Entering text into the input field will update the search result below

Carlyle: Why I Am Passing On The 3% Yield

Jun. 08, 2020 9:18 AM ETThe Carlyle Group Inc. (CG)4 Comments


  • Carlyle's mixed quarter and cautious commentary signal a challenging near-term distributable earnings run-rate.
  • CLO-related deferrals resulted in a c. $4 million headwind in Q1, with potential credit downgrades down the road set to weigh on the management fee outlook.
  • The latest run-up seems to have priced in a recovery; investors may want to exercise caution here.

Carlyle's (NASDAQ:CG) considerable dry powder across private equity, real assets, and credit make me considerably optimistic about the longer-term outlook for realizations and fundraising. But in the near term, the stock looks a lot less attractive, having returned to pre-COVID-19 levels. I think the stock has now priced in a normalized scenario, which seems far too optimistic at this point. I would remain cautious for now as general business activity remains slow, and as a result, realization pace could also meaningfully slow, putting some pressure on the distributable earnings outlook. CLO risks are also worth monitoring heading into the upcoming quarters, though the c.3% distribution yield does provide some downside protection.

A Mixed Quarter Warrants Caution on the Near-Term Outlook

CG's distributable earnings per share of $0.48 were ahead of consensus, although underlying distributable earnings were closer to c. $0.39 after accounting for a $30 million recovery of litigation costs. In that sense, I saw the latest set of results as mixed, with muted realizations, modest declines in fee-related earnings, and lower accrued performance revenues weighing on results. On the bright side, CG did pay its fixed dividend of 25c in Q1 '20 and did not guide toward any changes to the current run-rate.

Source: Carlyle Earnings Presentation

Portfolio declines: Declines in portfolio marks were expected, but the extent of the drawdown was a negative surprise. Real asset carry fund returns declined 12%, while Corporate Private Equity fell 8%, and Global Credit saw the steepest declines at -21% due to its exposure to energy mezzanine and structured credit funds. As a result, the in-carry ratio (% of Remaining Fair Value in an accrued carry position) declined to 36% from 54% last quarter, as Europe Partners IV, Global Partners, and International Energy Partners fell out of carry.

Source: Carlyle Earnings Presentation

This article was written by

Analyst with a keen interest in the global markets, always sifting through company filings in search of compelling opportunities. Approach is heavily centered on the notion that one needs to be non-consensus right in making investment decisions. A keen follower of value investing legends such as Peter Cundill, Seth Klarman, and more recently, Rupal Bhansali.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (4)

Flex68 profile picture
"Why I Am Passing On The 3% Yield" clearly illustrates a 'missing the forest for the trees' philosophy.

Capital appreciation just over the past 4 years has been very appreciable, forget the divvy.

Article is clearly for shorties, not long-term investors, who appreciate things such as CAGR, ROIC, etc.

But, yeah, "Stay Cautious" lol
BM Cashflow Detective profile picture
While the returns on investment, cash flows and margins often fluctuate widely, $CG regularly offers high free cash flows with a nice dividend. The analysts expect superior growth in the future. Despite the good future prospects, CG is trading above fair value. That's why it's a "hold" for me. I've own some stocks since years. Unfortunately I couldn't use the corona sales prices due to the large number of offers. For me, CG is an overall very attractive company, which I'll continue to buy if the price is weak.
Definitely a nice and appreciated analysis. Thank you.
ryanmartin8 profile picture
CG is a buy and hold forever stock.
Private equity will play a major role in the recovery. Long BX and CG.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.