Carlyle expects to this year chalk up gains on the fundraising front across several major strategies, though not as much in private equity.
“We continue to expect to raise more capital this year than we did last year,” CFO Curt Buser said in a Q1-2023 earnings call. However, “the composition of that fundraising,” he said, “has skewed further toward global credit and investment solutions and less from corporate private equity.”
For this reason, Carlyle is adjusting its forecast to include a “lower buyout fundraising outlook,” Buser said.
“While we believe that we will attract a significant amount of capital for our next vintage of buyout funds, we no longer expect these funds in the aggregate to be the same size as their predecessors,” he said. Rather, the firm anticipates “a decline” across most geographies.
These comments reflect something of a reversal for Carlyle, which oversees a $164 billion global private equity platform. The launch of an eighth flagship buyout offering two years ago was seen as a centerpiece of its plan to bring in $130 billion of fresh, cross-platform capital by 2024.
But Carlyle Partners VIII encountered challenges in reaching its $22 billion target. After securing more than half of the target in 2021, commitments began to ebb last year. At the end of March, these totaled $14.4 billion.
The flagship’s 2018-vintage predecessor, Carlyle Partners VII, closed at $18.5 billion.
Pressure on targets
These circumstances, of course, are not unique to Carlyle but are industry-wide in nature.
Private equity fundraising in the North American market slowed in 2022, with $528 billion secured by 988 vehicles, according to Buyouts data. Conditions are expected to persist or worsen this year, due mostly to overstretched LPs. This is causing many GPs to extend timelines and rethink ticket sizes.
While Buser’s remarks may be the clearest yet on the topic of targets, he is not alone in making them.
For example, TPG CFO Jack Weingart in February said in reference to an array of flagships, “It’s too early to tell whether we’ll hit all those targets or not.” TPG is seeking $18.5 billion for a ninth buyout offering and a second affiliated healthcare pool.
In 2022, target-hitting was a rare bright spot in private equity fundraising, with 89 percent of closed vehicles either reaching or exceeding targets, up from prior years, Buyouts reported. With more pressure on targets, the trend is less likely to repeat itself in 2023.
As indicated by Buser, if private equity is accounting for fewer inflows, Carlyle can compensate in other areas. The $150 billion private debt platform, which has grown by leaps and bounds since 2016, is one of them, considering strong LP demand for the asset class at a time of rising rates.
“Over the balance of this year, we expect to see CLO issuance resume in addition to incremental fundraising for a number of credit products,” Buser said. He is equally sanguine about the prospects for investment solutions strategies, such as secondaries and co-investments.
Harvey Schwartz debuts
Carlyle’s earnings call was the first for new CEO Harvey Schwartz, a former top executive at Goldman Sachs. He was named to the job in February following the sudden departure of Kewsong Lee last year.
In his introductory comments, Schwartz signaled the firm’s disappointment with first-quarter results, among them sub-par fundraising of $6.8 billion. He nonetheless expressed confidence in Carlyle’s brand and pointed to “substantial and very attractive white space” that will further its expansion.
Carlyle’s assets managed totaled $381 billion at the end of March, up 17 percent from a year earlier.