The Carlyle Group Inc. (CG) Earnings Call Transcript & Summary

So for our next presentation, we are very excited to have the CFO from Carlyle Group with us today, Curt Buser. For those of you who don't know, Carlyle is one the largest alternative asset managers with $325 billion in assets under management with a well-diversified product range across private equity, real estate, natural resources, credit and investment solutions, for which Curt is going to provide a lot more detail in his presentation. Curt has been the Carlyle CFO since the end of 2014, after having joined Carlyle 10 years prior to that, in 2004, as the firm's Chief Accounting Officer. He's also a member of Carlyle's leadership and operating committees. And then prior to joining Carlyle, Curt was an audit partner at Ernst & Young and before that at Arthur Andersen, starting his career in 1985. So in our format today, we'll include a presentation from Curt, and then we'll open it up to Q&A afterwards. So without further ado, let's welcome Curt to the podium.

Brian, thank you. I just want to start by saying thank you to Brian and Deutsche Bank. Really appreciate this opportunity. On behalf of all my colleagues at Carlyle, I thank all of you that are either dialed into the webcast or here in person. Thank you for your interest in the firm. I'm going to go through this presentation. We'll skip the eye chart. First, just starting with kind of who we are. I mean we're a global investment firm. Taking into account our recent transaction, $375 billion of assets under management. We operate through 3 business segments: global private equity, which is combined, about $170 billion in total; global credit, $140 billion; and then global investment solutions. And what's important is these businesses are global, and they're diversified. So my discussion today is really around -- I believe that our growth story is vastly underappreciated. I'm going to talk about really 5 key themes. First, we're in a great industry. The industry we operate in has fantastic tailwinds. It's growing. Obviously, that's helpful. Second, we've been delivering very attractive growth over the past 5 years. And we've been doing exactly what we said we would do. Third, we're continuing to drive growth both organically and inorganically. And all of that is providing a very clear path to increased and sustainable FRE and general earnings growth. And finally, I think our value is really attractive at this point in time. So that's my basic concepts that I'm going to cover. So first, our industry. You can see here that as we look at kind of what's going to happen, we think that the private markets, both private equity, private credit, private real estate and the solutions space, are going to generally grow at a 15% compounded annual growth rate between now and 2026. What we like is our big businesses are actually also expected to grow from a macro perspective, similar kinds of rates. So we're big in secondaries. We're big in private credit, infrastructure, private equity. You're seeing up here that the projections from an industry perspective, this is not Carlyle data, are all 16% to 18% growth projections. That is fantastic from a tailwind perspective. What's causing this? Well, performance has been really strong, whether you're looking at private equity or private credit, whether you're looking at it in 10 years, 15 years or the last 20 years, these industries have outperformed, which otherwise do in the public markets. That's driving demand. The private markets are growing, just as I said, it's because of performance. Second, we've been driving really good growth. So from 2017 to 2022, 17% compounded growth rate in our total AUM. That is inclusive of the transactions we just did. We've doubled our credit business during this time period, and we further diversified the business. So not only is it a bigger pie, it's a more diversified pie, and I like the way it's shaping up. So what does this mean? Fee-related earnings, I care a lot about. Kew has been incredibly focused on driving the firm from a fee-related earnings perspective. If you look at this from 2017 to 2022, we've more than tripled our fee-related earnings, a 33% compounded annual growth rate. And over that same time period, and really, we've grown our FRE margins significantly in just the last 3 years. It's a 1,000 basis points growth. We're now at a 36% FRE margin. We think we're in good shape. We have said at our Investor Day, beginning of last year, that we would get to a 40% FRE margin by 2024. We're well on our way to achieving that. And I think we're going to hit that early. You see here deployment, and this is carry funds only. So our traditional carry funds have increased the amount of deployment. And you can see here in the 2012 to '14, roughly $14 billion, then into $18 billion, $21 billion, last year, $34 billion deployed. Pace of deployment matters. It really says kind of what you can do in terms of total size. So that should be very helpful to grow FRE in larger fund sizes, but it also sets up the table on the right. The amount of capital that we have in the ground at fair value is now at $135 billion. It's roughly twice what it was before. It just shows really the magnitude of the platform and what's the power that it can do going forward. Net accrued carry on the balance sheet, $4.3 billion. That's almost $12 per share before tax. That's pretty significant from a value perspective. I don't think that that's fully appreciated. Realized -- net realized performance revenues, in the peak really immediately after the IPO, we're generally in the mid-600s. Last year, we did $1.5 billion. I'll talk about in a minute what we'll do going forward. But clearly, that growth, that $135 billion in remaining fair value is a very good signal in terms of what this does on a go-forward basis. If you think about what we've done from an earnings perspective, we've doubled the earnings on a per share basis, $5 per share versus roughly $1.85 over the last several years. The platform has significantly grown, and that's despite being a full C corp, where we're subject to full tax. And so you can see how the tax rate has gone up to a roughly 20% tax rate from about 5% or less in the prior years. So the platform is scaling nicely. We continue to drive growth both organically and inorganically. We announced the strategy before, we want to be bigger and scaled so that we can really kind of approach this from an investment platform perspective. Second, we want to look at adjacencies from an acquisition standpoint. The 2 ones that are easy come into mind, insurance and capital markets, is where we've really taken advantage of this. And third, we want to run the firm better. Institutionalize the place, that will generally result in higher margins as we do that. So what have we done? Well, the chart on the left really shows kind of what we've done organically, and particularly some of our larger platforms, how we have scaled them to larger size. You can see here, 40% and greater in terms of what the current generation versus the prior generation. And the chart on the right really just shows the size of some of the new products that we've launched, whether it's opportunistic credit or core plus real estate, all getting to scale and size relatively quickly. We have some newer things in -- particularly in infrastructure, renewables and infrastructure credit that we fully expect to be of scale in the near term. And so we're very pleased with kind of how also the new products are contributing to the platform and the future growth. We've also announced acquisitions. This is a slide that should be familiar to many of you. We spent about $1.2 billion to invest in these 3 transactions, adds about $65 billion of AUM and $120 million of FRE on an annual run rate basis. And that's through Fortitude, and I'll talk more about that in a minute. That's the CLO transaction we did in CBAM, and that's an iStar, giving us real scale in additional FRE, providing a huge incremental FRE margin and helping to set ourselves nicely for growth down the road, and that's what all 3 of these collectively do. If you think about Fortitude, in particular, we first set this up in 2018, and we've grown this real nicely. So initially very little in AUM to Carlyle out of this platform. Today, it's $55 billion. The additional incremental FRE that we're getting out of this new transaction, just from the advisory services, roughly $50 million to start. We've already rotated roughly $8 billion of AUM in the Carlyle-specific product, generating roughly another $50 million of revenue. And all of this, we expect to double by 2025. Keep in mind that we just put $2 billion of new capital into Fortitude, which gives it the firepower to continue to grow. And all of that really should help Carlyle's overall platform improve over time. The key thing of the arrangements that we put in place is really around alignment. As Fortitude does better, we do better, so that benefits Fortitude's policyholders as well as Carlyle's shareholders. Fourth thing I want to talk about is the digital path to sustainable mix of earnings and earnings growth. So we've been very clear that, this year, we fully expect to get to $850 million of fee-related earnings. That's up from roughly $600 million last year. That's an over 40% growth rate in a single year. It's not going to be that every year. Very pleased with what we've been able to do this year, but more importantly, the momentum around the firm remains strong, whether we're talking fundraising, the additional deployment pace, realizations. We feel good about our overall momentum. And on fee-related earnings, we're doing well with respect to our march to a 40% margin. I want to talk for a minute on record accrued carry. I've already mentioned the fact that we've grown our net accrued carry to $4.3 billion. That's up from roughly less than half of that not too long ago. And as a result, we're expecting to be, on average, generating net realized performance revenues of roughly $1 billion per year. That's a far lower realization. So if you look back in time, we were generally turning about 30% to 40% of the beginning of the year accrual balance in the net realized performance revenues in the subsequent year. We're not even expecting that as we go forward. But the portfolio, the $135 billion of remaining fair value in the ground is what's going to support the 4.3. It's well positioned with roughly 30% -- 37% of that over 4.5 years, nicely supports the $1 billion of average realizations over the next couple of years, including this year. Importantly, we see really not only just growing our FRE and the total pie in terms of distributable earnings, but having the mix of earnings improved. So a much larger percentage of our earnings every year will be from sustainable fee-related earnings. It's always hard to call out the exact percentage, but we try to show you here taking it from roughly 33% of our total earnings in the 2012 to 2020, so 45% or thereabouts in 2022. We think that, that scale is much better. I'll also point out that the FRE in 2022 is larger than what we are generally generating in total distributable earnings in periods from 2012 to 2020. So the earnings platform is really doing its job to drive higher earnings as we go forward. And finally, I think we remain very attractively valued. So if you look at this chart, we've been growing our FRE 25% over the 2016 to 2021 period. It's on par with the peers. Our earnings growth in terms of DE per share, in line with the period, is roughly 22%. Net accrued carry has grown 32%, far greater than what the peers have done. But our current price to our 2023 DE per share is only at 8x multiple, very attractive valuation. Peers are valued higher at roughly 13x. So I think this makes for a very compelling investment story. One last point to emphasize on this. If you take a look at really what we have in the ground, the $135 billion remaining fair value, plus the dry powder, if you assume that we just double that, which is a good guess in terms of what we've done from where it stands today, that will throw off $14 billion in net realized performance revenue. That's going to take obviously some time, so that's on an annual number. But if you just look at kind of what's in the ground and what is otherwise our dry powder, we do our job, which I don't think is an heroic assumption to assume here. It throws off a value that's on a pretax basis equal to roughly the current market capitalization of the firm. So again, just another point about -- pointing out kind of from a value standpoint, I think the company is incredibly well valued. That's it. Brian, I look forward to taking you -- talking more about it with you.

Great. Thanks very much, Curt. That was really a great summary of the whole landscape. So I'm going to dive into some questions. And if anyone has a question at any time, feel free to raise your hand and grab the mic. So maybe just for starters, FRE obviously is the most important, I would say, unarguably -- undebatedly, the most important valuation metric and you're growing at 40% this year -- or over 40% potentially. How should we think about the long-term trajectory of this? So even if I back out the deals, we'd get about like a 25% organic growth in FRE, and that's better than your mid-teens growth of over the prior couple of years. Should we think about -- given the fundraising outlook, which is still pretty strong and not even including acquisitions, should we think about an FRE growth rate that could be more in the 20s on a go-forward basis without -- and then maybe layering acquisitions on that, how is that?

So great question, Brian. We've really been doing what we would say we would do, which is focus on growing fee-related earnings and growing margins. So last 5 years, 30% compounded annual growth rate, tripled the number. This year, it will be 40%. So track record in terms of what we've achieved is already very good. And we're focused on it, and our people are aligned around it. Second big point, look at the market dynamics. Point out here that we're in a market that's growing at 15% compounded annual growth rate. And if you look at a lot of our big products, they're expected -- not that we were saying, but just by what the market is saying, those verticals will grow faster. So as I look forward, we're well positioned to do at least as well as what the market is doing. So that puts you again at least back at that 15%-plus growth rate as we go forward. We'll fine-tune that and give you more guidance in months or quarters ahead. But right now, look, I feel really bullish on -- and the momentum that we currently have and as we think about things going forward, broader markets are going to double over the next 5-year period, and we're going to benefit with that.

And the fundraising trajectory, you're -- you have some flagships in the market. And...

Fundraising, look, right now, $53 billion raised over the last 12-month period, $9 billion during the first quarter, momentum feels real good. We have a number of products in the market. And especially if you think about whether it's private credit, I should say, real estate, infrastructure, our solutions business, those products are in great demand. And there are some places within private equity where it's a little slower, but I'd call it slower than as opposed to challenges or problems. So I really like kind of what the momentum and projections are for where we are there. And again, we're really talking about long term. Long term, I think we're really well positioned.

And then I want to get a little bit deeper into fundraising in a little bit. But maybe before that, the other component of FRE growth, FRE margin, obviously. Maybe just to start with scaling the business. So across your businesses, I know the credit margin is going to be moving up pretty nicely. How should we think about that 40% target that was for 2024? And obviously, I think we'll be getting there much, much sooner, at least if our model is correct. But maybe if you can talk about getting to the 40% threshold and then exceeding that just via scale and contrast that with the investments that you need to continue to make. So I think like just across businesses, the private equity side is pretty well scaled as opposed to the credit platform, which you're still innovating and building out new products. So if we just put all of the segments together and think about the total investment spend that's needed and just scaling those platforms, should we be thinking of a margin that's going to continually exceed -- grow past 40%?

So first, we've been growing really nicely, 1,000 basis points improvement last 3 years. I think it's 1,800 basis points or something like that over the last 5 years. So we've been doing what we said we're doing. We're now at 36%. We'll clearly hit the 40% faster than we thought. And as we go from there, first and foremost, we're focused on more and more FRE dollars, and then I want margin as a means to get there. So I'll gladly take more FRE over margin, but I want the margin, too. The other thing that I'll say is as we go forward from a segment perspective, you're right, Brian, in your analysis, global private equity is doing really well from a scale perspective. And you've got to get what is currently our biggest business there. See a lot of growth trajectory in credit. That will take some more investment here and there. It's at a relatively low. So in Q1, it was a 25-ish-percent margin. We'll add an easily 1,500 basis points with the transactions we just completed to that business. And so it's going to show a much better FRE margin prospectively as we go forward from here. Its scale is already coming into play given the transactions. And a lot of the new things that we have in the market, whether it's credit opportunities or doing more things in insurance or CTAC, which is our interval fund, there's a lot of further growth opportunities in that space that we're taking advantage of. And so I see that coming together nicely. And solutions, like solutions is a good long-term play for us. That's a business I'm also very bullish on. It's a little bit more stairstep in terms of how it will grow. And so it will really -- as the secondaries business and the direct co-investments also come into play, that will step up. It won't be as linear as some of these other things, it will step up over time. Look, the investments to come, we'll be strategic in how we approach retail, and that will require some obvious investment. But otherwise, I'm feeling really good about where we're at.

And then maybe just staying on FRE margin for a little bit here. Any thoughts about changing the firm's compensation structure? We've seen the other alts do this in various ways, shifting more of the compensation to the carry pool and taking compensation out of the fee-related revenue base, which enhances the FRE margins. Obviously, investors have been accepting that and paying up for that. Is that something you are visiting potentially internally?

So we always are thinking about our compensation models because how you pay people drives their behavior. And we like paying for performance, paying for results, making sure that the compensation models are appropriately aligned. We have a number of things that we can obviously work with, cash compensation, equity compensation, carry, co-investment and various mixes of all of that. But as I think about it, first, we've been really successful over good markets and bad in terms of managing through. So our 35-year history and how we've done things has generally worked really well. Second thing is this alignment issue. One, to really drive FRE, as we've talked about, and that matters. And so you got to make sure that the compensation and the mix thereof has people focused on driving fee-related earnings. Carry also matters because you want to be aligned with your limited partners in your respective funds. And so that alignment is also really important. But if everyone is being paid solely in carry or a lot more in carry, they may not be focused on fee-related earnings. Last, I want to focus on making sure that our balance sheet has the appropriate firepower to take advantage of very good opportunities to continue to grow the firm or other things that can add shareholder value. And so being able to drive capital, often $1.5 billion of net realized performance revenues last year that a whole lot to improve my cash position and enable the $1.2 billion that we just spent to be able to drive $120 million on an annualized FRE perspective out of new acquisitions. So all of those 3 things really matter from an alignment standpoint. We're going to continue to monitor this. I have nothing to announce in terms of new things and nor should there be an expectation of doing. But you got to be really careful as you play with that because that alignment of achieving all of those objectives matters.

Yes. That's a great point. And just thinking about the acquisitions that you did, I mean, the incremental margins on those are 80s and 90s, right, based on...

I like them.

So I mean, is that -- I mean you have good growth in the core model as it is now, but if these deals are -- if you can make these deals accretive and they're out there, whether they're bolting on more CLOs or certainly in the insurance segment, we'll talk about that a little bit in a few minutes. Does it make sense to add those margins -- add those -- if you can do it, add those businesses and create more FRE dollars and margin?

Look, absolutely is the short answer. How do we essentially take the carry that we generate, the net realized performance revenues and turn that into future FRE? If you just simplify it, that's what we're trying to do and take essentially lower-valued earnings stream and to turn them into the most highly valued earning streams is what is the strategy. Now we want to be thoughtful because there's a lot that goes into M&A, Brian, as you know. Look, we've got to make sure the culture is right. We've got to make sure the alignment is right. We've got to make sure that systems, processes, control issues -- often you're buying talent, you want to make sure the talent doesn't walk out the door. So there's a lot of things in terms of doing this that really matters to get it set up right. And sometimes you don't get everything that you want in a single deal. So it takes -- sometimes you achieve your objectives by doing a little bit here and a little bit there, and together, it gets you to where you want to be. .

And do you see ample capacity out there for potential deals? Or there are lots of properties...

I think that you see the growth in private markets. And so there are lots of opportunities. I think we're also going to see increased regulatory action. And I think some of that is going to be a smart regulatory action. And I think we and a few others are really well positioned to complying and do it the right way, and that creates a good opportunity for us.

Okay. Great. Maybe just to zone in on fundraising a little bit more. This is obviously, such an interesting area for all you -- it's actually -- obviously, the organic power of FRE. Just to -- for that pace, you're on track to exceed your $130 billion target, I think, before 2024, at least as it's the run rate that we're seeing right now. So maybe just a couple of different angles of that. So how much of a slowdown in the U.S. pension market are you seeing now? Obviously, you and several other alternative managers have talked about supply of funds coming to market, exceeding the supply of capital from the pension plan, at least in the short term. Do you see that as just a 2022 issue or potentially longer? Why don't we start with that, and then I'll...

So look, it depends on what we're talking about. You're talking U.S. pension plans, and I would say that, that channel is more complicated to work right now because of the volume of funds that are coming back. Deployment paces have picked up across the industry, some coming back as fast as 2 years. We're not in that camp, but that's putting a lot of pressure on that channel that has limited resources. And depending upon which state pension plan you're talking about, that may be the -- they may have multiple doors. And where they have multiple doors to access, it's generally not impacting other asset classes. So credit solutions, where they can go through a different door, they're not being impacted by what we're seeing. And so at least that's our experience. In the private equity space, I would say it's a slowdown but there's a multitude of investor classes when we're raising product even in private equity that we're working with. U.S. pension funds are just one of them. And I would generally call that a speed bump, a delay, not a permanent thing. It's just the channel has to digest the current situation.

Yes. And just within pension plans, are you still seeing more -- I know Kew has talked about this and you've talked about this as well, more allocation to the largest and managers like yourself?

Always going to be careful with generalization. But yes, that's the generalization that I would say is that, again, on the large investors, they're generally looking to deploy a lot of capital at good returns, better than they can get elsewhere. And so while there may be places to get absolute better returns, but they can't deploy the capital to get that so it doesn't -- so if you can only deploy $10 million in a $50 million fund, that may be the absolute best return. But it's not going to help a large pension plan or sovereign wealth fund, et cetera. And so they'll often look to consolidate. And what that also helps them with is essentially having more say and also like kind of reporting to them, so it helps their cost structure.

Yes. No, that makes sense. Let's talk about retail. Obviously, that's an emerging trend. It's been going on for a while, but more importantly, within the alternative management space, even in the traditional management space, you've seen -- we just saw another private credit acquisition yesterday in the traditional space. So can you just talk about how you're seeing that space evolve from both the traditional managers' perspective in terms of -- they've got some of the distribution already versus the alternative managers that are trying to do -- already have the product but are trying to do more on the distribution side. What's your strategy there? And I think roughly 10% to 15% of your fundraising right now comes from retail.

So I'll start. So there's always a little bit of definitional issue. So on a very broad use of the term retail, I would tell you, yes, 10% to 15% comes through a traditional retail channel. It's not often how people in this question that you're asking are really asking it. And there, I think product type matters a lot. And product type is generally going to be more focused on things in the real estate space, the private credit space, solutions, infrastructure are generally product types where interval funds, RICs, other things where you can have valuations done, generally speaking, more frequently than quarterly. And a lot of the private equity vehicles generally are going to find it challenging to give valuations more frequently than quarterly, without a real risk on the quality of those valuations. And so I think one of the things around retail that we're going to be very focused on is making sure -- we want to place some very big bets on a handful of products as opposed to bringing a shotgun approach to the world. We're at the early stages of doing this. We're going to need some patience. You're going to see some investment most likely, and it's going to take some time. We do think it's an important thing. We think it's a great thing for long-term value. It's a great thing for long-term value. It's probably -- short term is -- I'd probably say, look, I'm more focused on institutions and a lot of other channels for short-term value.

Right, right. So this could be a product innovation in the real estate and credit areas, in particular?

Credit -- for us, I think, credit -- like what we've done in CTAC, that's growing about $1 billion annual -- on an annual basis. Now it's a great product. There'll be other products that we'll look at more in credit and probably some in solutions and see what we can kind of do there. And obviously in infrastructure is another nice play. In addition to a very good product, it's about $8 billion in core plus real estate that we already have.

Right, right. And then distribution channels. So maybe just talk about where you're seeing so far -- what has been your -- from a legacy perspective, your successful channel maybe, where you're trying to build out more and how you're doing there?

Look, our most successful channels historically are big players, whether that's sovereign wealth funds, whether that's U.S. pension plans, whether that's large insurance companies. Those are a lot of the areas that we have historically done well. Insurance is the one that I'd say we're most focused on now, trying to further grow that, make sure that the product set -- and I'll just say our internal machine is plugged in really tightly to their machines so that their Chief Investment Officers like gets the information that they need to be able to manage their portfolio in the right way. And we've become a whole lot smarter and all that. Our work with Fortitude, obviously, propels everything that we're doing there.

Right, right. Maybe shifting gears a little bit to the backdrop, the environment. Obviously, a lot of uncertainty out there. We had General Stanley McChrystal here for a presentation just a couple of seconds ago.

That was great.

Yes, it was fantastic. A lot of good perspective. I'm not sure it was -- some mournings and stuff about the potential geopolitical environment and stuff. But I mean how are you seeing broadly the geopolitical environment and also the pressure on supply chains either impacting your companies or impacting -- maybe 2-part question, impacting the your portfolio companies, number one; and then number two, impacting your pace of realizations and deployment? And that's a long question, but...

There's a lot in there, Brian. So let me throw out some thoughts here. So first, I think what we're seeing from a big picture perspective is move from globalization to regionalization. And from a Carlyle perspective, that plays really well. We're very global. We're very global on the ground. And so if you think about the way we're already set up, it's a global footprint able to do complicated things and really play into all of those niche areas on -- whether it's Asia buyout, Europe buyout, I can name the various product sets, but already set up that way, works well. Second thing that you're seeing from a supply chain perspective, one of the pieces that it's doing is from a -- if you think about working capital inventories, companies are going from just in time to just in case. And so they're having to carry more inventory. So you got to think about that in our portfolio, what are we doing from a working capital perspective. It was also propelling sales in many situations because you're supplying into those -- all those needs, make sure that your customers have -- as they have pivoted, they need more on hand in terms of where they are. So those are 2 big trends. The other thing that I'll just say is we've been really fortunate in terms of how our respective funds have structured their portfolios. We're fortunate to have very diversified portfolios. We're fortunate to have things with generally lower risk to some of the more, I'll just say, riskier asset classes at the moment. And that's been -- we've been benefiting from their good decision-making as they have constructed things. And the last thing I'll say is part of that also plays out in the performance of the portfolio. We've seen very strong results through Q1, whether we're talking real estate or we're talking a lot of the buyout companies, the performance, the earnings, their ability to manage through these tough times has been really extraordinary.

Yes. I think as investors see that over the next few quarters, they potentially could be encouraged. On that note, inflation and interest rates, so there's been -- some of the reticence of investing in the alternative managers is what are higher interest rates going to do to the portfolio returns longer term, similar impacts of inflation. Maybe just comment on what you see in that environment. Do you have leverage to higher interest rates within your credit platform?

So on the credit platform, look, there's both end. But a lot of the portfolio is floating rate. So as interest rates goes up, that just is a good thing for earnings and for results. Yes, there's some stuff that's fixed. A good push -- that's had mezzanine-type levels and so higher natural rates. So the yield -- the cash yields are really unaffected, and the cash yields remain very attractive. But generally speaking, I would say the credit portfolio is in good shape and will benefit from a rising interest rate environment. On private equity, some of the disruption you're seeing, obviously, creates an investment opportunity. So we like that. We like some of the reset. On the portfolio itself, I think it's structured well. Generally, we will fix the interest exposure when we can with new companies. So generally not as exposed to rising interest rate. It's either fixed or hedged out to be fixed. The other thing that I would simply say is from an inflationary perspective, that can also do well for the portfolio over time because it will generally drive higher revenues, higher earnings. And the portfolio is designed to take a bit of a disruption. So as we underwrite deals, we're looking for earnings and revenue growth, we think, through the macro trends, and we model in some economic disruption. We definitely model in upturns and evaluate -- upturns in interest rates and downturns in multiples, and so the portfolio is well set up for all of these things, and it should weather well.

That's great. Insurance, just to segue to insurance a little bit. All of the alternative managers or most of them are making some play in this sector in different ways. Maybe just talk about the long-term strategy in that channel for you as you see it. Is it more on buying blocks like you did with partnering with Fortitude? And if so, are there a lot more opportunities in that space? Or do you think it's going to be more selective?

So let's talk about it in terms of how we go out it. Two big areas: one, Fortitude itself, I'll come back to that in a second; and then two, kind of just how do we win more insurance customers to invest in our products. And so that -- we've been benefiting from the knowledge that we have in insurance. It's been a big piece. A lot in technology to go after, a lot of insurance players just as LPs into our product is working nicely and the knowledge that we've been able to accumulate has helped us to be a better GP working with them. In Fortitude, a couple of things I want you to think of. One, our approach is one of being generally asset-light. So together with the LP capital that we've brought to that deal, we'll at the end of this own just over 10% of Fortitude directly but have a lot of say in what they do given the fund that we've created with our LPs to really control Fortitude. It's not Carlyle per se, but with our partners that share that control. Second big point -- let me just conclude that first piece. On -- so again, asset-light, I don't really want to be an insurance company. I don't want to have a big capital commitment off of the Carlyle public company balance sheet to the insurance space. Second, I want to be able to drive benefit as Fortitude grows. So we put in place a services advisory agreement that Carlyle earns more fee-related earnings, more fees as Fortitude grows or it becomes more profitable. So there's a strong alignment component here, where as Fortitude's policyholders and Fortitude benefits, Carlyle benefits. I like that alignment. It's a win-win game as opposed to we win, they lose, or if they win, we lose. That's a bad thing. You want to be in a win-win game. I think we've set it up nicely with Fortitude. That alignment piece -- keep in mind, we also have $2 billion of new capital for Fortitude. Leverage that, that translates into $30 billion or $40 billion of assets. So we think that, that business can grow significantly. In fact, we think it can double over the next 5 years. And the third thing is really around that growth, which is the merger and acquisition. I just pointed that out in terms of growth. That's how it's going to grow. This business is -- it's a business-to-business platform. It's not a business-to-customer platform. It has the advantage of being very diversified around insurance type, which helps in terms of macro risk as being an insurance company. But being business-to-business, you can better underwrite exposures you're taking on and you're less exposed to the new type of policy exposure and core underwriting risk related to that. I think we've -- that's a better position to be in, in terms of the structure of their business. Not to say that can't change at some point in the future, but like the strategy that we have around that today.

Yes. That makes sense. Maybe switching to ESG for a second. You guys have been talking about this for quite a bit across the different segments. Investment Solutions, I know you're doing a lot. If you could talk about maybe just the debt side there? But what is the thought about creating more ESG-dedicated products? And maybe in the private equity realm of things, I'm thinking more like an impact investing, for example? Are you seeing any client demand for that -- long-term client demand for that area?

So look, we are really focused on ESG. Meg Starr and her team quarterbacked this for us across the firm, partnering with our funds. So first and foremost, our strategy is to embed ESG into our total thinking as to have it be something. These are our ESG funds. These are not we like it embedded throughout. Second, I think if you do ESG, right, it really can drive better earnings and better profits. And I'm talking about -- I think you can have better thought if you've got a very good diversity. Your Boards can be better, if there's diversity there. If you've got inclusive thinking, you'll make better decisions. If you're environmentally smart, that will cost you less over time. In today's world, you're just not going to succeed if you're death to the environment or death to climate matters. And so we're focused on that across everything but overall. And then, last, we continue to think that investing to drive better outcomes on the environmental avenue is the best way to go about it as opposed to not participating. So how do we drive improvements in carbon emissions and the like is by being there and using the same thought process to make it better, while also solving some of our energy challenges that we all currently face. And so energy, renewables, energy transition space, there's a lot of things right there that we think that we can make a huge difference in over the coming years by being part of it and being part of driving the solution as opposed to not providing heat or gasoline or whatever else that we need to kind of just operate. It's a both end answer in terms of how we do it. But no, I don't see us in the near term having separate impact funds.

Right, right. More integrated throughout the platform. I think we have just a minute or so left. I don't see any questions, but I can -- so sort of wrapping it all up and thinking about the strategy, which is very long-term focused. I like the way you sort of talked about generating the carry performance and then cycling that back into FRE. You talked about investing in growing FRE, therefore, the compensation needs to be aligned with that. If we think about the long term -- I don't like to say short term, but I agree that your stock is substantially undervalued. How do you think about using your balance sheet to buy -- more aggressively buy back stock? Or would you rather say, no, you know what, we're going to execute over the long term and we're not so worried about the short term?

Look, I care a whole lot about shareholder value and driving shareholder value. So we'll pivot back and forth and do some of both. We actually think that there's a -- I like the idea of driving top line growth as opposed to shrinking the outstanding shares. As a general matter, I think that, that is a good message for our people and for our business. I think it's also truthful in terms of what we see out there. We see lots of top line growth availability, and we want to be able to capture that market share and take advantage of it over the long term. And so that leads more towards being positioned to take advantage of M&A opportunities, especially as we see them or investing into new products, some of which require some really significant seed capital to kind of bootstrap and get some new products, especially if you think retail, it will need some bootstrapping in some of that space. And so those are things that we want to keep some of that firepower for. But I also want to have the freedom and flexibility to take advantage of buybacks, which we do, do. But a lot of -- in terms of doing on a bigger scale, you want to have the flexibility to be able to do it sure and make the most sense...

Right, more long-term focus, which makes sense. I think we are out of time or a little bit overtime. So if everyone can join me in thanking Curt.

Thank you all. Thank you all for being here.