Carlyle Group Inc. reported a decline in second-quarter profit, underscoring the challenge facing new Chief Executive Officer Harvey Schwartz as he seeks to reposition the private equity firm.
Distributable earnings tumbled 26% from a year earlier to $388.8 million, or 88 cents a share, the Washington-based company said Wednesday in a statement. That still beat the 67-cent average estimate of analysts surveyed by Bloomberg.
The pace of investment exits, as well as new deals, slowed for Carlyle’s key funds amid an industrywide slump. The results reinforce the unpredictable backdrop for Schwartz, 59, as the former Goldman Sachs Group Inc. executive hammers out a plan to boost the stock price and steady the business after years of leadership churn.
Carlyle shares dropped 8.3% to $32.50 at 7 a.m. in early New York trading
Schwartz, who joined Carlyle as CEO in February, promoted executives to the C-suite in recent weeks, created task forces to review various businesses and signaled his ambition to expand a capital-markets arm that functions as an in-house investment bank. He’s still developing a broader strategic plan for Carlyle.
“We are taking action to mobilize teams around priority areas,” Schwartz said in the statement, adding that the private equity industry is navigating complicated times. “The economic backdrop remains complex and investor sentiment remains mixed.”
Read more: Carlyle CEO to Take on Banks by Supercharging Financing Unit
Institutional investors, already limited by how much cash they can devote to private equity bets, held off on writing checks during the flurry of recent leadership changes. The firm, with $385 billion of assets under management, reported a 28% drop in second-quarter fundraising from a year earlier.
Fee-related earnings fell 12%, as a group within Carlyle’s credit business that helps portfolio companies secure loans, wrestled with the slowdown in deals.
Reaffirms Guidance
The private equity business, meanwhile, helped to mitigate some of the pain as its fee-related earnings rose 2%.
Carlyle reaffirmed earlier guidance that it expects 2023 companywide fee-related earnings to fall from last year. It forecasts about $800 million for the year, down from $834 million in 2022.
Under Schwartz’s predecessor, Kewsong Lee, Carlyle grew rapidly beyond its buyout roots and expanded into credit through acquisitions. It took a stake in insurer Fortitude Re, gaining assets to help power that lending.
Carlyle’s insurance play has also introduced some volatility, contributing to a net loss of $98.4 million, or 27 cents a share, for the second quarter.
The firm took a $104 million charge from the planned dilution of its stake in Fortitude Re. Rising interest rates, meanwhile, eroded the value of the insurer’s balance sheet, crimping the fees Carlyle collects for providing advice.
Shares of Carlyle have gained 19% this year through Tuesday, trailing competitors Blackstone Inc., KKR & Co. and Apollo Global Management Inc.
(Updates with share price in fourth paragraph.)
