Two of the world’s largest private equity firms have reported sharply different developments, as KKR raised its fundraising expectations while Carlyle cut jobs as part of a cost-cutting move.
Tuesday’s results highlighted how the two investment groups, which were roughly the same size a decade ago, have since diverged: KKR boasted of a “noticeable increase” in fundraising and Carlyle warned employees that “every single issue on the The table is lying”. “.
KKR is expanding its infrastructure and real estate investment activities and preparing to launch new flagship corporate buyout funds in the US and Asia. The company is also doing more business after a sharp rise in interest rates over the past 18 months slowed activity across the industry.
Carlyle, meanwhile, said fundraising had been disappointing this year, despite expecting a continued slump in broader financial markets. According to CEO Harvey Schwartz, the focus is on cost reduction. “Overall, we were not happy with fundraising in 2023,” he told analysts.
In third-quarter results, Carlyle said it raised $6.3 billion across its funds, down 11 percent from the second quarter.
Carlyle also closed its latest flagship buyout fund with $14.8 billion in total assets, 20 percent less than a predecessor fund and far smaller than the $27 billion that former Chief Executive Kewsong Lee had before his sudden exit had aimed for last year.
In contrast, KKR increased its fundraising in the quarter, raising more than $14 billion, with “our pipelines around fundraising, deployment and monetization seeing significant increases,” said Robert Lewin, chief financial officer.
KKR said it would begin fundraising for new buyout funds in the U.S. and Asia, which people familiar with the matter expect will be larger than predecessor funds. According to the filings, KKR completed fundraising for an $18.4 billion U.S. buyout fund in 2021 and a $14.7 billion Asian buyout fund last year. It declined to comment on its fundraising goals.
KKR shares rose more than 5 percent while Carlyle shares fell 1 percent.
Co-founders of the Carlyle Group, from left: David Rubenstein, William Conway and Daniel D’Aniello © FT montage/Bloomberg/The Washington Post via Getty ImagesMuch of the disparity in fortunes is due to Carlyle’s failed succession of its three billionaire founders, David Rubenstein, William Conway and Daniel D’Aniello, who founded the New York and Washington-based investment group in 1987. The trio appointed two dealmakers, Glenn Youngkin, and Kewsong Lee became co-chief executive in 2017, but Youngkin left three years later due to a conflict with Lee.
Lee resigned last August amid a power struggle, leaving Carlyle without a permanent leader until the company hired Schwartz, a former Goldman Sachs executive, in February.
KKR founders Henry Kravis and George RobertsIn contrast, there has been no internal unrest at KKR since the appointment of Joseph Bae and Scott Nuttall as co-chief executives in October 2021, solidifying the succession of founders Henry Kravis and George Roberts.
Since taking the helm at Carlyle, Schwartz has been trying to develop a turnaround plan in a difficult market environment of rapidly rising interest rates.
“There is still a lot of work to be done,” Schwartz said Tuesday as he offered a pessimistic outlook on business activity. “[My] I think the lower activity levels and lower self-confidence are likely to continue for a little longer.”
Carlyle has cut spending primarily by cutting investment jobs in areas where it has struggled to raise funds or sees unexciting growth prospects.
In September, the company closed its U.S. consumer, media and retail private equity investment group and laid off some investment staff to focus on areas with better investment opportunities.
Carlyle has cut more jobs in its U.S. buyout investment team, according to people familiar with the matter. These layoffs affected employees in Europe and Asia. Carlyle declined to comment.
The company reported an annualized decline in expenses of $40 million during the quarter, about 85 percent of which came from salaries. Schwartz said the cuts will allow the company to invest in areas where it sees future growth.
“Every single expense is on the table,” Chief Financial Officer John Redett told analysts. “There is no such thing as a sacred edition.”
Carlyle’s earnings beat analysts’ expectations, largely due to falling expenses.
Schwartz expressed optimism that Carlyle’s fundraising efforts would improve in the fourth quarter as the company targeted acquisitions in Japan and real estate, among other things.
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Since taking the helm at Carlyle earlier this year, Schwartz has focused on expanding its credit and insurance-related investments, its debt and equity underwriting businesses, and its high-net-worth funds. He said cost cutting would not come at the expense of the group’s long-term growth.
He has also traveled around the world to meet more than 200 major institutional investors such as sovereign wealth funds and pension funds, including a trip last month to Saudi Arabia for the Future Investment Initiative launched by Crown Prince Mohammed bin Salman, the country’s de facto ruler Kingdom, was aligned.
When pressed by an analyst to provide new financial targets for Carlyle, Schwartz declined to provide a specific time frame, saying his review of the group was ongoing.
Additional reporting by Eric Platt in New York