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Carlyle Group LP  (NASDAQ:CG)
Q4 2018 Earnings Conference Call
Feb. 06, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to The Carlyle Group Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode and later, we will conduct a question-and-answers session, and instructions will follow at that time. (Operator Instructions)

I would now like to hand the call over to, Daniel Harris, Head of Investor Relations. You may begin.

Daniel Harris -- Head of Investor Relations

Thank you, Amanda. Good morning and welcome to Carlyle's fourth quarter 2018 earnings call. With me on the call today are our Co-Chief Executive Officers, Kewsong Lee and Glenn Youngkin, and our Chief Financial Officer, Curt Buser. This call is being webcast and the 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 Factors section of our Annual Report on Form 10-K 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 with our fourth quarter results, a copy of which is available on our Investor Relations website.

Let me summarize our results for the quarter. We generated $175 million in fee related earnings in the quarter, which included several one-off items, which we'll discuss in our prepared remarks and are detailed in our release. And $211 million in distributable earnings in the fourth quarter with DE per common unit of $0.57 in the quarter and DE per common unit of $1.78 for 2018.

Our fourth quarter distribution will be $0.43 per common unit and we will have distributed $1.34 per common unit for 2018. As we indicated previously, we will focus on non-GAAP discussion on distributable earnings and fee related earnings and will no longer report economic income as part of our results. However, for the last time, economic income for the fourth quarter was a loss of $97 million and for 2018 with a gain of $455 million. ENI per unit was a loss of $0.30 per unit for the fourth quarter, an income of $1.11 per unit for 2018.

Today, Glenn is going to begin with a discussion of 2018 and our current position, Curt will go through our results and provide some forward-looking commentary and then Kew is going to wrap up by discussing where we're heading in 2019. To ensure participation by all those on the call, please limit yourself to one question and one -- and then return to the queue for any additional follow-ups.

With that, let me turn it over to our Co-CEO, Glenn Youngkin.

Glenn A. Youngkin -- Co-Chief Executive Officer

Thank you, Dan, and good morning, everyone. 2018 was a year of strong growth for Carlyle, filled with important accomplishments that provide great momentum across our business for 2019.

On our first call as Carlyle's Co-CEOs last year, Kew and I mentioned that the key areas that we would focus the firm on in 2018, investment performance, growing the firm and driving our financial results with particular focus on FRE. I'm pleased to report that Carlyle performed extremely well against those goals. In fact, we progressed faster than we expected.

First, we said that the Carlyle teams would focus on driving our funds investment performance. For the year, across all four of our segments, our funds which appreciated 9% for the year had strong performance, especially when compared to any relevant public index, which would have been down substantially for the year. Kew will expand further on our performance, but this kind of investment result illustrates that the Carlyle teams often do our best work during volatile times.

Second, we said the Carlyle would continue to march toward the $100 billion fundraising target that we set back in 2016. At this point, we are 90% of the way toward that goal. And we expect to raise approximately $20 billion of new capital during 2019 pushing well past our target. We've raised significant new capital in each of our segments, scaling some of our most important funds by 30% to 40%, while maintaining fee economics. Our fundraising success fuels our investment activities, derisks our management fee streams going forward and drives fee related earnings and margin growth.

Third, we told you that we would focus on building global credit. The bottom line is, this segment had a very good year and we continue to allocate resources to build this business. While credit cycles are bound to occur what remains clear is that our investors want more exposure to Carlyle's credit strategies. Our Global Credit business continue to expand in 2018 with management fees growing 27% and fee earning AUM increasing 29%. We closed our acquisition of Carlyle Aviation Partners and this segment continues to gain momentum.

Finally, we said the Carlyle would focus on fee related earnings and that this important stream of earnings would grow significantly. Throughout 2018, you have consistently heard us reaffirm our focus on delivering higher and more sustainable FRE. Throughout the year, we raised our target that we had set at the beginning of the year. And in 2018, the firm delivered our best FRE year yet.

As we look ahead into 2019, Carlyle's strong 2018 provides both momentum and substantial horsepower, both at the firm and our investment funds for us to take on the challenges and opportunities that 2019 will present.

Let me hand things over to Curt Buser to take everyone through our results.

Curtis L. Buser -- Chief Financial Officer

Thanks, Glenn. I'm going to summarize our results, key metrics and highlight factors that contributed to our particularly strong fee related earnings this quarter. Then I will wrap up with our current outlook for the year before handing the call over to Kew.

Fee related earnings were $175 million in the quarter and $350 million for 2018, significantly higher than the guidance we provided last quarter. This result reflects great execution throughout the year. Fourth quarter fee related earnings was positively impacted by several one-off results, which we saw in more detail on the earnings release. The most significant of these are the recovery of $32 million in commodity related insurance, in addition to elevated transaction and catch up management fees in excess of our normal quarterly run rate.

At the beginning of the year, we said Q4 run rate FRE would be $75 million. We then revise that target to $85 million, even after excluding the insurance recoveries and other favorable variances from the $175 million in FRE this quarter. We generated $90 million in sustainable run rate fee related earnings.

Management fees grew significantly over 2018 as a result of our growth and fee earning AUM. Fee earning AUM of $160 billion is up 28% since last year. And fourth quarter management fees of $391 million increased 35% compared to the year-ago period. For the year, management fees of $1.4 billion increased 26%, a much faster growth rate than the 13% increase in annual cash compensation, which helped drive FRE margin expansion.

With regards to compensation about half of the 2018 increase in cash compensation was attributable to investments in growing our platform including our Global Credit business. Managing unitholder dilution is also a key objective, and we intend to grant less in equity-based compensation and continue to repurchase units opportunistically. In fact, based on current equity grants, we expect equity-based compensation to decline in 2019 compared to 2018.

Equity-based compensation expense was $43 million in the fourth quarter, lower than recent quarters. Furthermore, we repurchased 1.1 million units during the quarter for about $20 million resulted in total unit repurchases in 2018 of 4.9 million units for $107 million. And our Board of Directors reset our authorization to $200 million to repurchase units effective January 1, 2019.

We posted another year of exceptional fundraising in most of our large strategies, which helped drive management fees, fee related earnings and assets under management to record levels. During the fourth quarter, our fifth Europe buyout fund reached nearly EUR6 billion in commitments. Real assets raised $2.6 billion, including the first close on our second generation international energy fund, as well as follow-on closes in NGP, infrastructure in Europe real estate.

In Global Credit, we held a final close on our second BDC at $1.2 billion, and priced over $1 billion in new CLOs.

In investment solutions, Metropolitan Real Estate closed its latest secondary program at $1.2 billion of commitments, well exceeding its target.

Now let me highlight some key metrics underpin our results in the quarter. Specifically, we raised $7.1 billion in new capital, and raised over $33 billion for the year, putting us within $10 billion of our $100 billion fundraising target. We invested a $11.5 billion across our carry funds with two large investments in Corporate Private Equity responsible for approximately (technical difficulty) half of the total. For the year, we invested a record $22.4 billion into our carry funds similar to 2017.

We realized proceeds of $4.9 billion in our carry funds during the quarter and $24 billion over the last 12 months. This is only slightly lower than our long-term average. Our carry fund portfolio depreciated 2% in the quarter, but appreciated 9% over the last year. Fourth quarter depreciation was driven by weakness across most global markets, but underlying performance of our portfolio companies remains solid.

Before I turn it over to Kew, a few forward-looking comments. First, we now expect 2019 annual realized performance revenues to be generally in line with 2018. With realized carry position to grow thereafter, the market conditions could drive variance in any period. While our business continues to generate significant realized proceeds, a large portion of recent realizations were from funds accruing carry, but not yet taking cash carry.

Further, it should come with no surprise that current volatility could dampen ex activity at least for the first half of 2019. Keep in mind, we have $1.7 billion in net accrued carry that we would expect to grow and ultimately realize with strong fund performance.

Second, we expect to continue to grow fee related earnings and FRE margin off of the fourth quarter run rate of $90 million. We currently expect full year FRE to be about $400 million for 2019, a 26% increase from 2018 exclusive of the insurance recoveries. FRE margins are expected to approximate 25% during 2019, up from an adjusted 22% in 2018.

With that, let me turn it over to Kew.

Kewsong Lee -- Co-Chief Executive Officer

Thanks, Curt. I want to devote most of my commentary to our priorities moving forward. But first, let me say a few words about the implications of today's investment environment, which remains challenging and competitive. High levels of dry powder in our industry, combined with slowing global growth and volatile markets could affect both investment pace and realizations in 2019. Our public market valuation levels have decreased throughout the world. The private equity markets still exhibit elevated valuations, although in some segments and markets, particularly international, there are indications that valuation multiples may have peaked last year.

With respect to the private credit markets, recent volatility has enabled several investing strategies, particularly in credit opportunities and distressed to become relatively more attractive than they've been in the recent past. Our public market volatility could affect portfolio marks accrued carry balances in the short-term, we believe our $142 billion of in the ground invested assets are well positioned. This broad global portfolio of high quality assets is diversified by fund, industry sector, asset class and region. And as such, over the longer term, we do not expect the firm's aggregate amount of realizations to be materially impacted by short-term volatility. Furthermore, our funds have $75 billion of available capital that positions us well to take advantage of recalibration of valuations that could occur across private equity, credit and real assets over the next several years, especially of current volatility persists and growth slows down.

Now looking ahead, we are focused on three major priorities. First, we will work hard to improve our corporate financial performance and specifically, fee related earnings operating results. We are on the right track, but considerable work and opportunities remain. We expect to drive FRE by first scaling up existing fund platforms, thereby creating incremental earnings leverage.

Second, driving growth in Global Credit, which we believe will ultimately operate at a higher normalized FRE margins than our other segments.

Third, making accretive external acquisitions and investments that are adjacencies and a fit with our platform, such as Fortitude Re and Carlyle Aviation Partners. And fourth, controlling and managing our expenses carefully.

As we stated multiple times last year, we remain focused on building sustainable and growing FRE over the long term. And this will be a multi-year effort. Our second priority, we will continue unitholder friendly actions that should improve the value over units over time. Examples include, managing our equity-based compensation more tightly, reducing unit dilution from historical levels, focusing on appropriate metrics to report, which drove our recent elimination of ENI, and reinvesting our earnings back into the business inappropriate initiatives to drive growth.

Finally, our third priority for the year, continue generating strong investment performance for our fund investors. Notably in 2018, our Corporate Private Equity funds produced about 1,700 basis points of relative outperformance versus global equity indices. This result was driven largely by the solid operating performance of our private equity portfolio companies, which in aggregate delivered year-over-year EBITDA growth of 9% on a global basis.

The bottom line is our investment teams in a very challenging market across a very wide variety of assets in geographies substantially outperformed relevant benchmarks. We intend to continue developing our human capital and platform capabilities to help our deal teams create meaningful operating improvements at our portfolio companies. Combined with deep industry sector knowledge and global reach, we have the ability to transact larger and more complex deals than ever before.

Our investment platform is as strong as it has ever been and we believe we are well positioned to navigate the environment ahead, not only to manage our substantial assets in the ground, but to find interesting new opportunities to drive investment deployment and returns in the future.

So stepping back and summarizing. For 2019, we are very focused on improving and growing fee related earnings, continuing to emphasize unitholder friendly actions and driving attractive investment performance across our broad and global platform.

Before I turn the call over to the operator, I want to take a moment to thank all of our unitholders for their support in 2018. We have a lot of momentum as we turn to 2019 and we look forward to growing Carlyle together.

With that, we are now ready for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question is from the line of Craig Siegenthaler of Credit Suisse. Your line is open.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good morning, everyone.

Kewsong Lee -- Co-Chief Executive Officer

Good morning, Craig.

Craig Siegenthaler -- Credit Suisse -- Analyst

Hey, good morning, Kew. And just before I start, I just want to say that we really appreciate the focus on FRE here and the migration away from ENI. But my question for you guys on the credit business, what are your plans for the new aviation business? What is your target client segment and how you package these assets? And I think they're probably mostly leases, but let me (inaudible) there. And then most importantly, how do you expect this $6 billion business to ramp?

Kewsong Lee -- Co-Chief Executive Officer

Hey, Craig. Thanks for your question. I appreciate that. We appreciate your comment upfront. Taking a step back. First of all, it's very early days with the Carlyle Aviation Partners. And I think the bigger picture messages to say things are very much on track. We gave you guidance last year that we think this is going to add $10 million of FRE this year incrementally to our results and we continue to believe that that is quite achievable.

We are in the process right now of figuring out what new funds we could launch from this platform. It does have very interesting intermediate fixed income oriented -- fixed rate oriented product that we believe could be quite interesting to certain segments in the market. And as you realize, this is not a financing business, this is very typical of the closed and committed capital funds business that we are very good at understanding how to manage and raise. So we are in the process of onboarding this acquisition right now. Things are going terrifically well and it very much extends our platform and offers investment strategies that we think are going to be attractive to our investor base.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you, Kew.

Operator

Thank you. Our next question is from the line of Ken Worthington of JPMorgan. Your line is open.

Ken Worthington -- JPMorgan -- Analyst

Hi, good morning. Maybe for Curt, can you talk about the non-cash call decision? Help us identify the magnitude of decline you might expect in the non-cash comp in '19 versus '18. And then maybe to go along with this, I assume less non-cash comp means more cash comp, and given non-cash comp this should we see cash comp go up or the non-cash comp goes down? Thanks.

Curtis L. Buser -- Chief Financial Officer

Ken, it's curt. Thanks for the question. Look, we're focused first and foremost with linked (ph) equity-based comp on managing dilution. So what we're trying to do and what we fully expect to do is we're going to grant less in the way of units. You already see some of that coming through just in the normal kind of period of $43 million of equity-based comp here in the fourth quarter, lower than the annual $180 million (ph) plus that we had for the year.

So you can see a, -- I think you'll see a real step down this coming year in 2019. But please keep in mind that that thing drives equity-based comp, and so prior grants will continue to vest over 2019. And so that step-down is -- we stepped down units, will take a little bit of time to come through our numbers.

On cash-based compensation. First and foremost, you couldn't tell from my remarks, we're focused on FRE, growing FRE and FRE margins. So obviously, we're focused on cash-based compensation. So on cash-based compensation (inaudible) on pick our numbers, and we had about 13% increase in cash-based compensation, about half of that was from the base business, you say why. Well, there is market adjustments, there is promotions and there's few hires that we make just to kind of sustain the growth in the base business.

So then what you can expect on top of that for 2019, first and foremost, is we're layering in Carlyle Aviation. So we're going to see some more comp just because of that acquisition. And then, we're fully thinking that we're going to continue to invest in our credit business and that credit business is really something that's going to help us drive FRE long-term, because it should give higher margins than the rest of the business. But here in 2019, we will continue to add to that platform and that could cause some further increase in cash comp. But trust me, we're focused on driving efficiency throughout the firm and managing total cash comp part of our strategy in terms of ultimately really trying to drive FRE.

Ken Worthington -- JPMorgan -- Analyst

Great. Thank you very much.

Curtis L. Buser -- Chief Financial Officer

Thanks, Ken.

Operator

Thank you. Our next question is from the line of Patrick Davitt of Autonomous Research. Your line is open.

Patrick Davitt -- Autonomous Research -- Analyst

Good morning, thanks. I appreciate all the detail 2019 guidance. On the $400 million of fee earning guide, should we think about that is kind of the absolute baseline that could likely be higher in the same way that your original guidance for 4Q was $75 million (ph) and end up being $90 million (ph).

Curtis L. Buser -- Chief Financial Officer

Patrick, its Curt. Thanks for that. Look, just like kind of level setting back. Remember, we started 2018 was not a very impressive FRE on a quarterly basis. But we gave guidance to get up to a $300 million run rate really as we would end 2018 at $75 million. We didn't increase that to $340 million, that was the $85 million guidance and we're ending the year at $360 million, fully things that we can ramp that's $360 million on an annual basis to $400 million.

And you're right, there are contingency items that can affect that. I generally think about some of the contingencies more or less positive. Could we have very high levels of transaction fees? Possible, but I wouldn't bank on it. Could there be some outsized catch up management fees? Possible, but I wouldn't bank on it. Could we exceed our fundraising goals? Possible. Could our acquisitions of Aviation and our investment in Fortitude do better than we predict? Possible. And there's also some other contingencies that could go the other way. I hope that those don't happen and I think that they're few in number. But I think the $400 million is the right way to think about what we'll do in 2019 for the full year.

Patrick Davitt -- Autonomous Research -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Bill Katz of Citigroup. Your line is open.

William Katz -- Citigroup -- Analyst

Okay. Thank you very much and also thanks for new disclosure. And I think the move on stock-based comp makes sense as well. Just staying with the FRE discussion for a moment, it certainly seems like your franchise is transitioning from a period of strong growth to now maybe more of a profit focus. So when you think about where that FRE margin can go? And Kew I think you said it's going to take you a couple of years sort of ticked off three or four different things that you're focused on. What's the right benchmark to be thinking about in terms of the margin, obviously, you're improving, but you still well below peers, but your business now may not fully allow for comp margins. But what do you think is the right sort of run rate FRE margin as you look out (inaudible) some of these initiatives?

Curtis L. Buser -- Chief Financial Officer

Hey Bill, it's Curt. I'm going to start and then Kew and Glenn may add on to my comments. So, first, thanks for your question. So, let's think about where we've been from an FRE perspective and FRE margin. I just gave you the walk on FRE. But if you think about margin, for several years, we were operating in the low to mid-teens on FRE margin. We didn't really kind of started to give guide to kind of say, think low-20s and as we wrapped up 2018, if you back out the insurance proceeds, we generated 22% FRE margin in 2018.

We're now shooting to get up to mid-20s, 25% for all of 2019. I really like the trajectory that we're on. I feel good about what we're doing. I like where we're going. We're very aspirational about (inaudible) continue to grow this business. If -- hopefully, you took one message out of this, we're focused on FRE. So think more, but we're not yet in a place where -- I'm going to give you more guidance on 2020 or 2021, I don't get you 2019 first.

William Katz -- Citigroup -- Analyst

Thanks.

Curtis L. Buser -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Mike Carrier of Bank of America Merrill Lynch. Your line is open.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Thanks guys. Just given the focus on the shift to the -- Curt, you gave some of the color on the realization activity for '19. I guess just when you think about the portfolio like the age, how the performance is stacking up and assuming whatever normal markets are. But just when we think about 2020 and beyond, where are we maybe in that realization cycle? And what could we expect in terms of ramp-up going forward?

Curtis L. Buser -- Chief Financial Officer

Thanks, Mike. Let me try to give you a few comments and underlying metrics to look at. Page 11 of the earnings release I think is helpful here. So if you look at the total portfolio is $142 billion remaining fair value in the ground, $79 billion of that is in our carry funds and 24% of the $79 billion is over four years old. So I would consider that all is being equal kind of ready or otherwise right.

Another key metric is $1.7 billion of net accrued carry, down a tad from a year ago, but really feel good about the underlying portfolio. As we look forward, gave very clear guidance that I think 2019 will probably at least based on the crystal ball today look a lot like 2018. Now things can obviously shift. The key point here is what I'm trying to get across is our realizations remain really good. So we're continuing to exit. But a lot of those realizations are coming from the funds, we just finished investing. And those funds, while there accruing carry and are nicely set up aren't yet at a place where we're prepared to take cash carry.

When those start to trip in and they could start to trip in end of 2019 or into 2020, that's when I think you'll start to see a big uplift yet again. I feel real good about the total amount over a longer period of time. It's the short period here in 2019 where it's really hard to call exactly in terms of exactly how that carry kind of plays out. But the numbers I gave you at the start $1.7 billion, I think that number is going to grow is really kind of what will help us going forward.

Kewsong Lee -- Co-Chief Executive Officer

Hey, Mike, this is Kew, and let me just add a little bit of color. In addition to that $1.7 billion of accrued carry Curt pointed out, clearly a lot of that value is building up in funds that are not yet taking carry. And so as a result, as those funds mature, expect to see those realizations result in nice distributions. But I think the bigger picture is, our funds are growing in scale 30% to 40% larger than they've been historically. We have more dollars in the ground in a high quality portfolio than we've ever had before. Assuming our performance continues the way we believe it can. There is no reason not to believe that over the longer period of time, and of course, it's very difficult to predict quarter-to-quarter given market, given volatility just given that the pacing and the timing of how things work in our business. But over the longer term, given the step function increase in the size of our asset base that we have deployed in the ground. We should absolutely expect to see a much larger volume of realizations over that longer term.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks a lot.

Operator

Thank you. And next question is from the line of Brent Dilts of UBS. Your line is open.

Brent Dilts -- UBS -- Analyst

Hi, thanks. Good morning, everyone. Could you provide some detail around how you expect the $20 billion in 2019 fundraising the breakdown by segment? And how much of that you expect to be in next generation funds versus new strategies?

Curtis L. Buser -- Chief Financial Officer

Brent, its Curt. So the $20 billion that we're going to raise over 2019, a lot of that's going to come from the following funds. First, our second-generation international energy fund. Next, our second long-dated private equity fund. We're also ramping up our Europe buyout fund. We probably saw the announcement on our Europe technology fund. We will be in the market with our next generation Japan buyout fund. We have an infrastructure fund in the market. We have a credit opportunities fund in the market. Our solutions business will be continuing to raise capital for its product set, but our CLOs will continue to do pretty much consistent with what we are or we have been, and there's probably a handful of that I have forgotten that Glenn or Kew can add to my list.

Glenn A. Youngkin -- Co-Chief Executive Officer

Yes, I think, one thing, its Glenn. One thing to just put in the context is that our fundraising totals for any given year and just remember over the course, particularly the last two years, we've raised over $75 billion of new commitments to funds, really is reflective of the fund that we happen to have in the market in any given year. And as Curt just said, as we have finished the lion share of our largest corporate private equity funds, Carlyle Europe should finish this year, Carlyle Asia finished last year, CP7 finished last year. We're beginning to see a shift of our fundraising weight toward the other segments.

Kewsong Lee -- Co-Chief Executive Officer

And Brent, the only thing I would add, you specifically asked about existing versus new strategies of all the funds Curt mentioned, most of them, if our second or third or fourth generation funds, they are scaling up quite nicely. Of the funds that he mentioned that our first generation that would be our credit opportunities fund, and I can't remember if you did or not, but our global infrastructure fund is first generation and doing quite nicely as well.

Brent Dilts -- UBS -- Analyst

Perfect. Thanks guys.

Operator

Thank you. And our next question comes from the line of Alex Blostein of Goldman Sachs. Your line is open.

Alex Blostein -- Goldman Sachs & Co -- Analyst

Thanks. Good morning, everyone. I'd like to go back, you guys just comment around deployment outlook. Glenn, I think in December, you talked about sort of widening bid-ask spreads between for some of the larger transactions and maybe perhaps some of the smaller ones as well and the market given the rising market uncertainty. Obviously, there's been a lot of volatility things have rebounded a bit here. So just wondering if you could give us an update on whether the buyers and sellers expectations are coming a little bit closer together and maybe perhaps a little more aligned, and where you guys are thinking about your deployment would look like in 2019?

Glenn A. Youngkin -- Co-Chief Executive Officer

Perfect. Thanks Alex. First of all, as Kew said in his comments with the volatility in the public markets having had meaningful impacts on the public indices in the fourth quarter. We did not really see that bigger change in the private markets during the fourth quarter. I mean that's the gap or the bid-ask spread that I'd mentioned to you when we were together in December.

What we see on a go forward basis is continued high-priced environment. Every asset is generally expensive. We do see potentially some reduction in purchase prices as Kew said in the international arena. I think most important, however, is the way we approach investing and if you are not going to tag in this a little bit. Let me just run through the kinds of things that we are seeing, particularly in our infrastructure segment and our energy segment and the real estate and Kew is going to pick up a little bit in credit and private equity.

So many of you may not have noticed over the course of the last year, but quietly, we've been making a lot of great progress in our infrastructure business. And so those of you that live in New York City or use JFK will have noticed that we've been awarded the opportunity to completely redevelop Terminal One, Two and Three at JFK. We recently were awarded the opportunity to partner with the Port of Corpus Christi to develop the first deepwater access crude export terminal in the United States. And these kinds of investments really leverage the big Carlyle platform capabilities to develop and create value. We're seeing the exact same thing in the energy world where many people see energy markets very volatile on the front end. We think long-term opportunities to buy very good companies where we can drive operational improvements, and that's why you see the strong returns coming out of many of our energy funds.

And in real estate, one of the big shifts that our real estate team was very focused on over the last few years is shifting from GDP driven real estate investment toward demographically driven real estate Investment. And so again, our real estate funds have been performing very well. We're very excited about the fact that the $5.5 billion new Carlyle Realty Partners VIII that we closed this past year is moving into this market with a lot of dry powder and a lot of opportunity. Kew ?

Kewsong Lee -- Co-Chief Executive Officer

Yes. Hey, Alex. It's a good question. And you've heard us say in the past, our belief is buyers do mark-to-market faster than sellers. And so there is a period of time that needs to happen for that recalibration to occur. I think it's fair to say, our business is also a bit of a longer cycle longer throughput business. And so some of the deals that are transacting currently or in the recent past, were a result of work that started many, many, many months ago, or even in some cases a year or so ago. And so, we still are seeing on the private equity side, higher valuations, I'm meaning the valuation levels continue to remain high. And that's why we continue to be very cautious in light of the current environment and want to make sure we're avoiding complacency, because investment environment is challenging.

Having said that, we feel very fortunate to have a huge amount of dry powder available, given the success that we've had recently with our fundraising. And all of our major funds are reloaded. And we feel good about some of the opportunities that we're starting to see, whether it's very large businesses that we think are going to be resilient through the cycle, such as the Sedgwick deal that we just announced or closed, or businesses that can grow, because they're disruptive like one medical in the healthcare business.

Internationally, in private equity, we do see valuations trending down, particularly in the Far East, and perhaps maybe in Europe. But I think it's a little too early to tell whether or not deployment will pickup or not. As you know, in China, markets were down 25%, 30% last year. And I think folks are still trying to figure out what that clearing level evaluation is in the private equity markets. In the credit markets, and it's hard to generalize because there were so many strategies in credit. But clearly volatility can be your friend.

And in credit opportunities and in distressed, we're seeing a lot more interesting deals than we otherwise would have seen a year ago, because quite simply terms and conditions are improving. I don't have to tell you about the volatility that the leverage finance markets in the credit markets experience late last year with a little bit of a rebound in the beginning of this year. But suffice to say buyers have become more discerning, terms and conditions are more attractive and we feel there were some interesting opportunities moving forward for deployment in the credit business.

Alex Blostein -- Goldman Sachs & Co -- Analyst

Great. Thanks for the detailed answer there.

Operator

Thank you. Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is open.

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks. Good morning. Thanks for taking my question. Maybe just to focus on your comments, Kew on the distressed part of that of the Global Credit business. Given the opportunities that you might be seeing, can you talk about how you're feeling about building that out? And then I think you mentioned earlier in the call, the demand is very robust for global credit products from the LPs, so maybe just to focus on that distressed part of that business Do you see enough opportunities there that you would be more aggressive in fundraising in distressed?

And then just, Curt, I think you mentioned FRE margins tend to be the stronger than Global Credit, maybe if you can just comment on which parts of Global Credit you see the best FRE versions?

Kewsong Lee -- Co-Chief Executive Officer

Okay, Brian. So let me expand your definition of distress to both distressed and opportunistic, because it's shades of gray and that can include special sit as well. We have in the distressed side, a fourth generation fund called Carlyle Strategic Partners, $2.5 billion I believe of -- in the last fundraise. And it is performing exceptionally well. And it is starting to see even more opportunities than it has in the past. Not only are we seeing attractive trading credits, but situations where we can take control of the equity via the debt and generate very attractive returns.

You should assume that this business, which -- when supplemented with the fact that we put a lot of people on the ground recently with our credit opportunistic fund or credit opportunities fund, which is still fundraising. Combined, these teams are seeing a lot more opportunities now than they've ever seen before. And quite frankly, this is the benefit of us having patiently built this business over the past two years. We did not rush into the credit business with the mentality of needing to make a big splash right away.

As you've heard me say on multiple calls, we are building this business over the long term. We are -- our tendency is going to be to do it organically. We want to put great teams on the ground and we have an investment ethos, which we're building in order to generate great results. And I think the benefit of that patients is now, we have a lot of dry powder in both of these areas and the opportunity set has expanded because of the volatility that we're seeing.

So hopefully that gives you more color in terms of the fact that we do believe there are really interesting opportunities that are emerging and will continue to emerge in this style of credit investing.

Curtis L. Buser -- Chief Financial Officer

Brian, it's Curt. Let me just add on to Kew's comments. Just give you a couple of numbers. First, when you look at the FRE results for our Global Credit business, you just got to keep in mind that there's a lot of other stuff going on in there. So in 2017, we still have to kind of wrap up of the hedge funds, the commodities business and there were insurance recoveries in 2017. In 2018, you have a lot of building going on in the new business. Now just making some simple numbers, in 2017, our fee related earnings in Global Credit when you back out the $68 million of insurance recoveries were about $14 million. And when you do the same math in 2018, it's $40 million, not a huge numbers by themselves, but 185% increase year-over-year in what we've achieved.

Second point, our CLO business is probably our strongest FRE margin business, but it has been masked by both the hedge funds in the past, and our current build out. So that business together with the rest of it is very attractive. I fully expect margins in our Global Credit business once we get it scaled probably to really run in the 30% to 40% range minimum for that business. So I think that will then give us a good balance for the rest of the firm as we go forward. Hopefully that helps.

Brian Bedell -- Deutsche Bank -- Analyst

I think the 30% to 40% is that after 2019 or is that do you see that happening by the end of 2019?

Curtis L. Buser -- Chief Financial Officer

Probably, it's more of a 20%, 20%; 20%, 21% kind of the target as opposed -- it's not going to be 2019, because we're still building.

Kewsong Lee -- Co-Chief Executive Officer

Yes. Brian, I just want to make sure, we are building this very patiently and we're building it for the long-term, and we're building an entire platform, which we believe will be very attractive to our limited partners. And so I'm going to keep saying be patient with us.

Brian Bedell -- Deutsche Bank -- Analyst

Yes. Totally understand. Thanks for the detail.

Kewsong Lee -- Co-Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of a Robert Lee of KBW. Your line is open.

Robert Lee -- Keefe Bruyette & Woods -- Analyst

Great, thanks. Thanks for taking my question. And I just want to echo the earlier comments about the DE shift and the overall tighter focus. Appreciate it. I'm just kind of curious with the robust fundraising of the last couple of years. Just trying to get a sense of maybe how the LP base has involved, any kind of sense, if you look at kind of LP participation, broadly speaking, what was kind of existing clients reups versus new clients? And then maybe some updated color on how many of your clients kind of are invested in one-to-one products? And how much more potential do you think there is two kind of increase LP penetration and breadth?

Kewsong Lee -- Co-Chief Executive Officer

Great. That's a very fulsome question. We'll do our best to provide some context. (multiple speakers).

Yes. So first, just at 30,000 feet. The -- listen, the investor community continues to allocate more capital to private investing. And that's universally across private equity, private infrastructure, private energy, private real estate, private credit. And that shift is driven by the relative performance that we even highlighted during our comments and we see that shift continuing.

When we look at our specific investor base, we see all aspects of it growing. And so the basic fundamental building blocks of about 30% of our capital coming from the pension funds, and about 20% of the capital coming from a very robust high net worth base, and about 20% of the capital coming from sovereign wealth funds continues. I will say the sovereign wealth fund community continues to grow in overall asset base and continues to grow in its ability to think long-term and continue to commit to large private equity funds, including our long-dated strategy.

One of the great things that we've been able to do over the years is foster the shareholder, our investor base, such that when they invest in one Carlyle fund they like to invest in another. So we are approaching 70% of our capital coming from investors that are in six or more funds. And that's a metric which many of you heard us talk about for years and years and years. I mean it's extraordinarily important metric.

The other side of that is, during the last 12 months, we had 127 new LPs who came into our funds. And they committed approximately $2.7 billion in their first round of committing to us. And so, we have both very positive developments. One, our largest investors continue to trust Carlyle, and invest across the platform. And second of all, we keep finding new investors who can start that journey with us. I hope that's helpful.

Robert Lee -- Keefe Bruyette & Woods -- Analyst

It is. Thank you very much.

Operator

Thank you. And our next question is from the line of Patrick Davitt of Autonomous Research. Your line is open.

Patrick Davitt -- Autonomous Research -- Analyst

Thanks for the follow-up guys. The markets are pretty impressive, I think given what happened in the market, could you dig in a little bit on the drivers of the solid private marks and private equity. Obviously, I know you have a lot less public exposure in some of your comps. But also in investment solutions, which is shocking to see a positive mark in such a negative market?

Kewsong Lee -- Co-Chief Executive Officer

Sure. So if you look at our underlying portfolio in the private companies, what we said on the call, I said was that the performance remains very good. So we're continuing to see good growth. So as you then think about valuation, we generally use of multiple approach where we're going to look at public company comps, precedent transactions to the extent that they are relevant, and also discounted cash flows. And we actually make sure to align each of those different approaches. So we don't need to do kind of weighted average approach, we actually align them, and make sure that the valuation that we come out across all of those different inputs is aligned whenever that's possible. So pretty much all the buyout funds in any kind of company that is a traditional business that approach works really well.

And the fundamental fact that performance remains good is allowing those companies to generally have very good performance in the fourth quarter. They were down about 1% or something like that. And that really just is the multiple piece kind of hidden in it. Different aspects of our business are often valued -- when you think about some of the energy portfolio, the energy portfolio, generally we think about that price book long-dated as opposed to the short-term volatility flux. And on the short-term perspective, really a lot of that is hedged out. So you don't have that same kind of potential risk there.

The real estate business, we've been continuing to really move a lot of product. And so, we have very current and recent comps in that business. And so that's been also to underpin the lot of that value.

In the solutions business, really what you're looking at is, you do have a bit of a lag in the solutions business in terms of values. What fundamentally happens there is you end up getting the marks from the underlying funds. So when we have fund of funds in secondary investments, you're getting what the underlying GP has given, and then your reunderwriting that to the extent you can and really trying to bring that more current, but there can be a bit of a lag in terms of some parts of that portfolio, but it's generally done really well.

The other advantage in that place is our knowledge of the underlying GPs that we work with and our ability to continue to underwrite that and to think about kind of what's really going on. And the secondaries business you get a lot of upside lift, so you kind of know and are able to pick your spots really well. And the team there is, it's really very heavily data-driven in terms of how -- it goes about its work.

Curtis L. Buser -- Chief Financial Officer

One thing I would add to the solutions business, which you're seeing over time is a shift in that business from a very, very broad-based fund to funds business that's predominantly focused on middle market portfolios around the world and that's still a big business. But what's growing as Curt mentioned is the secondaries business and the co-investment business.

And the team's track record in the secondaries businesses just extremely strong and their track record in the coinvest business is great. And so you're beginning to see that performance show through more and more and more every quarter in the solutions business performance numbers.

Kewsong Lee -- Co-Chief Executive Officer

And Patrick, the only color commentary I'd add on the private equity side is, it's helpful. Just to keep in mind, we are not index-based investors. We are company by company selecting superior management teams to partner with to grow these companies. And so, on aggregate and look every fund will have one or two situations that we're very focused on that maybe not be going the way we would like. But in general, we have the ability to pick and select the investments in the companies that we think we can do the most with.

And keep in mind, over year-over-year last year that portfolio, the companies grew at a 9% average EBITDA growth rate. And we feel very good about our ability to influence and control and drive value at these companies over the long term. So while there is short-term volatility in terms of the public comp aspect of the three-pronged approach that Curt mentioned with respect to marks. In the private equity business, the marks only matter at 2 points in time, when we buy the company and when we decide to exit the company.

And the interim marks are of interest. They're important. But at least from our perspective, in terms of realizations and what we really think we can generate, it's a long-term business and we're more focused on where the mark can get to as opposed to in between with respect to volatility in the markets.

Patrick Davitt -- Autonomous Research -- Analyst

Great. Thank you. Just real quick follow-up, that 9% was LTM through 12.31% (ph) EBITDA growth?

Kewsong Lee -- Co-Chief Executive Officer

Yes.

Patrick Davitt -- Autonomous Research -- Analyst

Thank you.

Operator

Thank you. And that does conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Daniel Harris for the closing remarks.

Daniel Harris -- Head of Investor Relations

Thank you, Amanda. We appreciate everyone's time this morning and we look forward to speaking with you again for next quarter's call. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Duration: 55 minutes

Call participants:

Daniel Harris -- Head of Investor Relations

Glenn A. Youngkin -- Co-Chief Executive Officer

Curtis L. Buser -- Chief Financial Officer

Kewsong Lee -- Co-Chief Executive Officer

Craig Siegenthaler -- Credit Suisse -- Analyst

Ken Worthington -- JPMorgan -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

William Katz -- Citigroup -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Brent Dilts -- UBS -- Analyst

Alex Blostein -- Goldman Sachs & Co -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Robert Lee -- Keefe Bruyette & Woods -- Analyst

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