Carlyle Group, a leading private-equity firm, has taken a charge of over $1 billion in its December quarter, resulting in a net loss of nearly $700 million, or $1.92 per share. Despite this, the firm’s stock saw an increase of 8.5%, reaching $44.20 by late afternoon Wednesday.
The charge can be attributed to a change in Carlyle’s payment structure for its buyout professionals. In order to align their interests with those of Carlyle’s shareholders and fund investors, the buyout teams will now receive a larger portion of their pay when Carlyle cashes out on a holding or when the value of Carlyle’s stock rises. This change will no longer be based solely on paper valuations of holdings.
However, despite the charge, Carlyle still managed to generate 86 cents per share in distributable earnings for the quarter, and $3.24 per share for the full year of 2023. The firm also announced its intention to repurchase $1.4 billion worth of stock.
Analysts have reacted positively to Carlyle’s compensation change, despite the associated one-time charge. “Congrats on the comp change,” commented Deutsche Bank’s Brad Bedell during Wednesday’s conference call.
This move follows similar changes made by other private-equity firms such as Blackstone and KKR. With fewer opportunities to cash out holdings due to slow years for stock offerings and mergers, investors have expressed dissatisfaction with the compensation levels of buyout professionals.
Additionally, Carlyle has been slower than its peers in diversifying its business beyond traditional private equity. Unlike other firms that have focused on growing their management of funds that provide recurring fees, Carlyle’s management fee profit margins are just 43%, compared to over 60% at other companies. CEO Harvey Schwartz aims to boost Carlyle’s margins above 50%.
Looking ahead, Carlyle is confident in its ability to raise $40 billion for its funds in 2024.