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July 30, 2020, 6:49 a.m. EDT

Carlyle profit dented by compensation costs

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By Dave Sebastian

Carlyle Group Inc. said its profit fell as its performance-related compensation costs climbed in the second quarter.

The private-equity firm on Thursday posted net income of $145.9 million, or 41 cents a share, compared with $154.1 million, or $1.23 a share, in the comparable quarter last year.

Performance allocations and incentive-fee-related compensation came in at $535.6 million in the quarter, up from $113.6 million a year earlier, the Washington, D.C., firm said.

Carlyle said it also booked a principal investment loss of $621 million related to the closing of its purchase of an additional stake in Fortitude Group Holdings LLC from American International Group Inc. In November, AIG announced a deal to sell most of its stake in Fortitude to Carlyle and Japanese insurance firm T&D Holdings Inc. for roughly $1.8 billion.

Gains from investments and fees offset the loss. Revenue rose 6.6% to $1.13 billion for the quarter. Investment income, including performance allocations, rose to $679.2 million from $589.6 million in the prior year.

The fair value of Carlyle's private-equity funds climbed by 13% in the second quarter. That compares with a 20% jump for the S&P 500.

Distributable earnings, or the amount of Carlyle's profit that could be returned to shareholders, were $198.4 million, down from $213.4 million in the same period last year. Fee-related earnings fell to $127.3 million from $132.7 million, driven by lower catch-up management fees, Carlyle said.

"Our outlook remains appropriately prudent given an uncertain economic backdrop," said Kewsong Lee, Carlyle's co-chief executive. On July 21, Carlyle said Co-Chief Executive Glenn Youngkin would retire and that Mr. Lee, his co-CEO since 2018, would continue as the firm's sole CEO. Mr. Youngkin, a 25-year Carlyle veteran, said he plans to focus full time on philanthropy and public service.

Carlyle in the first quarter swung to a loss as the Covid-19 pandemic hurt the value of its investments, though its private-equity portfolio proved more resilient than the broader market.

Assets under management as of June 30 came in at $221 billion, up 2% from the prior year. The firm, which raised $4.8 billion in the quarter, reported $73 billion in cash available to invest.

Miriam Gottfried contributed to this article.

Write to Dave Sebastian at dave.sebastian@wsj.com

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