Private equity firm Carlyle Group L.P. (CG.O) posted sharply lower-than-expected fourth-quarter earnings on Wednesday following losses in its hedge fund businesses that it has since exited.
Hedge funds have been beleaguered by poor performance in the past year after some were wrong-footed by the pace of U.S. interest rate hikes and the post-election rally in the United States.
“Obviously we are disappointed with the losses in our hedge fund business,” Carlyle Chief Executive Officer David Rubenstein said in a statement.
Shares were down 6.1 percent at $16.10 in light pre-market trading.
Washington, D.C.-based Carlyle said it took a charge of $175 million in its former hedge fund Vermillion Asset Management due to “misappropriation of petroleum commodities by third parties outside the U.S.” from various investment vehicles belonging to the fund.
The buyout group also said it incurred around $25 million in charges after selling its ownership stake in former hedge fund Claren Road Asset Management back to its founders, adding it has zero hedge fund asset under management as of the end of December.
For the fourth quarter, Carlyle said it earned economic net income – a key metric for U.S. private equity firms that accounts for unrealized gains or losses in investments – of $6.4 million after taxes.
That translated to earnings of 2 cents per share, down from 24 cents a year earlier. Analysts on average had expected 41 cents, according to Thomson Reuters I/B/E/S.
Dragged in part by the hedge fund losses, Carlyle’s distributable earnings, which show cash available to pay dividends, slumped to $7 million in the fourth quarter, from $145 million a year ago.
That translated to distributable earnings of 16 cents a share, compared to 29 cents a year earlier.
A breakdown of Carlyle’s investment performance showed returns either matched or slightly lagged the broader market. Private equity returns, for example, rose 4 percent in the fourth quarter, compared with a 3.3 percent gain in the S&P 500.
Energy investment returns climbed 9 percent, below a 11.4 percent rebound in oil prices CLc1.
Photo: Carlyle Group co-founder and Managing Director David Rubenstein speaks at the panel discussion “Global Opportunities in Private Equity” at The Milken Institute Global Conference in Beverly Hills, California May 2, 2011. Reuters/Fred Prouser