The Carlyle Group Inc. (CG) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Carlyle Group Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.[Operator Instructions] I would now like to introduce your host for today's conference Mr. Daniel Harris. You may begin.

Thank you, Kevin. Good morning, and welcome to Carlyle's fourth quarter and full year 2014 earnings call. With me on the call today are our Co-Chief Executive Officers, Bill Conway and David Rubenstein; and our Chief Financial Officer, Curt Buser. Earlier this morning, we issued a press release and detailed earnings presentation with our fourth quarter and full year results, a copy of which is available on the Investor Relations portion of our website. Following our remarks, we will hold a question-and-answer session for analysts and institutional investors. [Operator Instructions] Please contact Investor Relations following this call with additional questions. 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 reconciliations of these measures to GAAP in our earnings release. 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 this time. With that, let me turn it over to our co-Chief Executive Officer, David Rubenstein.

Thank you, Dan. 2014 was our best year as a public company as measured by many of the metrics we regard as meaningful signs of our financial performance. As a public company we've always regarded distributable earnings as the most important metric. So we are pleased that last year Carlyle generated a highest level of distributable earnings since being public. $973 million in pretax distributable earnings, up 16% over 2013, and $2.78 in post tax in DE per unit, up 11% over 2013. The unit holders of record on February 23, they will receive $1.61 in distribution per unit on March 6. For a full year, distribution of $2.09, up 11% over the 2013 level. On a full year basis this equates to nearly an 8% yield based on the unit price at close of business yesterday. We are also pleased with the number of additional accomplishments in 2014. We raised $24.2 billion during the year, up from $22 billion last year and $14 billion in 2012. Most of our largest private equity funds are now fully reloaded and deploying capital. Our carry fund portfolio appreciated by 15% for the year. We realized proceeds of $19.7 billion for the year, up 13% from $17.4 billion in 2013. We invested $9.8 billion, up from $8.2 billion in the previous year. With those investments, we finished the year with $63 billion of remaining fair value in our carry funds. We generated total realized performance fees of $1.3 billion and even with that level of realizations finished the year with gross accrued carry of $3.8 billion and net accrued carry of $1.8 billion. We ended the year with $194.5 billion in AUM, up 3% from 2013 yearend number and our highest yearend AUM level. Pretax ENI for 2014 was $962 million. And while that level is down from $1.3 billion in 2013, the 2013 number reflected the impact of two large buyout funds costing into carry at the very end of that year. Turning to the fourth quarter of 2014, we produced $311 million in pretax distributable earnings. Our ability to produce such attractive levels of distributable earnings for the quarter and for the year highlights in our view the strength and stability of our diversified platform, as well as the extraordinary economic engine that is our corporate private equity business. For the quarter, we raised $4.8 billion, $2.7 billion of which was for our corporate private equity business. During the quarter, we also invested $1.6 billion and realized proceeds for our fund investors of $5.6 billion. So in addition to a strong financial year we also had a strong financial quarter. On fundraising. A general comment first. It is clear that many of largest institutional investors in the world have seen substantial increases in their assets in recent years. One result is that they have decided to deploy increasingly larger amounts in alternative investment areas. And in particular with global alternative asset management firms seen by them as having the ability and the scale to invest these larger amounts prudently and attractively. Carlyle is clearly a beneficiary of this trend and that was evident to us in 2014 even more so than prior years. On specific funds, over the course of 2014 we closed our fourth Asian buyout fund at $3.9 billion in early January 2015 NGP close its 11th fund at $5.3 billion. We also all but officially closed our first international energy fund. Its final close is likely to occur in the near future and the fund is then expected to be at the cap level of $2.5 billion. Also during 2014, we made meaningful progress towards closing our fourth European buyout fund, our third European technology fund, our third Japanese buyout fund, our seventh US real estate fund and our second US power fund. Last year we also initiated and expect to see meaningful progress in 2015 on our second mid market US buyout fund, our second energy mezzanine fund and our first Asia structure credit fund. Both of these second funds seem likely to achieve their stated target levels in a relatively short timeframe for private equity funds. For the year $7.6 billion of the fund raised were in our corporate private equity business and over the past two years that number for corporate private equity is $19.4 billion. Let me also mention that we raised $9.2 billion of real asset last year, the highest level for this segment in our history. Finally on fundraising. In 2014, we also raised $4.9 billion in eight new CLOs and added to the size of our BDC which now has $1.3 billion in committed equity. Before turning the call over to Bill, let me address two subjects about which we often asked. The first relates to our energy exposure. Carlyle was early investor energy to our affiliation with Riverstone which we helped to create in 2000. We continue to believe that energy is one of the great global investment sectors, perhaps the best in terms of size and breadth in the world. For that reason when we amicably ended our arrangement with Riverstone, retaining some passive interest in its funds, we decided to rebuild our energy investment business in ways which would provide us with an array of discrete, specialized energy focused fund and with far greater economics than we had with the Riverstone affiliation. The result is that we now have four dedicated energy vehicles, NGP, International Energy, Energy Mezzanine and Power which collectively have approximately $9 billion of current dry powder. And we expect to raise this year another $3 billion to $4 billion for our energy related funds. And to the real point. If someone believes as we do that now is a great time for an experienced investor with significant capital to invest in energy because of the recent price corrections in the sector. Our investors and ultimately our unit holders should be regarded in our view as clear beneficiaries. That is because we have an enormous amount of dry powder, have four experienced and respected energy teams and we have far greater economics with a new energy funds generally by a factor of two to three times compared to our legacy positions. Stated differently, in properly gauging our energy business, we think it is better to look at today and to the future rather than to the legacy past. Now the second matter that which we often get asked is our distribution policy. When we went public in May of 2012, we wanted to put into place a distribution policy which gave us enough flexibility to meet our expected year long cash needs. And so we adopted a yearend true-up policy in which we had fixed $0.16 per unit distribution for the first three quarters of the year and true-up at the end of the fourth quarter. We think this policy has worked well as we have adjusted to being a public company. And with the 2014 true-up distribution, we will have distributed $1.64 billion to our unit holders over 11 quarters. But now with nearly three years of experience as a public company under our belt, we feel very comfortable adopting a policy under which we will simply payout approximately 75% of our distributable earnings each quarter as opposed to the $0.16 fixed payment each quarter and the fourth quarter true up. This new policy will begin with the first quarter of 2015 payable in May of 2015. Now let me turn the call over to Bill to review our investments and realization. Bill?

Thank you, David. Given valuation levels and market conditions, 2014 was an excellent year for realizations which totaled $19.7 billion in our carry portfolio. We invested $9.8 billion in 2014, up 20% from 2013, and we continue to find opportunities despite the valuation levels it could benefit from our value creation and global network. US continued to be our most active area in terms of investments and realizations with about two thirds of our activity here. Our overall carry portfolio appreciated by 1% in the quarter and 15% for the year. Our portfolio in the ground end of the year at $63 billion of which $19 billion is publicly traded. Let me now turn to a discussion of each of our business segments. Our Corporate Private Equity business or CPE is a strong and well positioned as it has ever been. Our CPE funds appreciated 23% last year, after appreciating 16% and 30% in 2011 to 2013. We realized proceeds of $14.3 billion in 2014, our best year ever. Regarding investments, we are able to find attractive opportunities as large corporates became much more active in divesting non core assets. 40% of our CPE investments were invested in corporate carved -outs such as Ortho -Clinical Diagnostic from Johnson and Johnson, Signode from Illinois Took Works, custom sensors and technologies from Schneider and ADT Korea from Tyco. Of the $14.3 billion in realization in the segment, 58% came from the Americas, 30% from Europe, Middle East and Africa and 11% in Asia. Our best performing large buyout fund was in Europe where our third European fund appreciated 9% for the quarter and 46% for the year. Our investment activity in CPE was relatively light for the quarter, about $600 million, after investing over $6 billion in this sector in the prior three quarters. Our fourth quarter investments included Dealogic, a financial information firm and majority stake in Newgen Knowledge Networks, an Indian provider of publishing and tactical services. We realized proceeds of more than $4.2 billion in CPE for the quarter. Significant realization included the partial sale of RAC; our roadside assist business in the UK, the sale of PQ, a chemicals business and GDC Technology and Chinese digital movie technology business. We also executed sales of public holdings including Booze Allen, HD supply, Altice and Axalta. For the year we have exited our final position in a number of wonderful well managed companies including Beats Electronics, Allison Transmission, HD supply and SS&C. We took several companies public including Healthscope in Australia and Axalta. The Axalta transaction alone created more than $2 billion in appreciation for our US and European buyout funds in the fourth quarter. Turning to Global Market Strategies. Performance in GMS was mixed for the year and for the quarter. Our performance in our CLO business has been strong and we remain a top player in that market. Our energy mezzanine portfolio is in good shape and is likely to be in a position to generate realized performance fees upon exits this year, and our distressed funds produced cash carry during 2014. Our business development company with $1.3 billion in committed equity and $900 million in assets is already producing cash performances. On the other hand our hedge fund partnerships also in GMS saw net losses for the quarter and for the year and are below their high water marks. The asset weighted hedge fund performance of our reported funds was down about 9% in the fourth quarter. However, we continue to have confidence in our hedge fund partnerships, they performed very well over a long period of time but had a challenging year. In our Real Asset segment, which includes natural resources and real estate, this business was transformed in many ways during the year given the successful fund raises for NGP-11 and our international energy fund and our strong performance of Carlyle Reality Partners -6. For the year, the real assets segment invested $2.5 billion, realized proceeds of $4.7 billion and the carry funds depreciated 2% mainly due to the decline in the natural resources portfolio. 2014 was a good year for US real estate at Carlyle. We are beginning to see sustained level of realizations emerging out of our US real estate funds which generated net realized performance fees of approximately $25 million in the fourth quarter of 2014. And we have a number of attractive exits in the pipelines scheduled to close in 2015. Additionally, we build value across our US and international real estate portfolio as this portion of real assets appreciated 8% in the quarter and 18% for the year. Other than our legacy energy funds, 2014 was also a good year for our natural resources groups. Our first power fund has performed well and is accruing carry. We made our first three investments in international energy totaling approximately $350 million. We acquired the carry on NGP-10 and raised over $5 billion for NGP-11. And while the legacy energy funds suffered with the fall in energy prices, at yearend 2014 the net accrued carry of legacy energy represented less than 1% of the net accrued carry for all of Carlyle. In Investment Solutions, our fourth and smaller segment in terms of distributable earnings, fund performance was strong with many funds up by double digits across our various strategies in AlpInvest, DGAM and Metropolitan real estate. For the year, our AUM in this segment was up 2% to $50 billion. Looking ahead Carlyle is off to a strong start in 2015. On the investment side, we've announced a tender offer for Hitachi Metals Techno in Japan. Closed our acquisition of AxleTech from General Dynamics, priced to European CLO of €500 million and announced our acquisition of the gas fired Malaga peaking power plant in California. On the realization side, we closed our sale of Veyance Technologies to Continental AG, we agreed to do two transactions to sell shares in Altice for proceeds of almost €600 million, we executed a dividend in Telecable and we priced a secondary block tradable of over $300 million Booze Allen, Hamilton. Additionally, our stakes in CommScope and Freescale, worth over combined $3 billion at yearend has each appreciated over 20% in the first month of the year. In summary, the low interest rate and high asset prices, 2014 was another attractive year for realizations and going forward we will continue to monetize aggressively. The investment environment today remains challenging with full valuations, increased volatility and the recognition that this low rate, low growth environment will continue longer than we originally believed. In order to sustain our investment performance, yield selection value creation will become more important than ever. Now let me pass it over Curt Buser, our Chief Financial Officer to provide some more details on the financial results.

Thank you, Bill. We had a very strong quarter and even stronger full year for 2014. Resulting in a largest distribution to unit holders since we became a public company. However, as we frequently remind everyone our performance is best viewed over a several year period rather than quarter-to-quarter. Fourth quarter pretax distributable earnings were $311 million, which led to after tax distributable earnings per unit of $0.91. Distributable earnings this quarter were comprised of $67 million of fee related earnings and $264 million of net realized performance fees offset by $20 million of realized investment losses. Fourth quarter fee related earnings were 74% higher than the fourth quarter of 2013. And full year 2014 fee related earnings were up 62% from last year, increase in fourth quarter and 2014 fee related earnings is largely driven by higher management fee revenues and compensation expense discipline. Over the course of 2014, fluctuations in foreign currency had only a nominal impact on distributable earnings and economic net income in part because of the diversity of our operations. Should the euro continue to show weakness it will potentially have a greater impact in 2015 and accordingly we have hedged approximately half of our net euro cash flow exposure which is substantially all of our euro fee related earnings exposure? Fee earnings asset under management were $136 billion at yearend which excludes over $9 billion of newly raised capital for which we have not yet commenced management fees. About half of this newly raised capital becomes fee earnings in about one year and the balance will turn over time as a disinvested. While we add nearly $17 billion to fee earnings in AUM in 2014, our successful exits resulted in distribution in excess of $19 billion and when taken together with the effect of foreign exchange, we experience a 3% decrease in fee earnings AUM from 2013. However, this excludes the $9 billion of newly raised capital I previously mentioned. Turning to our business segments. Corporate private equity. CPE have fourth quarter distributable earnings of $263 million, down from $286 million in the fourth quarter of 2013 reflecting $49 million less in net realized performance fees than in the prior year quarter. However, when you look at the full year for 2014, our net realized performance fees in corporate private equity increased 26% over 2013. Fee related earnings for the quarter was $33 million, up substantially from $4 million just a year ago. The increase in the current quarter was driven by growth in management fees of $13 million and an $18 million reduction in cash based compensation expense exclusive of performance fee related compensation. Carlyle final discretionary bonus payments were for 2014 were lower than the level for which accrued during the year causing our fourth quarter cash compensation expense to be below our typical quarterly run rate. For the full year 2014, corporate private equity earned $790 million in distributable earnings, 47% higher than 2013 driven by the growth in net realized performance fees as well as Fee related earnings which grew $119 million over last year. The growth in Fee related earnings for the year benefited from catch-up management fees as we completed raising capital for many of our large buyout firms as well as higher than historical levels of transaction fees. For all of 2014 corporate private equity's cash compensation expense was $324 million or 5% higher than 2013. Economic net income for corporate private equity was $236 million for the fourth quarter and $862 million for the year, below the $549 million and $1.1 billion for the fourth quarter and full year 2013. ENI is lower than the fourth quarter of 2013 simply because few large firms Carlyle Asia Partners 3 and Carlyle Europe Partners 3 move through the catch-up into full carry during the fourth quarter of 2013 and generated net performance fees of approximately $350 million a year ago. Global Market Strategies. GMS' fourth quarter distributable earnings were $24 million, down from $102 million in the fourth quarter of 2013. Economic net income was $13 million in the quarter, down from $67 million a year ago. Both decreases are due principally to lower hedge fund performance resulting from approximately $77 million in net realized incentive fees we earned from the hedge fund in the fourth quarter of 2013 not recurring in 2014. Fee related earnings were $18 million in the quarter, down from $21 million in the fourth quarter of 2013. The decline was due primarily to catch-up subordinated fees earned in European structured credit business in the prior year quarter but did not recur this quarter. Turning to real asset which I think about in two components. The operating results in US real estate and energy, it showed marked improvement and our challenges in Europe real estate and Urbplan which show off in our investment losses. Both US real estate and energy had good years as measured by fundraising and distributable earnings. Fee related earnings in the fourth quarter increased to $10 million from $3 million a year ago due to higher management fees including catch-up management fees from raising our seventh US real estate fund and our international energy fund. While Fee related earnings for the year were down slightly to $22 million from $25 million in 2013, management fees increased $35 million over 2013 as a result of new capital raised. Cash compensation expense for the year increased $23 million over 2013 which was substantially driven by internal fundraising cost which are included indirect compensation expense but also includes the cost of additional personnel hired to invest and support the new fund. In the third quarter of this year our six US real estate fund began producing realized carry and in the fourth quarter real assets produced net realized performance fees of $31 million contributing to 31% increase in net realized performance fees for all of 2014 over 2013. This quarter we had a net realized investment loss of $29 million related to mezzanine loan in Europe real estate and our investment in Urbplan. While the losses associated with these investments have been recurring drag on our earnings and will likely remain a challenge in 2015, we think that both situations are beginning to stabilize. At December 31st, our remaining investment in the mezzanine loan is about €24 million and Urbplan is about $21 million. However, we expect that Urbplan will require an additional $25 million in 2015 to complete its expected business turnaround. Economic net income in real assets showed a loss of $76 million in the fourth quarter and a loss of $59 million for all of 2014. Negative net performance fees of $72 million in the fourth quarter was a result of reversing $93 million in net performance fees in our energy fund due to the decrease in energy valuations. Our remaining energy related net accrued performance fees across the whole firm of $60 million or just 3% of the firm's total net accrued carry of $1.8 billion at yearend and many of these energy funds are currently performing well or are expected to perform well over the long term. Turning to Investment Solutions. It contributed $12 million of distributable earnings in the fourth quarter, down slightly from $14 million last year reflecting higher expenses and contributed $44 million of distributable earnings for all of 2014, up from $40 million in 2013. Economic net income was $7 million for the quarter, down from $12 million in the 2013 quarter while ENI for the year was $45 million versus $38 million in 2013. Now two last housekeeping matters. First, we have changed our presentation of distributable earnings and economic net income for investment solutions to include certain performance fee related tax expenses and performance fee related compensation expense as noted on pages 32 and 33 of our earnings release. This reclassification had no impact on after tax distributable earnings and ENI per unit. Second, we've added new disclosure in our earnings release on page 5 to show an appreciation and our net accrued carry by business segment. In addition, while we have historically provided carry fund valuations by segment, approximately one month before reported earnings, a change in our quarter end process will lead us to begin releasing our valuations alongside our earnings release. So we can also provide additional color around our returns and more in line with our peer group. With that let me turn it back to David for some closing comments.

When we went public in the second quarter of 2012, we made two comments about our business that I think they are repeating now. The first comment was that we have a corporate private equity business which by industry standard is unusually diverse and global. And should be able to yield performance fees in a reasonably consistent and significant manner for a very long time. And that has in fact turned out to be the case. Since going public we have had over 160 corporate private equity realizations around the world producing over $36 billion in realized proceeds and $1.4 billion in net realized performance fees for Carlyle. We are confident that this business will continue to consistently produce attractive realized proceeds and performance fees and continue to serve as a crown jewel for us for great many years. The second comment was that while managing and growing the corporate private equity business, we expected to grow meaningfully to size and breadth of our other three business segments. GMS, Real Assets and Investment Solutions, which were historically less significant to the firm's bottom line. We have made real progress in this direction as well but we have still some work to do. But to illustrate progress made to date, assets under management in our GMS segment are up 26% since their IPO, in real assets they are up 41% and investment solutions they are up 14%. And we believe that we have only begun to develop and grow many other funds and businesses in these three segments. In these three segments since going public we've added new funds, new teams, and new strategies and raised new commitments and all of that in turn creates more earnings power for the future. Now we are happy to take your questions.

[Operator Instructions] Our first question comes from Brennan Hawken with UBS.

Good morning, guys. So you're following a pretty strong year of fundraising in 2014. Do you think that given where we are in the cycle, 2015 is likely to be above the targeted $15 billion to $20 billion range, and we should expect elevated levels of fund raising at this point?

Well, if we were to say yes and we came slightly below what we've said would be the elevated level, I would be not looking very good. So I think we are very comfortable with $15 billion to $20 billion. But as you probably noted and in fact we exceeded that last year and our predictions last year were $15 billion to $20 billion and we did almost $25 billion. I'd say today it is hard to predict where the economies going to go and where money is going to come from. But what we've seen is that the large sovereign wealth funds are now coming into the market in very large sizes. And making very, very large commitments, much more than we've ever seen before. And as a result I do not think that there is likely to be a diminution in that trend this year despite the fact that you might say, for example, in the Middle East because oil prices are down we might say once a sovereign wealth funds they are pulling back, we've actually seen the opposite. We've been there many times in the last several weeks with different funds and we see no decrease in interest in the large Middle East sovereign wealth funds in deploying larger sums of capital. The same is true in the Asian sovereign wealth fund. So I can't say for certain that it will be above our projected level. I'd happy to say with their projected level but I wouldn't be shock if it came above it but I just don't want to predict it because I don't want predict something that doesn't happen. We try to be conservative and careful what we say we can do, and I think that's where we are at $15 billion to $20 billion, but we are going to try to do better if we can.

That's fair, David. Thanks for all that helpful color. The follow-up would be -- for the $2.2 billion redemption notifications in GMS, was that driven by Claren Road, and maybe could you give us an update on what you've seen year to date in that business? Have there been any changes or updates there?

Yes, this is Bill. I would say first of all the majority; the vast majority of the $2.2 billion of redemption was in Claren Road. That would be true and, no, I can't give you -- although I know it I can't give you the -- what's going early in the year for the hedge funds.

Fair enough. This isn't really a follow-up, just sort of curious. David, are you going to term up with Dr. Dre or Jay Z for your next video?

Well, I'd tell you I have gotten more attention for that than anything I have done in my professional career. And so it is tempting to think that maybe I should leave what I am currently thinking is my professional career and do something different but I stay tuned.

Sounds good.

Our next question comes from Ken Worthington with JP Morgan Chase & Co.

Hi, good morning. First on CEP III, you started taking cash carry, I believe it was two quarters ago but at a pace below what was customary. I believe you were taking about 50% of what you are able to. At this point, are you taking cash carry at the customary 20% pace, and at what point you would accelerate that for not taking as much as you could have earlier on in that fund. There are other big funds that are taking cash carry but are doing so at a peak below what is customary today.

Well, yes, I can't give you might full guidance here Ken and but I would say that now expect we are taking 20% carry on Carlyle your partner straight and what generally happens in this fund is one of the things we hate and our investors hate is a clawback. We don't have much of it I think on gross carry of over $3 billion, I think we have clawback of $50 million or something in that range, very, very small number. And we hate it; our investors hate it so we tend to be at the front end of fund, first of all often times in beginning we will take no carry. We have an exit, we are moving a significant accrued carry position, we don't want to take carry and we will gradually begin taking a carry sometime at 10% or some other number. Last time the typical 20% carry. Then for the vast majority life of the fund we tend to stay at 20% and then sometime near the end of the fund we are going to exceed the 20% level to make sure that we get to 20% at the end of the fund. What we do is several quarters before we think the end of the fund is going to be -- we are going to come to the end of fund we ever kind of glide path under which we may go 30%, 28%, 26%, 24%, 20% and close to fund other 20%.

Are there any other of the big funds that are taking at a slower than customary pace right now? The flagship products that you run?

Slower than customary, no, but remember the frequently we have cases where we will earn carry and not take any.

Got it, right. My second question is just sort to touched on the prepared remarks but the direct fees compensation fell a lot in CPE also GMS and real assets, I know you mentioned that they are over accruals in 1Q to 3Q, what was the reason for the over accruals and like how should we think about the pace of the direct compensation going forward? It has been a source of angst for us but there are sort of redemption here this quarter as we now look at the entire year. So I am trying to just -- try to figure out how should we think about this for 2015 and 2016?

Hey, Ken, it is Curt. Thanks for your question. Cash compensation in any one period is challenging to look at because there is a lot of moving parts. Early on this year we were having a great year and for the full year we had a great year. Over half of our cash compensation is in the form of bonuses, they are discretionary and we determine those at yearend. So at yearend really as we were looking to be disciplined in our practices, we pay less than we thought we were going to pay early in the year. And so you see the essentially the fourth quarter favorable impact to that. On a go forward basis are to say exactly but absent strategic changes or acquisitions or things like that I would expect very nominal growth in cash compensation.

But we did pay less in bonuses than we had thought we might. No one has left the firm because they got a lower bonus that I am aware of than they thought they might get. People are pretty highly paid and I think pretty satisfied. So we don't think it has any diminution in our ability to hold on to people or attract people.

Our next question comes from Christoph Kotowski with Oppenheimer & Co. Inc.

Yes. You went kind of fast when you were talking about the energy dry powder in the fund vehicles and the fund raising and your carry rights on those funds. So I wondered if you could review that. You said that there was $9 billion in three vehicles, I am looking at page 24 of the press release and I see CIEP 1 and NGP 11 was about $6 billion. So I was wondering what's the other one and then you also said you are planning on raising I think you said it was $6 billion in 2015 in energy. Would that be a new vehicle or in follow on to these vehicles?

Okay. This is Bill. Let me try but I think Curt and David both may help me a little bit on this. First of all, what we said is we had $9 billion in dry powder roughly on our energy, four different energy vehicles. Second thing we said was that we thought that in 2015, we raised another $3 billion or $4 billion on the energy platform. Now what makes up the $9 billion I think may have been your question.

Right.

That is NGP 11which is little over $5.3 billion, it is our energy mezzanine business which has about $400 million -$500 million of available capital in that business. It is our international energy business with about $2 billion of capital goes in a dry powder business with $300 million, $400 million, and $500 million of available capital right now in the energy business. Going forward this year what we think we will do is we will raise some additional money for our power plants and perhaps some of the other funds as well on our energy platform. While I am talking about energy I can't help but say that I think there is obviously a lot of focus on this, the performance fee reversal that occurred in the fourth quarter was a big number for anybody but I would say that I love the way we are positioned in energy. We have 70 investment professionals; we are just not new to this business. It's been a business we have been for a while. First with Riverstone and now directly to other four vehicles. And I think that we are extremely well positioned with the teams and the experienced NGP for example is on the 11 fund and the last 10 funds I think they all are in carry. So it is really been great business. I am very pleased with the energy mezzanine what we position we have there. Power, with the energy -- the price of raw energy low I think power is a very attractive space in which to put money. On the other hand, you have the entire rest of the economy. The entire rest of the economy, I am looking for something to tell me the Goldilocks price for oil. Everybody is unhappy that oil fell and the net impact that it has on this investment or that investment and the portfolio, but believes me over the course of the portfolio everybody is a lot better off with lower energy prices. A couple of examples I would say for you Axalta which is a power paint business we bought from DuPont a couple of years ago and a big winner for us so far. And benefits a lot, a lot of its raw materials are in the petrochemical space. In Philadelphia energy solution which is our refinery, largest refinery on the East Coast, United States, right now it is benefiting from very wide spreads between what it pays for oil and what it sells through refined product for so I think it is great place to be positioned for our energy business.

And let me add that Riverstone was a very good relationship with us. They are obviously doing very well generally build themselves into one of the largest energy private equity firms. We changed the relationship in part because our economies were not as attractive at the end as they were in the future -- as they had been before. For example towards the end the last Riverstone funds to carry that came to Carlyle was roughly 60% of the 20%. So a very small percentage and the amount of the cash fee was I think less than 10% of the cash fee that was earned Riverstone. Today, in the fund energy funds that we have, I think we have carry roughly 55% is coming to the parent and roughly 45% staying with the deal teams. And with many of those funds, all the cash fee comes to Carlyle not with NGP but all the cash fee comes to Carlyle and then we payout salaries and bonuses. So they are much better economies that are why we are fairly bullish on our energy prospects going forward because we have much better economies than we have before, plus we got a lot of dry powder.

Our next question comes from Robert Lee with KBW.

Hi, thanks for taking my questions here. Curt, could you maybe just review the hedge that you put on? I don't think I caught all of the comments on it.

Sure. So historically the diversity of our operations is really helped us for managing foreign currency because there is a quite frankly just natural hedging that occurs. If you look at our fees that we earn out of our funds roughly 80% of our management fees are denominated in US dollars. About 16% are denominated in euros and you think about our expenses -- we also have a lot of our people are located internationally and a lot in Europe. So we also have a lot of euro expenses and British Pound expenses et cetera. That creates this natural offset that I alluded to, so our exposure in 2014 through economic net income or through DE was actually quite small. 2015 looked at and so okay there is dramatic movement, looked at my total cash flow exposure across fee related earnings but that maybe going to occur from a carry standpoint, investments and the like, and put in a place for hedge for about half of that, that somewhere around 119 in terms of euro dollar exchange rate. The way I also think about that because the carry component that really hard to predict. It is mostly covering our Fee related earnings exposure and so they are -- I think I have taken my fee related earnings exposure on foreign exchange down to a nominal amount. So hopefully I clarified for you.

Yes. That's helpful, thanks. I was hoping we could also maybe the follow up and drill into the credit business little bit. Clearly the demand for alternative credit is pretty high, you guys certainly have the big CLO business and other strategies but feels like sometimes your credit business gets kind of lost or buried within GMS. So can you may be give us a little more detail on where your fundraising right now within your credit businesses outside of CLOs and some of the structures and strategies you are raising capital for?

I will start and David will finish. First of all, in terms of CLOs, last year I think we did eight of them, I think three were in Europe and five were in the United States. We are doing one every month and half or so on average. We have a dedicated investment teams in both places to manage those CLOs. So far -- actually ever since we've had them, the performance of CLOs has been great. The vehicles are enormously resilient to changes and problems that can happen in the credit market. Right now of course the challenge is can we find good assets to put in those CLOs with a diversification requirements and lots of other things and spreads being relatively low. The rest of the credit business, we actually carry our energy mezzanine business in our credit business. We think credit skill as important as well energy related skills there. They have teams in New York and in Houston. They have done an excellent job there. We are raising now our second energy mezzanine fund. We have a business development corporation inside our GMS business. That business has about $1.3 billion of equity and about $900 million of assets invested. What we do is when we find good deals to put in the BDC, we drawdown additional equity that's been committed by the future investors in that business. We are raising a new Asian credit business which we've just started to raise now. I don't think we even first closing at everyday.

Small one

Small one, so I don't -- maybe you take -- you pick up from there and other comments on fundraising for that part.

I would say that Carlyle as you know has a lot of different vehicles and our credit business isn't one big credit amount of money that can be deployed anywhere. Maybe some of the firms have let say a large part of money and they can deploy it as they see fit and so forth. We have a more private approach. So it overseen by Mitch Petrick. And Bill mentioned we have an energy mezzanine business, we have BDC business, we have a large CLO business, and we have now the Asian credit business, structured credit business. And we also have a distressed debt business in there which will probably be need to reload at some point in this future so your point is understood by us surely but it is a business that we are happy with but we think we can grow it. We also have in that area our hedge funds. And we have as you know Claren Road is a credit hedge fund. We have a lot of confidence in it, they had down year but we are very, very confident that they will turn that around. So it is a different kind of credit business that you might see in some of our peers. But it is got many different parts of the credit business in it.

Our next question comes from Brian Bedell with Deutsche Bank AG.

Bill, I think you were talking about the -- being a little more aggressive on the realization front as a general statement. Maybe if you can contrast that with the capital deployment outlook. Obviously your 4Q was a light quarter. You are still seeing opportunities obviously in the highly valued market. Maybe as we look into 2015, should we be thinking of a deployment year that might be a little lighter than what we saw in the 2014 full year? Then I guess in contrast on the realizations side, stepping that up in 2015?

Well, I would say -- thanks for the question. And it is such an easy one to answer but I am glad I have the ability to take it. I'd say that first of all it is much easier to access than just to invest money today. And we are pretty high standards for the kind of returns we are trying to earn through our investors around the world. Secondly, I'd say that each market is a little bit different. That United States is being our biggest market for investments and for realization as one we are always talked about. There last year we had a very good year with the big deals that we did with Axalta and Ortho- Clinical. Although many of these companies remember are not actually like an American company or European company or whatever. They tend to be global businesses. Business like Axalta for example does more business in Europe than it does in the United States. So sometimes it is misnomer to call it American or European business. And in the United States saying on that I would say that today valuations are very high in the United States, yet United States has a lot of inherent advantageous over the rest of the world that in many ways justifies those high valuation. And we can talk about what they are as the dollar, it's housing, it's energy, it’s our capital markets, it’s our defense, it’s our railroad, it's Silicon Valley, it's Google, it's John Hopkins and so many things that make America just about the best place in the world to invest most times. But valuations are high here. We have seen the American companies being more willing than they were to do carve off businesses that no longer fit, and we are pretty good at that, that’s a tough thing to be good at when you are taking a division out of a big public company and trying to set it up on its own and Carlyle built a pretty good track record of doing that and hopefully we can continue to do that. We have actually now taken that outside the United States to Europe and Asia. Outside of the United States, the strength of the dollar has made investing in businesses in Europe and Japan, I think it’s more attractive to do so, not necessarily more attractive within US but more attractive than it used to be. Many of those companies are export driven businesses and they benefit from their relatively weaker currencies. The businesses that may struggle in this kind of environment are those that really don’t have their own currency that they can depend upon. Some of the emerging market countries that are dependent upon let’s say the dollar, it’s a tough thing for them because we have a very high price dollar and their -- they are forced to transact their business in all that sense. I wouldn’t make a prediction and what we are going to do in 2015, but I would predict to expect as always that realizations will be much bigger than will be investment.

That's helpful color. And then maybe a question for Curt on the expenses. I was hoping to -- I think you mentioned in the press release, in the investment solutions segment, investments in infrastructure to integrate the acquisitions. Just maybe some color as we move into 2015 on that, plus other growth initiatives that you are thinking about for 2015, and how sort of that relates to the expense base versus what we saw in 2014?

Thanks for question. So in investment solutions right there are three businesses that we pulled together to make that AlpInvest, Metropolitan, DGAM, so we have invested in that space from a system standpoint compliance aspects reporting to investors, going to make the business consistent with the way we like to operate, and it will require some additional investment, and also as we continue to invest to take additional capital to deploy. And so its early days still in terms of developing that business and so it’s -- I am going to have some near- term challenges but going well. We are investing also in the sales force to work on that and as we raise new capital I just remind everybody that as we raise capital for whatever fund to business that incremental amount fits to our own people shows up in our cash compensation in the indirect cash compliant. Across the rest of the platform, we are continuing to work in both in GMS and Bill and David already spoke to a number of those initiatives as well as in real assets to build out those platforms a lot of that have been accomplished, but we are continuing to work on it. And all of that taken together we are feeling pretty good about the progress that we have made today.

This is Bill. That question -- excuse me for I am going to give you a follow-up answer. You are entitled to a follow-up question, but I will give you a follow-up answer. We have a business, a company now where we make more than 80% of our money in corporate private equity and corporate private equity for us is a great business. We are big, we are global, we are diversified, the funds are in cross collateralized, we have got big deep teams around the world, we know what we are doing, and in our three other businesses, GMS, solutions and real assets, what our goal is, is to take one, two or all three of those segments and make them as good as corporate private equity. Now that is a tall order probably we will be never be able to be as good as corporate private equity but that’s the goal. Today GMS is about 10% of our DE, and real assets and solutions are each about 5% of our distributable earnings. What we have to do and what we are working very hard to do is to build those other segments into the powerhouse of that CPE is and that takes money to do.

Well understood and thanks very much for the extra color on that. I appreciate it.

Our next question comes from Michael Kim with Sandler O'Neill.

Hey guys, good morning. First, just to follow-up on fundraising. As you talked about earlier, it sounds like there is a lot of demand out there for alternatives, more broadly and in particular for the bigger more diversified franchises. But it also seems like the bigger LPs are increasingly asking for more favorable fee break points, co-investment opportunities or even separately managed accounts. So just wondering how you see those dynamics playing out and how that could potentially impact the economics of the business, if at all?

I would say that the economics of private equity probably will never be as greatest it was 20 years ago in a sense that 20 years ago the funds that you raise you had a 20% carry, preferred return, no netting of good and bad deals, there were transaction fees that you kept 100% up and you kept of course the 100% of the management fees. Those days are not coming back anytime, well unlikely to be on the face of the earth. So we have to recognize that we are in a different environment. However, would you rather have a $500 million fund with those better terms or a $4 billion fund with let say attractive firms? If you are good at investing that 20% carry which is fairly inviolate is likely to produce enormous amount of interest for firms like us so yes they are asking for different terms and if there is a big change in the business, it used to be everybody paid the same fee whenever they came into fund. Now the bigger investors do get fee discount in a particular if they come in early or anybody that comes in early. But still it is clear to us that if you have the size and breadth of a firm like ours, you can get this $1 billion commitment and they are likely to come we think relatively more regularly as these firms, these sovereign wealth funds has grown and continue to grow exponentially. So yes, there are theoretically less attractive fee terms but the size is such that in the end we can more money with these fee terms because the size is so much big if you invested well.

Got it, that is helpful. And then my follow-up question. You have acquired a number of firms in the past to kind of round up the franchise just curious how you would sort of characterize your appetite for further M&A opportunities and related to that seems like scale is becoming increasingly important just broadly how do you see consolidation playing out across what seems like still pretty fragmented industry?

It is fragment in the sense that they are let say 500 or more private equity firms in the world, but there are only 7 or 8 that are truly global and working to build continuously as high scale global. So I think in the end you will see the 7 or 8 getting bigger and bigger relative to the smaller firms and developing more and more franchise in terms of doing many different things. I would say in terms of our appetite for making more acquisitions, we have been generally pleased with the things we have bought NGP as a great addition to our firm, and if we can find any more NGPs we will be happy to try to do something to make that part of our family. So we are always looking for things and we have a team of people that is always looking for possible opportunities but we don’t have anything we are ready to announce this morning.

Our next question comes from Patrick Davitt with Autonomous.

Good morning, thanks. You mentioned the $9 billion of the earnings AUM of which half would turn on fees in one year. Could you give us a little more color on the mix of that $4.5 billion and why you are so confident about the kind of one year bogey in terms of when it turns on?

Patrick, this is Curt. So $9 billion, a lot of it is in our energy space and part within NGP and then it is across some of the other platforms including a little bit with AlpInvest, but we know that most of it will turn on specifically with a year and then as a component that our investment related that will just commend really s the investments are being made.

With respect to NGP, let me clarify NGP raised $5.3 billion and relatively quickly. They have a great franchise but they still have to invest their previous fund and so until you finish investing your previous fund you can’t really turn on the fee for that next fund. And so in raising their fund they made a calculation that probably would take about a year before they would really be able to turn on and need to turn on the fee for the new fund, and so the fee is -- the management fee is going to be turned on after that period of time so it also was probably helpful in fundraising because it was bit above the holiday. But in the end, we know it's going to be turned on a certain date and there is no uncertainty about that.

Great, thanks. An then on the distribution you mentioned the few deals that have closed and now that you changed the payoff policy, it's a little bit more helpful for us I guess to get a better view of what that can mean for the 1Q distribution. Are you willing to tell us what all those realizations mean from -- in terms of how the 1Q distribution is tracking at this point?

What do you think the answer to that question is?

No.

But we want to tell you.

Okay, okay. Some of your competitors do it

Oh really, okay, well. One step at a time we just send your policy, we'll look at that some other time.

Our next question comes from Bill Katz with Citigroup.

Thanks very much. I wanted to ask a question if I may. Dave, you mentioned just the size of the asset is getting larger and the allocations are going up. When you talk with the investors, where specifically are you seeing the greatest demand for incremental opportunity for growth?

From fund raising you mean. Now let me describe just historically Carlyle raised from its funds, historically our funds came from I would say more than 50% came from the United States probably about 50% or so. And about 16% came from Asia-Pacific and about 34% from Europe, Middle East and Africa. In 2014, less than half of our money came from the Americas so about 40% so historically about 50% of the Americas now about 40%. Asia-Pacific went from 16% to 35% in 2014. So we doubled the amount of money coming from Asia. And so you see a lot of money coming in from there. I don't have a broken out in the Middle East, but middle east fund raising is picking up a bit. Also in terms of the source of funds, this is perhaps more interesting statistics I'll give you. Historically, we've raised about 17% of our money from sovereign wealth funds, 17% over the 27 year period. Last year 37% of our money came from sovereign wealth funds and I don't have any reason to think that we are that unique compared to other-- our peers. So a large amount of money is coming from these sovereign wealth funds and I suspect that that will continue. US Public Pension Funds which have been by far the biggest source of capital for public tends for firms like ours over the last 25 years. They are going down relatively speaking as a percentage of money. Historically, we've got 28% of our money from US Public Pension Funds and generally other public pension funds. It's now we got about 18% last year. So I think the sovereign wealth funds are gigantic source of new capital or enhanced capital. Also I wouldn't diminish individual investors. Other firms like ours are focusing as we are on high network individuals through various retail platforms and fundraising efforts. And I expect you'll see a lot more money coming in from individual investors through various means and sovereign wealth funds, I expect will continue to be very, very large source of capital for us.

That's helpful. Then my final question is a two part. One, can you address the tax rate? It looks like it was a little low for ENI this particular quarter even on the payout. And then secondly, could you clarify your comment on the comp expectations for 2015? Sounds like you have some spend in any area outside of CPE but then you also mentioned you have nominal year on year, so I'm just trying to reconcile those dynamics.

Sure. So first in the tax rate, we actually have a slight tax benefit coming through in the fourth quarter on ENI obviously a tax provision for the full year, one think as you got a keep in mind is really the final aspect what comes through really a corporate blocker or in the firm in order to make sure we saw the right qualified income to remain a publicly traded partnership. So essentially what happens in the fourth quarter is the decrease on an ENI basis of some of the energy values and then you don't have the recurrence of the hedge fund incentive fee. So that positive the tax rate in the fourth quarter of this year versus the fourth quarter of last year to be actually favorable this year, but clearly much lower than last year. That's really the driver of the change. On your second question on compensation, we want to think I think you can kind a see just through our fourth quarter results, we've been acted disciplined in terms of how we're viewing this. We've always had disciplined which you can kind a really see it coming through here. If you look at the corporate private equity business, you can see a nominal increase only 5% year-over-year, and kind of things going forward if you take out the noise of fundraising and acquisitions like I would think that there’s going to be a nominal increase on a go-forward basis.

Our next question comes from Michael Carrier with BofA Merrill Lynch.

Thanks guys. Curt, one more. It looks like the incentive comp ratio was a little elevated. I know quarter-to -quarter, there's a lot of things that can impact that. But just given the funds that are in carry, that could potentially be the drivers in 2015, any sense of where we should think even if it's a pretty big range just where that should be for the full year?

Are you asking about the in carry ratio or the performance fee ratios?

It is the incentive comp, the comp ratio on the incentive.

So if you look at -- so one of the things to keep in mind as you try to look at the incentive comp or the comp ratio and performance fees is mix of funds that are generating either realized or unrealized in any given period, so it’s a kind of levels that here in corporate private equity you can generally see fairly consistently that it’s around 45% is the comp ratio on performance fees and that’s pretty clear quarter - to - quarter. On real assets, it will be all over the place and it will distort really where you also see come in through in total and then real assets both the performance fees from the legacy energy funds and from NGP don’t have any compensation associated with them. So when performance fees go up, and there is no compensation on it, the ratio looks great and when performance fees go down, I’ve got a big negative coming through without any associated comp and so the comp ratio looks bad, and that’s the simple dynamics. In GMS, it’s generally similar to the CP dynamics 55, 45, the hedge fund can create a little bit of noise and the other thing that can kind of come in the play is as you go across things or when we have clawback on the crude basis often the clawback really relates to IPO and pre-IPO partners, and so it really goes to non-controlling interest and so that too can destroy the ratio a bit because it’s not really affecting net amounts to the firm. But this quarter it’s really real assets.

Got it. As just as a follow-up, Bill, the European performance has been very strong. Yet the environment in Europe, very I don’t know just dependent on the quarter. But it's all over the place. Just wanted to get your view on your outlook for Europe, both in terms of the investments and what's driving that performance, but also whether it's new deployment of capital and the exit environment. Is it as easy exit there than that it has been in the US?

Okay. Well Europe like as Curt said before there is lot going on in Europe as well a lot in your question. And also you have to think about the question from the standpoint of an investor in the European fund versus let say a unit holder investor in Europe, and I know you represent the unit holders but this relationship here I might talk about. The European funds have been great, particularly in the last couple of years they have been I think both in 2013 and 2014 Europe 3 was our top big fund performer. And interestingly although the numbers that ultimately get reported do end up in dollars, when you look at a lot of the investments in the European fund they are actually in companies like Axalta and CommScope and Nielsen that are global businesses that are done between both by both our US buyout fund and our European buyout fund. And when you have a dollar being very strong versus the euro well, if you’re an American business and you’ve got these European earnings and they are translated back into American dollars, it looks like you made less money. And that’s what generally the headlines have been in the press, the headwinds of the strong dollar. On the other hand if you’re a European fund investor and you invest in euros when those dollars in which you have invested in companies they translate back into a lot more euros, so that is going on to -- it is a little bit of a sideshow maybe not on point of your question. In Europe, European poor fund which is I knew this time we have agreed to do three deals now they are each in the range of €100 million to €200 million around numbers of equity. One I think is little less than that and the other two in that range. We find actually there is been pretty good value in that part of the buying spectrum for us. If you’re Siemens, you don't need the global network of the Carlyle Group, where as if you are a smaller European business, you have the Carlyle global network helping you, I think we can really help businesses that are in that upper middle market, that didn’t mean we wouldn’t do the bigger deals, but we do to those. Those European businesses also I think some of them and Europe actually -- European companies export more than American companies. So if the ratio of export sales in America is x, that same ratio in Europe tends to be higher. So they will benefit from a weaker euro relative to the dollar which I think will help some investments in those businesses as well. European financing market has actually improved dramatically. It’s not America, I mean America has a great big deep financing market that chose on our IPOs and chose on our debt financing for our transactions. I would say Europe though is catching up in fact on our last CLO, the AAA tranche in Europe tended to be lower than the AAA tranche in United States. So we see the European markets are actually pretty good from that standpoint. Exits, I’m obviously happy with what we’ve done so far with the LTE sections that happen so far this year. Not as easiest it is in the United States, but getting a lot of easier, I think Carlyle has a general strategy, we like to get our businesses is public and when we get our businesses is public it gives us the flexibility to generally turn low public companies into realize the proceeds a lot easier. So in Europe for example, Altice is a big public company, Applus is a big public company as well and maybe this year will take some others public as well. I like Europe; I think it benefits from the stronger dollar.

Our next question comes from Glenn Schorr with Evercore ISI.

First, the quick one. NGP 11, the $3.5 billion of funds raise I notice you said we’re not yet included in fee earning AUM, I guess I' m some just curious on where fundraising stands for that and how come you don’t include it now, because it distorts the actual growth that you've seen?

Glenn, it's Curt. NGP 11 has raised about $5.3 billion of new capital and until really it turns on its fee won’t be in fee earning AUM, the only parts that are really in fee earning AUM now or really what it’s invested and as David commented they’re going to started invests in NGP 11.

Okay. My big picture question is the corporate private equity performance has been great. The fundraising is great. I hear your comments loud and clear on monetizing aggressively in the full valuations. You're a four to one almost net seller in the fourth quarter and have about a 1.3 MOIC on the remaining fair value. So the question is should we be braced -- maybe it's an obvious one -- but should we be braced for flat to decelerating earnings, AUM, distributions in general, for I don't know what the period of time is a year, maybe more, until either we work through another part of the investing cycle or GMS real asset solutions can pick up the pace?

So it’s Bill, I don’t think so. And I think the fourth quarter was kind of a little bit an anomaly. I think in the CPE, we distributed like $4.5 billion and we actually only invested like $600 million or $700 million something in that range, that is kind of the anomaly. If you look at it frankly on the 12 months basis the year generally in our private equity business over a long period of time, we more than double peoples money. Now if we invest $10 billion we might distribute $20 billion. Now we all know the $20 billion has no relationship at all through the $10 billion. Yes, it’s double that number, but the $10 billion that you invested you’re not going to harvest and realize that for a couple of years down the road. And given the performance of our CPE business, our rough holding peers that we tend to achieve the net IRRs we make and around numbers if we invest money, we’re hoping to at least double that money over that period of time. I don’t think that 2015 and beyond, I don’t see a dramatic need to be reloading in the corporate private equity segment. I think it’s been for four years in a row we --over the last four years we distributed $75 billion in corporate private equity and we invested in our carry funds and we invested probably over that period of time about $35 billion. So I think that I am hopeful that it continues to be pretty steady in the carry funds.

Sometimes we do try to send in this call and other vehicles a nuanced message perhaps to but people know some thing we are might be worried about, but we are not trying today to send the nuanced message along the line that your question suggest. We don’t really see that concern, we can’t predict exactly where things are going to come but as we said we have $63 billion in the ground and that's the large number of different companies we can pick from that might be right for sale or exit in some time, so that isn't a message we are trying to convey if that was really the question.

Next question comes from Michael Cyprus with Morgan Stanley.

Hey, good morning. Bill you mentioned that the low rate environment is continuing for longer than expected. Just curious in your conversation with investors. To what extent is that leading investors to accelerate their allocation through alternatives versus your conversations say a year ago?

Well, it is an excellent question. I think you know also I would comment first of all low interest rates are really a global phenomena. When we look at our business for example in Japan. Deals in Japan tend to be done at TIBOR, which is the Tokyo equivalent of LIBOR and it tend to have lower spreads than they have in London and in America, maybe it is 200 or 250 over TIBOR, and interestingly in United States and in Europe, there is almost always a floor so a deal might be done at LIBOR plus 350 with a floor of 1%, so you are borrowing at 450 net even if LIBOR is about zero. In Tokyo for what it worth, there is no floor, so you are borrowing at -- if you are borrowing at TIBOR plus 250, you are paying 2.5% so you see the low rate economy there. I would say that people want yield and one of things that attracts them to private equity generally is the kind of returns that our industry has generated over a long period of time. But the same thing is true in the GMS platform. People want yield and you know some of them have to pretty careful about reaching for yield. Yield doesn’t come free, bad things can happen when you take a risk that you may be didn't mean to take or gotten unlucky or various things that happen. I would say today it is may be a little easy to be raising funds for our GMS platform but not dramatically so.

Okay, thank you, that’s helpful and just as my follow-up question. David you mentioned that the percent of money from pension funds is coming down. Just curious how you think through the impact of the long-term shift from defined benefit plans to defined contribution plan? What types of structures or alternatives you think could work in a DC plan and are there any initiatives underway at Carlyle today that you can share with us.

Well, the large US public pension funds which have been the biggest source of those kinds of capital firms like us. I think it going to be in many generation well past the time that we are here before they will be so diminished in size that you really would have to focus only on defined contribution plans. But as defined contribution plans become more significant in corporate America and other parts of the financial universe, I do think you are going to see allocations from them to alternative investment in ways that we allow the defined contribution participants to actually benefit from some of the high rate of returns that people like we get. All of the legal issues haven’t been resolved and the mark-to-market hasn’t all been resolved but inevitably it will be a desire by people who have IRAs 401(k) and other kinds of vehicles to participate in these kinds of vehicles for some percentage of what they have, and there are some progress being made in that but it is probably a generational thing before you see a big impact on numbers for firms like ours.

I am not showing any further question at this time. I would like to turn the conference back over to our host.

Thanks you for your time and attention today. We look forward to talking to you on next quarter's call. Please follow-up if you have any questions after this and have a nice day.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. And have a wonderful day.