The Carlyle Group's Q3 2025 Earnings Call: Contradictions Emerge on Inflow Momentum, Realization Pipeline, and Capital Management Priorities

Guidance:

• Management expects to exceed full-year FRE growth of approximately 10% (up from prior outlook of 6%).
• Full-year inflows target reiterated at $50 billion (prior outlook $40 billion); YTD ~ $45 billion and LTM ~ $60 billion.
• Company expects a step-up in realizations in Q4 and continued momentum into 2026.
• Management to provide more detailed guidance as year closes but is confident in platform-wide growth drivers.

Business Commentary:

• Strong Financial Performance and Growth:
• Carlyle Group delivered record FRE of $312 million for Q3, with AUM reaching $474 billion, up 7% year-to-date.

• This growth was driven by strong organic inflows, particularly in credit, secondaries, and global wealth.

• Credit and Global Wealth Momentum:

• Credit inflows totaled $10 billion this quarter, and over $31 billion in the last 12 months, contributing to 45% of the company's assets.

• Global wealth inflows were $3 billion this quarter, up 10x since the new management team took over, aligning with the firm's strategic growth initiatives.

• Private Equity and Realizations:

• Carlyle returned $19 billion in capital to investors in global private equity over the past year, which is 150% of the industry average.

• The company recently announced the sale of Calastone and has a pipeline of $4 billion in pending deals that could close in Q4.

• Insurance Solutions and Partnerships:

• The insurance solutions platform, anchored by Fortitude Re, achieved $20 billion in new AUM over the past year, with several strategic transactions completed.
• The platform's success is attributed to its unique insurance solutions, diversifying Carlyle's investment management capabilities.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described the quarter as 'another strong quarter,' highlighted record AUM of $474B (up 7% YTD), FRE growth and $368M distributable earnings, and said they are 'on track to exceed' full-year FRE growth targets with 'very strong momentum heading into 2026.'

Q&A:

• Question from Brian Mckenna (Citizens JMP Securities, LLC): So looking at inflows for the -- hey, how's it going Harvey? So looking at inflows for the quarter, it was clearly a little bit lighter in private equity, but credit and solutions both came in above expectations, and there's a lot of momentum there. It would just be helpful if you could talk about the outlook for inflows by business into year-end. And how you're thinking about flows throughout 2026 and some of the different drivers there? And then, I guess, do you have any visibility into some of the larger insurance transactions that might be coming in over the next couple of quarters?
  Response: Management said inflows momentum is strong across credit and AlpInvest; YTD ~$45B (LTM ~$60B), reaffirmed ~$50B full-year inflows outlook and expects continued momentum into Q4 and 2026.

• Question from Alexander Blostein (Goldman Sachs Group, Inc.): Justin, welcome to the call, and John, congrats again on the new role. Harvey, maybe just building on that a little bit. You alluded in your prepared remarks, in the script as well, just around the strong momentum you guys think for 2026. Maybe expand on that a little bit. What are the key top-of-the-house priority in terms of growth for next year? What do you find to be most needle moving? And what do you guys ultimately that could mean for management fee growth into '26?
  Response: Top priorities are scaling Global Credit, AlpInvest/wealth and capital markets initiatives; management expects these platform priorities to be the primary drivers of management fee growth into 2026.

• Question from Glenn Schorr (Evercore ISI Institutional Equities): So I'm curious, you had a lot of good things to say about the forward momentum in realization pipeline, and all the banks are super supportive in the deal environment coming through. So when you go through your comments of your $5 billion of announced transactions, I don't know if you can help us a little bit on timing with that. But fourth quarter better than third quarter, Medline IPO happening, I guess my question is if we could peel back that onion a little more because I think that's the part of softness in the quarter and just a light realization quarter. And then, as you move into next year, I think that's where the extreme bullishness on the bank's part was, as we head into early '26, does your forward pipeline align with that? And then, again, trying to get at what some of the other questions get in that is what does that mean for an FRE story for next year? This year, you beat your 10%, is it shaping up to be a bigger story than that next year?
  Response: Realization pipeline is robust—realizations up ~35% L12M, nearly $20B returned in last 12 months; ~$4B signed/pending (most likely to close in Q4, some may spill to Q1) and Medline IPO filed, so expect a material step-up in realizations in Q4.

• Question from William Katz (TD Cowen): Okay. Maybe just a 2-part. Just to want to make sure I understand the math, if it's $4 billion to $5 billion of announced transactions, is the typical MOIC 2x to sort of think through the realization opportunity? And then a broader question is just as I think about you getting towards the end of your repurchase activity, can you maybe refresh a bit on capital management priorities? How are you thinking about maybe where the stock is trading today versus any kind of inorganic opportunity now that the core business has stabilized?
  Response: On capital allocation: nearing completion of $1.4B repurchase authorization (YTD ~ $500M, ~$200M this quarter), expect similar activity in Q4; first priority is investing to drive growth, then shareholder returns (dividends/repurchases), with inorganic opportunities considered opportunistically.

• Question from Steven Chubak (Wolfe Research): Welcome Justin to the call. So I did want to ask on the FRE growth just looking out to next year. I recognize you're tracking above the 10% year-on-year guide. You spoke of the strong momentum heading into next year. At the same time, you do have some headwinds just in the form of elevated catch-up fees that may not repeat as well as the fee rate step down from CP VII. So just wanted to gauge your confidence level and the ability to drive FRE growth next year, even in the face of some of those headwinds, and speak to some of the building blocks that support that view.
  Response: Management is confident FRE growth will continue into 2026 despite fee timing headwinds, citing broad momentum across capital markets, insurance, credit and wealth; formalized guidance to follow later.

• Question from Brennan Hawken (BMO Capital Markets): The credit flows were really strong this quarter. But actually, the fee rate looks a little bit light versus my expectations. Was there anything to do with timing on those flows? I know sometimes that can kind of skew the averages and cause the fee rate to look a little wonky. Did the flows come in at a lighter fee rate with the mix? Or was that fee rate impact more of a timing thing?
  Response: Fee-rate variability was largely mix/timing (notably insurance-related transactions); underlying credit and wealth flows are broad-based and strong, so the fee-rate softness is not indicative of weakness.

• Question from Daniel Fannon (Jefferies LLC): So $3 billion of wealth flows in the quarter, quite strong. Can you talk to the diversity of those flows? And then, clearly, you have momentum in that business, but -- and I think you mentioned one product and potentially coming to market next year. Maybe talk about the product roadmap, and where you see that evolving as we go into 2026?
  Response: Wealth inflows are diversified across flagship pillars—CTAC (credit), Carlyle AlpInvest Solutions (partnerships) and upcoming CPEP (launching into 2026); firm is investing in distribution, product and partnerships to scale wealth further.

• Question from Benjamin Budish (Barclays Bank PLC): I had maybe another 2-parter on the -- your sort of public markets exposure. Maybe just in the quarter, it looked like there were a few public investments that were weighing on your private equity performance. Just curious if you could address, is it sort of timing-related end of quarter to end of quarter? Are there any sort of like impaired stories there? Or is it more market fluctuations? And then, as we think out, you've given us some commentary on big specific transactions like Medline, but maybe just philosophically, how should we be thinking about the realization pipeline in terms of strategic versus financial sponsors versus IPOs? What's the historical mix? What would you expect going over into the next couple of years?
  Response: Public-investment volatility was timing/market-driven (not impairments); U.S. corporate PE operating metrics are strong (revenues and EBITDA up), so management has no long-term concerns; realizations will be a mix of strategic sales and IPOs with active focus on performance.

• Question from Kenneth Worthington (JPMorgan Chase & Co): John, it's been a pleasure working with you. Best of luck back in buyout. Justin, I'm sorry, John has set a pretty high bar here. When looking at credit, the Unum block hit this quarter, so congrats. At the same time, we saw the most significant level of credit, I'll call it, distributions in both AUM and fee-paying AUM. Can you talk about the dynamics that drove the outsized, I guess, distributions this quarter? I don't know if it was Unum related or something else, recurring, doesn't recur, anyway? Any flavor would be helpful.
  Response: Distributions reflected normal-course opportunistic realizations and CLO activity (including resets) rather than an insurance-specific anomaly; team is realizing investments when outcomes are favorable for LPs.

• Question from Patrick Davitt (Autonomous Research US LP): Obviously, been a perfect storm for secondaries here for a while now. But to your point earlier, it feels like the realization window is opening up a bit, though in fits and starts. How are you guys thinking about the sustainability of the so-called golden era in secondaries if the realization window keeps opening up?
  Response: Management views secondaries demand as sustainable—AlpInvest Solutions offers a broad suite (secondaries, co-invest, corporate finance) and sees multi-year growth tailwinds driven by clients' liquidity/repositioning needs.

• Question from Michael Cyprys (Morgan Stanley): Wanted to ask about ABF. I think you mentioned $10 billion platform today. I was hoping you could elaborate on some of the steps you're taking to expand the platform to accelerate growth. How you see this platform contributing as you look out over the next 12 to 24 months?
  Response: ABF growth is driven by the Fortitude partnership, multiple origination partnerships, and expansion into non-insurance counterparties and vehicles; management sees ABF as one of the fastest-accelerating areas of credit.

Contradiction Point 1

Inflow Momentum and Projections

It involves differing descriptions of the momentum and projections for inflows, which are crucial for understanding the company's future growth trajectory.

Given weaker inflows in private equity and strong inflows in credit and solutions, what is the inflow outlook by business through year-end and into 2026? - Brian Mckenna (Citizens JMP Securities)

2025Q3: We feel very good about the inflows, with $17 billion in Q3, nearly double that in 2024. Year-to-date, we're around $45 billion. We're on track to achieve the revised guidance of $50 billion for the year. - John Redett(CFO)

Can you outline the year-end inflow outlook by business and 2026 flow expectations, considering the momentum in credit and solutions? - Brian J. McKenna (Citizens JMP Securities)

2025Q3: We feel very good about inflows, with a strong quarter in credit and Alpha Invest. The $17 billion in Q3 is nearly double the third quarter from 2024. Year-to-date, we're around $45 billion. We're on track for our revised guidance of $50 billion by year-end. - John Redett(CFO)

Contradiction Point 2

Realization Pipeline and FRE Growth

It involves differing expectations and focus on the realization pipeline and its impact on fee-related earnings (FRE) growth, which are key financial metrics for investors.

Can you clarify the realization pipeline's progress and its alignment with the bank's positive outlook, and whether this will lead to an FRE in 2024? - Glenn Schorr (Evercore ISI Institutional Equities)

2025Q3: Pipeline is strong, with $4 billion in deals signed. Most will close in Q4, but some might spill over. The team focuses on performance and realizations. The Medline IPO filing is positive. - John Redett(CFO)

Can you clarify the timing of announced transactions and their impact on the FRE outlook for next year? - Glenn Schorr (Evercore ISI Institutional Equities)

2025Q3: Our management team does not focus on quarter-to-quarter realizations. We have been very focused on performance and return capital. In 2025 Q3, we returned nearly $20 billion in global private equity, 30% higher than the prior period. - John Redett(CFO)

Contradiction Point 3

Capital Management and Share Repurchases

It involves differing statements on capital management priorities and the status of share repurchases, which are crucial for understanding the company's financial strategy.

Can you explain the financial details of the announced transactions and discuss capital management priorities? - William Katz (TD Cowen)

2025Q3: We have repurchased $200 million in Q3 and expect a similar amount in Q4. Our capital allocation prioritizes investing for growth, returning capital to shareholders, and considering inorganic opportunities. - John Redett(CFO)

How do you prioritize capital management as repurchase programs near completion and inorganic opportunities arise? - William Raymond Katz (TD Cowen)

2025Q3: We are near the end of our $1.4 billion repurchase authorization. Growth remains our first priority, with significant investment in businesses. We still view our stock as an attractive investment, with repurchases continuing. - John Redett(CFO)

Contradiction Point 4

Inflows and Growth Outlook

It involves differing perspectives on the inflows and growth outlook, which are crucial for assessing the company's financial health and future prospects.

Can you provide an update on inflows by business for the remainder of the year and into 2026? Are there any visibility on larger insurance transactions in the coming quarters? - Brian Mckenna (Citizens JMP Securities, LLC, Research Division)

2025Q3: We feel very good about the inflows, with $17 billion in Q3, nearly double that in 2024. Year-to-date, we're around $45 billion. We're on track to achieve the revised guidance of $50 billion for the year. Credit and AlpInvest have strong momentum without any private equity funds in the market. Therefore, diversification is driving growth. - John Redett(CFO)

What are the key drivers behind the increased guidance, particularly in the second half? Where is incremental growth expected? How should the 2026 growth opportunity be viewed? - William Raymond Katz (TD Cowen)

2025Q2: The revised outlook reflects strong performance across the business. Organic growth in AlpInvest is exceptional, and capital markets revenue is high quality. We expect growth to continue with potential upside if markets improve. - John Redett(CFO)

Contradiction Point 5

FRE Growth Expectations

It relates to the company's expectations for FRE growth, which is a key financial metric for investors to evaluate the company's performance and potential.

Why was the fee rate below expectations? - Brennan Hawken (BMO Capital Markets Equity Research)

2025Q3: FRE growth was 28% for the year-to-date and 7% for the quarter. We are now expecting FRE growth to be the low 20s for the year. - Justin Plouffe(Incoming CFO)

What are the key drivers behind the guidance increase, especially in the second half? Where will incremental growth come from? How should we approach the 2026 growth opportunity? - William Raymond Katz (TD Cowen)

2025Q2: We now expect FRE to grow in the low 20s for the year, up from our prior expectation of a low single-digit increase driven by our secondaries and capital markets transactions. - Justin Plouffe(Incoming CFO)