The Carlyle Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Carlyle Group second quarter 2020 earnings call. At this time, all participants in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Mr. Daniel Harris. You may begin, sir.

Thank you, Demetrius. Good morning and welcome to Carlyle's second quarter 2020 earnings call. With me on the call today is our co-chief executive officer, Kyu-Sung Lee, and our chief financial officer, Kurt Buser. This call is being webcast and a replay will be available on our website. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or to substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliations of these measures to GAAP in our earnings release. 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 factor section of our annual report on Form 10-K and our other SEC filings that could cause actual results to differ materially from those indicated. Carlisle assumes no obligation to update any forward-looking statements at any time. Earlier this morning, we issued a press release and detailed earnings presentation, which is also available on our investor relations website. For the second quarter, we generated $127 million in fee-related earnings and $198 million in distributable earnings, with DE per common share of 53 cents. We've declared a quarterly dividend of 25 cents per common share. To ensure participation by all those on the call, Please limit yourself to one question and then return to the queue for any additional follow-ups. With that, let me turn the call over to our Co-Chief Executive Officer, Hugh Song Lee. Good morning, everyone, and thank you for joining our call today.

We hope you're doing well and that you and your families are staying safe and healthy. So before we get started, I want to thank Glenn for his partnership and friendship over the last several years. We accomplished a lot. and I am proud of the work we did together to make Carlyle an even stronger firm. He is a culture carrier and a class act. I wish Glenn all the very best as he goes off into a life of public service. Now onto Carlyle, our priorities and our results. The combined health and economic crisis is a backdrop unlike anything we have lived through. I am proud of how everyone at Carlyle has come together to do an amazing work and job on behalf of all of our investors and I would like to thank our entire organization for their focus and commitment during these challenging times. Despite the current environment, we are adapting well and our business continues to perform. This is evidenced by our solid second quarter results, which includes strong fund appreciation, a substantial increase in our net accrued carry, and attractive distributable earnings for our shareholders. These results reflect the hard work of all of our people to deliver on our strategic priorities which remain on track. Specifically, we continue to grow our current fund families and will launch new investment strategies with the potential to scale. We continue to drive growth in our global credit business and build upon strong momentum in our Fortitude Reinsurance platform. And we continue to prudently manage our operations to further enhance margins. Executing these priorities will enable us to grow sustainable fee-related earnings, increase our dividend on a lag basis to FRE, expand our distributable earnings over the long term underpinned by investment performance, and invest further in corporate growth and or shareholder-friendly actions with the excess capital that we generate in the future. Looking forward in the near term, COVID and other economic and geopolitical issues are likely to create headwinds in the environment, including A material drop in M&A activity, with global announced transactions down more than 50% in the second quarter from a year ago, and notably large transactions remaining difficult to complete. Significant disruptions in certain industries, like energy, aviation and travel, and certain consumer segments, and weakening financial conditions of many municipalities, which could have disruptive effects on the infrastructure sector as development projects slow down especially where public-private partnership is required, for example, in our terminal rebuilding project at JFK. While public markets have experienced a strong recovery across all types of assets, we remind ourselves that we remain in the early stages of a global pandemic and are likely facing a multi-year 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. But please do not conflate our tonality and caution on the real economy with our ability to remain active to drive performance in the investment world. It is certainly possible to have a cautious and prudent outlook while remaining active and successful in our core business as demonstrated by our second quarter results. The very uneven nature of the recovery is what provides us the opportunity to be selectively aggressive and appropriately circumspect, depending on region, asset class, and industry sector. Turning to our fund performance, thoughtful construction of our portfolios around the world helped us deliver solid investment performance in the second quarter. Fund appreciation rebounded sharply, with our corporate private equity funds appreciating 13% in the quarter. which was the main driver of our net accrued carry balance increasing by nearly 50% from last quarter. Our portfolio benefited from improved public markets as well as tighter credit spreads and better liquidity in the capital markets. With respect to investing activities, we have found attractive new investment opportunities notably in Asia as well as in global growth areas like technology and healthcare. We deployed just under $6 billion of new capital in the first half of 2020, but we expect full-year deployment to be below that of the past few years. We have $73 billion in dry powder and are well positioned to deploy capital as opportunities emerge in the years to come. With respect to exit activities, years of hard work led to attractive sales of portfolio companies during the quarter, including, among others, Golden Goose, Eggplant, and Dealogic. In addition, improved pricing and market liquidity allowed us to opportunistically complete several secondary trades across corporate private equity and real estate. We were also able to execute IPOs of several companies in the first half of this year from our U.S. and Asia private equity business. With respect to fundraising, We have had a good start to the year raising new capital with approximately $12.4 billion raised across the platform, with particular strength in investment solutions and global credit. While we expect to see the firm's fundraising slow down later in the year, the fundraising environment thus far has remained generally resilient since the onset of the pandemic. Now a quick note on one of our most important strategic initiatives, Fortitude. In June, we completed a process that started nearly two years ago, which has resulted in Carlyle and our partners owning 97% of Fortitude REIT. We're now focused on driving attractive returns on capital, maintaining prudent risk, and searching for growth by acquiring additional runoff insurance blocks. Fortitude is performing well, and we expect it will be an important source of growth moving forward. Finally, as I said when I started, I am proud of our people and the work we are doing. Our people and culture are the most important priority. We are more focused than ever on diversity, equity, and inclusion. We are in the judgment business, and diversity of thought and perspectives is what gives us our investment edge. It's critical that we continue to push forward on cultivating an inclusive culture at Carlyle and incorporating ESG in all that we do. We are committed to drive positive change not only at our firm, but also in the companies that we influence and in the communities where we work. So in summary, putting all this together, Carlyle is in great shape and very well positioned for the future. While of course there will be complications and challenges, I have total confidence in our entire global team, the strength of our platform, and our ability to make businesses better and create impact to drive performance with our investment activities. Let me stop there and hand a call over to our Chief Financial Officer, Kirk Buser, then I'll come back and offer some final thoughts.