The Carlyle Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to Carlyle Group 3rd Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require any assistance during the conference, please press star then zero and an operator will be with you shortly. As a reminder, this call is being recorded. I would now like to turn the call over to your host today, Mr. Daniel Harris. Sir, please go ahead.

Daniel Harris Thank you, Ludi. Good morning, and welcome to Carlyle's third quarter 2020 earnings call. With me on the call today is our 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 as a 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 other SEC filings that could cause actual results to differ materially from those indicated. Carlyle 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 third quarter, we generated $119 million in fee-related earnings and $152 million in distributable earnings, with DE per common share of 40 cents. We have declared a quarterly dividend of 25 cents per common share. To ensure participation by all those on the call today, 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 Chief Executive Officer, Hugh Song Lee.

Good morning, everyone, and thank you for joining our call today. We hope you and your families are safe, healthy, and doing well. Carlyle's third quarter results underscore our position of strength as we adapt and perform in the current environment. Thank you for joining us today. for accelerating growth. I'd like to touch on four important points underpinning our momentum. First, we are focused on growing FRE. We've done this by scaling our largest fund platforms while carefully managing expenses. This has helped drive our FRE margins up more than 300 basis points this year, and margins have increased more than 1,000 basis points over the past three years. We intend to continue our focus on FRE and capture the benefits of operating leverage as we scale and drive growth in the years to come. Second, our fundraising continues to be successful despite challenging conditions. Our limited partners continue to entrust us with more capital, and we raised $5.5 billion of new capital in the third quarter. Year to date, we have raised $18 billion, versus $16 billion for the same period last year, despite not having any of our flagship private equity carry funds in the market. Most of our new capital comes from global credit and investment solutions, which are businesses we've been building over the past several years. And it's worth noting that Fortitude, the centerpiece of our insurance strategy, continues to positively impact fundraising. By the end of this year, Fortitude will have rotated or committed to invest approximately $4 billion of capital into Carlyle funds with more expected in 2021. The funds raised from Fortitude are attractive because of the recurring permanent like nature of this capital. The third point is our investment portfolio is performing well. Our overall carry fund platform appreciated 5% in the third quarter with our global private equity business leading the way and up 5% as well with particular strength in our Asia portfolios. Our U.S. real estate funds continue to perform extremely well, up 3% in the quarter due to disciplined portfolio construction resulting in virtually no direct exposure to the hard hit office, retail, and hotel sectors. and our global credit teams are executing at a very high level with our CLOs now substantially recovered and collecting all fees as a result of active, thoughtful repositioning and trading within these portfolios. Let me quickly also highlight our exposure to the energy sector, which is facing cyclical pressure as well as secular issues. Our investment exposure to this sector has been purposefully structured to be ring fenced in a few industry sector focused funds and as a result, Much of our private equity and private credit portfolios have very limited exposure to energy-specific investments. As a result of the strong value creation by our funds this quarter, our net accrued carry balance grew to $2 billion, increasing our confidence for significant earnings growth as realizations increase and performance revenues accelerate. It's worth noting that we turned on carry for our largest fund, and Carlisle Partners VI. And while we remain in the early stages of monetizing some of the public and private holdings across all of our maturing funds, we have line of sight to accelerating realization activity over the next several years, environmental conditions permitting. The fourth and last point I'd like to make is that our activity is picking up as we use our platform to originate new investments. We invested $3.7 billion of new capital in the quarter, and our pipelines are filling up as activity builds throughout our businesses. Our private equity business continues to show resilience. It remains our largest and strongest platform. Growth investments are a key pillar, and we're very pleased with the activity in this area, especially in our strong industry sectors like technology, healthcare, consumer, and financial services. Our global reach also continues to be a competitive differentiator. We have been quite busy in Asia, notably China, India, and Korea, and we have closed or announced more than $1.5 billion of new investments in 2020. And while the industry's large, complex buyout volume has been muted, our teams are more active assessing traditionally larger opportunities like take privates and carve-outs, and this is demonstrated through the announcement this morning that we have agreed to acquire Flender, a global leader in mechanical and electrical drive technology, in a carve-out from Siemens for 2 billion euro. Lastly, in global credit, we're seeing good deal flow in our opportunistic credit funds as mid-cap private companies have a growing need for transitional capital. Before handing it over to Kurt, a few comments on the environment. The economic recovery continues to be uneven Based on region, asset class, and industry sector. As the recovery progresses in different ways, dispersion of outcomes is becoming apparent. Some sectors have seen acceleration of growth, while other sectors like energy, retail, travel, and leisure continue to struggle. Capital market conditions have been robust and accommodative to new debt and equity issuance, but we expect volatility to persist given the fits and starts nature of the recovery. Disruptions from the impact of COVID are changing the way we live and work, accelerating trends and modifying behavior. While no doubt uncertainty exists from the geopolitical policy, healthcare, and regulatory issues of the day, our global platform and deep industry and sector expertise is what sets us apart and will help us navigate through this environment. We are very well positioned to be selectively aggressive and appropriately circumspect as we manage our existing portfolio and seek attractive new opportunities across regions, asset classes, investment strategies, and industry sectors. Let me stop and hand the call over to our Chief Financial Officer, Kurt Buser, and then I'll come back and offer some final thoughts.