Carlyle profits hit by slowdown in dealmaking

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Carlyle Group’s profits fell last quarter as the buyout group failed to benefit from a rebound in markets and struggled to drum up interest in a new flagship fund, underlining the challenge facing new chief executive Harvey Schwartz.

Schwartz, a former executive at Goldman Sachs who took the reins at the buyout group in February, has pledged to revive profits at the Wall Street institution during a testing period for the private equity industry.

The company said on Wednesday that distributable earnings — a metric analysts favour as a proxy for the group’s cash flows — fell to $388mn, a 26 per cent drop from the same period a year earlier. The results were better than analysts expected.

A prolonged slowdown in dealmaking curbed Carlyle’s ability to exit investments profitably and secure valuable performance fees. Dealmaking remained subdued in the quarter despite a rebound in markets that has propelled the S&P 500 up by almost a fifth this year.

Carlyle secured $7.1bn in new money from investors, a slight drop from the first quarter. Investors committed just $300mn to its new flagship US buyout fund in the period, putting the total raised at about $16bn and short of the $22bn target set by Schwartz’s predecessor, Kewsong Lee.

The firm has already warned shareholders that most of its new funds would be smaller as investors scale back their exposure to private assets, as rising interest rates radically reshape conditions for the industry.

Carlyle is expected to begin raising new buyout funds in Europe and Asia, which could help the firm’s expansion later this year.

Schwartz has already begun to overhaul Carlyle’s leadership and recently named dealmaker John Redett as chief financial officer and Lúcia Soares as chief information officer. The appointments are expected to be the start of a broad revamp of Carlyle’s operations.

Schwartz previously told analysts that he was examining each of Carlyle’s businesses in an effort to find efficiencies that will bolster profits. He has vowed to be “disciplined” in plotting a recovery for the firm at a time when rapidly rising interest rates have prompted investors to pull back from private assets.

Despite the challenges, Schwartz said on Wednesday he was optimistic that the broader economic and financial backdrop was improving.

“While the economic backdrop remains complex and investor sentiment remains mixed, the peak of the inflation cycle may have passed,” he said.