The Carlyle Group Inc. (NASDAQ:CG) Q3 2022 Earnings Conference Call November 8, 2022 8:30 AM ET
Daniel Harris - Head of IR
Bill Conway - Interim-CEO
Curtis Buser - CFO
Pete Clare - Chief Investment Officer, Corporate Private Equity
Mark Jenkins - Head of Global Credit
Ruulke Bagijn - Head of Global Investment Solutions
Conference Call Participants
William Katz - Credit Suisse
Ken Worthington - JPMorgan
Patrick Davitt - Autonomous Research
Brian McKenna - JMP Securities
Glenn Schorr - Evercore ISI
Chris Kotowski - Oppenheimer
Gerry O'Hara - Jefferies
Adam Beatty - UBS
Mike Brown - KBW
Ryan Bailey - Goldman Sachs
Good day, ladies and gentlemen and thank you for standing-by. Welcome to the Carlyle Group Third Quarter 2022 Earnings Conference Call. [Operator Instructions]
At this time I would like to turn the conference over to Mr. Daniel Harris, Head of Investor Relations. Mr. Harris, you may begin, sir.
Thank you, Harris. Good morning and welcome to Carlyle's third quarter 2022 earnings call.
With me on the call this morning is our Interim Chief Executive Officer, Bill Conway; our Chief Financial Officer, Curt Buser and several leaders from the office of our CEO. Pete Clare, Chief Investment Officer for Corporate Private Equity; Mark Jenkins, Head of Global Credit; and Ruulke Bagijn Head of Global Investment Solutions. Bill and Curt will begin with some prepared remarks and then the entire call, our team will be available for your Q&A.
This call is being webcast and a replay will be available on our website. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. We have provided reconciliation of these measures to GAAP in our earnings release.
Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our Annual Report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time.
Earlier this morning, we issued a press release and detailed earnings presentation, which is also available on our Investor Relations website. I'm going to begin with a quick discussion of our results and then hand the call over to Bill.
In the third quarter, we generated $213 million in fee-related earnings and $644 million in distributable earnings. Fee-related earnings of $213 million increased 40% compared to the third quarter of 2021. Year-to-date FRE is $632 million is 49% higher year-over-year, through a combination of strong organic growth as well as the positive impact of various strategic transactions completed earlier this year.
FRE declined sequentially from the second-quarter, largely due to two items we see in the last quarter, catchup management fees totaled $10 million compared to $19 million in the second-quarter and fee related performance revenue was also lower sequentially. Distributable earnings of $644 million this quarter and year-to-date DE of $1.5 billion, is 10% ahead of last year's $1.3 billion and is already more than double any prior full-year results other than our record result from last year. On an after tax basis, we generated $1.42 and DE per share for the third quarter and $3.33 year-to-date. We declared a quarterly dividend of $0.325 per common share.
With that, let me turn the call over to our Interim Chief Executive Officer and Co-Founder, Bill Conway.
Thank you, Dan. Good morning, everyone and thank you for joining us today.
It's been a while since I've spoken with many of you that I'm pleased to be on the call today to discuss Carlyle's results for the quarter. While Carlyle is in a transition period, as we move towards a new CEO, the firm is operating well and I'm proud of our teams around the world as we continue to perform for all of our stakeholders.
There are two important points I'd like to focus on today. First, I'll touch on the results and highlight the strength and diversity of Carlyle's global business. Second, as we navigate a challenging markets in a difficult economic environment, I'll discuss how our approach and investment experience, it's helping us manage through economic uncertainty and positioning the firm for the future. I'll also give a brief comment on the status of our search for a permanent CEO.
First, let me provide some perspective on Carlyle today. In the third quarter, Carlyle delivered solid results for our fund investors and our shareholders despite the market volatility. And year-to-date, our results are adjusted strong with FRE up almost 50%. None of this is by chance, we were able to deliver this outcome due the breadth and depth of our businesses, strong business leadership and highly capable investment teams around the world.
Let me be very clear, the firm's strategic focus on growing fee related earnings, diversifying our business mix and earning stream and improving the way in which we operate has not changed at all. These core tenants will not change regardless of who is leading the firm.
We have three global business segments that are run by three strong leaders, each of which serves as stewards of investor capital and drivers of growth for our shareholders. Ruulke Bagijn in Global Investment Solutions, Peter Clare in Global Private Equity and Mark Jenkins in Global Credit are all on the call with me today and you'll have the opportunity to ask them your questions later.
As we navigate through more challenging markets than any of us have seen in a decade, the firm is in an enviable position. Carlyle and I have been doing this for 35 years and we've seen all types of markets and economic cycles. We are confident that each of our businesses have the resources, investment talent and capital of over $74 billion of dry powder to capture opportunities for our stakeholders.
Our teams are highly experienced and have worked together through various cycles. In fact, the partners of our investment teams have worked together at Carlyle for more than 15 years on average with decades more at firms across the globe.
Moving on, let me discuss the broader environment and how that impacts our investment outlook. All of you will see the same things we do. Rising interest rates, high levels of inflation, geopolitical uncertainty. Each of which lead to increased market volatility and headwinds for investors and operators. This is unlikely to resolve in the short-term, now our teams are not sitting back and waiting for better days.
Certainly this market is tougher for some parts of our businesses than others and on some parts of our business, this environment will create opportunities. And two examples come to mind, our credit opportunities business, which you see far more lucrative places to put money to work and our solutions business, which will have even more chances at attractive returns to finance buyers and sellers of existing fund positions.
One of our core strength has been in the area of investment risk management, particularly in the construction of our portfolios. We certainly take risk, you can't make money without doing so, but we need to get paid-for the risk we take. Until recently, the investors will make the most money have taken the most risk. That is in our style.
Portfolio construction matters, it's a differentiator that continues to position our business to deliver outsized relative performance for fund investors across market cycles. Our portfolios are built with diversification by geography, industries, deal size and risk. And portfolio construction isn't adjusted in our private-equity business, but in Global Credit and Global Solutions as well.
For instance, in our CLO businesses, CLO portfolios, where we manage hundreds of credits. This investment strategy has led to default rates at half the industry average. Another example would be our US real-estate business, which is investing its ninth closed-end fund with committed capital of $8 billion. This is an experienced team with a long and successful track-record.
In terms of portfolio construction, they favor demographics over GDP. Their current fund has almost no exposure to office, hotel and retail, which represents 60% of the typical real-estate fund. In volatile markets like today's, our fund results should reflect the benefits of our strategy and so-far they have.
Before I close, let me comment on our search for a permanent CEO. In short, the search continues. The Board and search Committee are making good progress finding the right leader and we do not have any additional information to provide at this time. I'll finish where I started.
Carlyle has the capital and expertise to have a long-term focus, which has served our investors well for decades. We have three strong segments that are well-positioned to navigate the current environment and capture value. Our quarterly and year-to-date results underscore the strength of this platform and Carlyle has delivered through various market cycles and transitions. I'm proud of where we are today and feel that we can continue driving long-term shareholder value.
With that, I'll hand things over to Curt Buser, our Chief Financial Officer.
Thanks Bill, and good morning, everyone.
As you've heard Carlyle delivered strong third quarter and year-to-date results and a particularly challenging quarter, a testament to the strength of our investment platform and quality of our three global business segments. While economic and geopolitical uncertainties are creating headwinds, our business continues to deliver impactful results.
Consider the following, fee-related earnings of $632 million year-to-date are up almost 50% from the same-period last year. And are already higher than any full-year in the firm's history. Our carry funds across asset classes and geographies have appreciated 10% year-to-date. As Bill noted, our portfolio construction and proven investment approach, is why we are delivering outsized returns and we are well-positioned to continue to do so.
Our net accrued performance revenue of $4.1 billion is up from $3.9 billion at the end of last year and that is after realizing $780 million of net performance revenue year-to-date. And while fund raising is clearly more challenging this year, we have raised $25 billion in new capital year-to-date that translates into almost $90 billion in new capital formation, when you include completed strategic transactions such as Fortitude and CBAM.
With that backdrop, let me provide an update on each of our global business segments and then I'll dig into the financial results. Our global private-equity business continues to deliver solid results across corporate private equity, real-estate, infrastructure and natural resources. Fee-related earnings year-to-date in global private-equity of $409 million has increased 45% with both topline growth and margin expansion.
Our current vintage of funds taking carry, has led to current strong current carry generation and as we look-forward, we know that we have an equivalent amount of net accrued carry on funds that has not yet taken carry, as we do from those currently generating cash carry. So we believe, we are well-positioned to continue to generate strong performance revenues in future periods.
Global private-equity is also poised for future growth, having raised almost $10 billion in new capital year-to-date and having deployed almost $16 billion into new investments. While in the near-term, the pace of corporate private-equity deployment and realizations is likely to slow, given challenging capital markets and we're already seen the impact of solar CP fund raising. Over the long-term, we see significant opportunities for continued growth across our global private-equity investment platform.
In global credit, our assets under management have nearly doubled, in just this year to $141 billion and FRE has more than doubled year-to-date as the impact from our strategic transactions has been highly accretive. Our investment teams are active across the liquidity spectrum, taking advantage of market dislocations to invest in opportunities with increasingly desirable risk-reward characteristics.
Many of our largest strategies are floating-rate in nature, so fund investors benefit from increased current yields. At the same time, while current credit quality remains good, we are actively position our portfolios to withstand worsening economic conditions and potentially higher default rates. We do not anticipate any near-term challenges that put existing management fee streams at-risk. So the slower pace of activity may slow capital markets transaction fees.
Looking at future growth, global credit has raised $12 billion of new capital this year across 11 strategies. Year-to-date, CLO formation has been strong with 7 new CLOs price for $3 billion. The velocity is falling due to-market conditions.
Direct lending generated near-record originations in the quarter with gross new loans of more than $1.5 billion and we are seeing significant demand for private credit across our asset type and geography. And fortitude continues to perform well with a robust pipeline of growth opportunities and we continue to expect it can double its size over the next few years.
Moving to Global Investment Solutions. This business is well-positioned to support the increasing liquidity and portfolio management needs of global fund investors. Secondary investment activity is poised to accelerate, as fund investors seek to optimize their own portfolios given market volatility. Global investment solutions has seen year-to-date FRE tick lower to $55 million, partially owing to the negative impact of foreign-exchange rates.
However, AlpInvest is making strong progress, investing their current vintages of co-investments and secondary funds and are likely to be back-in the market to raise their next-generation of funds sooner than expected. Global Investment Solutions depreciation was flat in quarter and is up 9% year-to-date, with net accrued carry of $365 million, up more than 14% year-to-date.
To summarize, we expect the pace of activity to slow over the next few quarters in certain areas, while others will remain active. This is why our diversification strategy remains core to our future growth. And importantly, as we've seen in past cycles, the work and diligence we do now positioned us to come out on the other side that much more ready to act.
Turning back now to firmwide results. Let me dig deeper into third quarter earnings. Let's start with fee-related earnings. As Dan mentioned, third quarter fee revenues are down about $24 million from the second-quarter, due to lower catchup management fees and fee-related performance revenues. That said, fee revenues are up a robust 31% from a year-ago. And as a reminder, more than 90% of our management fee revenues are in closed-end fund structures and not subject to redemptions.
Cash based compensation expense in the third quarter was down sequentially, largely as a function of lower-fee related performance revenue and the impact of foreign-exchange on translation of compensation in Europe. G&A expenses of $101 million in the third quarter, increase as we hosted our Global Investment Conference and travel and entertainment largely returned to pre pandemic levels.
Expenses continued to be impacted by inflationary pressure and the strong labor market that will continue to impact expenses into 2023. FRE margin was 37% in the third quarter and year-to-date, FRE margin of 38% increased more than 400 basis-points year-over-year.
For the full-year, we now expect fee-related earnings to be between $825 million and $850 million. With the headwinds from foreign-exchange translation, slowing buy out fund-raising and unit transaction fees each impacting expected full-year results. That said, we still expect 2022 FRE to increase more than 35% compared to 2021. And we remain confident that our long-term FRE growth trend remains intact.
Net realized performance revenues of $391 million in the third quarter, where our third-largest quarter on record. Year-to-date, net realized performance revenues of $780 million, highlights the strength of our portfolio and our team's ability to monetize investments despite difficult conditions. I said last quarter that I expect that our second-half of 2022 net realized performance revenues to exceed the first-half of the year. With just the third quarter's result, we've already surpassed that goal.
Our net accrued performance revenue balance of $4.1 billion and remaining fair-value of investments in our carry funds of $136 billion, gives us confidence that over time we will realize a high-level of performance revenues and distributable earnings. Our accrued carry remains near record levels, despite significant declines in public market valuations and increasingly higher discount and cap rates used in our valuation process. Today, our accrual represents over $11 per share in future earnings power.
So let me wrap-up. We're performing well against the challenging backdrop. We're focused on growing and diversifying fee-related earnings and expanding the capabilities of our firm to drive long-term shareholder value. More broadly, each of our three global business segments are well-positioned to deliver growth and outsized returns for our stakeholders.
Now let me turn the call over to the operator, so we take your questions.
[Operator Instructions] Our first question or comment comes from the line of Bill Katz from Credit Suisse. Mr. Katz, your line is open.
Okay, thank you very much for taking my questions this morning. Very first question Bill, thanks so much, I could hear your voice again. Just as you think about, I appreciate you have nothing else to say. But maybe you could help us understand what factors or dynamics you're looking for in a new CEO? How you're thinking about internal versus external candidates? And what if anything, did you learn in terms of this transition about where they franchises headed. Thank you.
Thanks for the question, Bill and you know I really can't answer it. And because of that, we're going to give you a bonus question. But having said that, we are making good progress on finding the right leader. We want to find somebody that is better than I am, would be one of the comments I'd make. And we don't really have anything additional to add at this time. But as soon as we do, we will report to you and of course, in the interim, the firm is operating well and from position of strength, but that take you bonus question.
All right, thank you gave a shot. So just maybe in terms of one of the biggest things we hear on the story line, is that without the leadership it's going be very difficult to grow the business. On-top of so a very difficult backdrop and your AUM SKU. So I appreciate you went through the three businesses, but can you sort of level-set, where we are in terms of your prior goals to raise assets? And as you look-ahead, help us understand where you see the best opportunities maybe it sounds like the Investment Solutions side, but just anything to help us frame out sort of path to higher-fee paying AUM? Thank you.
Hi Bill, its Curt. Let me kick it off and then I'm going to have partner maybe to join in afterwards. So let me just bring you back to the beginning of 2021, which actually wasn't that long ago and we set a goal for 2024 to generate $800 million of fee-related earnings, $800 million of net realized performance revenues and $1.6 billion of pretax DE, we've met those goals.
This year, year-to-date, $1.5 billion of DE and actually through three quarter last year, obviously record numbers. From a fund-raising and capital accumulation perspective, we have -- we generated about -- we raised about $50 billion last year, this year $25 billion year-to-date. But more importantly, roughly $90 billion of capital accumulation when you consider the strategic transaction we've also had.
Our relationships are good with our LPs, we're continuing to work on those relationships. Pete on the road, as we speak here today, doing just that. And I would just say that the prospects for the future remain really good and I'm eager about all of the market dislocations that we're seeing in here, because I know that my colleagues are going to really take advantage of this. So I'll pause there and see if any my colleagues want to join in, what I just said.
Hi guys, thanks. Bill, thanks for the question and I'll just add a perspective on fundraising on the global private-equity side. Overall, though -- as you heard from Curt in our funds are performing really well with 10% appreciation across all of our carry generating funds, a little bit higher than that across the global private equity business. As Bill mentioned, the portfolio construction really matters and one of the hallmarks of our investment strategy is to build portfolios that have less risk and really resilient earnings power in the businesses that we invest in.
And we outperform in tougher economic times, as our funds have done historically in tough economic times. And I think that track record consistent returns in tough economic environments going to help us on the fundraising front. So even though, the market is clearly congested fundraising for large buyout has slowed down. We do expect the ultimately the -- all of our funds that were currently raising now will in aggregate commitment similar-size to the current vintages.
But it's important to remember, you prior the broader today then just buyouts and we're growing in many other areas. Our US real-estate business is growing significantly, our Europe Technology business has grown a lot. And you'll probably hear more from market, look how the growth that we're seeing in credit in Global Solutions.
Yes. Hi Bill, it's Mark Jenkins here on the credit side. I would say similar to, Pete. I mean, I've been on the road talking with our investors. There is a sense opportunity when we talk to investors about what's going on in credit markets in particular, as they seen a repricing of risk. And we're taking advantage of that. Similar to see, I mean we have a broad platform here at Carlyle that spans everything from liquid or private credit and real assets. And I would say across the opportunistic play and frankly even on the CLO space, we continue to see growth. And as a good down the various channels that institutional insurance retail, we continue to see those as great avenue of growth for the business and opportunities for our investors.
And this is, Ruulke. In terms of growth, our platform is very well-positioned to benefit from the market conditions, especially with liquidity means increasing across markets. And let me also remind you a bit about AlpInvest. We managed $63 billion of assets under management and secondary's is our largest and profitable part of our business, managing $21 billion of assets under management. But we also have leading co-investments and to any fund investment businesses.
Our performance has been strong with long-term net outperformance across all strategies of around 500 to 1,100 basis-points for last 10 years, but over the last 20 years. And we continue to deploy it also despite the current market conditions and we expect actually to be back-in the market next year with several strategies and being able from the opportunities that we see in the market, which are especially obviously also present in the secondary business where our liquidity needs are increasing across markets at this point in time.
Thank you. Our next question or comment comes from the line of Ken Worthington from JPMorgan. Mr. Worthington, your line is now open.
Great. Thank you, good morning. Public shareholders seem to be concerned about the leadership uncertainty. And I think we can see that in the underperformance of the shares. Commitments this quarter seems so and logic would suggest that leadership uncertainty could be a factor here. So the question is, do you think leadership uncertainty is having an impact on fundraising? If so, how meaningful is that uncertainty having on either the size or timing of commitments? And then I guess most importantly, do you think the choice of a new CEO can win back concern clients or is the damage somewhat irreversible for funds in-market right now? Thanks.
Thanks, Ken. Well the short answer would be no, in terms of the impact of the CEO change on fundraising. I've been on the road a lot myself, talking to investors. Pete was right when, he said that it has slowed down to the congestion in the markets. But I think, I don't see any long-term damage at all and this. And remember, I'm an investor, I've been an investor for 35 years. I was the Chief Investment Officer to Carlyle before I was CEO the first time. And I think the investors in our funds they like seeing somebody at the top who they know understand exactly what they're trying to accomplish.
Just add-on to that. Hi, Ken, its Curt. Look I think there's a couple of things that are really important. First, the aggregate dynamics that are affecting lots of the private-equity players, not just us. The denominator effect that congested in the market, et-cetera. So look, we're freight to that like others are, but our diversification and other products whether in energy, natural resources, credit solutions, as you've heard. The experience is very different based on that performance and industry and sector matter a whole lot. We're seeing a lot of good opportunities there.
And so, I think that the comment that you started out with around leadership, people are seeing the very strong leadership that we have across our funds and our teams and who's at the top matters, but not to the extent that you're implying the question.
Thank you. Our next question or comment comes from the line of Patrick Davitt from Autonomous Research. Mr. Davitt, your line is now open.
Hi good morning, everyone. My question is on solutions. You and others are obviously hyping up how big of an opportunity this could be as investors increasingly look for liquidity. But to your point on AlpInvest needing to be back-in the market, there's obviously another sides of the equation, right. You need to raise in the dry powder to take advantage of that. So why is this a strategy that you think will really have a lot of demand, given where we are in the cycle. As it seems, LP demand is really skewing more towards things like real assets infrastructure and private credit.
I think that's a great question. I mean let me also be clear, I mean we do have a very significant dry powder at this point in time for the strategy, which is good, because the market is changing as we speak. What we've seen is that public market valuations have decreased much faster than private markets valuations and I think as you are aware, the percentage of illiquid holdings of total AUM of larger investors in US has increased very significantly.
As a result of the denominator effect, LPs are considering their portfolios. They consider portfolio rebalancing, they consider selling part of their portfolios that's typically an area. To the extent, the LPs are considering to sell part of their private-equity exposure that is an area we can obviously greatly benefit as a platform with our secondary business.
At the same time, it's broader than that. I think the liquidity needs in a markets are increasing, also private SKU managers GDPs do see the market changing their exit opportunities genuinely are becoming narrower, which actually is a positive support for significant trends like continuation vehicles, in which we play a very market-leading role. So whether you look at a GP side of the market or LP side of the market with our secondary and portfolio financing platform, where we have market-leading positions, we think we can benefit.
And Patrick, I'll delve really briefly, we're also not going to top of our own great performance, but performance in our solutions business has been really strong. And so once the times for those products come back to-market. Similarly, really good about how we'll be positioned. And so very optimistic about the future and it's been a really good story for us. The growth really since 2019 has been very strong in this business. We've taken it from almost nothing to a really interesting story and one that we remain very optimistic about going forward.
Thank you. Our next question or comment comes from the line of Brian McKenna from JMP Securities. Mr. McKenna, your line is now open.
Great. Thank you. So I know the broader capital management strategy will likely be determined by the new CEO. But how are you thinking about the trajectory of the dividend into next year, particularly given the level of FRE growth in 2022. And what will likely be some incremental growth in 2023? And then related just given where the stock is trading, how are you thinking about buybacks here?
Brian, it's Curt. Hi thanks for those good questions. So first let me just remind everybody, we increase the dividend from $1 per share to $1.30 per share at the beginning of this year, a 30% increase, we are very much focused on continuing to grow our business. We want our dividend to be sustainable fixed. We want to move-in one direction up, it's something that the Board will consider typically at year end in terms of how much.
And also in terms of viewing kind of our various capital needs and requirements to grow the business and also consider buybacks, as you talked about. But look, we're thinking about just that in terms of how much to go up. We expect us to -- to think about that in that context of how to appropriately allocate capital.
From a buyback perspective, look there's a good opportunity here we actually think that we'll continue to manage our dilution from equity grants. And as we think about balancing those buybacks with other capital needs, we're going to lean into growth. But clearly the attractive price of the stock right now really raises the bar in terms of how we think about acquisitions and the other external uses of capital to grow the business.
But make no doubt about it, we're focused on shareholder value, growing shareholder value. And you point out a couple of the levers in the pull backs to do just that. So thank you for your question.
Thank you. Our next question or comment comes from the line of Glenn Schorr from Evercore ISI. Mr. Schorr, your line is now open.
Thanks very much. So heard from you and heard from others about the pace is likely to slow that goes for deployment fundraising monetization's kind of everything in this backdrop. Also heard, it's going to take a while from you and others. So get it the world is pretty disruptive. I'm curious on how you might attribute this slowing to -- is it the lack of available funding, is that the absolute cost, higher-cost of funding. That's producing these wide/bid ask and then maybe turn it. And so potential positive, what are going to be the signs that you look for or we should look for to see that the environment is improving?
Sure. This is Peter, I'll take that question. And I'll give you the perspective from the private-equity side of our business. I think it's certainly a combination of factors that leads to slow-down in deal flow. First, I would say that the level of deployment investment activity in 2021 was unusually high. So that was really a peak, so there's no doubt that we are going to come off that. The level of overall investment activity this year was more in-line with our typical annual run-rate for deployment in investing in the private-equity side.
Looking-forward into 2023, I do expect the investment phase to slow a bit further, which is really two or three factors driving that. First, obviously the increase in interest rates has an impact. But for all, private-equity buyers impact of that and you can assess. You know what the -- you can go out and get debt financing commitment the cost of it is.
But because the cost is higher, prices come down a bit ultimately. Because, we're going to require the same rate of return, higher rates of return in this environment, so prices for sellers will be lower. Because of that, you get less people coming to-market to sell businesses right now. I know you're not going to get top-tick valuations given -- what the public markets have done in terms of trading off a bit in and higher interest expense you got less sellers willing to sell in that environment.
And third and last factor, I'll touch on is of course the uncertainty out there in the environment or certainly the expectation that the economy is going to slow. And because of that, buyers and sellers are less likely to agree on the price for a business today, which makes fewer transactions happen.
But I don't want to be overly negative, a lot of transactions are still happening. And we have invested a lot over the past quarter and I'm seeing one of those deals we got debt-financed and yes, the financing was more expensive. But deals are getting done, but I do expect across the market to see a slow down on deployment in 2023.
Yes. Hi Glenn, it's Mark here. On the credit side, I would say that, we've got a different dynamic going-in that. We think the opportunity set is increasing specifically in private credit, where the capital market is effectively become less liquid if you want to call that, I won't say it's eased up. And until really the bank at most of those commitments lot of balance sheet, it's going to be a very good opportunity.
And we see that as very good opportunity not in the next 6 to 12 months, we think that'll be given the slowdown in the economy a 12 month to 24 month opportunity. Where the pace of employment can pick up, we're going to a period of time. I think when you look in the liquid book, we still have had good formation on the CLO side, despite what's going on in the marketplace. And if we feel liabilities adjust, which we expect low we'll see probably more continued pace on that side as well.
So I think for credit, we feel very good about the opportunity set and the funnel of opportunities that are coming down to us right now and we're quite bullish on what we see.
Mark. I wonder, if we could just follow-up on that. A question I was going to ask was going to be on CLO performance was decent, okay hung in there in the quarter. It's down a few percent, both US and European for the last 12 months, which is a lot better than the public markets but still down. And just curious, does that kind of performance profile and then just the higher-rate environment. How the typical CLO investor interprets that? And so I wonder, if I could get a specific CLOs formation thought process over the next year or two? Thanks.
Yes. I think, obviously two components of CLO formation at the asset-level right now, which is very attractive and we form the liabilities as well. And I think the past 6 months in particular has been more challenging on the liability side, so the leverage that we put on those vehicles. And we're going through a period where that formation has been more challenged. That being said, as Curt said, we've completed 7 CLOs this year-to-date, which would be more in-line with the regular year for us.
And so I think the challenge will be for managers just generally is that access to the liability side, which Carlyle given where the world's largest CLO manager and one of the better performers and have position our portfolios quite well. We're able to attract those liabilities, in particular the equity as well and we commit to the equity ourselves off the balance sheet, so that does perpetuate the formation CLO for our business in particular.
Thank you. Our next question or comment comes from the line of Chris Kotowski from Oppenheimer. Mr. Kotowski, your line is now open.
Good morning, thank you. Most of mine have been asked, but I noticed that on CPA there is another couple of $100 million of commitments there. And I'm wondering, is the fundraising on that done or is there a chance to extend the fundraising into calendar 2023? So that LPs could use their next vintage year commitments to do come into that fund?
Thanks for the credit. Yes, we do intend to keep fundraising going into 2023. That was our assumption all along and so we will do that and you're right that will open up a number of investors and a number of our investors have come to us and please, come back and see in 2023 I have more allocation then, so we do intend to keep fundraising going in '23.
Okay. And that'll be with for catch-up fees and all that?
Yes. I mean that's yes no quota in terms of the LP agreements and that would be included.
Thank you. Our next question or comment comes from the line of Gerry O'Hara from Jefferies.
Great, thanks. I was hoping maybe we could get a little bit just an update around the fortitude outlook and kind of how your how you're balancing what you see or where you see the opportunities for both organic our organic first blocks and transactions and what appears to be an increasingly competitive market, but also more-and-more attractive one. So any comments or context would be helpful there. Thank you.
Hi Gerry, it's Curt. I'll start with some numbers and then Mark will provide some color around it. So fortitude is doing really well, just as a reminder everybody is about $45 billion of fee-earning AUM. There's also about $9 billion that they've invested directly into our funds. And maybe more importantly, they have over $4 billion of capital within fortitude itself. And that's important, because that's the capital that they can use to essentially double their business, which we think we can accomplish over the next couple of years.
And so we're opportunistic in terms of kind of how they're doing in both from and also just from an adjusted book-value. And from a return-on-equity perspective that business is continuing to perform well. But Mark, I don't know, if you have more color to add?
Yes, the only thing I'd add Curt and its Mark here, is that -- the macro backdrop and what FX with these transactions is that insurers are looking for ways to better manage their capital and their operations in more efficient manner. And that hasn't changed and in fact in higher-rate environment, all else being equal. It's generally made it more attractive or more favorable for sellers to transact on these legacy blocks, which is what we traffic and some policies perspective.
So that pipeline that we see continues to be very strong and the timeline on these transactions are traditionally longer than regular corporate M&A process, it given the complexity of the books and we're involved in many processes right now and we feel very positive about what we see in that regard. So we're quite comfortable with how far its going.
Thank you. Our next question or comment comes from the line of Adam Beatty from UBS. Mr. Beatty, your line is now open.
Thank you and good morning. Just wanted to follow-up on capital management. I appreciate Curt's comments earlier about wanting to maintain steady dividend and what kind of ratcheted up year-after-year. My understanding is that, that's primarily that process has been primarily based around FRE in the past. I just wanted to ask about the potential for incorporating realized carry in the level of the dividend. You've managed to maintain that fairly well this year, indicated that maybe averaging $1 billion or so in the out years. So it seems like something that might be able to be incorporated in capital distribution to investors, but wanted to get your thoughts on that. Thank you.
Adam, it is correct. Thanks for that and thanks for recognizing the strength really of our accrued carry and carry generation we've had. $4.1 billion of net accrued carry-on the balance sheet roughly $11 per share in future earnings power. But we think that that's going to come out, capital market permitting roughly $1 billion per year. But just as Pete noted, what we'll see some slowdown next year could be a little lighter than that.
Our approach on the dividend however, really is one of making it a fixed dividend that we -- that is fully sustainable that we can grow. And we think using really kind of recurring revenues, primarily FRE is the way to look at that. But we also have to balance it amongst all of the capital needs that we see, how to invest in growth, how do you consider buybacks and managing dilutions and also how to return capital to shareholders. And look there is a variety of levers as I said before to grow shareholder value and that's what we want to do.
Thank you. Our next question or comment comes from the line of Mike Brown from KBW. Mr. Brown, your line is now open.
Great. Thank you for taking my questions. So I appreciate the updated FRE expectations for 2022? Any early read on expectations for next year or any color on how we should think about that FRE growth and FRE margin, as we think about 2023? Thank you.
And Mike it's Curt, thanks for the question. Look just is consistent with our past practice. We will provide more granular detail on '23 at beginning of '23 after we completed all of our year end processes and the like. But let me just reiterate. This year we've grown FREs 50% past decade, it's a 15% CAGR.
So we're focused on -- you heard Bill say, we remain committed to growing FRE. We think our diversified business model helps us do that, we're very focused on efficiently and effectively run the business.
We'll continue to make investments, whether that's in growing our distribution platform or in technology to help us operate more efficiently. But we're going to make sure that working here to focus on how we grow FRE in the aggregate, because that matters more than just margin. But margins also important as a tool to grow more FRE dollars. And I'm confident that we'll continue to -- our FRE growth trend as we go forward.
Thank you. Our next question or comment comes from the line of Alexander Blostein from Goldman Sachs. Mr. Blostein, your line is now open.
Good morning this is Ryan Bailey on behalf of Alex and maybe piggybacking off the prior question a little bit. So if we come back to private-equity fund-raising, obviously and you've reiterated business, it's a challenging environment for the industry. You have a number of flagships in the market over the next 12 months and you had fairly strong realizations year-to-date out of private-equity. With the delayed fundraising, do you still expect management fees to be able to grow in '23 versus '22 within private-equity?
So Ryan, it's Curt here. Let me take that. So we're focused on a lot of things to grow the business. I'm going to give you more granular detail on '23 next year. We had very nice top-line growth this year in private-equity, any given quarter and really any given year is always tough to call exactly but we're focused on long-term trends. And what I really like here in private equity is, we have a number of things to focus on. Natural resources, energy, our real-estate business, our technology initiatives, our European technology platform, very strong.
So there is a number of things for growth in that business and we're focused on growing FRE on all of our big businesses in the aggregate and believe we can do that in '23 as well, I'll give you more detail next year.
Thank you our next question or comment comes from the line of Michael Cyprys from Morgan Stanley. Mr. Cyprys, your line is now open.
Good morning, and this is [indiscernible] signing in for Mike, thank you very much for taking the question. My question is more about how you think about the way the mark-to-market valuation of carry or lack thereof. How -- what do you think the market is missing around how the way to think about carry. And as it intend them about how should I be thinking about Carlyle's ability to realize the over $4 billion of accrued carry you have on the balance sheet right now. Thank you.
I love your question. The Ministry around valuation of Carrier look, I think it's been under-appreciated for a long, long-time. This is a battle that we have bought four years in terms of trying to educate people. I'll just reiterate, what we have over $4 billion in net accrued carry on the balance sheet, underpinned by $136 billion remaining fair-value on our funds.
This has been a tough challenging market in a lot of fronts. But even in all of that, our funds have appreciated 10% year-to-date, which is really good. I mean, if you think about how Pete and Mark and Ruulke and all other teams has built their fund. Portfolio construction is still centers opening remarks really matters all three have done it, really in ways that are key to there. I think it is really positions us well.
There is no -- I don't have the magic perfect crystal ball on the future and I wish I had better. But I'm feeling really good about how we continue to drive, carry -- you saw almost $400 million of realizations in this quarter. We'll get will probably slow a little bit here or there, but overall really strong even with the difficult backdrop. So I get -- I fully agree with you that why this is undervalued at $11 of value in terms of future earnings and continues to perform well. So thanks for your question.
Of course. I mean, if I could just sneak in a quick follow-up, assuming this under evaluation carries on for an extended period of time. What levers [indiscernible] I guess I've a better align incentives of the carry perhaps with base you may place a high-value on it or in terms of kind of returning that back to shareholders in some way, some shape or form?
Look, alignment matters in terms of compensation strategies but also in terms of beginning able to drive continued growth in our business. And so while we continue to embrace our balance sheet light model, being able to use capital that is generally been generated from carry production to be able to reinvest that into fee-related earnings businesses to grow just like we did with Fortitude and C-Band earlier this year, we'll continue to look for those opportunities.
Obviously today, the bar for how we look at those things is higher than before. But we're going to continue to aggressively use our balance sheet to grow, but also balancing that with growing dividends, buying back stock and other tools to grow the firm. But carry is a key component of generating that capital to enable us to do all of those things.
Thank you our next question or comment is a follow-up from Mr. Patrick Davitt from Autonomous Research. Your line is now open.
Hi, thanks for the follow-up. Could you give us some perspective on the underlying corporate PE portfolio operating trends kind of from quarter-to-quarter this year revenue, EBITDA, gross margin vis-a-vis inflation?
Yes. Hi Patrick, it's Curt. I presume you're asking about the underlying portfolio companies and is that's the question, then I have people will chime in here on that.
Yes. That's what I'm asking.
Sure across the corporate private-equity portfolio, the companies have continued to perform very strongly. Revenue growth overall has been in the low-double-digits across that portfolio. And many companies are passing on price increases, but also demand has remained really strong in most areas the economy so-far.
On margins, there's clearly there is some cost pressure, so on margins, margins are growing in the mid-single-digit. So roughly half the level of revenue growth is the level of earnings growth that we're seeing. So businesses continue to perform well, we continue to get earnings growth and that's what's supporting the valuations in the portfolio is the earnings growth that we're seeing across the portfolio. That's Corporate Private Equity and I'd say overall across natural resources and infrastructure the results have been even better. What's happened with energy prices and that's one of the portfolios performed even stronger.
And that's LTM, I think, the revenue and EBITDA?
Can you repeat that, sorry -
That's LTM, I assume the revenue and EBITDA growth or is that the 3Q?
That is year-to-date, that's year-to-date results.
Thank you. I'm showing no additional questions in the queue at this time, I'd like to turn the conference back over to management for any closing remarks.
Thank you all for your time this morning with us. Should you have any follow-up questions, feel free-to reach-out to Investor Relations at any point. Otherwise, we'll look-forward to speaking with you again on next quarter's call.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect, everyone have a wonderful day.