Carlyle to launch private equity product for wealth channel

The Carlyle Group is set to roll out a private-equity-focused offering dedicated to the wealth channel in the coming quarters, chief executive Harvey Schwartz said on the firm’s fourth quarter and full-year 2023 results on Wednesday.

Schwartz did not provide further details on the product, noting only that the firm has gathered $50 billion of inflows from the wealth channel since inception and has “made progress growing the strategy” over the years.

The offering follows the launch of the firm’s PE secondaries fund Carlyle AlpInvest Private Markets Fund, which was launched in January last year and is available to individual high-net-worth investors. CAPM has access to the same core investment strategies offered to institutional investors and allows individuals to participate in all investments that Carlyle subsidiary AlpInvest makes, with a minimum investment of $50,000, according to materials on the firm’s website.

There are no capital calls for CAPM, with investors stepping into a diversified PE portfolio on day one through secondaries transactions and direct equity co-investments. The vehicle is focused on the US buyout market, has a liquidity feature and had $311.6 million in net asset value as of December 31, 2023. CAPM delivered total returns since inception of 17.5 percent, as of January 3. Carlyle Tactical Private Credit Fund, its retail credit fund, has been in the market since June 2018.

Schwartz identified wealth as one of Carlyle’s four strategic initiatives for 2024, alongside credit and insurance, investment solutions and expense management.

Carlyle raised $16.9 billion in the fourth quarter, the third-largest fundraising quarter in the history of the firm, according to earnings materials. Of that figure, more than $9 billion came from credit and insurance. Fundraising in the quarter was driven by commitments for strategic solutions products in credit, its eighth AlpInvest Secondaries fund, fifth Japan buyout fund and the closing of its two latest US CLOs. It raised $37.1 billion in 2023, 24 percent more than FY 2022.

Carlyle expects inflows across strategies to reach more than $40 billion this year, according to Schwartz.

“We have a lot of momentum, as you saw coming off the record fundraising and the activity in the fourth quarter. But you should expect to see really good fundraising activity… across the entire franchise. In corporate private equity, I think there’ll still be headwinds in the industry for that. But across our platform, we feel good about the $40 billion number,” Schwartz said.

Carlyle wrapped up fundraising for its eighth flagship buyout fund in August on $14.8 billion, significantly lower than its initial $22 billion goal and less than the $18.5 billion raised for its predecessor.

Compensation changes

An area of focus for the firm this year is enhancing stakeholder alignment, Schwartz said. The firm plans to make changes to its compensation model in phases over the years, with the aim of sharing more carry with teams, more fee-related earnings (FRE) with shareholders and increasing FRE profitability.

“Carlyle has a performance-driven culture and our senior investing professionals want their compensation more tightly tied to performance. Shareholders also get more of what they value most, a significant step up in steady recurring fee-related earnings and FRE margin. And our investing clients also benefit from our teams having more skin in the game. It is a win-win for each of our stakeholders, our investing clients, our senior employees and our shareholders,” Schwartz said.

This means compensation for Carlyle’s senior investment professionals will become more success based, noted the firm’s CFO John Redett on the earnings call. “This will show up in two ways: our FRE-related cash compensation ratio will decline to 30-35 percent, from 45-50 percent. Our realized performance revenue compensation ratio will increase to 60-70 percent, from 45-50 percent,” Redett said.

“I want to be clear: this is not about changing the overall level of compensation, but rather having a higher portion of compensation being success driven. This change should be neutral to distributed earnings over time.”

Carlyle Group co-founder David Rubenstein will join other private equity leaders including Jon Gray, Orlando Bravo, and senior investment professionals from Florida SBA, New Jersey DOI, State of Wisconsin Investment Board and more at PEI’s NEXUS 2024 event in Orlando, Florida on March 6-8. Check out the full speaker list and agenda here.