Carlyle Group's Strategic Turnaround and Fee-Driven Growth Signal a Strong Buy Opportunity

The Carlyle Group (CG) has emerged as a standout performer in the alternative asset management sector, driven by a strategic realignment under new leadership, robust fee-related earnings growth, and a surge in secondary market demand. With its Q2 2025 results underscoring a 25.6% year-over-year increase in distributable earnings and a 18.4% rise in fee-related earnings (FRE), the firm is demonstrating the kind of operational momentum that typically precedes sustained shareholder value creation. For investors, the question is no longer whether Carlyle can deliver but how much further it can go—and why now is the time to act.

Operational Momentum: A Fee-Driven Engine

Carlyle's Q2 2025 results were nothing short of transformative. Fee-related earnings (FRE), a critical metric for alternative asset managers, surged to $323.3 million, up 18.4% year-over-year. This growth was fueled by a 16% increase in fund management fees and a staggering 66% jump in transaction and portfolio advisory fees. The latter reflects the firm's success in capital markets deals, a sector where Carlyle has deepened its expertise through strategic investments in co-investment and secondary private equity.

The firm's assets under management (AUM) grew to $465 billion, with fee-earning AUM (FEAUM) rising 6% to $325 billion. Notably, perpetual capital now accounts for 31% of FEAUM, a structural shift that reduces reliance on volatile market inflows and ensures a more stable revenue base. This is a critical advantage in a low-growth macroeconomic environment, where firms with recurring fee models are better positioned to outperform.

Management Credibility: Execution and Vision

CEO Harvey M. Schwartz and CFO John Redett have instilled a sense of urgency and clarity in Carlyle's strategy. Their focus on high-conviction sectors—global credit, insurance, and capital markets—has paid dividends. The firm's secondary markets business, led by Carlyle AlpInvest, delivered record fee-related earnings of $68 million in Q2 2025, a 80% year-over-year increase. This outperformance is not accidental but a result of disciplined execution: AlpInvest's co-investment fund has already surpassed the size of its predecessor, signaling strong investor confidence.

Management's credibility is further reinforced by its ambitious guidance. Carlyle now expects 10% fee-related earnings growth for 2025, up from a prior projection of 6%. This upward revision, coupled with a $0.35 quarterly dividend (a 23% yield for the year), underscores the firm's commitment to returning capital to shareholders. CEO Schwartz's assertion that “momentum across the whole platform feels good” is not just a soundbite—it's a reflection of a management team that has aligned its incentives with those of investors.

Tailwinds: Pro-Growth Policies and Secondary Market Demand

Carlyle's growth is being turbocharged by structural shifts in the financial landscape. In the insurance sector, the shift toward private market investments is accelerating. U.S. life insurers now allocate 45.6% of their bond portfolios to private placements, a trend that benefits Carlyle's co-investment and secondary strategies. The firm's partnership with UBS to provide private equity secondary solutions to international wealth clients is a masterstroke, tapping into a $8 trillion pool of investable assets hungry for alternative returns.

Regulatory tailwinds are also in play. The Basel III Endgame re-proposal, which could reduce capital requirements for banks, is expected to spur credit risk transfer transactions—a sweet spot for Carlyle's capital markets expertise. Meanwhile, pro-growth policies in the U.S., including potential executive orders expanding retirement access to private markets, could unlock new demand for secondary assets. These developments align with Carlyle's strategic focus on sectors where it has deep expertise and a first-mover advantage.

Investment Thesis: A Strong Buy Case

Carlyle's combination of fee-driven growth, management credibility, and structural tailwinds makes it a compelling buy. The firm's current valuation, with a price-to-earnings ratio of 12.3x (as of August 2025), is undemanding relative to its growth prospects. With fee-related earnings expected to grow 10% in 2025 and AUM on track to hit $500 billion by year-end, the upside is clear.

For risk management, investors should monitor macroeconomic volatility and regulatory shifts in the insurance sector. However, Carlyle's diversified portfolio—spanning credit, real estate, and secondary markets—provides natural hedging against sector-specific risks. The firm's recent $9 billion real estate fund close in a challenging fundraising environment further demonstrates its ability to attract capital even in headwinds.

Conclusion: Positioning for Long-Term Outperformance

Carlyle Group is no longer a “value play” but a high-conviction growth story. Its strategic pivot to fee-driven models, secondary market dominance, and alignment with pro-growth policies position it to outperform both its peers and the broader market. For investors seeking exposure to the next phase of the alternative asset boom, Carlyle offers a rare combination of momentum, credibility, and structural tailwinds. The time to act is now—before the market fully prices in its potential.