(By Balaseshan) Deutsche Bank analyst Michael Carrier initiated coverage of Carlyle Group LP (NASDAQ:CG), a global alternative asset management firm, with a "Hold" rating and $22 price target.
CG is a leading global alternative asset manager, and is well positioned to generate healthy growth, returns, and distributions over time given its diversified business model, attractive growth opportunities, and some favorable industry trends. That said, given environmental headwinds, some performance bumps, and valuation, Carrier sees limited upside at this time.
Carlyle is more diversified than most peers across products (including private equity, real assets, credit, hedge funds, and fund of funds - though some segments are still small contributors), is a leader in fundraising, and has strong overall investment performance.
Given the diversification of Carlyle's funds and the timing of the cycle, Carrier expects the firm to be active in both distributions (which should aid a healthy core yield of about 3% and estimated total yield of about 7%-10%) and fundraising (5%-10% organic growth per year).
The analyst said Carlyle has multiple growth opportunities, including a cyclical ramp up in successor fundraising, new fund opportunities, new distribution opportunities, and additional strategic acquisitions.
In addition, CG is well positioned to benefit from structural industry trends, including rising institutional allocations to alternatives and the consolidation of managers by clients.
The primary risk for CG and the industry is a weakening macro/capital markets backdrop, which can weigh on distributions, returns, and growth. In addition, CG faces some industry risks (a still sluggish fundraising environment, lower returns, and volatile earnings), tax/reg risks (carried interest, etc.), unique structure risk (futures sales), some performance bumps, and expansion risk.
CG is trading up 1.77% at $21.80 on Tuesday.