--Carlyle's 2% decline among the heaviest among listed peers
--Executive: Return expectations have come down
--Executive: Not much competition for deal from corporates
(Updates with comments from executives and updates share price,
in the third through sixth, eighth, 13th, 14th and 17th
paragraphs.)
By Amy Or and Saabira Chaudhuri
NEW YORK--Carlyle Group LP (CG) reported a loss for the second
quarter as revenue plummeted, dragged down by the performance of
its funds.
The combined value of funds in which it shares profits declined
2% in the second quarter, with its publicly listed holdings down
10%.
While overall performance was better than the 3.3% drop by the
Standard & Poor's 500 index, the depreciation Carlyle reported
was among the heftiest recorded by listed alternative-asset
managers.
Blackstone Group LP (BX) also reported a 2% dip in the value of
its private-equity investments, but KKR & Co. (KKR) and
Fortress Investment Group LLC (FIG) gained more than 5% with their
portfolio companies, and Apollo Global Management LLC's (APO)
investments were also up 1%.
Carlyle executives said during a conference call to discuss
earnings that investors shouldn't focus on a quarter's performance
and that its investments were still 8% higher in value this year
through June. But they admitted private-equity returns, in general,
have come down.
"In the hay day of private equity perhaps in the '80s and '90s,
when there was less competition and growth was greater, people were
expecting 20% net internal rate of return or higher. Now investors
are quite happy with net internal rate of return in the high-to-mid
teens because the alternatives were so much less attractive when
interest rates were essentially zero," said Co-Chief Executive
David Rubenstein.
Carlyle--whose investments span from private equity to real
estate, hedge funds to private-equity fund of funds--recorded a
second-quarter economic net loss of $57 million, down from a profit
of $237 million a year ago. Revenue plunged 90% to $61 million, as
the private-equity company reversed performance fees it had booked
previously, on depreciation impacts.
The second-quarter loss of 19 cents a share was steeper than the
loss of 11 cents that analysts had expected, FactSet said.
Private-equity firms and analysts who cover them generally view
economic net income as a preferred measure of performance because
it includes unrealized gains and employee compensation while
excluding continuing costs related to the firms' initial public
offerings.
But distributable earnings, a measure of cash flow to investors
that Carlyle prefers, was up 29% at $115 million over a year ago,
largely driven by stake sales in public companies such as Kinder
Morgan Inc. (KMI) and Triumph Group (TGI).
Under generally accepted accounting principles, the company
reported a loss of $10 million. It didn't provide a year-earlier
figure. In the year-earlier period, Carlyle was still a private
partnership and income attributable to Carlyle Holdings was $371.7
million.
Carlyle, which went public in May, managed $156.2 billion in
assets at the end of the second quarter, down from the $159.2
billion at the end of the previous quarter but up substantially
from the $108.0 billion a year ago. About 70% of its assets are
generating fees.
Carlyle's other Co-Chief Executive William Conway described the
investment environment as "pretty good" on the lack of intense
competition over assets from corporate buyers.
"It's stunning to me these corporates are not far more
competitive in buying assets given the low interest rate and the
cash they have," he said
Carlyle deployed $1.4 billion during the second quarter and has
made $1.6 billion worth of investments since the beginning of July.
A notable recent deal for Carlyle was the $800 million investment
it made in Genesee & Wyoming Inc. (GWR) to fund a $2 billion
acquisition of RailAmerica Inc. (RA). The deal combines the two
largest short-line and regional-rail operators in North
America.
The company is also bidding for the performance-coatings unit of
E.I. DuPont de Nemours & Co. (DD). The Wall Street Journal,
citing people familiar with the matter, said Carlyle outbid rivals
Apollo Global and KKR & Co. with a $4.8 billion offer, but a
deal has yet to be finalized.
Carlyle, which sold shares at $22 apiece in an initial public
offering in May, was recently down 2.6% to $23.74.
Write to Amy Or at amy.or@dowjones.com and Saabira Chaudhuri at
saabira.chaudhuri@wsj.com.
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