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Carlyle's fund valuations bounce back in Q2

Carlyle Group Inc.'s fund valuations rebounded in the three months to June 30, and its management struck a more optimistic tone on its earnings call compared with the previous quarter.

The firm's corporate private equity funds appreciated 13% during the second quarter. This was the main driver for the almost 50% quarter-on-quarter rise in its net accrued carry balance, Co-CEO Kewsong Lee said on the firm's earnings call July 30. Year-to-date, its corporate private equity funds have appreciated 3%, according to its financial results presentation.

Its real estate carry funds appreciated 2% in Q2 and 1% year-to-date, while its natural resources funds appreciated 3% in the quarter but depreciated 19% year-to-date.

Carry funds within global credit, which account for 25% of the strategy, appreciated 8% in Q2, driven by "strong appreciation in our credit opportunities and structured credit carry funds." But they have depreciated 13% year-to-date. The funds do not include other parts of the business, such as its direct lending component or collateralized loan obligations.

The performance and trajectory of its CLOs, which account for $27 billion of the global credit strategy's $50 billion of assets under management, is "better than we initially thought at the beginning of this pandemic," CFO Curtis Buser said on the earnings call, adding that the firm has been working to reposition the portfolio, manage its default rates and "get the portfolio structured the right way."

Carry vehicles in its investment solutions business — AlpInvest and Metropolitan Real Estate depreciated 6% in Q2 and 4% year-to-date, which was "largely due to the standard one quarter lag in portfolio valuation for primary and secondary programs in this segment," the firm's financial results said.

Carlyle's portfolio benefited from "improved public markets as well tighter credit spreads and better liquidity in the capital markets," Lee said, adding that with $73 billion of dry powder, the firm is "well positioned to deploy capital as opportunities emerge in the years to come."

But it retains a cautious and prudent outlook, while remaining active and successful in its core business. "We remind ourselves that we remain in the early stages of a global pandemic and are likely facing a multiyear recovery. The potential for an uneven and uncertain recovery leads us to maintain a cautious perspective on the outlook for the real economy as regions, sectors and asset classes are all affected differently," Lee said.