By Echo Wang

NEW YORK (Reuters) -Private equity firm Carlyle Group reported a larger than expected 11.7% year-on-year drop in second-quarter distributable earnings on Monday, as record revenue from management and transaction fees did not offset a big drop in performance fees.

The decline was due to Carlyle generating less cash from asset sales. This resulted in smaller profit, because Carlyle gets a cut of the cash generated as performance fees. Fees it receives for managing investors’ money jumped, but were not enough to make up the difference.

Distributable earnings, which measures cash that can be returned to shareholders, dropped to $343 million from $389 million a year earlier. This translated into after-tax distributable earnings of 78 cents per share, which fell short of the average Wall Street analyst estimate of 83 cents, according to LSEG data.

The Washington, D.C.-based firm reported fee-related earnings of $273 million, its highest ever, and a 32% increase from the previous year. Its fee-related earnings margin came in at 46%, up from 34% in the same quarter last year.

Carlyle’s assets under management rose 13% from the prior quarter to $435 billion.

Its shares were down 11.08% at $39.33 early on Monday, valuing the group at about $14.15 billion. Wall Street’s main indexes were also down sharply as weak economic data fueled U.S. recession fears, roiling global markets.

“Obviously we’ve all seen over the last few trading days, and this morning, the market remains quite volatile”, said Carlyle CEO Harvey Schwartz.“The trajectory for GDP, the expected Fed rate cuts this year, all the dynamics still tell us the underlying fundamentals support improving activity across our platform for the balance of the year.”

Carlyle’s corporate private equity funds rose 2% during the quarter, real estate funds appreciated 1%, infrastructure and natural resources funds gained 3%, and global credit funds appreciated 3%. Last month, bigger rival Blackstone reported that its core private equity funds appreciated by 2%, and opportunistic real estate funds grew by 0.3%.

Carlyle raised $12.4 billion from investors during the quarter, primarily driven by commitments in real estate and the closing of four new collateralized loan obligations.

The alternative asset manager raised $2.8 billion for its fifth Japan buyout fund in the quarter, marking the largest Japan-focused buyout fund ever.

Carlyle spent $4 billion on new acquisitions and retained $83 billion of unspent capital. Together with private equity firm KKR, it won an auction for a $10 billion student loan book from Discover Financial Services in June.

Carlyle also said on Monday it was selling Cogentrix Energy, one of the largest U.S. natural gas power plant portfolios, for $3 billion amid soaring investor interest in the energy sector driven by rising electricity demand from digital networks.

“We are seeing increased investment activity across the business as buyer and seller confidence has improved, despite recent volatility,” said Carlyle CFO John Redett.

“In terms of exit activity, we now are seeing more robust competition, where an IPO is a real exit path and strategic buyer interest has picked up. We expect increased activity in the second half of 2024.”

(Reporting by Echo Wang in New York; Editing by Sonali Paul and Mark Potter)

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