Carlyle's Inflow Beat Masks Persistent Earnings Volatility and Execution Risks

What happened

Carlyle Group announced it surpassed its 2025 inflow target with $54 billion, driven by record fee-related earnings (FRE) and AUM, while setting an ambitious goal of over $200 billion in inflows by 2028. However, the DeepValue report highlights that recent quarterly performance has been mixed, with Q3 2025 FRE missing consensus estimates and GAAP net income near breakeven due to weak buyout realizations. The firm's shift toward credit and secondaries is fueling AUM growth, but earnings quality remains fragile, with realized performance revenues depressed and concentrated in volatile funds. Despite the inflow success, pending fee-earning AUM declined 9% year-over-year to $19 billion in Q3 2025, signaling potential near-term fee activation challenges. Thus, while the headline numbers appear strong, underlying execution risks and earnings volatility could impede progress toward the bold 2028 targets.

Implication

The inflow beat and ambitious 2028 goals suggest Carlyle is gaining traction in credit and secondaries, which could support fee growth if sustained. However, the persistent FRE misses and low realized carry indicate that the transition to a more recurring model is incomplete, leaving earnings exposed to market-sensitive exits. At the current stock price around $59, which prices in mid-teens FRE growth, recent underperformance raises valuation concerns, especially with net debt to EBITDA at 4.69x and interest coverage of 1.37x. Key catalysts like the OFAC decision on the Lukoil deal and upcoming quarterly earnings will be critical to assess whether inflows translate into durable, higher-quality earnings. Therefore, investors should maintain a cautious stance, prioritizing proof of execution over optimistic projections, with better entry points likely near $50.

Thesis delta

The news reinforces Carlyle's growth potential in inflows but does not alter the fundamental thesis, as earnings quality and realization risks remain unaddressed. The investment call stays a 'WAIT' with an attractive entry at $50, as the stock still embeds assumptions of steady FRE growth that have been inconsistent. No significant shift is warranted until clear evidence emerges of sustained double-digit FRE growth and improved carry monetization.