Prepared remarks
Good day, ladies and gentlemen, and welcome to The Carlyle Group First Quarter 2026 Earnings Call. (Operator provided instructions.) At this time, it is my pleasure to turn the floor over to your host, Daniel Harris, Head of Investor Relations. Sir, the floor is yours.
Thank you, operator. Good morning, and welcome to Carlyle's First Quarter 2026 Earnings Call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; and our Chief Financial Officer, Justin Plouffe. Earlier this morning, we issued a press release and a detailed earnings presentation, which is available on our Investor Relations website. This call is being webcast, and a replay will be available. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and then return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz.
Thanks, Dan. Good morning, everyone, and thank you for joining us. We wrapped up another strong quarter, headlined by record U.S. buyout realizations, a high level of inflows, fee-related earnings of $300 million and a 47% margin. Momentum across the platform continues to accelerate and performance remains strong, reinforcing our confidence in our strategic plan. These results came against a complex global backdrop. Before we go deeper into the quarter, I want to spend a few minutes on the environment and the global macro trends. Geopolitical uncertainty and splintering are front of mind for investors and are influencing capital allocation and investment decisions. But of course, this is not new. Over the past five years, we've navigated COVID, the ongoing Ukraine-Russia war and now the war in the Middle East. As a result, there are two subjects that every government official I meet with wants to discuss: national security and stimulating economic growth. By national security, I mean both investment in traditional defense but also energy security. The focus on economic growth and competition across regions is intense, with a focus on reindustrialization and onshoring top of mind. Underpinning all of this change is an increasing need for capital and innovative client solutions. Everywhere I go in the world, the message is the same: the demand for private capital continues to grow. Our team and the breadth of our platform are well positioned in this environment. Our diversified set of businesses span private equity, real assets, private and liquid credit and Carlyle AlpInvest. In today's environment, diversification is a distinct advantage. Our deep sector expertise in aerospace and defense, industrial, energy and healthcare maps directly toward a growing investment opportunity set, and we've been doing this at scale for decades. Now before Justin and I run through the quarter's financial performance, I would like to highlight an important milestone from earlier this week. We closed a first-of-its-kind investment solution anchored by a $5 billion commitment secured for our next vintage U.S. buyout fund. This innovation provides a capital-efficient way to address our clients' needs. It's a solution that provides both access to our next U.S. Buyout Fund and simultaneously offers them a tailored solution to provide liquidity. This solution underscores how we are leveraging Carlyle AlpInvest capabilities in portfolio finance and secondaries alongside our private equity platform to deliver differentiated outcomes for our investors. It was truly a win-win for our investors and for Carlyle. Through this structure, several cornerstone investors have increased their exposure to U.S. Buyout, further demonstrating our confidence in our platform and continued interest in the core sectors we focus on. Also, it's important to note that we haven't launched fundraising for the next U.S. Buyout Fund that will come later this year. Let me move on to some of the strong activity trends we saw in the quarter. As you have seen in prior quarters, we continue to return capital to investors at a faster pace than the industry. Realizations were more than $12 billion, reflecting the high quality of our portfolio and continued prioritization of returning capital to our fund investors. It is also worth noting that we returned a record amount of capital to U.S. Buyout Fund investors this quarter, a rate which is more than 40% higher than our prior record set in 2021. We continue to have a deep set of assets to monetize for our investors. Deployment was $10 billion in the quarter, and we also announced two large transactions that will close in the coming months, the $8 billion carve-out of the coatings business from BASF and a $3 billion acquisition of MAI Capital Management. We also invested $4 billion in private credit and nearly $4 billion across a diverse set of strategies in Carlyle AlpInvest. These transactions should also contribute to a pickup in transaction fee revenue in the coming quarters. On inflows, we had a great start to the year, attracting $13 billion of new capital. In Carlyle AlpInvest, we raised nearly $7 billion in the quarter, reflecting strong demand for our broad set of secondaries, co-investment and portfolio finance strategies. We also saw sustained inflows in our wealth vehicles, including CAPM and CAPs. AlpInvest is benefiting from both favorable market dynamics and strong performance. In Global Credit, we raised $4 billion in the quarter. Demand remains strong across our diversified platform. We had a first close on a new closed-end asset-backed finance strategy; that strategy now tops $12 billion, up more than 30% compared to last year. In summary, Carlyle continues to benefit from a diversified platform that can provide durable results across dynamic changes in geopolitics and market environments. As you would expect, two months after the shareholder update, we remain quite confident that we will reach or exceed the targets we laid out for you in February. With that, let me turn the call over to Justin.
Thanks, Harvey. Good morning, everyone. In the first quarter, we generated distributable earnings of $327 million or $0.89 per share. Fee-related earnings were $300 million at a 47% margin compared to $290 million in Q4. Fund management fees were $545 million, up 4% year-over-year, driven by continued growth in Carlyle AlpInvest and Global Credit. Carlyle AlpInvest continues to be a great growth story with a record level of AUM and record inflows during the quarter. Our underlying recurring fee base continues to grow, and we expect to see management fees accelerate over the next two years, consistent with the path we laid out at our shareholder update. Fee-related performance revenues of $45 million in the quarter were 15% higher year-over-year, driven by growth in our Evergreen wealth strategies, where AUM now stands at $19 billion. That's four times the level from just three years ago. We produced $54 million in transaction fees in Q1, and we expect this to increase next quarter driven by the completion of several transactions that have already signed or closed. In Q1, we generated $12 billion of realized proceeds, our third-best quarter ever. Net realized performance revenue of $21 million this quarter was lower year-over-year, but this was simply a matter of composition. Most of the first quarter exits were in funds not yet realizing carry, notably CP VII and CP VIII. As we continue to return capital to fund investors and drive value creation, we expect our level of net realized performance revenue to increase. We have several transactions that should drive realized carry over the remainder of 2026, notably in our fourth Japan buyout fund, third financial services fund and fourth European technology fund. Now let me turn to some details on our individual segments. In Carlyle AlpInvest, fee-related earnings were $68 million in Q1, higher year-over-year despite having $13 million less in catch-up fees for the quarter. Total AUM reached a record $107 billion, up 20% year-over-year. Record quarterly inflows of $6.8 billion were driven by broad-based institutional and wealth activity across the platform. Net accrued performance revenues reached $643 million, a 13% increase year-over-year. Carlyle AlpInvest continues to show great momentum with our next vintage funds expected to have first closings later this year. In Global Credit, fee-related earnings were $93 million in the quarter. Management fees of $147 million increased 6%, while transaction fees were modestly lower. Total AUM of $209 billion was up 5% from a year ago and inflows of $3.9 billion in the quarter were led by the $1.5 billion first close of our new asset-backed finance fund. For the last 12 months, credit inflows totaled $25 billion. We continue to see strength in the credit metrics of our underlying portfolio across our diversified credit platform. In direct lending, our current nonaccrual rate is only 1%, and our inception-to-date loss rate over 13 years is just 8 basis points per annum. In structured credit, our default rate of about 50 basis points remains at half the industry average. We continue to actively manage the entire portfolio, and we feel well positioned to take advantage if credit markets experience increased volatility over the rest of 2026. In Global Private Equity, fee-related earnings of $140 million in the first quarter were in line with Q1 last year. But the key operating metrics for this business, notably fundraising and realizations, show strong momentum. As Harvey noted, we already have earmarked $5 billion in commitments for our next vintage U.S. buyout strategy. This was a fantastic outcome. The solution broadly leveraged the entire firm and highlights our differentiated ability to deliver tailored solutions for our LPs. We returned a record $7 billion in proceeds to U.S. buyout investors this quarter. CP VII alone returned nearly $5 billion of proceeds, driving DPI in the fund to more than 70% with nearly $17 billion in remaining fair value. We've made great progress for CP VII investors over the past two years and expect to continue returning capital for at least the next several quarters before we start realizing carry from this fund. Shifting to the balance sheet, we ended the quarter in a strong position. Balance sheet assets attributable to Carlyle shareholders, including cash, net accrued performance revenues and investments net of debt totaled approximately $5 billion or roughly $14 per share. We declared a quarterly dividend of $0.35 per common share, in line with the quarterly level in 2025. We repurchased or withheld 3.8 million shares totaling $205 million in the quarter, and we have $1.9 billion remaining on our $2 billion repurchase authorization. Our diluted share count of 360 million is down over the past year. We remain disciplined and opportunistic in how we think about capital allocation. Investing in growth remains the priority, but share repurchases are an important part of the equation as well, and we will continue to be active on that front. Looking ahead, we entered the second quarter with strong momentum. Dry powder of $96 billion is a record and up 13% year-over-year. Our platform is diversified across strategies, geographies and client channels, making us extremely well positioned to navigate the current market and continue creating value for our investors and shareholders. As we said at our February shareholder update, our growth plan is grounded in a bottoms-up organic strategy for each of our businesses. We see a clear path to $200 billion of inflows, $1.9 billion in fee-related earnings and $6 or more per share in distributable earnings by the end of 2028. We fully expect to achieve or exceed each of these goals. With that, let me turn it back to the operator to take your questions.
Questions and answers
(Operator provided instructions.) And we'll take our first question from Alex Blostein from Goldman Sachs.
I was hoping we could start with a couple of questions just around the structure that you announced earlier this week. Obviously, quite unique and a creative way to move the franchise forward. I was hoping, Harvey, you could expand on how this solution was originated, just maybe spend a couple of minutes on the actual dynamics within the structure. There's a couple of things going on, but how the assets will be coming into the SPV and how it's ultimately funded? Curious also on the response from other LPs. And then ultimately, when it comes to financial implications for Carlyle, anything we need to think about with respect to changes in economics, either to Fund VII or VIII or how the fee structure will work for Fund IX?
Great. Thanks for the question, Alex. So maybe take a step back for a minute. The Carlyle AlpInvest platform is often secondarily thought of by people as a secondaries business. And as you've seen for the last couple of years as we've strategically repositioned the platform, it really is much more than that. It's secondaries, co-invest, primary business, and it's a solutions business. One of the most important parts of that business is this growing solutions business which really is about providing GPs with thoughtful solutions when they want to take incremental exposure or LPs where LPs want to dynamically manage their portfolios. They've had huge success providing LPs with that value. The genesis of this was really thinking about how Carlyle could—as a very capital-light firm—optimize the use of our capital. We knew of strategic LPs that wanted to reposition their portfolios in ways that make sense for them. They also wanted increased exposure to U.S. buyout. We were able to come up with this solution, which is not particularly complicated, but I would say for this industry is innovative, creative and again, solves our clients' objectives. For the firm and the team, it's a good outcome because it's a cornerstone financing of $5-plus billion at full fees. There's no impact. The most important thing about putting this together was obviously solving for our LPs' needs, but also ensuring that there was perfect alignment with the fund and the future fund raise. All of that was really critical to how we brought this together. In terms of the firm alignment, there's a subordinated portion of equity where the firm is aligned there to supporting, which our LPs appreciate. I think this really reflects where this industry is going. The solutions business already had huge momentum because of what they're able to provide LPs and GPs. Since announcing this, the phone has been ringing off the hook with people looking to engage in how they can either replicate this and create value for their LPs or their GPs. I just think this is a direction of travel for the industry, but you really have to have the thoughtful experience of a Carlyle AlpInvest team to actually bring this together.
(Operator provided instructions.) And we'll take our next question from Ken Worthington from JPMorgan.
I wanted to dig into the outlook for carry in private equity and AlpInvest. For private equity, can you talk us through cash carry in Japan IV and Financial Services II and III, while we wait for CP VII and VIII to kind of come into cash carry. And for AlpInvest, carry comp was the lowest level, I think, we've seen on record. Are we sort of at the point where carry is coming from funds and AlpInvest with really better economics for shareholders?
Yes. Let me take the AlpInvest side first. As you probably know, AlpInvest has a European-style waterfall, so it's a little bit more difficult to predict. I think the most important thing for AlpInvest is the returns continue to be really great. So there's tremendous momentum in that business, although it's hard to predict the timing of carry. But as long as the returns continue to be strong, ultimately that's going to be a great outcome. We've got a variety of deals that are already signed, closed or deeply in process in some of our other funds. You noted Japan buyout, you noted Europe tech. Those are all going to come through, we would expect, in the next few quarters. Again, I'm hesitant to give specifics on timing and amounts because some of those are public, and it will depend on pricing and market environment over the next few quarters. But those are very near term and well along the way. In the rest of 2026, they will definitely come through. So we're pretty optimistic about the next few quarters of carry realizations. There's a lot of activity going on around the firm and a lot of great returns for shareholders.
(Operator provided instructions.) And we'll take our next question from Steve Chubak from Wolfe Research.
This is Brendan O'Brien filling in for Steven. Just wanted to touch on the AlpInvest business. You guys have had a lot of success in the wealth channel with your CAPs and CAPM products. However, the practice of day-one markups has come under increased scrutiny of late with one of your competitors seeing fairly meaningful outflows in their retail product as a result. I understand you may not want to overreact to the headlines, but given what we're seeing in some of the other asset classes within the retail space, it does seem reasonable to be a bit more front-footed here. I just wanted to give you an opportunity to respond to this criticism, whether you're considering any changes to your approach and if you're seeing this have an impact on your conversations with advisers.
Conversations with advisers remain very robust, and you see that in the inflows. In terms of any practices, we're not changing our practices. The industry participates in different types of asset pools. The team has historically purchased asset pools that are much closer to par. Historically, where we've had our best performance in this business for 25 years is actually buying higher-performing assets. So the team doesn't historically buy deeply discounted, very aged assets. The reception continues to be very strong. As Justin pointed out, the performance has been very strong. We feel quite good about our partnerships, the platform and the engagement from advisers.
(Operator provided instructions.) And we'll take our next call from Brennan Hawken from BMO Capital Markets.
Base fees were relatively flat year-over-year, although they didn't benefit from catch-ups this quarter, clearly. You guys have spoken a lot about how active the back half of the year, in particular, is going to be for fundraising with the super cycle coming up. Could you walk us through your expectations for what the profile of the base fee growth will look like as we progress through that fundraising and it starts to hit the top line?
Sure, Brennan, thanks for the question. The base fees were up 4% year-over-year and up 7% on an LTM to LTM basis. We expect that to accelerate. You mentioned the super cycle in fundraising. We're just really starting that for AlpInvest and for private equity. We're going to have opportunistic credit out for the credit business. So we're entering a period where we think our fundraising will really accelerate. We had, as you know, a couple of funds step down; we're past that now. So that rate you see today, 7% LTM over LTM, I expect that to accelerate as we go into the super cycle because we're getting great feedback from LPs and that bodes well for the next few quarters of fundraising.
(Operator provided instructions.) And we'll take our next question from Mike Brown.
I wanted to ask another question on the wealth channel. CTAC is a diversified credit fund. You have a small portion of direct lending exposure in there, yet it still saw elevated redemptions last quarter. Why do you think that's the case? Was it just caught up in the private credit direct lending fears? And when you think about the coming quarters, do you think the redemption requests and gross sales could differentiate going forward? How are you messaging that different aspect to the wealth channel, and do you think that message is getting through to the channel?
I spend a lot of time with advisers and I think the message is getting through. CTAC is quite diversified; there are over 900 names across the platform. It's marked daily; it's one of the few solutions, perhaps the only solution out there that's marked daily. We've been marking daily for over five years, going back to 2020. Advisers respond well to that. In the last quarter we were later in the queue for redemptions, and so they were building through the course of the quarter. Going from one fund to the next, that was to be expected and there was no surprise for us. Performance remains strong and adviser engagement remains strong. Given what you see across the industry, I think this period of redemptions may persist for a little while; that's a reasonable expectation. But CTAC as a diversified, daily-marked credit solution offers a lot of benefits, so the long-term trajectory looks good and we feel quite good about it.
(Operator provided instructions.) And next, we'll go to Bill Katz from TD Cowen.
I'd like to click into the credit portfolio a little bit. If I look at the AUM, fee-paying AUM has been relatively stable for a better part of a year. Can you speak to the opportunity? You mentioned direct lending and what you're seeing in the insurance channel. And curiously, yesterday one of your peers had pointed commentary about the efficacy of CLOs. Could you talk about the durability of that business as well?
We're seeing good fundraising momentum in credit. We raised nearly $4 billion in the quarter on a broad-based basis. As you know, Bill, we've been resetting many of our CLOs over the past few years, which has stabilized the CLO base fees going forward. CLOs went through the financial crisis and they performed well; there is a well-established investor base for CLOs, and we feel great about that business. Importantly, our investment performance in credit has been really strong. We've been managing CLOs for 25 years and have half the level of defaults as the industry does in direct lending. We have a strong track record that investors have responded to as we continue to grow that business. Private credit and CLOs have reached exit velocity as asset classes that have a place in the financial system and are not going anywhere. With our track record, we think we're well positioned to continue to grow in both areas.
I'll add that in conversations with institutional investors, headlines about the wealth channel and direct lending have actually increased institutional interest. We've added significant resources to our team over the past six months, so we feel well positioned with the new team to build market share across the platform. The momentum feels quite good and we don't have some of the challenges that other market participants have in their portfolios. We feel very well positioned and feel good about the CLO business.
(Operator provided instructions.) And our next question comes from Dan Fannon from Jefferies.
I wanted to follow up on credit one more time. In terms of management fee growth, it's been a bit more stagnant in recent quarters. Curious about what's driving that — what's fundraising versus what's leaving and maybe the mix and change in fees as we think about the products as we go through the rest of this year?
Credit management fees are up 10% on an LTM basis. There was some CLO runoff for a bit, which has now been stabilized as we've gone through many resets in the past couple of years. We're also coming to market soon with our opportunistic fund, which is a higher-fee product. We're raising capital in direct lending and having good success with our private BDC, another higher-fee product. So I think you'll continue to see the mix improve. The platform has diversified beyond CLOs, and that diversification positions us to take advantage of market opportunities, which should lead to continued fundraising and fee growth.
(Operator provided instructions.) And our next question comes from Michael Davitt from Autonomous Research.
It's Patrick Davitt; I go by my middle name. I have a follow-up on Brennan's fee growth questions. I know it wasn't an explicit part of the Investor Day deck guidance, but during the Q&A you suggested a path to mid- to high single-digit fee-related earnings growth this year. Do you still think that's achievable? If so, what are the big levers that get you there after the slower first quarter?
Yes. We feel confident about those numbers. If there was a change, we would update you. In Q1, I feel good about the momentum given the fundraising and we expect things to accelerate. Obviously, we can't predict the environment — the world has been a bit complex — but we feel confident about the trajectory.
(Operator provided instructions.) And our next question comes from Michael Cyprys from Morgan Stanley.
I wanted to ask about AI deployment across the portfolio companies. Where are you seeing AI-driven revenue uplift versus cost savings in the portfolio, and how might you quantify any benefits you're seeing so far? What are your expectations looking out in terms of AI as a source of value creation? How easy is adoption, what's hard, and any lessons learned from adoption so far?
Adoption is steady. You're seeing it especially in sectors like software and in high-scale automated functions such as accounting, lots of processing and rule-based systems. Across the firm, we're leaning in heavily into data science and AI and treating evaluation of AI opportunities as table stakes: how to think about the point of investment, a 360-degree review of where opportunities relate to deploying AI, how to think about disruption and how to drive revenues. I don't have any single earth-shattering example to share, but the momentum is meaningful. CEO buy-in at the portfolio level is quite high. With advances in models coming rapidly, you're seeing opportunities to drive efficiencies and productivity gains. I think it will take a little longer than some expect, but it's a step-function change in how things will operate.
(Operator provided instructions.) And our next question comes from Ben Rubin from Evercore.
I wanted to ask another one on your secondaries business from a different angle. Last quarter you noted that software represents a relatively small proportion of overall firm-wide AUM. Is it fair to assume exposure to software for AlpInvest and for the secondaries industry more broadly is probably higher given timing of when capital was raised and the types of companies that were seeking liquidity? Can you touch on your approach to risk management for your secondaries platform and how you manage concentration risk related to certain industries or vintage years where entry multiples were higher than historically?
The AlpInvest team is very thoughtful about diversification, not just by manager or position but also by vintage. Their software exposure is low to mid-teens across different portfolios, which I would characterize as market weight or below. The vintage diversification is incredibly important, and one of the great values AlpInvest brings is constructing portfolios with diversified vintage exposure. They've been doing this for 25 years, gone through multiple cycles, and are thoughtful about vintage risk. That will serve them well as we learn more about what '22 and '23 vintage deals end up looking like.
(Operator provided instructions.) And our final question comes from Brian Bedell from Deutsche Bank.
Maybe just to talk about transaction fees. What is the long-term growth trajectory here and the short term? You mentioned some transactions you expect to pick up in Q2. Could that approach a record quarter? More importantly, how mature are the efforts you've been making to enhance that business? We've seen good growth over the last two years. Is that effort getting more mature or are you still in the early innings?
We like records around here. I don't know if Q2 will be a record, but we feel good about the trajectory because we've already seen a lot of activity in the first month of Q2. I expect that number will go up. Our capital markets business is largely derived from deals that Carlyle is doing across our broader platform, so it's a natural expansion of that business as we build out the rest of the firm. Quarter-to-quarter it will depend on market activity, but over the last couple of years we've started to capture all the work across the entire platform. As our businesses grow, the capital markets business will continue to grow alongside them.
Excellent. And that will conclude our Q&A session. I'd like to turn the floor back to Daniel Harris for closing remarks.
Thank you, everyone, for your time today. If you have any follow-up questions, please reach out to Investor Relations after the call. We look forward to speaking with you again next quarter.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.