Carlyle Profit Falls 78% in Quarter on Lower Portfolio Gains

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  • Declines in Asian holdings offset U.S. buyouts, real estate
  • Global stock slump also hit peers Blackstone, KKR in quarter

Carlyle Group LP said first-quarter profit declined 78 percent as its holdings didn’t appreciate as quickly as a year earlier.

Economic net income after tax, which reflects both realized and unrealized investment gains, fell to $58.2 million, or 18 cents a share, from $260.6 million, or 80 cents, a year earlier, Washington-based Carlyle said in a statement Wednesday. The results exceeded analysts’ expectations of 15 cents a share, the average of 13 estimates in a Bloomberg survey.

Carlyle joins Blackstone Group LP and KKR & Co. in posting a steep decline in profit after the firms benefited from rising markets in last year’s first quarter. Global stocks slumped to start 2016, eroding the value of companies that buyout firms have taken public and still own. A market rebound in March allayed some of the losses. The firms mark the value of the investments they hold, a key determinant of economic net income, in line with the market.

“Commodities and a decline in public holdings adversely impacted the quarter,” Barclays Plc analysts led by Kenneth Hill wrote in a note to clients earlier this month, citing Hong Kong-based Focus Media Holding Ltd., which declined 27 percent in the quarter. “A single large holding drove an outsized loss.”

Shares of Carlyle rose 0.7 percent to $17.65 at 10:16 a.m. in New York, extending gains this year to 15 percent, including reinvested dividends.

The firm said it bought back $6.1 million in stock during the quarter, after unveiling a $200 million share repurchase program in February. KKR this week said it’s bought $388 million of its shares since announcing a $500 million buyback plan in October.

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The value of Carlyle’s private equity investments rose 1 percent in the quarter, compared with 8 percent a year earlier. Blackstone’s portfolio appreciated 1.7 percent and KKR’s declined 0.9 percent, the New York-based firms said in earnings reports this month. The Standard & Poor’s 500 index of large U.S. companies was up 0.8 percent.

“Private equity firms face tough comparisons to strong 2015 results,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said Wednesday. “Quarterly mark-to-market results are less important than the results funds get when they sell their portfolio companies.”

Carlyle stood out from other alternative-asset managers in the quarter with a higher pace of both new investments and asset sales. The firm completed its $7.4 billion buyout of Symantec Corp.’s Veritas data-storage business, four takeovers in Europe, two health-care deals in China, a deal in Japan and about $500 million in energy and real estate investments.

“The energy sector is particularly compelling,” Bill Conway, Carlyle’s co-chief executive officer, said Wednesday on a conference call with investors and analysts, adding that the firm has 65 dealmakers working to deploy $12 billion into energy assets.

“Opportunities for investments are increasing and improving,” he said about the energy sector. “Prices are going to be a lot lower for longer.”

Carlyle sold $3.2 billion of assets in the quarter, including Landmark Aviation, Ta Chong Bank Ltd. and B&B Hotels Group. The firm also disposed of $800 million in real estate and energy investments.

Distributable earnings, which reflect Carlyle’s profits on asset sales and fund management fees, were $129 million in the quarter, compared with $148 million a year earlier. Carlyle said it will pay stockholders a dividend of 26 cents a share on May 25.

Assets under Carlyle’s management decreased to $178.1 billion as of March 31 from $182.6 billion at the end of 2015. Offsetting the firm’s inflows were $4.9 billion in distributions to clients and $1.8 billion of redemptions from its hedge funds.