Carlyle Group signs advisory agreement to enhance its credit segment

on Apr 1, 2022
  • Carlyle Group and Fortitude Re have signed an advisory agreement
  • Agreement to increase credit segment fee-earnings assets by $50 billion
  • Carlyle is targeting fee-earning assets of $80 billion by 2024

Carlyle Group Inc. (NASDAQ:CG) and reinsurer Fortitude Re have signed a comprehensive advisory agreement expected to considerably increase the assets under management by the private equity firm. The Wall Street Journal reported Carlyle’s agreement with Fortitude.

According to the firms, Carlyle will be paid a recurring premium premised on all of the reinsurer’s assets for aiding Fortitude Re with acquisitions and expansion opportunities.

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Agreement to increase credit segment fee-earnings assets by $50 billion

With the new agreement taking effect on Friday, April 1, 2022, Carlyle anticipates its fee-earning assets in the credit segment to increase by almost $50 billion, with annualized fee-associated earnings rising by $50 million. In addition, Carlyle managed to raise $2.1 billion from Fortitude’s current investors, and it will contribute around $150 million from its balance sheet to the total.

According to WSJ, In 2018, Carlyle acquired a 19.9% ownership in Fortitude, a company formed to reinsure American International Group Inc.’s legacy liabilities. Also, in 2019, the company announced that it would partner with Japan’s T&D Holdings Inc. to acquire a majority interest in the Bermudian reinsurer.

Carlyle Insurance Solutions’ head Brian Schreiber said:

This new injection of equity should position us to roughly double the size of Fortitude’s balance sheet.

Carlyle’s lending business had $52 billion in fee-related earning assets at the end of 2021, and the company earned $598 million in service charge earnings for the year. This move is the latest iteration of how the largest investment firms are shifting to the insurance industry for permanent capital that can generate consistent fees and does not need to be replenished regularly.

Carlyle is targeting fee-earning assets of $80 billion by 2024

There are a considerable number of Carlyle products that Fortitude has invested in. the new deal advances Carlyle’s goals set in 2020 by its CEO Kewsong Lee of doubling the credit segment’s fee-associated earnings and enhancing its credit assets globally to over $80 billion by 2024. Interestingly the fee Carlyle will receive is based on the overall profitability of the reinsurer.

Carlyle’s Head of Global Credit, Mark Jenkins, commented:

We had to have a fee structure that’s really tied to the performance of Fortitude. That creates a virtuous circle because ultimately we’re incentivized to grow in a way that benefits our investors.

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