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

My name is Patrick Davitt. I'm the U.S. asset manager analyst here at Autonomous. As a reminder, if you have any questions, please put them into Pigeonhole on your phones, and I'll try to pepper them in as appropriate at the end. So it's my pleasure to welcome Carlyle's new CEO, Harvey Schwartz.

Hey, Patrick. Great to be here, everyone. Thank you.

For those of you that don't know, in his previous life, Harvey was co-head of Goldman Securities division and then its CFO. So I think this is your first big conference back on the scene, so welcome back to the Thunderdome.

Great to be here.

I'm sure you missed these little get-togethers.

No, I was really looking forward to it. When I signed on for the job, I said I just want that date with Patrick.

Well, thank you. We appreciate you taking the time.

It's great to be here.

So maybe to start, I'm sure you had a lot of choices for professional options over the last few years. So what is it about this job at Carlyle that really attracted you?

Well, that's nice of you to say. So it was pretty simple, in the end. For anything I considered, it had to be a world-class brand. I know the power of a world-class brand. Carlyle is a world-class brand. It's iconic. It had to be the right people, and I immediately connected with the founders and the people. It had to be the right industry. And so I think -- this is actually quite early days for this industry, and I think the industry over the next 5, 10, 15, 20 years has extraordinary trajectory. And of course, I had to feel confident I could have an impact. And then of course, I looked at the valuation and the valuation was hugely compelling to me in terms of the market value and its positioning relative to the brand, and I just thought, wow, this is just a fantastically interesting way to spend time with really good people. And so in the end, it was a pretty simple decision.

Great. That's helpful. So we just got through 1Q earnings, and I think you've been spending a lot of time with shareholders, LPs, getting kind of the lay of the land. Anything that surprised you from the feedback or initial observations on the conversations you've had with kind of both constituencies?

So I've approached it as everyone would expect I would, as a new CEO coming in from the outside. I think it's -- there's a real premium on being super deliberate and listening to my constituencies. And so I've spent a huge amount of time internally. I spent a lot of time on the road. I just finished 2-week trip where I went Hong Kong, Beijing, Tokyo and then the Middle East. And I would say that -- if we just start with LPs, for example. We have a incredibly diverse LP base all across the world after 35 years of investing and delivering for LPs. And it reflects the macro environment, which is, I think, extremely complex and very unique to something that, in many ways, more complex than anything we've seen, I think, in 30 or 40 years. So happy to talk about it, if you want. But I think it reflects that backdrop. And so one thing that I think is interesting is the idiosyncratic nature of the conversations with LPs. If you're in the U.S., there's a certain degree of concern. If you're in the Middle East, very front-footed, very dynamic. In China, there's a real desire to put capital to work. And in Japan, the mood is kind of almost euphoric in terms of the dynamism around the desire for companies to consider going private and a move from 0 rates to earning positive interest. So it's very idiosyncratic to the region, but -- it's been fascinating going region to region, but I think it reflects a lot of what's happening in the world right now.

Great. That's helpful. So your background at Goldman as a leader and financial officer doesn't 100% kind of foot with the type of executive we're used to at these firms being a PE investor or a fundraising expert. So how do you think your background aligns with what Carlyle needs to catch up with the peer group?

So one of the first things -- so you don't think I'm central casting? One of the first things -- when I sat down with Bill Conway, one of the first things I said to Bill, is I've committed a lot of capital in my life. I've sat on all the capital committees at Goldman Sachs. I've committed huge amounts of capital to the industry that I'm now part of and leading, I said, but I don't think of myself as day-to-day spending my time unpacking companies, and I've done a lot of that, but unpacking companies and making the marginal investment decision. I said, "So if that's what you want. I'm not your person." And he said, "No, that's not we want. We want a leader." And I think that I'm a good fit because really what my responsibility is, if you just -- and the way I think about it, Patrick, I think about it in terms of first principles. So if we go back to first principles, my obligation as the new CEO is to understand my constituencies, what their needs are and how do I mobilize the resources of the firm so that we can deliver to our LPs, to our colleagues, to our shareholders. And that, in the end, not to oversimplify that, but that first principle is really about leadership and talent management. And I've been fortunate in my career, both across Citibank and at Goldman Sachs, to work with some of the most talented people in the world and I work with some of the most talented people in the world at Carlyle. It's an amazing bunch of people. And so that sense feels very, very familiar. But we have investors that have been leading our businesses for over 20 years. The investing engine is incredibly deep and experienced. That's not what they need me to do. I can be helpful. I can mobilize it. But I think that's why, if you think I'm not central casting, I think we feel like it's a good fit.

Got it. Makes sense. So one word you mentioned many times on the 1Q earnings call was discipline. There are a lot of ways to define that. I think my sense from some investors is they weren't quite sure what you meant by that. So what do you think that word means for you at Carlyle?

Yes. Somebody told me I said it 11 times. I didn't know that I said it 11 times. It wasn't scripted 11 times. I think what I was trying to do -- so some of you know me, some of you don't. And I think I was really trying to speak to the audience that doesn't know me. And what I was trying to communicate, and hopefully I can do it better now, Patrick, I was trying to give people a sense of how I'm approaching the process of being a new CEO. And I guess I would say, for me, the best way I would describe it is with a very disciplined sense of urgency. So I have a huge amount of urgency as the new CEO to figure out how to mobilize my people, how to make sure we deliver for our LPs, understand the business, grow the platform, deliver value to our shareholders, but it has to be done in a very disciplined, methodical and deliberate manner. And we have some -- our platform is -- it's pretty extraordinary, right? We have nearly $400 million of assets, I think it's grown from $200 billion only a few years ago. When you look at the private equity footprint, we have one of the largest private equity footprints in the world. We have a credit business which is $150 billion of assets. We have a solutions business. We have the reinsurance. It's a fantastic organization. And so my responsibility is to harness all of this working with our teams and again, deliver for our LPs and unlock value. But again, I go back to in a super disciplined and deliberate way. Now I don't know if I answered your question any better, but I also think it means, for the audience that doesn't know me, what I was really trying to communicate is around this disciplined sense of urgency, how we want to think about capital deployment and margins and investing in talent and attracting talent and growing the business, but I think it all has to be framed in, again, a disciplined sense of urgency.

Makes sense. In that vein, let's discuss timing, which is something we've been hearing from investors. You've been at the firm now just 4 months. So what kind of timing should shareholders expect from you over the next year in terms of how you're going to help us understand what you're going to be most focused on? And what kind of deliverables would you look for?

Yes. I think the most important thing about a disciplined sense of urgency is it doesn't communicate a time frame. That was meant as joke. Not all jokes work in large crowds. It's an output for me. Again, I share everyone's urgency in the realm. I think the firm is amazing. I think the opportunities are extraordinary both for the industry and for Carlyle. I think everything about being here for the first couple of months has been fantastic. I think -- again, my process has to be super deliberate, well thought out. I have to collaborate with my team. And one thing that's super important is as a new person coming in, I understand the great things about the Carlyle culture, but I have to be super thoughtful about how I enter, right? Because it's really my obligation to figure out how to provide value to all these great people and to our LPs, and it's really important for my team to get to know me. And so that's a process. And so it's not going to be forever. And at the right time, we'll give a strategy update, but I'm not prepared to give you a time line on that, but I can tell you there's a lot of urgency right now.

Okay. So white space is a term you've used a lot as well, and I think it makes sense given Carlyle's current business mix. So we're still early days, so not going to get into huge strategy discussions. But how should we think about the white space at Carlyle now? And can you frame the opportunity for these from here?

Sure. So I use white space because, again, if you go back to first principles, I think myself, what are the core competencies of the firm? What are the footings of the front that strategically position us to grow and to deliver value to our shareholders, to LPs and to our colleagues? And so again, this is all part of the process of getting to know the firm and understanding all those components. But I would give you like a super easy example to look at. So let's take the capital markets business. To be successful in the capital markets business, you need certain raw material. Perhaps the most important raw material is you need a corporate private equity franchise. We have one of the largest in the world. You also need a capital markets team. We have a capital markets team. And you need a balance sheet, which we can provide, and we can also get externally. And we make $50 million in the capital markets business. Some of our peers make significantly more than that. I think that's obvious potential for us. It's obviously something we can grow. I have a team focused on putting together a plan for that, but I think it's kind of obvious white space. You sort of ask yourself a question, well, why aren't we bigger already, right? And I think it's a fair question. And so that's an area we can grow because we have all the raw material. I don't have to go out and buy a capital markets team, right? Our reinsurance business. It's a fantastic business. We own 10% of Fortitude. You already saw in the first quarter, they did a transaction at $28 billion of assets. We earn fees on that asset, plus assets will directly come into our funds on the back of that. That's an area the firm was strategically -- they've done a great job of positioning the business. We have a really world-class team. I think we can continue to grow that. So for us, it's white space. And so I think we can build on all these things. I think there are lots of other opportunities for us. I'm not going to get into the details of those now. But all these things are in process. And I think that, again, when the time is right, we'll come back to you with more details on how we plan to grow them, how we think we can grow them over what time frame. But those are examples, I think, are easy to identify examples of how the firm is really well positioned because the core competencies are there and the pieces are there, we just need to mobilize.

Do you think inorganic could move up the list in terms of addressing those white spaces? Or is that...

So I don't want to box myself in. I don't mean box myself in with the group. I don't want to box myself in, in terms of my own imagination, right? Because I think that would be a mistake after being here for a couple of months. So I allow myself, this is just the way I think about leading the company and working with the Board and all my senior team, I don't want to constrain anyone's thinking, including my own, okay? Having said that, I think that there's -- my bias is that there's a real premium on organic growth. I think organic growth is hugely valuable, and when I look at our position as a firm and I look at where our stock price is and the fact that I think our valuation is low, and that was a big part of why I joined, as I told you. I think that if I felt like we needed to grow the company over a period of time through acquisition, I would certainly consider it. But for me, it's a very unemotional math exercise. In terms of cost of capital, where is our share price? How do we want to use our currency? How do we want to think about the fact that we have $4 billion of accrued carry that over whatever period of time will get monetized? And again, I don't want to constrain my thinking, but I want to give you an insight into the fact that I think there's a real premium on organic growth. And I think we have the position for that, right? Between our credit footprint, our secondaries business and our solutions business and our private equity business, there is a lot to work with. There's a lot to work with.

On the organic growth point, I think a lot of investors, particularly after the first quarter call, are worried that kind of private equity, which for better worth is still the core of the story, is with the next generation probably is going to be smaller, not necessarily as big a growth engine anymore. Do you think that's a fair view? Or do you think this is just kind of a blip because of the current environment?

So at the risk of picking apart what you said -- can I pick it apart? So we raised $30 billion last year as a firm. I think, sitting here today, we'll raise more than $30 billion this year, okay? Now again, I think we're thought of predominantly as a private equity firm, which is the picky part I'd have, right? So again, if you break it down roughly, it's $150 billion of private equity assets, $150 billion of credit, $75 billion of solutions, and there's a pretty clear path to north of $400 billion over the next 6-plus months given the transaction we did in our reinsurance business. And so I think I think growing the asset base, again, $30 billion last year. We'll grow more this year. Something can happen, things can get delayed, the world could get weird, but that's my base case, right? Now do I think that there's a headwind in private equity that is not unique to Carlyle, but part of the industry? Yes. Do I think there's huge tailwinds in credit? Do I think there's huge tailwinds in the secondary business? Yes. And so I think those businesses will grow more easily to private equity. But I'll tell you, I think we're the only firm at this stage that has a dedicated Japan fund. There's huge interest in Japan. They'll raise a much bigger fund than they did last time. Now it's Japan, so it's not going to be a $20 billion fund. That would be imprudent, right? But we'll see tailwinds in part of the business and headwinds in the other. That's the benefit of being diversified. And I think in this market environment, there's a huge premium, and I'm super fortunate to come into the job with those platforms in place.

That makes sense. So I think that dovetails nicely to macro. You mentioned the $4 billion of net accrued carry. Maybe give us kind of a broad overview of the market you're seeing today. Any stresses you're seeing in the portfolio or more broadly? And how do you think markets rates and inflation play out from here?

So that's like a 30-minute question. So why don't we back up? Why don't we start with the macro? I'll give you my view on the macro. So I've said this a number of times, I think it's one of the most complex times in economic -- recent economic history, maybe really in my lifetime, because we've never been through a period of sustained inflation, right? And I think all -- so people -- you asked the question like properly, by the way, you asked the question like, okay, so what do we have -- what's the expectation around rates? And what will the Fed do? And I would say the question inside the question is not what will the Fed do, but what's your view of inflation? Because I think you have to have a view of inflation before you have a view of what the Fed is doing. And so let's unpack that a little bit. My view, personal view and has been for a while, is inflation stickier, the Fed ended up stuck very far behind. Should have been a couple of hundred basis points higher than they ended up being, and so now they've been put in a tough position because they've been playing catch up. And inflation is a very complicated animal, and it can be broken down into supply and demand components and drivers like that in terms of energy and scarcity, but the expectation part is really, really important and the mindset around inflation and the stickiness of it is incredibly important to understanding and having some predictive thinking around the status of inflation. And when I look around the world and I see Europe and I see the U.S., and I think to myself, inflation feels stickier, okay? So that's the first piece. Now at Carlyle, we have a fantastically unique data set. So it's 31 countries, a couple of hundred companies and nearly 1 million employees. Now we can roll up all that data, and that proprietary data set would reinforce my thesis. So in the first quarter, we saw economic growth, and we saw, obviously, a dip in housing-related activity, as you would expect. But we saw a big uptick in experiences: travel, entertainment, all those things. Second quarter growth better than first quarter, so far, and actually more broad. Now when we look at it in the portfolio companies, we would say inflation is running roughly flattish now at like 4%. That's what our portfolio companies would tell us. But here's the most important takeaway, I would say. The most important takeaway is in the -- prior to the pandemic, people running companies didn't know how much price elasticity they had. And you don't raise price in a 0% world, okay? There's not pressure to. But then when you have a supply chain problem and your input costs go up, you raise price because you're forced to. And if you raise price and people pay the price, you realize that's the fastest way to protect margins or expand margins. This is the expectation point I was getting to. And so what we saw systematically happen in our portfolio companies -- and these are all companies. You can extend that to the broader landscape of companies around the world. Companies tested their price elasticity, they found out they had it. As soon as you have pricing power, you raise prices. History would tell us you raise prices until you have demand destruction because it's the easiest way to grow margins or protect margins. And we're just now seeing a little bit of demand destruction. And so that's why I say it's sticky. Because when people talk about inflation expectations, I think we often think about the consumer. That's important. We should think about the company and the manager that's making the marginal price decision in terms of how they think about driving value in their business. And so all of this, plus the employment stats, everything would tell us inflation feels stickier, which means rates stay higher. And I think the Fed is in a very difficult spot, which is, on the one hand, they have inflation. The other hand, they have market disruption they're worried about post the banking stress. And it's a very difficult tug of war in terms of the Fed's decision making. And so -- again, I would say if any of us were running the Fed, we probably want to raise rates, but we'd be nervous because of market disruption, and so we might pause. We pause. That gives inflation a chance to be stickier, then we're behind the curve. And so I think the cycle goes on for a while. Did that answer your question?

It did. I guess through that list, and as you look through your portfolio, maybe even just looking at...

Cash flows look good. EBITDA performance looks good.

Any places where you're worried or places of stress at all?

No. I think if you look out a couple of years, there's always going to be a concern of an idiosyncratic company that might have a liability structure that you have to think through. But no, the portfolio feels quite good at this stage. Again, the market uncertainty is a real factor. But when we look around the world at the portfolio, we have over 5,000 retail locations in China. Year-over-year, foot traffic is up 30%. So we look at China and we say, okay, fundamentals of growth look really strong. Valuations look weak. They look weak because of the geopolitical tension. And -- but the fundamentals and the performance of our foot traffic would tell you there's a huge amount of activity. And so no, it feels, overall, feels good.

So may be expanding away from your own portfolio, and you have a long history in the markets, any activity or pockets of risk assets out there that you think are particularly susceptible to negative surprises at this point?

So I would have thought, with a 500 basis point increase in rates and a number of bank failures, if we were doing this conference a year ago, I wouldn't have thought the S&P would have been roughly flat to up, okay? So the market has demonstrated an amazing amount of resiliency. My own point of view on that is -- there was a lot of discussion, Patrick, when Silicon Valley Bank collapsed so quickly about, okay, people can move deposits much more quickly now because they have the technology to do so. Fact. The other fact that got some attention, but I don't think enough, was the regulatory response. I was at the Fed in 2008 when Lehman Brothers fell. None of these tools existed. The regulators deserve an immense amount of credit. And they often just take criticism, but I think it's misplaced. They deserve a lot of credit for responding quickly in a way that allowed the system to keep functioning such that the S&P is performing year-over-year, and that there's still decent risk appetite. I think there's always the question of, again, what we don't know. But I think that the most important things are the banking system, from a regulatory perspective, is in fantastic shape, I think the market has kind of been stress tested for the first 500 basis points. And whether or not we end up with some systemic [ or side ], there's always things to worry about, like you could really keep yourself awake at night about cyber risk or the conflict in Europe. A lot of these things are kind of unmanageable risks, but those are things that would always be front and center in my mind. But again, it's not like the world -- even though some people talked about it, it's not like the world really saw the asset liability mismatch at Silicon Valley Bank. And so I think these things are super hard to see.

Fair enough. So you mentioned Fortitude in insurance, and I think you have some prior experience with insurance from your time at Goldman. So it is something I think investors have -- or it's less well understood by investors, at least Carlyle's investment in Fortitude. So maybe, through the lens of your experience at Goldman, talk about what Fortitude gives Carlyle on how you see that company in your insurance strategy expanding.

So for those of you don't know, what Patrick's referring to is at Goldman, we bought a company called Allmerica. We owned 100% of it, eventually got spun out into the private wealth channel when I was the CFO. And then ultimately, it's the business that's [indiscernible] today. So -- but I was on the team that bought it. I can't remember when. Maybe it was 2003 or '04, '05. So I think it's an incredibly important part of our strategy because a, we have fantastic partners in that business. We have very smart people managing it. And again, we can work with them to help them manage the liability structure. And so the Lincoln National transaction, $28 billion of assets, our arrangement is we have fees on the $28 billion and then direct assets come into the firm. So if you get $4 billion to $6 billion of those assets, they come into our private equity business, our credit business, our solutions business. So it's a natural flow creator for us. Strategically, I think we could do even more with it, with focus. I think the team is super well positioned. We have a great team. I think that -- maybe the question within the question is we own 10% of Fortitude. I think if your question is do we want to own 100% of Fortitude or how we're thinking about that strategy, that's a slightly higher bar for me. I know others have had fantastic success with that strategy. For me, I would just really have to wrap my mind around the regulatory issues associated with that and some other related issues. But I think that, to really underscore it, if we didn't have Fortitude, that's something I'd have to buy. And I'd be really looking hard at it. But I think it's fantastic, and I'm super lucky that I showed up and I have a great team and we have it and we can build off it because we have the right credit platform, we have all the right products. And so I feel good about it. It is definitely a platform of growth for us, and so the team and I are very focused on it.

So there's a question from the audience on that. Through the lens of the Lincoln deal, do you think that there's a pipeline of chunkier deals like that coming through? Or is it fairly...

That deal got a lot of attention. We also did 2 other transactions which totaled about $2 billion in the quarter, which got less attention because that was just a headline grabber. But yes, I think there's good activity that they're seeing around the world, and they continue to build out their network and strategy. So I feel good about the forward. Quite good about it.

Makes sense. So private wealth is one of the other buzzwords in the industry right now and obviously fits in with your white space comments. There's already a few players that are probably well ahead of you in terms of getting markets -- getting products out there, getting mind share. So how do you plan to catch up? Do you think you need to? When do you think Carlyle can do in the next several years to really accelerate the growth there?

Yes. So I think in the thesis of one of the reasons why I think the industry is extraordinary is I do believe, whatever word you want to pick, the democratization of private markets, I think it's completely natural that over the next 5, 10, 15, 20 years, these markets will evolve and more private wealth will participate in this asset class. It makes perfect sense. If it makes sense for retirement systems to have a large portion in private markets, it makes sense for individuals to have this in their retirement planning over time. I think -- all that will happen I think will happen on a global basis. I don't think we've talked about that much. While smaller, we have 5 -- we have 3 products in private wealth, $5 billion of assets. The most important thing of that is getting them started and having them on platforms. And so we have 2 credit products. We have one in secondary. So some of those, I think, when I talk to people, they're surprised we have 3 products and $5 billion. So we have the momentum. I think that it represents a huge area of growth. I think, again, there's tailwinds here. I think it will take us some time to keep expanding, and I think part of that is we want to be exceptionally thoughtful about how we do it. Do you think that there's maybe a temptation at times in finance, broadly, to start with the product and then fit to the client? And I think -- again, getting back to first principles, I think that's kind of a violation of a first principle. We should always start with the client and then build to the product. And I'm not saying that hasn't happened. But I think that is the best way for Carlyle to move forward in this and be super thoughtful about what channel that is. So if that -- if you're living in a super high tax paying jurisdiction and what you really want is long-term growth at a tax-advantaged way, that's one approach, right? If you're looking for income and you're earning 0% of your deposits in Japan and you want to shift into an income earning asset, your hurdle for that might be completely different than that high paying tax jurisdiction like New York City, right? And so I think a lot of this as it grows, again, is about understanding the client and how to deliver to the client. The other thing I will say is I think as an industry, I don't even think it's -- pick your analogy. I'm not a big sports person, but I don't even think it's the first inning of this. That's why I think the trajectory of this is very long and very big. I could be betting -- yes, I think it's a bit of a surgeon general's warning maybe. I just think we have to be super careful about how we label things. And so I think in the industry, semi-liquid, I think we just have to be really, really thoughtful about that, that people don't misunderstand it, that, that means actually could be completely illiquid, right? And so I think that we just have to be careful about how we label and how we distribute. Again, it's about putting ourselves in the shoes of the client. And -- but I think it's fascinating, and I don't even think twice about the fact that, like you said, catch up. I don't think catch up. I think methodically build based on our footprint. And so, for example, we don't talk about it a lot, but our secondaries business is in private wealth channels now, right? Now the question is, they have something on a platform now. What is the appropriate speed to scale that and how do we direct that to the right clients? Because, again, we want to make sure what we're doing is thoughtful, very specific, discipline and durable. And I think a mistake we can make is think, "We have to catch up." Because catch-up implies pressure and pressure implies -- could lead to not the highest quality decision-making. And what I would say is disciplined sense of urgency, right? So we have to be very disciplined about our process and our methodology, but we should be super urgent and -- because I think we have a lot of value to offer to those clients.

I guess due to the [ lives ] of the kind of press headlines over the last few months, given some high-profile products, it sounds like no kind of change in your view of the distributor demand for these products.

Well, I definitely think the market events of the last couple of months have led to some marginal impact on demand. That doesn't surprise me. If you look at the evolution of product development across finance, if you went back to like '99 or 2000, I think people paid $0.05 a share to trade a stock, okay? No one then would have thought it was 0. ETFs weren't a thing. And that's why I said for me I think the parallels here are around innovation. And I think it's very, very early days. I think 3, 5, 7 years from now, it could look vastly different. That's why I said as an industry, we just have to be very thoughtful about making sure it's durable and sustainable and all the products are in the right hands, but that's how I'm thinking about it. But I think this is a huge tailwind for the industry. So you haven't said it, but you sort of said it before. When people say, well -- this is sometimes how I get a question. There's a lot of dry powder in private equity. Where does the next marginal dollar come in for private equity over the next 3 to 5 years? I think it could be huge private equity dollars that come in from private wealth because they have to allocate to the asset class. Now it might come in through secondaries first, but there's going to be appetite for private equity. And I think it's -- I think over the intermediate term, it's a growth engine. That's my view. But I love the industry.

But are there enough good deals for all of that dry powder?

Well, that's a market question. But eventually, the -- money finds a way.

Yes, for sure. And I guess, markets are a lot more private now than they used to be.

Yes. Then they will just keep going more private, in my opinion.

So obviously, it's still early in your tenure, but for areas that we hear about as opportunity and shortcomings are Carlyle's growth and margins. I think that was reinforced kind of on the guidance on the first quarter call. So how do you think about those issues, both in the short term and the long term?

I think that coming in new is -- kind of gives me a fresh perspective and it gives the team a fresh opportunity to take a look at things. And so again, I don't want to keep repeating the word discipline, but I do think it's an opportunity for us to, in a very methodical way, take a look at all aspects of our business. Margins, capital deployment, performance, growth opportunities. And so I think all those things are open for discussion. One thing that hasn't come up today, I don't know if it's come up in any other sessions, but a question I get all the time is, what have you been surprised by when you come to Carlyle? And one of the things I hadn't thought about, maybe remiss of me but it also wasn't in the news as much, is data science and artificial intelligence. So I happen to have stumbled into like an amazing data science team. And the things they're doing, they just yesterday held a generative AI conference with 15 portfolio companies for the day. And some of the stuff that comes out of that is mind blowing. Now I say surprised because I wasn't really on top of the ChatGPT news in November, but obviously, we're all on top of it now, and there's a really excellent team. And I've spent disproportionate time with them relative to the time I would have thought, and I didn't know they existed, so I sort of -- lucky find for me. But I work with them and I'm exploring ways that, obviously, we can continue to deploy their skills in our portfolio companies, which I'm happy to give you an example if you're interested, but also how can they think about us as we run the company? So when you talk about things like margins, I think to myself, okay, are there tools that we can develop? But all of this to me is on the table in terms of how to think about the best way to run the company. But again, the best way to run a company is to provide the best returns to LPs and the best returns to our shareholders.

Some of your comps have taken the route to solve this issue of moving the compensation equation around the fee earnings and performance fees. Is that on the table?

Yes. So it's certainly on the table. I don't think of it as narrowly as that. I understand why you asked the question that way, and it makes a ton of sense. And if I was folks in this room, I'd be wondering, hey, Harvey, can you change the conversations that's going to drive more FRE and expand the multiple? I get it. Not lost on me. But I think about it completely differently. So I think about -- when I think about -- first of all, I think about expenses broadly, but when we narrow it down to compensation, what do I think about in compensation? I think I want to attract and I want to retain the best talent, okay? First and foremost. I want to make sure I have really good alignment between my investors and LPs. And then I think about I want to harness the compensation system that helps me mobilize the firm, creates maximum teamwork, all the synergies I possibly can, drives the capital markets business, all these things that I've talked about. And so I think about all those factors. And then I think the best way to do that is to construct a process around compensation that sort of hits the efficient frontier of all those factors. And that my guess is that probably is the single best way to drive FRE if we get all those things right. But it's certainly on the table.

Sure. That makes sense. So to finish up, I'm going to ask this a little bit differently than I have for the other guys, but I don't think anybody in this room would argue that Carlyle is not cheap. But others, I think, still think it could be a value trap, and I think...

Some things are obvious.

You said that's part of the reason you took the job. So how do you think about the firm's value here? And as we sit in a room with people evaluating investing in your stock while they're also worried about the macro, like how do you think you can unlock that value and kind of pitch Carlyle as an investment people should be making now?

Yes. I can only tell you the way I did it. So when I thought about joining the company, and I jumped on Bloomberg and I started looking at Carlyle and the peers and then I broke out the financials, I don't do what all of you do in the room, but I've done some of it. But I just -- my back of the envelope was super simple. I basically said there's $10 billion of market cap at the time. It hasn't changed all that much. $10 billion of market cap. There's $4 billion of accrued carry. I understand accrued carry very well because as the CFO of Goldman Sachs, I lived a lot of that life in terms of marketing those kinds of assets. So I looked at them and I said to myself, okay, you should stress test that, Harvey, you should cut that back by 25%. So I called it $3 billion. And I tax affected it literally on a piece of paper. I probably have it still laying on my desk somewhere at home. And I said, okay, that's $2.5 billion. And I looked and I saw the founders, that they own 30% of the company, close to. That's $3 billion of the $10 billion. That leaves me with $7 billion, $7 billion less $2.5 billion is $3.5 billion. $1 billion of cash, $2 billion of debt. The debt stack is amazingly attractive. The next maturity is 2029. It throws off a lot of cash. And when I first did this, I came up with the wrong number, but now that I'm here, I understand the numbers, there's $1.6 billion invested in our funds. That's firm capital, right? Okay. I don't know, I just thought, wow, that's pretty good back of the envelope math. You can do a lot of other math, but that's pretty good math. Now you asked a 2-part question. You said, how should -- I'm not going to tell anyone in this room how to think about valuations. That's what you do for a living, but that's how I did it. And it was pretty simple to me. Now you asked about the macro. I don't know -- I think this is right, but I don't look at the competitors in this way, but I think -- I don't know, maybe, [indiscernible], I think our $4 billion of accrued carry is more per share than anyone else.

Yes.

Right? I think that's pretty significantly, right? And we have -- by the way, for those of you who question the accrued carry, we have a long history, Dan can go through it with you in detail, a long history of creating carry, monetizing carry, monetizing carry at a point above the markets. I'm not promising that will happen. The world could change tomorrow, but that's the history. We create carry, we monetize carrier, monetize carry at some premium, usually, okay? That's the firm's history. I looked at the carry. I saw how diversified it was. And so I'm confident in that number. So from a macro perspective, if you're one of the largest private equity firms in the world and you have $4 billion of accrued carry, I got to think the macro helps everyone. I think it probably helps us more at our valuation because of the carry. But again, look, you have to do your job over the period of time you do your job. Some of you buy stocks short term, some of you buy them long term. I'm here for the long term. I think it's an incredible value opportunity, but I love being here. I'm having fun with the job. The people are great. I enjoy the founders. I went to the Middle East last week. We did 26 meetings in 4 days and 2 dinners and -- I don't know. I guess I missed it more than I thought. So anyway, so it's good to be back with all of you. And so if you have any other questions on the company, you can always reach out to me or Dan or the team. But yes, that's how I thought about valuation. How do you think about it?

Similarly. Think they need to see FRE growth to get super excited.

Yes. So you're like moderately excited?

They're moderately excited.

Okay. Well, we'll work on that.

I have a lot of upside. Thanks a lot, Harvey.

Thank you. Great to see you. Everyone, thank you so much. We appreciate you being here.