Carlyle Second Quarter 2024 Results Analysis

 

Carlyle has large part of its investments in perpetual earning capital, which are long-term fees.

 Assets Under
Management
• Total Assets Under Management: $435 billion, up 13% year-over-year
• Fee-earning Assets Under Management: $307 billion, up 13% year-over-year
• Perpetual Capital Fee-earning AUM: $90 billion, representing 29% of total Fee-earning AUM
• Pending Fee-earning AUM: $18 billion, up 19% year-over-year
• Available Capital for investment: $83 billion, up 15% year-over-year

(Dollars in millions, except per share amounts) 2Q'23 2Q'24 YTD 2Q'23 YTD 2Q'24
REVENUES
Fund management fees $ 507.8 $ 534.4 $ 1,008.6 $ 1,058.0
Incentive fees 21.0 31.3 40.8 57.5
Investment income (loss), including performance allocations (254.0) 286.3 (81.5) 202.4
Revenue from consolidated entities 137.1 165.6 259.0 330.5
All other revenues 50.2 52.1 94.2 109.7
Total Revenues 462.1 1,069.7 1,321.1 1,758.1
EXPENSES
Cash-based compensation and benefits 270.6 206.3 530.8 428.2
Equity-based compensation 68.0 125.2 122.4 233.5
Performance allocations and incentive fee related compensation (92.2) 144.2 13.5 71.4
General, administrative and other expenses 168.5 187.9 327.7 335.6
Expenses from consolidated entities 102.1 152.1 195.8 276.7
Interest and other non-operating expenses 30.7 30.1 60.5 61.1
Total Expenses 547.7 845.8 1,250.7 1,406.5
Net investment income (loss) of consolidated funds 15.6 (5.1) 19.2 (12.1)
Income (loss) before provision for income taxes1 (70.0) 218.8 89.6 339.5
Provision (benefit) for income taxes (7.3) 69.5 27.0 91.4
Net income (loss) (62.7) 149.3 62.6 248.1
Net income attributable to non-controlling interests 35.7 1.1 60.3 34.3
Net income (loss) attributable to The Carlyle Group Inc. Common Stockholders $ (98.4) $ 148.2 $ 2.3 $ 213.8
Net income (loss) attributable to The Carlyle Group Inc. per common share:
Basic $ (0.27) $ 0.41 $ 0.01 $ 0.59
Diluted $ (0.27) $ 0.40 $ 0.01 $ 0.58
Income (loss) before provision for taxes margin2 (15.1) % 20.5 % 6.8 % 19.3 %
Effective tax rate 10.4 % 31.8 % 30.1 % 26.9 %
Net performance revenues3 $ (154.6) $ 54.0 $ (99.5) $ (30.2)

This lets Carlyle make longer term investment which bring higher long-term yield. Carlyle's portfolio is modeled along the lines of the long-term capital of the Warren Buffett controlled Berkshire Hathaway.

This is evidenced by Carlyle's second quarter 2024 earnings above.

US Stocks Could Rally Into Year End On Federal Reserve Rate Cuts

 

US stocks might well rally into year end on Federal Reserve cutting rates.

The US economy seems to be in a worse shape than most Wall Street analysts thought. It remains to be seen whether the Federal Reserve could jolt the US economy back into growth with interest rate cuts.

The main beneficiaries of the rate cuts and the likeley pending stock market rally will be AI stocks again like NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta. Technology stocks as a whole would do well in the near term, in Wolfteam Ltd.'s view.

75 % Probability Of A 0.25 % Rate Cut, 25 % Probability Of A 0.50 % Rate Cut

 

There is a 75 % probability of a 0.25 % rate cut and a 25 % probability of a 0.50 % rate cut by the Federal Reserve at the meeting ending today, according to Wolfteam Ltd.'s projections and estimates.

The Federal Reserve interest rate announcement is pending in little more than 2 hours.

Actually, a 0.50 % decrease of the Federal Funds Rate by the Federal Reserve could provide a much greater jolt to financial markets than a 0.25 % interest rate cut. Actually, the effect could be very negative, because a 0.50 % cut could signal that the Federal Reserve is more worried about the economy than one could tell by recent Fed speak. It could clearly show that the Federal Reserve sees strong negative underwater currents in both the US and global economy.

And since 0.50 % rate cut would most probably would not be the end of the road in this tightening cycle. The signaled number of further interest rate cuts could foretell a much larger slowdown of the US economy, then currently expected and built into Wall Street research analysts' models.

A 0.25 % interest rate cut is much more incorporated into Wall Street macro-economists, economists and equity research analysts and investors' globally models and expectations and would be taken in stride by the markets, according to Wolfteam Ltd.'s projections and estimates.

Half Or Quarter Point Rate Cut By The Federal Reserve?

 

More and more Wall Street economists forecast half a point cut of the Federal Funds Rate by the Federal Reserve at the upcoming meeting.

The Federal Reserve will cut rates by a quarter of a percentage, according to Wolfteam Ltd.'s projections and estimates.

That said, however, the Federal Reserve might add one or two more quarter of a percentage points cut to its dot-plot forecasts. A dovish quarter of a percentage point cut in interest rates we might have in Wolfteam Ltd.'s view. A bigger, half a percentage point cut could disrupt markets into thinking the economic situation is worse than economic data points show on the surface.

A quarter of a percentage point cut in rates by the Federal Reserve will please most, it seems.

The US Presidential Election Stock Market Rally

 

We are in for a US Presidential election stock market rally, helped also by interest rate cutting by the Federal Reserve, according to Wolfteam Ltd.'s projections and estimates

Historically, after the end of a US Presidential election the US stock market rallies.

The main beneficiaries from the rally will be US AI stocks like NVIDIA, Apple, Microsoft, Alphabet, Meta, Amazon.

KKR Second Quarter 2024 Earnings Analysis

 

In the second quarterl, KKR & Co, the global investment management company realized several times more fees from its insurance business than the private equity, private credit and lending and real estate business lines:


Second Quarter 2024 GAAP Results (Unaudited)
GAAP Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders was $0.7 billion for the quarter and
$1.4 billion YTD.
($ in thousands, except per share data) 2Q'23 2Q'24 2Q'23 YTD 2Q'24 YTD
Revenues
Asset Management and Strategic Holdings $ 1,451,344 $ 1,560,449 $ 2,577,378 $ 3,516,917
Insurance 2,175,174 2,611,461 4,176,622 10,311,731
Total Revenues $ 3,626,518 $ 4,171,910 $ 6,754,000 $ 13,828,648
Expenses
Asset Management and Strategic Holdings $ 970,293 $ 1,222,960 $ 1,781,801 $ 2,840,929
Insurance 2,152,189 2,723,369 4,200,764 10,418,344
Total Expenses $ 3,122,482 $ 3,946,329 $ 5,982,565 $ 13,259,273
Total Investment Income (Loss) - Asset Management and Strategic Holdings $ 946,977 $ 984,624 $ 1,088,013 $ 2,003,881
Income Tax E xpens e (B enefit) 324,955 216,969 473,702 486,170
R edeemable Noncontrolling Interes ts (1,740) 29,666 (9,043) 62,344
Noncontrolling Interes ts 266,086 295,644 193,083 674,602
P referred S tock D ividends 17,249 — 34,499 —
Net Income (Loss) - KKR Common Stockholders $ 844,463 $ 667,926 $ 1,167,207 $ 1,350,140
Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock
Basic $ 0.98 $ 0.75 $ 1.36 $ 1.52
Diluted $ 0.94 $ 0.72 $ 1.32 $ 1.45
Weighted Average Shares of Common Stock Outstanding
Basic 861,553,274 887,394,513 861,332,121 886,200,169
Diluted 912,147,881 932,046,386 913,068,567 928,593,777

This is of course before netting due to international GAAP.

KKR & Co is slowly turning into insurance conglomerate along the lines of Warren Buffett's controlled Berkshire Hathaway.

KKR & Co is using the insurance proceeds to fund longer-term, stable capital investments in private equity, private credit and lending and real estate or the other lines of KKR & Co.

This is reflected also in the assets under management, where the insurance business commands the largest share of 42 %:

Assets Under Management
• AUM of $601 billion, up 16% year-over-year, with $32 billion of organic new capital raised in the quarter and $108 billion in the
LTM
• Fee Paying AUM of $487 billion, up 16% year-over-year, with $29 billion of organic new capital raised in the quarter and $109
billion in the LTM
• Perpetual Capital of $250 billion, up 25% year-over-year driven primarily by the organic growth of Global Atlantic. Perpetual
capital represents 42% of AUM and 50% of FPAUM

All in all the insurance based, long-term capital management of KKR seems to be working quite well as evidenced by KKR's 109 billion USD market capitalization. The more stable, long-term insurance capital seems to be providing for more strategic, long-term investment decisions that bring in more value creation for KKR as evidenced by its market capitalization.

Coinbase Is Undervalued Currently

Coinbase, the cryptocurrency exchange is undervalued currently.

Coinbase's intrinsic value is 160 billion USD, according to Wolfteam Ltd.'s projections and estimates.

Multiples above Coinbase's current market capitalization of 40 billion USD.

Wolfteam Ltd.'s Coinbase intrinsic valuation is predicated on the assumption of Bitcoin's price surpassing 100 000 USD in 5 years.

The Stock Market Could Fall 15 % More From Here

 

The US Stock market measured by the main indices S&P 500, DJIA, Nasdaq Composite could fall 15 % more form current levels due to temporary overvaluation.

The artificial intelligence, AI transformation of the world's business is fully on its way. However, for the time being Wall Street equity research analysts and investors are extrapolating too high revenues and profits for the leading AI companies, which drive the market.

AI has to show additional potential to live up to such expectations. So correction seems to be in full swing on the US Stock market.

KKR Investments Portfolio Strategy

 

KKR & Co, Inc the global investment management firm has staked its future on its insurance business. KKR collects the insurance premiums from its Global Atlantic insurance business line and uses them for long-term capital investments in private equity, private credit and lending and real estate.

This kind of strategy will drive KKR's future, in Wolfteam Ltd.'s view.

A proprietary investment of sort, since the insurance premiums were not raised from investors in the first place. Second quarter 2024 earnings statement excerpt:

($ in thousands, except per share data) 2Q'23 2Q'24 2Q'23 YTD 2Q'24 YTD
Revenues
Asset Management and Strategic Holdings $ 1,451,344 $ 1,560,449 $ 2,577,378 $ 3,516,917
Insurance 2,175,174 2,611,461 4,176,622 10,311,731
Total Revenues $ 3,626,518 $ 4,171,910 $ 6,754,000 $ 13,828,648
Expenses
Asset Management and Strategic Holdings $ 970,293 $ 1,222,960 $ 1,781,801 $ 2,840,929
Insurance 2,152,189 2,723,369 4,200,764 10,418,344
Total Expenses $ 3,122,482 $ 3,946,329 $ 5,982,565 $ 13,259,273
Total Investment Income (Loss) - Asset Management and Strategic Holdings $ 946,977 $ 984,624 $ 1,088,013 $ 2,003,881
Income Tax E xpens e (B enefit) 324,955 216,969 473,702 486,170
R edeemable Noncontrolling Interes ts (1,740) 29,666 (9,043) 62,344
Noncontrolling Interes ts 266,086 295,644 193,083 674,602
P referred S tock D ividends 17,249 — 34,499 —
Net Income (Loss) - KKR Common Stockholders $ 844,463 $ 667,926 $ 1,167,207 $ 1,350,140
Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock
Basic $ 0.98 $ 0.75 $ 1.36 $ 1.52
Diluted $ 0.94 $ 0.72 $ 1.32 $ 1.45
Weighted Average Shares of Common Stock Outstanding
Basic 861,553,274 887,394,513 861,332,121 886,200,169
Diluted 912,147,881 932,046,386 913,068,567 928,593,777

The size of the insurance premiums is reflected in the revenues from the Asset Management and Strategic Holdings and Insurance business. The insurance business dwarfs Asset Management and Strategic holdings with 10.3 billion USD in revenue compared to 3.5 billion USD revenue for Asset Management. All this is before international GAAP is applied to net revenue premiums.

The Private Equity business line is the biggest revenue generator netted for KKR & Co:

($ in thousands) 2Q'23 2Q'24 2Q'23 YTD 2Q'24 YTD
Management Fees $ 320,081 $ 350,650 $ 636,422 $ 693,135
Transaction and Monitoring Fees, Net 33,142 16,640 67,416 32,445
Fee Related Performance Revenues — — — —
Fee Related Revenues $ 353,223 $ 367,290 $ 703,838 $ 725,580
Realized Performance Income $ 146,232 $ 327,943 $ 309,284 $ 593,240
Capital Metrics:
Assets Under Management $ 170,139,000 $ 185,265,000 $ 170,139,000 $ 185,265,000
Fee Paying Assets Under Management $ 103,730,000 $ 118,240,000 $ 103,730,000 $ 118,240,000
New Capital Raised (AUM) $ 1,992,000 $ 2,071,000 $ 2,341,000 $ 5,661,000
Capital Invested $ 3,207,000 $ 2,578,000 $ 6,070,000 $ 3,728,000
Uncalled Commitments $ 61,171,000 $ 54,925,000 $ 61,171,000 $ 54,925,000

Can NVIDIA Become A 10 trillion USD Company?

 

Yes, NVIDIA can achieve the 10 trillion USD in market capitalization milestone, according to Wolfteam Ltd.'s projections and estimates.

Artificial intelligence, AI computing could change everything, every sector of our life. And NVIDIA is leader in AI with its GPUs for data centers, which compute AI.

AI will go through the usual boom and bust as any new technology. But according to Wolfteam Ltd.'s view the AI bust will be followed by an even bigger AI boom, which could drive NVIDIA's market capitalization to new highs. We are at the cusp of the fourth industrial revolution and NVIDIA is leading the way into transforming our world via artificial intelligence, AI.