Good day, ladies and gentlemen, and welcome to the Carlyle Group's Second Quarter 2012 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. Daniel Harris. Sir, you may begin.

Thank you. Good morning, and welcome to Carlyle's Second Quarter 2012 Earnings Call. My name is Dan Harris, and I'm the Head of Public Market Investor Relations at Carlyle. With me on the call today are our Co-Chief Executive Officers, Bill Conway and David Rubenstein; and our Chief Financial Officer, Adena Friedman. If you've not received or seen the earnings release, which we published this morning detailing our second quarter results, it's available on the Investor Relations portion of our website or on Form 8-K filed with the Securities and Exchange Commission. Following our prepared remarks, we will hold a question-and-answer session for analysts and institutional unitholders. This call is being webcast, and a replay will be available on our website immediately following the conclusion of today's call. We closed our initial public offering on May 8. Including in our results are both GAAP, as well as pro forma results, which assume we had been a public entity during the second quarter, which concluded on June 30. We will refer to certain non-GAAP financial measures in today's remarks, including Distributable Earnings, economic net income and fee-related earnings. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Reconciliation of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are included in our earnings release. Please note that any forward-looking statements provided 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 that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our registration statement on Form S-1 filed with the SEC and available on our website. Such factors may be updated from time to time in our SEC filings. Carlyle assumes no obligation to update forward-looking statements. With that, let me turn it over to our Co-Chief Executive Officer, David Rubenstein.

Good morning, and thank you for joining Carlyle's Second Quarter 2012 Public Earnings Call. The second quarter was marked by significant moves in capital markets, uncertainty in Europe and signs of slowing growth in key markets around the world. Yet even with that choppiness, we continue to produce results for our investors. And since the quarter ended, we have announced a number of investments and realizations, which will benefit our fund investors and our unitholders. As we will discuss with you, our portfolio, our funds and the firm itself are in very good shape. Throughout this call, as we have done and will continue to do, we will focus on the underlining activity metrics that drive Distributable Earnings, which we view as one of the most important metrics to evaluate the strength of our business. It is how we have always managed our business and is the key driver of the distributions that you as our unitholders will benefit from going forward. You will also continuously hear from us that we focus on a long-term outlook for our business. Most of our carry funds have 10-year terms. Our corporate and real estate investments generally range from 3 to 7 years. We don't plan by the quarter, and we have only limited control over whether a deal or a fund commitment is signed just before or just after a quarter ends. With that caveat, our fund-raising this quarter was strong. Realizations were solid. Valuations were slightly down, and our investment teams were exceptionally busy finding good investments, many of which we announced during the quarter and several of which have been announced since the quarter ended. We are quite pleased with the second quarter results, especially in light of global macroeconomic events. And we are cautiously optimistic about the second half…

Thank you, David. To begin, I'd like to quickly convey a few important points about our business. We are not index investors. We are not trying to beat the S&P 500. Furthermore, we're not short term investors in our carry funds. We are, however, focused on delivering high, absolute and risk-adjusted returns over a sustained period of time. And while the short-term outlook is cloudy, I'd argue that we've historically made some of our best investments during times like these. One of the key differentiators of Carlyle is the size of our portfolio. We aggregate and analyze data from over 200 portfolio companies across the globe. This data provides valuable insight into what's happening into our economy. Sometimes this insight supports official data; sometimes, it contradicts it. We've learned to trust our data. In the United States, we saw real weakness during the second quarter. Household spending in particular weakened substantially relative to the first quarter, and business spending remained weak, particularly relative to cash positions. This was offset somewhat by a residential investment spending, which grew rapidly and continues to be a net contributor to growth, a notable change from the previous 4 years. In spite of this weakness, we continue to believe that the U.S. economy is likely to grow faster over the medium term than it did in the second quarter. But we are watching very closely to see how our data evolves. Our data also suggests that the Eurozone contracted at the fastest rate since 2009 in the second quarter and that the Japanese economy appears to be roughly flat after a strong start to the year. As a whole, developing countries continue to grow more rapidly than developed countries, although growth is much slower than last year. This slower growth has not come as a…

Thank you, Bill. For the quarter on a pro forma basis, taking into consideration changes related to our IPO, Carlyle generated $117 million in Distributable Earnings or $0.32 per unit in after-tax Distributable Earnings, and an economic net loss of $59 million or $0.19 per unit after tax. As said earlier, Carlyle declared a prorated quarterly distribution per unit of $0.11 based on the timing of our IPO in May. Our pro forma Distributable Earnings per common unit of $0.32 as compared to our quarterly distribution starts to build the foundation for our year-end trip distribution. Generally, our distribution to unitholders under our distribution policy will be determined based on earnings that we achieve as a public company. However, if we were to apply the policy for the full year to date on a pro forma basis with the year-to-date pro forma Distributable Earnings of $0.89 per unit, under our current distribution policy, we would have expected to distribute $0.32 per unit over the first 2 quarters. Therefore, our pro forma Distributable Earnings are well outpacing our pro forma quarterly distributions thus far in 2012. Comparing our results to prior periods and not including the pro forma adjustments, we posted pretax Distributable Earnings of $115 million compared to $89 million in the second quarter of 2011. Carlyle's second quarter economic net loss of $57 million compares to income of $237 million in the second quarter of 2011. The negative comparison is largely attributable to portfolio declines driving negative unrealized performance fees. On the last 12 months basis, Distributable Earnings of $785 million are up 38% compared to the prior 12-month period, while ENI of $398 million is lower versus the prior year period of $1.6 billion. I would like to give an example of how our ENI differs substantially from…

Once again, I would like to reiterate that we feel very good about where our business and portfolio currently stands, as well as the pace of activity that we've seen year to date. We appreciate all of you listening to this call, and we would like to now turn it back to the operator to begin the question-and-answer process.

[Operator Instructions] Our first question is from Howard Chen with Crédit Suisse.

David, you provided a lot of helpful commentary in the fund-raising front. But just given how active firm has been on fund-raising, I was hoping you could share maybe what you're hearing from clients that's perhaps new and different than a year ago. And just given the 0 interest rate environment and the weak return of other asset classes like equities that you noted, have return expectations by your LPs evolved in any way in something like a more traditional U.S. buyout strategy?

Okay. On the first part of your question, I believe that fund-raising has picked up a little bit. But it's picked up a little bit because of the change in the mix of fund-raising people who are investing. In other words, it used to be that public pension funds were, by far, the biggest source of capital for people like us and the comparable firms. While today, they are still significant, we are seeing much more money coming in from sovereign wealth funds and much more money from the so-called feeder funds where large financial organizations or private wealth managers round up investors and then package them up into one partnership and then they invest with us. So I would say that clearly, the world is different than it was in 2007. In 2007, we raised $30 billion that 1 year. That was a record, probably, for any private equity firm in any 1 year in terms of money raised. It's difficult for anybody, probably, to get back to 2007 levels for another year or so or maybe beyond that. But I'd say that nobody is saying to us, "You know what, I really don't like private equity," or, "You know what, I really think that you guys don't produce the kind of returns that I expect." So now drifting into the second part of your question, I think investors are interested in private equity. And it's a different mix of people coming in because they still think that with everything else going on in the world, private equity, through thick and thin times, through good and bad times, does yield pretty good rates of return. Now I think their expectations are lower. I think in the heyday of private equity, perhaps in the '80s or '90s, when there was maybe less competition, when other factors in GDP growth were greater, people expected, probably, to get 20% net internal rates of return or higher. Now I think that investors are quite happy with net internal rates of return in the high to mid-teens, actually, from some of these kinds of investments because the alternatives are so much less attractive. When the interest rates are essentially at 0, if you can get a 15%, 16%, 17% net internal rate of return, while that won't seem attractive compared to what it was 10 years ago in terms of rates of return for private equity, is still very attractive. So yes, investors are slower to make decisions. There are -- there's a change in the mix of who the investors are. But still, I think there is an appetite for it. And return expectations are probably somewhat lower, and I think they probably should be somewhat lower. I don't know if that answers your question but...

It does. That's very helpful. And switching gears, Bill, you gave a lot of helpful details on the pace of deployment. We can certainly see that acceleration during and after the quarter. But it sounds like you have fairly broad conservative growth expectations for the overall global economy. So what's changed in the environment that's finally getting these deals over the finish line?

Well, I think a couple of things, Howard. First of all, we're fortunate that we've got more than 500 investment professionals all over the world trying to find good deals to do. And so things could be good or bad in one particular market or another, but it doesn't mean that a global platform isn't trying to work together to make deals happen somewhere. So I think that's a big factor. The second thing I'd say is that whether a deal closes on July 5 or June 25 makes big difference to the accountants, but it isn't actually making that big a difference to the investment professionals. Many of these deals that we closed, and particularly the 6, let's say, that I mentioned in my remarks that closed in -- that we've already announced in July, we've been working on those deals, some of them for more than a year, and it happened to close now. So I wouldn't say there was anything particular in the environment that changed in the last little time that made deals more likely or less likely to close. I think it's the pace of 500 people around the world trying to find good deals to do. But I might also say that as I look at, let's say, our U.S. buyout fund that's been particularly active in the recent times, that fund typically, it's got a 5-year investment period. And what typically happens, you invest between 20% and 25% of the fund each year on average. But of course, the years aren't average and nor are the months of the quarters average. And I'd say that the recent activity roughly puts Carlyle Partners V on that same pace as one would expect it to be.

That makes a lot of sense. And just finally for me, with respect to the exit environment, we've seen Carlyle very active on strategic sales, public offerings and dividend announcements. But just going forward, could you just provide a little bit more flavor for your thoughts on the mindset of a strategic buyer versus a potential exit in terms of coming to the market or announcing a dividend?

Sure. I think that first of all, some of these exits, one has to understand that when you have a portfolio the size of ours and you have the -- some of the size of the stock positions, be it on a Dunkin' or a Kinder Morgan or a SS&C and China Pacific Life, the size of our position is so big that sometimes it takes 3, 4, 5 block sales to exit the position. As an aside, I might also say that the recent SEC rules make for the frequent issuers' block sales much easier than they used to be. They can typically be done in 24 or 48 hours. So we've had a strategy of trying to get the portfolio of companies public so that then we can time our block sales when we think that the market is attractive. Remember, any time you do a block sale, then you've got to usually wait 3 months or 6 months before you can do another sale because you're locked up. In terms of strategic buyers versus financial buyers, I think it's somewhat surprising to me that given the cash on the balance sheet of the strategic buyers and the fact that we are in kind of a 0 interest rate environment generally, it's stunning to me that these corporates are not really far more competitive in buying assets because I think that the strategic buyers are -- maybe they've returned a little more than they were a year or 2 ago, but they're not nearly as active as one would think given low interest rates and the size of their cash piles.

Our next question is from Bill Katz with Citigroup.

Can you just help me reconcile between -- on the cover and your AUM roll-forward, the difference between 3.9 of commitments versus the 2.7 in the roll-forward? And then the bigger question, just as you look at the opportunity for sort of better environment to the second half of this year, just sort of curious where geographically or where by business segment you see the best lift?

Sure. On the AUM roll-forward -- I just need to pull it up really quickly, Bill. I think that the $2.6 billion in commitments versus the $3.9 billion raised is purely probably an issue of timing in terms of the fact that it could be that we run it in the door but it may not have kind of been raised right at that moment. And also, there's also the 600 -- you also have to include the $659 million in the net subscriptions. And generally, there's more than that in total subscriptions that's net subscription, net of net redemption. So you've got kind of a combination of probably a little bit more in total subscriptions there plus maybe a little bit of timing in terms of the June 31 -- I mean, June 30 number versus what has been coming in the door and booked in terms of the funds raised.

And Bill, in terms of the investment opportunities and where we think they exist, partly it's a function of where Carlyle's strengths are and partly it's a function of where the investment opportunities are. I would say that we've been pretty active in Brazil. We have a good team there. And we like the investment environment in Brazil. I think the United States is in very good shape as well, certainly versus the rest of the world. And obviously, with very low energy prices and the relative strength of the dollar, I think the U.S. economy's in a -- and the U.S. investment environment, let me say, is a pretty good investment environment.

Just a follow-up question maybe, David. You mentioned allocations are continuing to move up for alternative managers. Sort of where are you seeing that growth or opportunity coming from?

Well, first of all, we see it around the world. As you probably know, we have about 65 people in our fund-raising group, so we do cover most of the world. And I just got back from, for example, from Australia and New Zealand where there's a lot of interest in alternatives there. They have relatively small economies there compared to the rest of the world, so they invest a lot of money outside of Australia, and they're interested in alternatives. I'd say China has a fair amount of money to invest in private equity. The sovereign wealth funds there have a fair amount of cash. We're seeing a pickup in investment activity from Japan. In Brazil, Chile, Colombia, Peru, the pension funds there now have the right to invest in private equity outside of those countries, which they didn't really have up until relatively recently. So now those groups are becoming more active in investing in private equity abroad. In the Middle East, there's a fair amount of cash. There's no doubt that in GCC countries, Saudi Arabia, Turkey -- I'm sorry, Saudi Arabia, Kuwait, U.A.E., Qatar, there's a fair amount of cash. So we're seeing money coming from there. And despite everything you hear about Europe being on its back economically and the GDP there is obviously a negative in many of those countries, there is money from the pension funds in those countries. The Netherlands pension funds, a fair amount of money in Switzerland and the other European countries. We also see some money from the U.K. institutions. So I wouldn't say any one area -- and I shouldn't exclude Scandinavia because their pension funds have a fair amount of money as well. I wouldn't say it's any one area, but I would say probably as a percentage for our fund-raising, higher percentages now coming from outside the United States than probably 5 years ago, maybe even 3 years ago. I would say historically, we've got probably 2/3 of our money from the United States, 1/3 outside. Now I suspect it's probably 50-50, something like that, and probably trending more towards foreign capital.

Our next question is from Ken Worthington with JPMorgan.

Continuing the theme for David, you mentioned in the prepared remarks that you're seeing indications of improvement in the fund-raising environment. I think you attributed it to the public pension plans. Are you seeing signs of improvement from the other investment segments as well? And is there any reason or anything that you've seen in the past to indicate that when the public pension plans start to move, they're lead indicators for the other customer segments? Or is it really just the pensions are they're very idiosyncratic reasons why they are improving right now?

Well, public pension funds -- and you thought those remarks were prepared. You didn't think I was doing that off the top of my head. Public pension funds have what I'll call it a denominator problem. Because many of them were at their full allocation levels for a while, let's suppose CalPERS has a 14% allocation for private equity. When CalPERS had $260 billion in assets and they're 14% already fully allocated, when their overall assets went from $260 billion down to $160 billion, now they're probably $230 billion, they were over their allocation limit, and therefore, couldn't commit additional monies. And they did not increase their allocations. So now that the overall amount of the money managed by these public pension funds is coming up through the force of the market getting back to somewhere closer to where it was before the bubble burst, they are now either below their allocation limits. In some cases, some places are increasing their allocations because they believe their private equity is better than other things are doing. So as they are now increasing their commitments because they're now below allocation limits or they're increasing allocation limits, it's giving us more capital from those sources. I'd say it's a -- I haven't done a correlation study to see when public pension funds are increasing by X percent, whether that means that other investors are increasing as well. But generally, I think there's a sense now that we see the postrecession era. It's an era of lower growth. It's an era where there's going to be higher growth in the emerging markets and lower growth in developed markets. There's a stabilization in terms of what people feel their net worth is or what their value of the assets they own are. And therefore, the people are beginning to put money to work more than they were before. I also think that it's my observation that after the U.S. elections, people will have a greater sense of where the economy might be. And therefore, you might see some freeing up no matter who wins the election, just uncertainty about who the next leader is going to be and what administration will do might produce some more money coming into the market because people now have a sense of where the government's going to be the next 4 years. So generally, I'd say public pension funds, when they invest more, they might have some impact to others. But generally, they're a little, I suspect, uncorrelated just few unique factors that public pension funds have.

And maybe for Adena, can you update us where you're standing on the new energy investment capability to replace Riverstone? You said in your either prepared or off-the-cuff remarks about evaluating options, but is there forward momentum here? And as we think about when you might reach a solution, might it be in the next year? Or would you expect it to be a longer-term development?

Let me address -- this is David. Let me address that. And obviously, Bill and Adena can add to it. First, I just want to remind everybody that we are realizing a fair amount of money from our existing energy platform. Riverstone has done quite well. And those funds are ones that we co-manage in most cases. Secondly, we do have an Energy Mezzanine fund that's doing quite well right now. And we're quite happy with that, and that is investing in energy. And as you may have seen, our equity opportunities fund married up with our Energy Mezzanine fund to do the Sunoco deal, which is an energy-related deal. So we have capabilities in our equity opportunities fund, and our large buyout fund capabilities are still present in energy. We did the Kinder Morgan deal through that. We do -- though would like to have something, maybe, that's the locus of our energy efforts, and we have been working on that for quite some time. We just don't have anything ready to announce yet, and I just don't want to give a timetable. But it's something that we are focused on for sure. Bill?

And you are making positive -- there is positive forward momentum here in that regard?

Well, I'm always nervous about saying anything that somebody will misinterpret, but I am optimistic that we will come to a solution that everybody in our firm will be happy with and I think our investors will be happy with. And I just don't want to be more specific than that because I don't want to get in trouble. Bill, do you want to...

David, I don't want to get in trouble either.

Our next question is from Matt Kelley with Morgan Stanley.

I wanted to touch on a little bit different of you're LP segments. On the high net worth segment, what sort of traction have you guys seen there? How much of your recent allocations have come from them? And what solutions are they looking for?

On high net worth investors, what they are, I think, really focused on is just getting a better return than they think they can get in their cash accounts in the banks or in the public market related investment funds or in fixed income funds. And clearly, even non-top quartile private equity funds will probably be attractive to many of these investors, top quartile funds even more so. The thing that's surprising -- not surprising but that's different than what I saw years ago, and we all saw years ago, is this. A few years ago, let's say 3 or 4 years ago, we might have 3 or 4 so-called feeder funds under negotiation either in the market or being negotiated with various people who do that. Now we probably have about 23 or 24 either in negotiation or in the marketplace. And that's a quantum leap, and I think it's probably true of our competitors as well. All of us are seeing high net worth individuals who were frustrated that they aren't getting the kind of returns they want otherwise from their other investments. And when I talk about the high net worth individuals, let me put it into 3 categories. There are some people who are wealthy enough to invest $5 million or $10 million or more. They can come directly in their funds. Those are obviously people probably have net worth of $100 million or more. People with net worth of less than that might feel comfortable putting anywhere from $0.5 million to $2 million, $3 million in a feeder fund. That's where enormous growth in activity. But we're also seeing what is called the mass affluent market where people might have a net worth -- these are accredited investors but might have a net worth of $10 million or $20 million, and they feel comfortable putting $100,000 in or something like that. And we're seeing money from investors like that coming into the market. There are certain vehicles that capture the mass affluent market. Our main focus of late has been the people that are putting, I'd say, $0.5 million to $1 million, $2 million in the feeder funds. But the mass affluent market is something we are focused on as well, and you'll see more activity there from people like us in the future.

Okay. One quick follow-up on that. Can you describe how much effort it takes for you to raise funds from the various buckets of this segment you just laid out versus a traditional U.S. public pension, for example?

Well, on the old days, it was a little easier to raise the money from the public pension funds because I think they, maybe, had more money to allocate or the system worked differently or whatever. I would say a lot of my gray hair has come from working with public pension funds in recent years. But there's no doubt that putting together a high net worth feeder fund has pluses and minuses. With a public pension fund, you make a presentation, and typically 2 or 3 of them, you might make a presentation to a board. But once you've done 2 or 3 or 4 presentations and they go forward, it's done and then you have quarterly calls and other kinds of things that keep them informed. With the feeder funds, it does take time to get it done because they typically -- the feeder fund organizations typically ask us to actually make the presentations. They make some, but we have to go on the road to do them. So a large feeder fund might involve people in our organization making 20 or 30 presentations. So it takes a fair amount of time. But typically, once you have the feeder fund done, I'd say the post-closing of it probably entails less, I won't say handholding, but less feedback, perhaps, to some extent because you get fewer questions, probably, from the sponsor of it than you might from the public pension funds. But on the whole, I can't say which is easier or which is harder to do. I'd say nothing is easy these days.

Okay. And then one final one for me, if I may. Just on your platform build-out, curious on what's your current view on funded hedge funds and also curious to see how many opportunities you've already seen in the market and if any of them have been very attractive or you're just waiting for the right one to come along.

Well, on fund of hedge funds, I don't know that we can really say anything there that's going to be productive for anybody. I would just say that we're very pleased that we have a private equity Fund of Funds, and we are familiar with what's in the market. But beyond that, again, I think I'd best not comment.

David, I think I would add that, of course, we've been extremely pleased with the our existing hedge funds as opposed to the fund of hedge funds, both Claren Road and Emerging Sovereign Group.

Our next question is from Jacob Troutman with KBW.

My first question relates to the deal environment and the competitive landscape. So it seems like you and a lot of your other large competitors are out in the market, raising their next vintage North American PE fund. I was wondering if you can just talk a little bit about maybe what you see the competition in sourcing new North American PE deals in this cycle.

David, let me take that one, I think. In terms of the deal environment, and let's call it, its impact, if any, on the next vintage fund and the fund-raising and the like, the -- I would say we would never do a deal just because we're coming to the end of a fund. It's just the world doesn't work that way. Our reputation is such that if we say we're try and find -- we don't get paid to do deals. We get paid to do good deals. And so I don't think that there's an impact in terms of people feeling the need to put money to work. Carlyle Partners V runs through May of 2013, and then each of these funds has an extension period after that date. I think it's either 6 or 12 months in the case of Carlyle Partners V that would say if you're working on a deal prior to May of 2013, you can still use Carlyle Partners V to close into that fund. In terms of the deal environment, in many ways, the deal environment is actually pretty good now. In one way, as I mentioned before, I've been surprised that the strategics, the corporate buyers, are not nearly as active as I thought they would be. And so they're a little less active in the market. Secondly, I'd say that although financing is not as easy as it was in 2008, the financing markets are really extremely attractive as well because although spreads have gone up, rates have gone down so much that financing is extremely attractive for the deals that we do. I'd say the multiples of debt available aren't as high as they were at the peak, but they're still plenty satisfactory for us. I think in terms…

Yes. And maybe one follow-up, maybe, for Adena. Just on the Energy Fund that was moving out of its investment period and the corresponding drop in the fee-paying AUM, that's just because the fund is now paying on fees on the remaining costs, is that right?

That's right. So it went from charging fees on the committed capital versus charging fees on the invested capital at cost, and that occurred -- essentially had an impact on the second quarter and will have an impact going forward.

Are there any other funds that we should be aware of that besides CP VI coming on in mid-2013 that might cross over from paying on a committed capital to remaining cost?

There are additional funds that will -- we have a lot of carry funds. So our carry funds -- as we start the fund-raising effort for a new fund, it usually means that the predecessor fund is nearing the end of its investment period. So as we said that with CP V and CP VI, you've got CP V as an investment period through sometime in the middle of next year, and then CP VI will take on into the -- its commitment period and will turn the fees on. And the same would go for other funds that were in the market floor. So CAP IV -- CAP III will come out of its investment period as we close on the commitment and start to charge fees -- I'm sorry CAP III will come out as we start to charge fees on CAP IV. So that happens as we are in an active fund-raising period, generally.

Our next question is from Marc Irizarry with Goldman Sachs.

Just want to go back to the platform build-out and your appetite in Real Assets for taking a general partner stake in an entity versus lifting in a team or maybe looking at a whole business and maybe carving out an energy platform from that. Could you just give some perspective on how you're thinking about further building out the other real estate -- the Real Asset platform relative to taking a GP stake versus sort of buying the whole group?

Well, first, on the Real Assets, we have 3 parts of that. We have real estate. We have our U.S., European, Asian funds. We have our infrastructure fund. And we have energy. In terms of energy, we have looked at many different things. There's nothing that is conceivable that could be looked at that we haven't looked at. As a general proposition, I'd say we probably like things to be part of Carlyle rather than be not part of Carlyle. But beyond that, I don't know there's anything I can say that's not going to either mislead somebody or get expectations ahead of where they should be. So I don't know that I can comment on that and give you anything that you really want. I'm not sure you expect that I could. But Bill, do you have more to say on that?

No.

But it's a good try.

Okay. Let me ask this one then. Just on fund-raising, David, the pace of distributions. What impact, if at all, when you're out there raising funds, does the distribution environment have on sort of the LPs' appetite to commit near term? So like if we enter slower pace of harvesting, is it safe to expect the fund raiser could slow down in LP as well?

Well, remember, if you are raising a successor fund from which -- and you're then talking to investors who are in the predecessor fund and you're giving money back, obviously you give their money back to them. They will give you money back. Sometimes you're raising initial funds, so there's no money coming back. Or sometimes you're raising money from people who were not in the predecessor fund. So in those cases, people are happy to see distributions coming back, but it doesn't have quite the effect of giving distributions back to the very person you're asking money from. But overall, the common sense view that giving money back is helpful to fund-raising is probably accurate. I think not giving money back is probably not as helpful. But I don't really think that we, in raising funds, prematurely sell something or do something that's going to get a distribution back on the hope that will help our fund-raising. They're just completely unrelated activities. And just fund-raising just goes on its own, and people either come into the fund or don't because they expect that they will, in the new fund, get good returns and good distribution and not because they've just been given some money back.

David, I might just add that, Marc, it's interesting to me that I think people probably look at our business and say what they wanted do is buy low and sell high. And so the time when we're making new investments is going to be very different from the time that we're making a lot of distributions. I think that's logical. It just isn't the way it works. Many times where we're doing -- it seems that the pace of distribution activity and the pace of investment activity are actually pretty closely correlated as opposed to exactly uncorrelated.

Great. And then can you just give us a little color on European LPs, in particular, I guess, the flows in the Fund of Funds business? Are you seeing sort of a tightening up in Europe in terms of allocations from LPs in Europe?

I would say LPs in Europe have been investing outside of Europe for a very, very long time. American LPs probably spend more of their money in the U.S. than European LPs spend their money in Europe. And therefore, when you're raising money from European LPs, they have a long history of investing outside of Europe, and they have a fair amount of money there. They have, in Europe, as many of you know, something we don't really quite have in the United States. They have pension systems that actually have money in them in some sense. So for example, they have a social security system in the Netherlands, which is largely fully funded. We have our social security system in this country that's unfunded. It's pay as you go. So they have a fair amount of large public pension funds that are in pretty good shape, and they tend to invest a large amount of that outside of Europe. So the fact that Europe isn't doing that well in terms of GDP doesn't that much affect their willingness to invest outside of Europe. They recognize they probably should. So I'd say we find Europe to be fairly fertile as a place to invest. That would be counter to what you might expect, but the pension funds seem to operate somewhat independently of the GDP in some of these countries.

Our next question is from Glenn Schorr with Nomura.

Just curious on -- you've been putting a lot of money to work. Curious about the availability of financing and what kind of terms you're seeing relative to last couple of years.

Bill?

Okay. I would say, first of all, there has generally been -- money has generally been available. I think Europe is tougher to raise debt financing than is America. And in fact, I think you'll begin to see, and you've already begun to see, a lot of European companies raising money in America so they can create some kind of nexus for that. I would say though that generally that the multiples, maybe, are down one turn from the peak of what they might have been in 2008. I would say that spreads are up from what they were in 2008. In 2008, many deals were done at, say, an average of 250 over LIBOR. And today, the spreads tend to be higher than that. But remember, LIBOR has gone from 3% or thereabouts. I don't -- without saying specific date there, down to about 0, so that the actual rate being paid hasn't really moved very much. In our business, frankly, if a deal were sort of 6 percentage rate and it doesn't work at a 7 percentage rate, it's probably not a deal worth doing. I think one thing that has happened is that -- and it hasn't yet affected the rates that much, but there's less competition today than they used to be. Five years ago, if you wanted to raise $1 billion of financing, there would be 10 or 20 people raising their hands saying, "I'll take it all." Now that number is more than cut in half, and people generally, they want a partner if it's going to be $1 billion. It's just that there's less competition, and it's natural, I think, that there's less competition. In Europe, we find when we do a transaction there frequently, we have to put together the bank syndicate ourselves. And we did one financing Europe and we needed EUR 200 million of financing. I think we put together a syndicate that gives us 7 or 8 European banks at EUR 25 million apiece. So Europe is tougher to raise the financing than in America. But in America, it's reasonably available and it's reasonably priced.

So I'm very much on the same page as you at the lower competition. So what's interesting is that in not the greatest environment, multiples only down one turn from the peak. Is that a function of just the ton of cash on the sidelines?

Well, there is a lot of cash on the sidelines. I think it's interesting if you look a lot of the banking systems around the world other than the European banking system. But in the U.S. banking system and the Japanese banking system, the loan-to-deposit ratio is way down from what it was at one time. And so people are just like everybody else, seeking yield, somebody says, "Well, gee, if I can finance a Carlyle buyout." They're going to put a ton of equity underneath me, and generally they know what they're doing. I'm willing to finance that at 5x or 6x multiple, and I will -- I'm going to earn LIBOR plus 400 or whatever it might be. I think that, that's reasonably attractive for them to do when the alternative is sitting on the cash and earning LIBOR, which is about 0.

Okay. That makes sense. When you spoke about the money that you've put to work recently, I didn't hear the name of an asset manager that you've been courting lately. I guess the question is, is that for the fund financial fund? Or is that to be part of the Carlyle Group? And have you considered Asset Management division as part of the Carlyle Group?

I'd say that first of all, we can't comment on any particular transaction. There are 2 reasons for that. One is we don't do it generally. And secondly is that in any situation, there's always -- they're confidentiality agreements that you've signed and you are bound by. So we couldn't comment on any particular situation including that rumored situation that you didn't name.

That may be just a different tack. For the future of the Carlyle Group, could you envision Asset Management being another business line, meaning more traditional asset manager?

Well, we like to be an alternative asset manager. We are one of the largest in that, and we think we have a major role in the alternative asset management business around the world. Nobody can predict 5 or 10 years down the road, maybe even a few years down the road. But right now, we would like to be in the alternative asset management business. That's our business. We know it well. We've been in it for 25 years, and we're are a leader in it. And so I think that, that's the thing that we most focus on, alternative asset management.

Before we go to the next caller, I just want to make sure I circle back on Bill Katz's question on AUM just to make sure that we give you an accurate answer. Bill, on that, you have to take into consideration the commitments into the carry funds, which is in the commitments line, the net subscriptions. And it is -- we do show that net. So the fund-raising numbers of $3.9 million is including the net subscriptions of the hedge funds. But you also have to incorporate the CLOs, the $510 million we raised in CLO for the quarter. So those things combined give you what you're looking for in total.

I show no further questions at this time.

Well, I want to thank everybody for participating and asking very good questions and were very clever trying to get us to say things that we probably shouldn't say. But I think we did a good job in not saying things we weren't supposed to say. But I appreciate everybody's interest, and obviously, you're very familiar with the company. So we appreciate the work you've done and in getting to know the company. And if you have additional questions beyond this, obviously Dan or Adena can address them. Thank you all very much for participating.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.