speaker 3

I noted McDonald's China and Neptune Energy. I know these portfolios really well. I spent a lot of time in that business. I feel good about these portfolios. I also like the momentum we have.

Speaker 3

So I mean if the markets continue to improve, I would expect that momentum to accelerate. But it's market dependent, obviously. In terms of your comments on the IPO markets, I think the IPO markets are kind of open. I know a lot of the bankers and headlines say they're open, but I would say they are opening.

Speaker 11

Understood. Thanks for taking my question.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Glenn Schorr with Evercore ISI. Your line is now open.

Speaker 12

Hello, thanks. Question on the insurance side. Good morning. Question on the insurance side, just in terms of what we should expect from your business, we didn't talk about it much yet today. And the reason I'm asking is some of the insurance companies have been talking about lightening up and pulling back on block trades and trying to raise 3rd party capital themselves.

Speaker 12

I'm not sure how many of them have the capacity to raise that and manage that themselves, but it's I've heard it from more than a couple of places. So curious on your thoughts of the deal environment and what we should expect from your insurance business? Thanks.

Speaker 2

The pipeline feels pretty good here, Glenn, in terms of you saw us close and execute the Lincoln National transaction last year and we talked about the economics and how that flows through FRE over the medium term. But the pipeline feels pretty good. I there are going to be times when it's going to ebb and flow in the marketplace. But I think if you look over the long term in terms of insurers need to dynamically manage their capital. I think Fortitude is really, really well positioned to be a great partner and has been a great partner.

Speaker 2

So I feel pretty good about the pipeline. In terms of insurance more broadly, I would say the space remains increasingly important to us with a lot of momentum. There's a real cross section here and a flywheel effect between capital needed, an ability to generate enhanced performance in private credit, banks looking at more optimized and better optimize their capital structures. And so we're in the thick of a lot of flows here. And think this is pretty persistent.

Speaker 2

It feels like this is going to go on for a while. I never let you break out my crystal ball as you know on these calls, but it feels like there's a lot of momentum here and this is a multiyear trend. Okay, thanks. Thank you.

Operator

One moment for our next question. Our next question comes from the line of Bill Katz with TD Cowen. Your line is now open.

Speaker 12

Cowen.

Speaker 6

Maybe to step back, you mentioned that there's some good demand in real estate. I was wondering if you could unpack that a little bit. And then maybe the broader question associated just the asset class or the segment in total is how you're thinking about the opportunity infrastructure and how is Carlyle positioned to maybe participate in what seems to be a pretty big opportunity? Thank you.

Speaker 2

So in real estate, as we've discussed before, really is a world class franchise. They're in the market now. The performance has been exceptional. They'll be in their 10th fundraise. And I think in a space which is not drawing a lot of capital, They really are extraordinary team with a lot of momentum, and we see the opportunity quite optimistically.

Speaker 2

Across the rest of the real assets platform, whether it's in renewables, infrastructure, energy, I think the natural demands of what's happening really around the globe, whether you look at politics, energy transition, demand for energy, energy security, all these things bode well. And I think there are platforms, which will continue to grow. And so you should look to see us continue to invest and continue to build on the platforms we have, but we feel pretty good there too.

Speaker 1

Thanks, Bill.

Operator

Thank you.

Speaker 2

Thanks, Bill.

Operator

One moment for our next question. Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open.

Speaker 14

Great. Thank you. Just wanted to circle back to the realization commentary. I was hoping maybe that will help quantify the pipeline of exits that you were alluding to. When we look at the overall portfolio, it seems about nearly 50% is aged 40 years, which could suggest maybe we could see a meaningful pickup in exit activity market depending.

Speaker 14

But just curious what portion of the portfolio do you view as in the exit phase and just waiting for that right backdrop?

Speaker 3

I mean, I don't know if I quantify in terms of percentage of portfolio. In that stat you alluded to that's 4 years or older, That's really not specific to Carlyle. That's an industry wide stat. So look, we have a lot of great companies that are ready. We're ready to monetize.

Speaker 3

We just need markets to continue to improve. We need the IPO markets to really open up. That will be helpful. But as I said, if the markets continue to move on the current trajectory, I do expect realization activity to pick up. It's one of the hardest aspects of this business to project.

Speaker 3

If you could tell me where markets are in 6 months, I could probably give you a very specific answer. I just don't know. But the way it looks today, we're pretty optimistic that realizations will accelerate.

Speaker 14

Sorry, just to clarify on Page 17, there was a chart next to the $159,000,000,000 of AUM and private equity with a note saying 48% aged 4 plus years. That's not for Carl, that's for the industry?

Speaker 3

Yes. That is our stat, but I think the industry stats are somewhat similar. I don't think we're an outlier at all.

Speaker 6

Okay. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Craig Siegenthaler with Bank of America. Your line is now

Speaker 9

open. Good morning. Hope everyone's doing well.

Speaker 2

Hey, Craig. Good morning.

Speaker 9

So, we had a follow-up on the CLO question, just given your commentary that defaults are rising in Europe. So quick math, I think European CLO AUM is around $11,000,000,000 and about half of those are subordinated fees and they can be deferred if certain tests are not met. So about $30,000,000 run rate, near 100 percent incremental FRE margins. I'm curious, is that math correct? And then also, are those tests still being met or will be met given the rising default commentary in the earnings release?

Speaker 9

Thank you.

Speaker 3

Yes, Craig. Hey, it's John. Look, we're not concerned with the credit quality stats in the European CLO business. They are elevated relative to the U. S, although I would tell you the U.

Speaker 3

S. Are extremely low and the credit stats in the European CLO business are still below industry. I think it's important to recognize we've been in business for 25 plus years. We have a great long term track record. We have a very deep and talented team leading this investment effort.

Speaker 3

And over that 25 year period, we have collected 100% of the management fees and the subordinated management fees.

Speaker 2

Thank you, John. Thanks, Greg. Thanks, Greg.

Operator

Thank you. Our next question will come from the line of Brennan Hawken with UBS. Your line is now open.

Speaker 6

Good morning. Thanks for taking my follow-up. Totally appreciate that stock based comp is expected to drop in 2025. But when we think about 2024, is this $111,000,000 quarterly run rate the right way to think about this year or could there be movement off of this level?

Speaker 3

I don't think it's far off. It might creep up a little bit. Again, it's and we can take this offline. The accounting around the performance stock units is a bit different relative to additional equity awards. But I don't think it will move up in a material way.

Speaker 3

Okay. And I'm happy to take it offline with you and give you details around the accounting.

Speaker 2

Yes. The important thing again is the alignment that John talked about. You have to have very meaningful uptick in the share price. And so as we've discussed, this really aligns the senior leadership of the firm with the shareholders.

Speaker 6

Sure. Totally appreciate that. Just trying to think about

Speaker 2

No, we got it. It's a little bit. The accounting is the accounting, but we'll take it offline for you.

Speaker 3

Sure.

Speaker 10

Thank you.

Operator

At this time, this concludes our Q and A portion. I'd like to hand the conference back over to Mr. Daniel Harris for closing remarks.

Speaker 1

Thanks, operator, and thank you everyone for your time and attention today. If you have any questions or follow Investor Relations after this call and we look forward to talking with you again next quarter.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

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Earnings Conference Call
The Carlyle Group Q1 2024
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