The Carlyle Group recorded a $1.2bn investment loss and said it was withdrawing all earlier financial guidance, citing the fallout from the coronavirus pandemic.
The losses were severe enough to completely wipe out the accrued “carry” on three funds, meaning that Carlyle and its executives would receive minimal performance fees or other sweeteners if the investments were realised at current valuations.
In withdrawing its outlook, it said the economic effects of coronavirus “reduces our ability to accurately forecast near-term financial results”.
“The whole world is managing through this unprecedented time and the human toll is real,” said Carlyle’s co-chief executives, Kewsong Lee and Glenn Youngkin.
Investors typically pay an annual fee on their investments in private equity funds, as well as handing over a share of the profits if certain performance thresholds are met.
Carlyle generated $356m in management fees in the first quarter, comfortably ahead of its cash costs, and said it “continue[s] to effectively manage and operate our business with sufficient liquidity.”
But setbacks on its investment portfolio mean that Carlyle is no longer recognising future performance revenue from three of its funds and is reducing accrued performance across the firm by 34 per cent.
The results provide an early sign of how Carlyle’s $143bn portfolio, one of the biggest in the fast-growing US private capital sector, could be affected by the coronavirus pandemic and the associated shutdowns.*
However the setback reflects a writedown of assets that could yet recover in value and often do not have to be sold for years.
Carlyle’s Global Partners fund, which aims to “deliver attractive risk-adjusted returns on significant sums of capital over a longer timeframe than typical private equity funds,” was one of the three where asset valuations fell sharply enough to obliterate Carlyle’s accrued performance revenue.
Among the fund’s investments are Global Jet Capital, which leases private jets, and NEP Group, which provides broadcast services for outdoor concerts and sporting events. Aviation and live events are among the sectors that have been hardest hit by lockdown orders that have forced billions of people around the world to stay largely indoors.
*This article has been amended to accurately characterise Carlyle’s investment portfolio