Carlyle Group’s Q3 earnings call on Thursday offered an early look at investor sentiment after this week’s U.S. elections.
The key takeaway, says Chief Executive Harvey Schwartz, is the benefit of a clear electoral resolution.
“Being past the election has removed market uncertainty, first and foremost,” Schwartz said. Even more so for a race some feared might not have a conclusive result for days or even weeks.
“That creates a lot of uncertainty in CEO’s minds in how they think about strategy, how they think about committing capital, making decisions,” said Schwartz.
“I spoke to a couple of our portfolio company CEOs yesterday,” said John Redett, Carlyle’s CFO and head of corporate strategy. “The common theme was they feel like the removal of election uncertainty will elevate confidence levels.”
“Now, from a policy perspective, whether it’s sustained or further cuts in the tax regime, whether it’s a lighter regulatory touch, all these things will get translated in CEOs’ minds, Boards, or portfolio companies, in really [building] confidence around the operating environment,” Schwartz added.
Coupled with the start of rate cuts, exogenous factors now seem less worrisome. “The election certainty and the change in monetary policy are a powerful combination supporting economic growth and our business,” says Schwartz.
The next potential hurdle is the economic and portfolio impact of new tariffs.
For now, it’s wait-and-see at Carlyle. Schwartz cautioned against overreacting to policy changes: “It’s very difficult for any firm to try and anticipate government policy,” he said. “I think it would be a mistake to be changing strategy.”
Schwartz also thinks Carlyle is better positioned than most to manage potential trade policy issues. He believes the firm’s extensive Asia presence, particularly in Japan, provides a natural hedging against potential headwinds.
Internally, Carlyle’s operational transformation under Schwartz is beginning to yield results.
The firm’s corporate private equity portfolio posted an exceptionally strong quarter—the two largest U.S. buyout funds reported gains exceeding 7 percent each in the quarter, while its two largest Asia buyout funds gained 9 and 13 percent, respectively.
Average year-over-year portfolio company EBITDA growth of 15 percent suggests much of that performance can be attributed to strength in underlying fundamentals, rather than any change in multiples.
Fee-related earnings growth (36 percent) and FRE margins (up 1,000 basis points) are also positive, as is fundraising momentum. The $26 billion raised year-to-date is the firm’s second-strongest performance on record. There’s still some ground to cover to reach the $40 billion annual target, but Schwartz is confident on Q4 visibility: “The fourth quarter looks strong. We’ll get in and around 40.”
On the credit side of the business, the team shares general market enthusiasm around asset-backed finance. “It’s multiples [in size] of direct lending. I think it’s an enormous opportunity for the industry and for Carlyle,” Redett said. “It will be a large driver of credit growth for us going forward.”
Launched three years ago, Carlyle’s asset-backed securities business has already grown to around $7 billion in assets under management. “It’s very early days in the ABS space,” says Redett. “The pipeline continues to be one of the stronger pipelines we see across the platform.”
Unlike some peers, strategic acquisitions are not a priority. Schwartz says the firm will continue to review inbound opportunities, but the focus is elsewhere. “We think we can get the best returns for our shareholders by investing into our business for organic growth,” added Redett.