French tax ruling dents Carlyle quarterly profits

Carlyle's profits dropped in the first quarter despite an increase in the value of investments and a buoyant market for selling off assets.

The private equity group's economic net income - a measure of its profits - was $273m before tax, or 80 cents per share, for the first quarter, a 13 per cent decline on the same period a year ago. Analysts had expected 70 cents.

A French court ruling clawing back tax on Parisian property sales by a Carlyle-owned company between 2007 and 2009 hit profits by $112m, the group said on Wednesday.

The value of many Carlyle buyout and real estate funds - on which it earns carried interest, a share of future profits with investors - nevertheless rose as the year began.

"The performance of our funds has been solid early in the year, with our carry funds up 6 per cent in the first quarter and other products performing well," said William Conway, Carlyle's co-chief executive.

The group's hedge funds were weaker, with performance fees falling two-thirds year-on-year to $13m.

Redemptions from the funds contributed to a 3 per cent drop in Carlyle's total assets under management versus the same period last year, to $192bn.

Its rival Blackstone recently reported $310bn in assets in the same quarter, from $272bn a year ago.

The assets on which Carlyle earns fees also fell by 9 per cent on a year-on-year basis to $129bn.

As listed investment managers, Carlyle and its rivals are valued by stock analysts on their fee income and asset-gathering activities.

Carlyle took advantage of strong markets during the quarter to sell stakes in companies including Altice and Booz Allen Hamilton.

Many of the 34 new private equity and real estate investments Carlyle announced during the quarter were also relatively small deals, in a sign prices for large transactions are becoming forbiddingly high.

Carlyle has realised $21bn in proceeds from selling out of investments over the past 12 months, nearly as much as the $23bn it raised in fresh capital during the same period.

The new capital includes its international energy fund, which closed in the first quarter with $2.5bn to spend on oil and gas assets brought low by collapsing crude prices. Carlyle is betting that the best opportunities will emerge later this year.

Immediate investments in energy have proven more expensive to make than many private equity groups expected, with public markets competing to provide capital.

Older investments by Carlyle alongside the energy specialist Riverstone, now in run-off, have meanwhile continued to bear the brunt of the price fall.

The investments' value fell 3 per cent, and performance fees from them were less than 1 per cent of the $1.8bn total Carlyle posted during the quarter.

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