Carlyle First-Quarter Profit Rises 0.5% on Markets Gains

May 9 (Bloomberg) -- Carlyle Group LP, the world’s second-largest manager of alternative assets such as private equity and real estate, said first-quarter profit rose 0.5 percent as the firm collected more fees from investors for managing their money.

Economic net income, a measure of profit excluding some costs, rose to $393.9 million from $392.1 million a year ago, Washington-based Carlyle said today in a statement. Carlyle shares fell as Bill Conway, co-chief executive officer, said distributable earnings will be “flat” this year as the firm raises new funds, a process that entails immediate costs, and continues to harvest profits from current holdings.

“Our proprietary economic indicators are slightly weaker than they were” last quarter, Conway said today during a conference call with investors and analysts. “While we still expect investments in 2013 to exceed 2012’s $8 billion, we expect, based on our current pipelines, that the middle half of the year will be slower than the first quarter.”

Carlyle, which held its initial public offering last year, fell 3.9 percent to close at $30.95 in New York trading. The stock has gained 19 percent this year.

After taxes, Carlyle’s economic net income was $1.02 a share, beating the 96-cents average estimate of 10 analysts in a Bloomberg survey.

Stocks Gain

A 10 percent gain in U.S. stocks during the quarter and a rebounding real estate market helped lift the firm’s fund holdings, boosting fees for managing them. Carlyle took advantage of rising markets worldwide to sell shares in companies during the quarter, including exiting its investment in China Pacific Insurance (Group) Co.

“In the first quarter our fund investors benefited from block sales in a number of portfolio companies,” Conway said. “Each of these sales relates to investments where we have returns of two times to seven times our invested capital,” he said, citing sales of Hertz Global Holdings Inc., Nielsen Holdings NV, SS&C Technologies Holdings Inc., BankUnited Inc. and Cobalt International Energy Inc.

The value of Carlyle’s buyout holdings increased 9 percent in the first three months of the year, the firm said last month. By comparison, Apollo Global Management LLC’s portfolio gained 14 percent, Blackstone Group LP’s rose 7.9 percent and KKR & Co.’s appreciated 5.9 percent.

$10 Billion

Carlyle expects to finish raising $10 billion this year for a new U.S. buyout fund, Carlyle Partners VI, which has $7.1 billion of commitments so far, David Rubenstein, Carlyle’s co-CEO, said on the call. Carlyle’s AlpInvest Partners BV is raising a $4.6 billion secondaries private-equity fund to buy stakes in existing private-equity pools, Chief Financial Officer Adena Friedman said.

Like competitors Blackstone and KKR, Carlyle has diversified its business beyond traditional leveraged buyouts to bolster assets dedicated to real estate and credit investments. Together, all of Carlyle’s funds from which it can collect a slice of profits, which besides buyout pools also include its real estate and certain Global Market Strategies funds, gained 7 percent.

The value of buyout holdings at private-equity firms affects economic net income, or ENI, because the metric depends on quarterly mark-to-market valuations of those investments. Accounting rules require the firms to value their portfolio holdings every quarter.

Distributable Earnings

Carlyle, like other alternative-asset firms, reports profit that differs from U.S. generally accepted accounting principles. First-quarter net income under those rules, known as GAAP, was $33.8 million, or 66 cents a share, the company said, without giving a year-earlier figure.

Carlyle had distributable earnings, which measures the availability of earnings to return to private and public investors, of $168.4 million in the first quarter, compared with $178.8 million a year ago. The company said it will pay a dividend of 16 cents a share to public investors on May 31.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.

Assets Rise

Total assets under management at Carlyle rose 3.6 percent to $176.3 billion from the end of 2012 as the firm attracted $4.9 billion of new money. Blackstone, the largest so-called alternative-asset manager, said last month its assets under management reached an industry record $218 billion.

Carlyle in January debuted a fund that will allow clients to commit as little as $50,000 to be invested across the pools managed by the firm. CPG Carlyle Private Equity Fund, which is being raised by New York investment firm Central Park Group LLC, lowers the minimum investment to Carlyle funds from a typical range of $5 million to $20 million, and is viewed by the firm as a first step toward eventually accessing a slice of the $3.57 trillion 401(k) market.

“At some point down the road, I do think that non-accredited investors will ultimately be able to invest in private equity through 401(k)s,” Rubenstein said today. “That’s not quite there yet, but I do think there’s some impetus to that, and that will provide additional capital for people like us down the road.”

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net