Thank you, Josh. Good morning, and welcome to Carlyle's third quarter 2023 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; and Chief Financial Officer, John Redett. Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website. This call is being webcast, and a 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 a reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. 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. So turning to our results. For the third quarter, we generated $205 million in fee-related earnings and $367 million in distributable earnings with DE per common share of $0.87. Our net accrued carry balance was $3.5 billion as of the end of the quarter, and we declared a quarterly dividend of $0.35 per common share. In order to ensure participation by all those on the call today, please limit yourself to one question and return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz.

Thanks, Dan. Good morning, everyone, and thanks for joining us. Today, I'll update you on the areas where we have strong momentum and where we're focused on accelerating growth. Before getting into that, let me touch on the macro. An already complex environment has become increasingly uncertain with the tragic events unfolding in the Middle East. Multiple wars, along with higher rates and economic uncertainty has increased volatility and reduced confidence levels. As we all know, sentiment is the greatest market elixir, and negative sentiment has slowed transaction activity over the past year. That said, despite the challenging market backdrop, deal activity has shown signs of improvement as third quarter buyout activity was at the highest pace in over a year. However, my own opinion is that lower activity levels and reduced confidence will likely persist for a bit longer. As we said in the past, our view is that rates will stay higher for longer. After 20 years of declining rates and central bank market intervention, the overall cost of capital has shifted higher and may remain so for some time. Market participants have reluctantly accepted this reality and begun repricing assets based on this outcome. However, as is often the case in market regime shifts, this process of market digestion will take time. Ultimately, higher rates could dampen economic activity. Complex and uncertain environments don't necessarily mean a lack of opportunity as we've seen over decades navigating through all market cycles. Our goal investment teams continue to stay focused on generating excess alpha in this market environment. And with over $70 billion of dry powder across our platform, we have the flexibility to deploy capital and build on strategic partnerships. Now let me shift to areas of focus as we position the firm for growth. First, our insurance strategy has very strong underlying momentum. Fortitude's announced transaction with Lincoln Financial has met all closing conditions and is expected to close later this month. We will pick up approximately $24 billion in new AUM from the increase in Fortitude's general account assets as well as additional capital that rotates into Carlyle funds. In addition to this transaction, our team is developing new investment and distribution strategies that target the needs of insurance investors and our private credit business. We see substantial growth and potential new transactions across the insurance vertical. Next, private wealth. The Carlyle brand has always been well received in the private wealth channel, and we're building on that momentum. We have raised over $45 billion from this channel over time. And this year, we have raised more than $3 billion. I feel good about this channel given the strength of our brand. Over the coming quarters and years, we expect to accelerate product development and see further growth in sales and distribution. There's a lot of upside in private wealth, and we expect our footprint to be significantly larger in the coming years. Moving on, we're seeing momentum across several of our investment strategies in the market today. A few examples include Japan buyout, U.S. real estate, and secondaries. Each of these strategies is on track to grow meaningfully due to strong investment performance, our deep client relationships, and an attractive set of deployment opportunities. During the quarter, we raised $6.3 billion in new capital, bringing year-to-date fundraising to $20 billion. Overall, we've not been pleased with our pace of fundraising thus far in 2023, but our current expectation is for a step higher in new capital raised throughout the fourth quarter. With the final close of our latest U.S. buyout strategy, we now have $105 billion of corporate private equity assets under management, including $21 billion in dry powder across our CP funds that allow us to pursue deals of any size around the globe. We continue to raise capital for the next vintage Asia, Europe, and Japan buyout strategies, which should further add to this amount in the coming quarters. Moving to credit. This is an area we're focused on accelerating our growth and expect to be significantly larger over time. Global Credit has built a diverse set of strategies to serve an increasing number of institutional and private wealth LPs to manage over $150 billion in assets today, nearly triple the level of just three years ago, including the world's largest CLO business. Our team is focused on the significant opportunity ahead to attract assets that migrate from bank balance sheets to private capital strategies, a trend we expect to play out over the next several years. Finally, let me focus on expense management. We have made faster progress in this area than I originally expected. I give a lot of credit to the team for driving this process. We've identified several areas that have already led to a lower run rate of expenses. As a result, we delivered better-than-expected third quarter FRE. I expect an even larger impact in 2024. The changes we're making across the firm are improving our organizational structure, emphasizing our areas of strength, enhancing our ability to grow and helping to maintain best-in-class talent across our platform. Closing, our leadership team is focused on taking meaningful actions to drive long-term value for our investors and shareholders. With that, let me now turn the call over to John.

Thanks, Harvey. Good morning, everyone. As Harvey highlighted, we delivered better-than-expected results this quarter, supported by our focus on expense management and our diversified global platform. We produced $367 million in distributable earnings or $0.87 in DE per share. Year-to-date, we have generated over $1 billion of DE or $2.38 in DE per share. We finished the third quarter with $382 billion of assets under management, up 4% year-over-year. AUM is poised to increase upon the closing of the Fortitude transaction with Lincoln, which should occur in late November. We expect this transaction to add $40 million in incremental FRE. Across our global platform, we deployed $4.1 billion of capital this quarter, with nearly one-third in our solution strategies and over $1 billion in real estate, infrastructure, and natural resources. Despite investment headwinds, we deployed $12.6 billion of capital year-to-date 2023. We realized $5.6 billion of proceeds this quarter for our LPs, largely across our energy, power, solutions, and credit strategies. Year-to-date, we have returned over $15 billion in cash to our LPs, a higher level than we deployed. Carlyle is one of the few firms that has been able to deliver this outcome. We raised $6.3 billion in capital in the quarter, generally split between each of our segments. And as Harvey said, we expect a stronger fourth quarter of fundraising. In Solutions, we raised $2.4 billion largely for our secondaries and co-investment strategies, which will continue to raise capital and finalize their fundraising in 2024. In Global Credit, we attracted new capital for opportunistic credit, direct lending, and our private wealth fund, CTAC. Year-to-date, we have raised nearly $1 billion for Carlyle Strategic Solutions, our asset-based finance strategy. In Global Private Equity, we closed our eighth U.S. buyout fund and along with our growth sleeve, raised over $16 billion of committed capital. In addition, we raised capital across the latest vintage NGP strategy, Asia buyout, and renewables. Shifting to fee-related earnings. Management fees totaled $518 million in the third quarter, up modestly compared to the prior year. We have $10 billion of pending fee-earning AUM that will activate fees largely as we deploy additional capital. Capital markets activity remained slow and transaction and advisory fees of $11 million declined sharply from last year. That said, we expect Q4 transaction revenue to grow as we have good visibility into near-term fee generation. Fee-related performance revenue of $23 million was higher than the third quarter of last year, but as we previously signaled, it declined sequentially. Global Credit FRPR continues to move higher with good asset flows and strong performance in our evergreen products, while Global Private Equity declined sequentially, a trend that is likely to persist in Q4. Cash compensation and benefits of $256 million declined more than $30 million compared to the second quarter due to lower fee-related performance revenue compensation as well as our efforts to operate the firm more efficiently. To date, we have actioned approximately $40 million in annual run rate expense savings. Our work here remains in the early innings. G&A expenses were also lower as we benefited from expense discipline and lower fundraising costs. We expect G&A expense to modestly increase in Q4 due to year-end seasonality that we remain focused on controlling annual expense growth in 2024. Overall, third quarter fee-related earnings of $205 million were relatively flat to the last quarter. We now expect to deliver a higher level of FRE in the second half of 2023 relative to the first half. FRE margin in the third quarter was 37%, and we remain focused on driving this margin higher over time. Our net accrued carry balance totaled $3.5 billion with a small decline from Q2 due to realizations. Our global carry fund portfolio appreciated 2% in the quarter with relative strength in infrastructure, natural resources, and credit. Our real estate portfolio continued to be pressured by higher rates despite strong underlying asset performance. Wrapping up, despite the challenging backdrop, we're executing across the firm and see good opportunities across our global platform to create value for both investors and shareholders. With that, let me turn the call over to the operator for your questions.

Could you better frame any potential timing dynamics between 3Q and 4Q gross flows? Maybe a better idea of how much AUM has already closed so far in 4Q? And then more broadly, perhaps update us on your thoughts on the potential sizing of remaining large funds in the market over the next 6 to 12 months?

Thank you for the question, Patrick. As I mentioned in my prepared remarks, we are not entirely happy with the fundraising results so far this year. With my recent appointment as CEO, I aimed to spend significant time getting to know my team and our investors. In the past nine months, I've connected with over 200 investors worldwide, and I sense positive momentum building. We anticipate a substantial increase in fundraising for the fourth quarter. While I can't make any guarantees, as market conditions may cause delays, things are looking promising. As we look ahead to 2024, and considering the funds currently available in the market, including real estate, secondaries, and Japan, we feel optimistic as we approach the fourth quarter.

I was hoping we could explore expenses in more detail. There's been noticeable progress in expenses this quarter, and you've mentioned run rate savings, with more to come. Could you help clarify what the run rate looks like in the third quarter and how you anticipate that evolving by the end of the year? More importantly, what are your initial thoughts on FRE growth and expense trends for next year?

Alex, it's John. As we mentioned on our second quarter earnings call, we are focused on improving our FRE margin. In the third quarter, we experienced a slight increase in the margin. We have been concentrating on managing our expenses and I believe we have made progress. We have already implemented a run rate of $40 million and I anticipate this number will increase as we maintain our focus on expenses. Overall, we have addressed our expenses more quickly than expected. I have been in the CFO role for five weeks and I am satisfied with the pace we are achieving. Every expense is on the table; nothing is off-limits, but this remains a process and it is still early days. Overall, we are happy with the progress made in the third quarter.

So my question is on the CLO business. And just given that you just did the CBAM deal and you're the largest CLO manager in the world now, we thought you'd have a unique perspective on this. But as you noted, defaults are picking up off a very, very low base. I wanted your perspective on where you see them trending over the next year? And also, given the subordination inherent in the CLO, what are you thinking in terms of loss translation with the equity first loss tranches? And also, I remember this issue came up a few years ago, but are there scenarios where there could be triggers where management fees could turn off the CLO vehicles?

Let me just comment on the broader nature of our CLO business. So the team has done an excellent job. We have an over 20-year history here in managing that business. We're quite proud of the fact that the team has taken the mantle of the largest in the world. Our expectation has been implied by our comments that we think we've been in a very benign credit environment and would expect credit to deteriorate on average from here. Having said that, from the standpoint of putting capital to work, I think it's a fantastic time to be putting capital to work. If you look at default rates, over the past couple of years and even today, they're running low relative to average points in history. And so our expectation is that credit defaults across the industry, whether it's in banking, private markets, etc., that you're going to see this pick up, particularly as you come into refinancing walls and later '24, '25, and '26 as long as rates stay high in markets, stay where they are, which, again, is our expectation. So the team is doing a very good job of managing this. To give you a little detail strategically about how we're thinking about it, we're in the process of investing in the business. We have a fund that's in the process of being raised, which should close at the end of November, December, which will be a captive equity fund, which will help really support the business through growth. In terms of any specific triggers or anything like that, why don't we just take that offline, and then we'll have Dan follow up with you on those level of details.

I'm happy to do so. Craig, I'll give you a call.

As we think about fundraising and energy, NGP 13 seems to have had a strong start, and the performance of prior vintages seems to be quite good. I think NGP 12 was a smaller fund, could 13 be a record-sized natural resource fund for Carlyle? And then you had good realizations in energy this past quarter. How does the pipeline look for energy realizations as we look out over the next few quarters?

So I think the teams have done an excellent job. Our Europe-based team, I think, in particular has done an excellent job in terms of monetizations and the opportunity set. This area, when you look across our entire complex of energy, infrastructure, renewables, I really think we have sort of a unique team and capability set. So I think broadly speaking, this is an opportunity for growth. I'm not going to get into specifics about particular monetization because obviously, that's subject to market environment. But I can tell you, we feel quite confident with the team and their performance, and they continue to do an excellent job. So it's too difficult for me to point specifically to individual asset monetizations, but the pipeline feels pretty good. I think more importantly, the breadth of the team. And when we think about the opportunity set and trends over the next 5, 10, 15, 20 years, we feel really well positioned. I think you could broadly discuss this in terms of energy transition and climate. I think we have some very talented folks on the ground.

I appreciate the optimistic comments about some products being developed in both insurance and private wealth. You provided a lot of information regarding your available resources and investment strategies. My question is more strategic. Do the individual businesses have specific plans targeting their goals? When can we expect to see how you intend to bring everything together and approach the next few years? I understand you joined this process midway, but it has been a long wait for investors.

That's fine. It's my responsibility, Glenn. I appreciate the question. So let's just go back to sort of how I think about it and how the team thinks about it. Our approach really is, what I'll call, not to sound boring, our textbook principles-based. By that, I mean, there's a very methodical process that we're going through that ranges from business reviews, interactions with LPs, making sure we have all the adjacencies where we think we can provide the most value to our investors, how we can drive growth, how we can manage expenses and how we want to create operating flexibility across the entire platform. So all those things are in process. In terms of specific areas of growth and progress we've made to date, I feel really good about the momentum. If you and I were catching up back in February and you had said, hey, Harvey, where do you think the team would be with you in November? I don't think we would have made this much progress. I'm not patting anyone on the back here, but I don't know that we would have transitioned the CFO, put in a new Head of Technology, brought in a new Head of Distribution, brought in a new Head of Wealth, and really begun to shape the architecture of the firm in a way that allows the firm and the entire leadership team to mobilize the firm. So I feel really good about that. In terms of update, what you call yourself an outsider, update for outsiders. As I've said to you before, that's really an output, and we have to run this very surgically methodical process. But the foundation is really coming together quite well. So we'll come back to you as soon as we're ready to hit. But to me, that's an output. The last thing I'll say is I truly appreciate your urgency around this. I can promise you, John, myself, and the whole leadership team, folks in the businesses, we have way more urgency than you do. So as soon as we're in a position to do all that, we will. I know it's not a great answer for you, but that's our process.

I wanted to ask on private credit. Just curious how you see the impact of the new proposed bank capital rules on the opportunity set for private credit? And in particular, which product areas do you anticipate banks pulling back from the most? And which areas and which opportunities do you think are most attractive for Carlyle versus which areas may be less attractive? And maybe you could talk to some of the steps you may need to take in order to capture the opportunities set. Are there any areas you need to fill in a bit more?

Sure. So I think as you all know, I was the Chief Financial Officer at Goldman from 2012 to 2017. And so that was really the first significant wave of regulatory change that came through the banking system. I saw that process up close. I would expect this process to be similar across the entire banking system, particularly on the back of Silicon Valley Bank, Republic Bank, etc. My personal expectation is there will be sort of a flurry of activity, maybe one-off transactions. We're involved in several dialogues on our side, but I think you'll see a flurry of activity. I really think this is a process that plays out over two, three, four, five years. I think it really is as simple as the regulatory community doing their job to identify where they feel their systemic risk and really not the best liability asset management, which we've seen already in several cases. In private markets, as you know, we have long-term capital and the ability to deploy that capital. I think there's a two-phase approach. There's a quick phase where you see maybe flurry of transactions over the next year, and then you see a longer-term settling in where we, as Carlyle and other market participants, can provide very valuable capital to borrowers and to the economy. Where that plays out? I think that's in the full gamut. We’ve already seen it sort of in leveraged loans and sponsor lending; that's a multiyear process. I think it will continue to extend to those most heavily weighted, risk-weighted assets. It could be in the asset-backed market, and you could see things in consumer loans. Certainly, this is going to take multiple years, but we’re going to have to work through as an economy and a system, the real estate debt that exists out there. I think it's going to be very broad-based. But I actually think the longer-term opportunity set plays out over multiple years.

So I appreciate the focus on expenses and definitely encouraging to hear your messaging there. So curious how you strike a balance in between discipline and efficiency? And I believe there were some one-time items in private equity in the quarter. Could you maybe help us size those so we can understand what the right base is to think about moving forward?

Yes, Brennan, it's John. We are very focused on expenses, but our main priority is growth. We see opportunities for some expense savings, but we will not cut to a level that affects growth. Regarding G&A, I would say that the approximately $20 million beat included around $5 million that came from our efforts to manage G&A expenses. The remaining $15 million was due to one-off items that likely won't recur in the fourth quarter. As I mentioned earlier, we anticipate that fourth quarter G&A will be higher than in the third quarter, but we are committed to managing our G&A effectively in the fourth quarter of 2024.

I think John expressed it well. This is primarily about two aspects: operational excellence and the flexibility to invest in growth. As John noted earlier, we will maintain a disciplined approach. This also allows us the operational flexibility to invest in areas like wealth management, certain parts of credit, and insurance where we need to ensure we have the resources to engage. I am very pleased with our team's achievement of $40 million in run rate savings in a short timeframe, and I believe we will continue to build on that. I truly commend the team for their efforts.

John, thanks for the insight on the expense side and for the nonrecurring disclosure. Could you clarify if the $40 million run rate savings will begin in the fourth quarter or if it will be partially realized in the third quarter? As we look ahead to 2024, I understand you believe we're just in the early stages regarding this. Do you have any thoughts on whether you can maintain that line either flat or down? I know you want to invest for growth. Additionally, could you provide any commentary on the $40 million in relation to G&A and compensation, and whether there are any plans for changes to the compensation structure for 2024 or if any work is currently being done on that front?

Yes, Brian, it's John. I would think of this more as a 2024 run rate number. Look, I've been in the seat for five weeks, as I said earlier, and we really just started this process. That's why I referred to it as the early innings of this kind of expense review process. In terms of competition, we're a human capital business. Our largest expense is obviously compensation. It's certainly something that we're very focused on. We're very aware of what our competitors have done on the compensation front. I would just say it's part of the overall expense review going forward. Overall, the $40 million number is largely compensation-driven, and I would say, roughly 15% of it is G&A.

So Investment Solutions is in the middle of a strong fundraising cycle. We should see some nice expansion into 2024. But how should we think about growth here longer term? And are there any other strategic opportunities within this business away from the core strategies that could drive some incremental growth over time?

Look, the short answer is yes. It's a fantastic team. It's a great business. It's about where the puck is, right? Primary across the industry is a little slower. Secondary activity is a lot higher. Our expectation is that will be sustained for a while. There are several different business adjacencies that fit nicely here that the team is growing and building. I would expect to see this as an area of growth over the next several years, and we have a fantastic team.

I wanted to ask on the FRE margin outlook? And maybe just at the risk of being a dead horse, just want to ask on expenses and dig in a bit further, whether the $40 million of run rate cost savings contemplate any incremental investment? So whether it's a gross versus net savings figure, given you do have a lot of growth priorities as well, Harvey, that you outlined? And how we should think about the trajectory for FRE margins in '24 versus this quarter's jumping off point, given the realization of some of those efficiency benefits?

Yes. I mean, John talked a fair bit about this. I don't want to disappoint you, but we're not going to give you real specifics on 2024. I would tell you that there are a couple of levers that we're working on, which we'll dig into a bit more when we're ready. But I would say there are three very, very big, high-level things happening. One is the run rate savings. While that's meaningful and I'm really proud, this is not just about cutting expenses. When you look at the transaction that the team has completed in Insurance, that will drive about $40 million of incremental FRE over the next two years. The undrawn capital that John talked about will drive about $90 million of top-line fees, the $10 billion. So there's a lot happening in terms of FRE growth. Then, of course, you have the fundraising that we've talked about. As I said, I feel really good about the momentum. I didn't think I would nine months in, but there's work to do.

Harvey, you mentioned private wealth as an area that you can be much larger in $3 billion year-to-date in close. Can you talk about what's in the market today? And then how you see that evolving from a product perspective and what you think is a reasonable goal in terms of organic growth from that channel?

So I'm really enthusiastic about this as a long-term area of growth for Carlyle. We've had products in the market for a long time. As I mentioned, we've raised $45 billion across closed and evergreen funds. The wealth team has grown pretty substantially, but there's more work to do on product development and growth of the team. We're investing quite heavily. I'm personally spending a fair bit of time in this space. It became a big initiative for me in about month six or month seven. I feel very optimistic here. I think as an industry, we have to be thoughtful as capital continues to migrate into the sector. If you look at the wealth assets around the world, which we all expect will continue to grow, it's a very small percentage in alternatives. This will play out over a decade. But as this growth happens, I think Carlyle, the brand recognition, the history of the firm, the historic presence of the founders, David Rubenstein's brand in and of itself, these are all additive, powerful things that provide momentum for Carlyle. But this is going to play out over years. We just have to have the right products to ensure that the wealth investor gets really high performance, and that's what we're focused on.

I wanted to follow up sort of on the discussion of investing for growth versus kind of cost savings. Harvey, you mentioned a number of growth areas, private credit and the asset-backed opportunity. Insurance, you talked about developing new investment and distribution strategies. And earlier, you talked about the progress made in terms of hiring. So can we circle back to all of that? In terms of the future hiring, future growth, do you feel like you have the capabilities you need to sort of go after those opportunity sets or where might you need to kind of increase hiring? Is it on the investment side, the distribution side? Or do you feel like you can kind of do what you want to do with what you have?

So, first of all, I think the team is amazing. Broadly speaking, I've been so impressed since I got here with the business leaders. World-class organizations, they know how to redeploy resources and how to effectively tap the brakes or hit the gas. We're not creating new science over here in terms of how we think about expense management and reinvestment. And as I said, the key here is to create operational flexibility. We're not just trying to drive the cost structure down. We want to make sure that we have the best people, retain the best people, attract the best people. All this is about creating that operational flexibility. The insurance team is really built out through our partners in Fortitude. I think over time as it scales, it will continue to scale, but we made meaningful investment there. The investment engine in credit is broadly built out. Some of this will be more about at the margin. But I don't see as much investment or big gaping holes at this stage. Certainly, things will build, and the world will be dynamic. We'll pivot to where it's needed. But we're certainly very focused on growth, but we're equally focused on running this business in the most disciplined possible way.

Great. Maybe Harvey, if you could just give us an update on the capital markets business. I know that's an area you have been focused on. Where you think there's a lot of opportunity for Carlyle and the product set that you have and the talent? Maybe as we move into 2024, is that an area where you think you can significantly build the revenue stream on a year-over-year basis provided, of course, that we have a fairly normal market environment? Or is that more of a longer-term build?

No, I don't think it's a longer-term build. We don't want to be the biggest in the world here in capital markets. That's more my feeling for the strategy, but we're coming from such a low base that incremental growth in a normalized market environment should be pretty easy. If we don't deliver that for you, then we're not doing our job. John mentioned it was a pretty muted quarter, but the fourth quarter pipeline feels pretty good coming into 2024 in a more normalized environment. I think we have the team positioned in a way, aligned with the businesses in terms of resources and incentives and degree of focus that I think the opportunity set should be much better coming into '24, again, subject to market conditions. I would describe it as a Version 1.0. When we get to a Version 2.0, we'll come back to you in terms of how we build that out. A lot of this, as I've said before, is leveraging all the raw material we have and internally having the right incentives, staying focused, and driving value through this.

Harvey, you mentioned the still uncertain environment. So could you frame how the 4Q realization pipeline looks versus 3Q?

Yes, it's John. This is a tough question to answer since we're facing challenging markets. However, I would say that confidence is low right now and uncertainty is high. As Harvey mentioned, we have substantial resources available, and I'm pleased about that. Some of our best investments at Carlyle have been made in periods of high uncertainty like we are experiencing today. So, we feel optimistic about that aspect. Nonetheless, projecting future realizations is quite challenging for us.

Yes. Thanks, everybody. We appreciate your time this morning and, of course, your interest in Carlyle. If you have any further questions or follow-ups, please reach out to Investor Relations. We look forward to talking to you again next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.