Private Equity Earnings: Carlyle Beats, Apollo Meets

Call it a tale of two quarters: private-equity firms Carlyle Group and Apollo Global Management reported second quarter earnings Wednesday morning, and while Carlyle’s performance beat analyst expectations during the quarter, Apollo only matched them, and its profit for the quarter fell.

Still, both firms managed to raise capital during the quarter, at a time when the private equity industry as a whole has been on a fundraising tear and allocators have shown interest in publicly traded private-equity firms. Data tracker Preqin reports that the private-equity industry is poised to break the record fundraising set by buyout funds in 2007.

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So why did Apollo struggle to post returns on par with its peers? In a word, commodities — specifically oil and gas. The company attributed its profit decline to “depreciation in energy investments due to declines in commodity pricing,” according to the form 8-K it filed with the SEC on August 2. Its economic net income, which includes unrealized gains, fell to $183.5 million from $394.9 million a year ago. The firm did not answer a request for comment.

Despite the drag its energy investments had on fund performance, Apollo managed to swing a 1.9 percent private-equity fund appreciation. The firm raised $24.7 billion for a buyout fund in just seven months during the quarter, driving at least a portion of the industry’s record-breaking fundraising. Still though, shares closed down 0.7 percent Wednesday, likely a result of its struggling energy investments.

By comparison, Carlyle’s private-equity funds appreciated 8 percent during the second quarter. And KKR & Co., which reported earnings on July 27, reported a 7.3 percent gain in its private-equity funds during the quarter. The firm’s economic net income rose to $300 million on a pretax basis, up from $158.3 million a year ago.

The Standard & Poor’s 500 stock index, meanwhile, posted returns of 2.6 percent. This signals that most publicly traded private-equity funds are outperforming the market’s benchmarks.

Inflows into private equity continue to drive fund success. Apollo reported that inflows clocked in at $23.8 billion for the quarter, a record for the firm, which noted that its success was driven by its ninth flagship private-equity fund.

Carlyle’s net inflows came in at around $1.1 billion, though the firm typically has fewer assets under management than Apollo. The firm also could not be reached for immediate comment. Apollo has $231.8 billion under management, while Carlyle manages $170 billion.

According to Carlyle’s earnings statement, its total assets under management increased 5 percent from new capital raises, especially in its real assets fund. Interestingly, total assets under management decreased 3 percent year-over-year.