Carlyle Group reported a $59 million non-cash loss in income in the second quarter of 2012, which the District-based private equity giant attributed in part to a poor June stock market, which forced the company to write down the value of some of its holdings.
The firm also reported its first dividend of 11 cents per share, payable Aug. 31, and said the company’s distributable earnings — which includes the money that the company earns on its investments — were $115 million, up 29 percent over a year ago.
The company also said fundraising was strong and deal activity was robust.
The loss in economic net income, a key metric used by private equity analysts that includes unrealized gains or losses, compared with a $392 million non-cash profit in the first quarter of 2012, according to the company.
The company raised $3.9 billion in new capital for its funds in the quarter and $6 billion so far this year. Carlyle is coming out of one of its busiest deal-making stretches in recent memory, with multibillion-dollar deals including the purchase of Hamilton Sundstrand from United Technologies and the reported $5 billion pending purchase of an automotive paint business from DuPont.
The company distributed $3 billion back to the pensions, foundations and investors who give Carlyle their money to invest. Out of that, Carlyle earned $115 million for its shareholders through fees and incentives.
“The fact is that distributable earnings is up year over year, and is a strong indicator that we continue to generate strong gains or profits for our fund investors,” chief operating officer Glenn Youngkin said.
Private equity firms own dozens of companies, and each quarter firms must put a value on every one of those companies. Because the stock market and companies were slammed in June, they were worth less and Carlyle had to mark down the value of some of its assets.
“The big distinction is paper gains you can’t do anything with,” Youngkin said. “But realized gains are cash. Our fund investors get cash, and as a result we get cash.”
The company has seen its shares increase 10 percent since its initial public offering in May, which observers and analysts attribute to the company’s modest debut price of $22 per unit, which is the private equity term for stock shares.
“Our firm, portfolio and funds are in very good shape, despite a quarter marked by significant volatility in global equity markets and continued uncertainty in Europe,” Carlyle co-chief executive David M. Rubenstein said in a statement.
Rubenstein said the distributable earnings metric, which he said best reflects Carlyle’s steady, long-term horizon, was $785 million over the past 12 months.
“We thought overall results were right in line with our expectations and reflective of a fairly volatile market backdrop and more tepid growth outlook,” said Howard Chen,capital markets research analyst and managing director at Credit-Suisse.
Chen said the upside for Carlyle is the diversity of the franchise, with what he called “best-in-class fundraising” and its ability to harvest investments across a wide array of funds and geographical locations.
“The major concern for Carlyle and peers is global growth expectations have been dampened and the public markets remain very stop-start,” said Chen, who has an "outperform" rating on the stock with a 12-month price target of $37. "While they are long-term investors, they and their clients aren't immune to those factors.”
TimLoughran, a finance professor at the University of Notre Dame Mendoza College of Business, said Carlyle’s stock performance to date “means it’s not a flash in the pan. It’s not like they are going into social media,” Lougran said. “They are buying auto paint. It’s not very glamorous, but sometimes slow and steady and dull wins.”
The private equity industry has been in the news lately because Republican presidential candidate Mitt Romney earned his fortune in the business, which has drawn criticism from President Obama and some of his fellow Democrats.
Rubenstein, a philanthropist who has given away millions, has taken a high-profile role as a defender of private equity, including speaking out on the subject at conferences. As president of the Economic Club of Washington, he has hosted several big-name financiers, including Warren Buffett (one of The Washington Post Co.’s largest shareholders) and Goldman Sachs chief executive Lloyd Blankfein.
Carlyle calls itself a global alternative asset manager and has about $156 billion of assets under management across 94 funds. The company has 32 offices in 20 countries on six continents.