Ladies and gentlemen, thank you for standing by, and welcome to The Carlyle Group Second Quarter 2020 Earnings Call. At this time all participants in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to your speaker for today, Mr. Daniel Harris. You may begin, sir.

Thank you, Demetrius. Good morning, and welcome to The Carlyle's second quarter 2020 earnings call. With me on the call today is our Co-Chief Executive Officer, Kewsong Lee; and our Chief Financial Officer, Curt Buser. 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 and our other SEC filings that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. Earlier this morning, we issued a press release and detailed earnings presentation, which is also available on our Investor Relations website. For the second quarter, we generated $127 million in fee-related earnings and $198 million in distributable earnings, with DE per common share of $0.53. We have declared a quarterly dividend of $0.25 per common share. To ensure participation by all those on the call, please limit yourself to one question and then return to the queue for any additional follow-ups. With that, let me turn the call over to our Co-Chief Executive Officer, Kewsong Lee.

Good morning, everyone, and thank you for joining our call today. We hope you're doing well and that you and your families are staying safe and healthy. So before we get started, I want to thank Glenn for his partnership and friendship over the last several years. We accomplished a lot. And I am proud of the work we did together to make Carlyle an even stronger firm. He is a culture carrier and a class act. I wish Glenn all the very best as he goes off into a life of public service. Now on to Carlyle our priorities and our results. The combined health and economic crisis is a backdrop unlike anything we have lived through. I'm proud of how everyone at Carlyle has come together to do an amazing work and job on behalf of all of our investors. And I would like to thank our entire organization for their focus and commitment during these challenging times. Despite the current environment, we're adapting well and our business continues to perform. This is evidenced by our solid second quarter results, which includes strong fund depreciation, a substantial increase in our net accrued carry, and attractive distributable earnings for our shareholders. These results reflect the hard work of all of our people to deliver on our strategic priorities which remain on track. Specifically, we continue to grow our current fund families, and will launch new investment strategies with the potential to scale. We continue to drive growth in our global credit business and build upon strong momentum in our Fortitude Re insurance platform. And we continue to prudently manage our operations to further enhance margins. Executing these priorities will enable us to grow sustainable fee-related earnings, increase our dividend on a lag basis to FRE, expand our distributable earnings…

Thanks Kew, and good morning, everyone. In my remarks, I will briefly discuss second quarter 2020 results and dig further into some key topics of interest to investors. Let's begin with our results for the quarter. Fee-related earnings were $127 million in the second quarter of 2020, with a 31% margin, slightly lower than the $133 million in the second quarter of 2019. So that result included $28 million in catch-up management fees, as compared to less than $2 million of such catch-up fees in the current quarter. Year-to-date, fee-related earnings were $256 million, which also includes the positive effect of the $30 million expense recovery, we discussed last quarter, and is ahead of the $236 million of fee-related earnings, we generated in the first-half of 2019. Fee revenues were mostly in line with the year ago after adjusting for the decrease in catch-up management fees, and the $10 million in transaction fees this quarter, as a result of closing the Fortitude transaction. Our net deferral of CLO subordinated management fees was $4 million in the current quarter, resulting in a cumulative deferral of $8 million as of June 30, up from $4 million at March 31. That said, our CLO performance is thus far stronger than we initially thought at the beginning of the pandemic and is trending favorably. Compensation was $210 million in the second quarter. And first-half 2020 cash compensation was approximately 1% higher than the first-half of 2019. We continue to closely manage our compensation expense, including equity-based compensation and the $66 million in first-half 2020 is 15% below the first-half 2019 level. G&A expense was $58 million in the second quarter, down from $80 million a year ago, reflecting lower travel and conference expenditures, as well as the recovery of certain of Fortitude transaction expenses…

Thanks, Curt, and again, thank you all for joining us this morning. We are pleased with our firm's strong results for the second quarter, and more broadly, we are confident we are well-positioned to navigate through these uncertain times. We remain focused on delivering attractive returns for our fund investors and growing earnings for our shareholders over the long-term. And we'll do this with one of the best teams in the world. I will say again, I am proud of how our people have adapted and excelled amidst all that is going on. That is what we do best at Carlyle, and all of us are excited for what's ahead. With that, let's turn the call over to the operator and take your questions.

[Operator Instructions] And our first quarter comes from Glenn Schorr with Evercore. You may proceed.

Hi, thank you. Wonder if I could just get a follow up on your comments on Fortitude. You and a couple other players continued to invest in this space. It’s a big space, so I wouldn’t call it crowded, it’s just more people focusing on it. So, you’d mentioned buying additional runoff portfolios as part of the core growth. I'm curious what you see out there? And more importantly, how do those deals get priced? I'll leave it general, and let you go where you chose to?

Hey, Glenn. It’s Kew, how are you? Thanks for your question on Fortitude. So look, we're really pleased how Fortitude is progressing. And just to point out, it's a globally diversified book of liabilities at Fortitude. It's largely B2B meaning, we don't really directly originate anything from the consumer. It's definitely not model line. And from a financial perspective, we're really pleased with the fact that its capital ratio is higher than our target in regulatory thresholds. It's generating attractive call it, mid-teens greater return on equity. And with the recent raising of additional monies from our limited partners and strategic investors, we and them now control approximately 97% of this platform that, like I just mentioned is performing well. So, we're now turning to managing this platform for attractive growth and prudent growth. So, by maintaining an emphasis on policy holder surplus and making sure our risk management policies are appropriate, as you know Glenn, there are jillions of dollars of legacy liabilities out there that need to be moved off of the balance sheets of the insurance industry, because it's not efficient for them to be holding onto these types of liabilities. We are very well-positioned with this platform. It's a proven team. It's a diversified book. And now that we've been able to with our partners effectively gain control of Fortitude, we do look forward to growing vis-à-vis acquisition of these types of businesses. In terms of how do you price these books, very carefully. These are complicated books of business. I'm glad we got incredibly talented management team at this platform, and we're going to be very carefully looking at these books to understand what makes sense to acquire into Fortitude, so that we can grow.

I can't spell the jillion, but I appreciate that. Maybe just one quick follow up. Just I don't remember what's your lock up on ZoomInfo?

You know, Glenn….

Glenn, it’s Curt.

Go ahead.

So just, in terms of the public securities in our portfolio, it's not our practice to talk about individual securities. But as we look -- and our practice has been -- is really so, as the markets open up remain liquid and healthy, we obviously look to what's right for our respective funds and stakeholders across and look for attractive opportunities to sell. Remember, we're not forced sellers. We look for the right windows. And when the securities are trading well, and we think it's in the best interest of all stakeholders, we’ll sell blocks. But, no comment on that any specific position.

Thanks for all that. Thanks.

And our next question comes from Mike Carrier with Bank of America. You may proceed.

Hey, guys. This is Dean Stephan on for Mike Carrier. Just a question around the CLO subordinated fees. Although, the deferral of the sub-fees hasn't been too material, so far year-to-date at only $8 million. Wondering how we should think about the risk of additional sub-fee deferrals moving forward, kind of the puts and takes around that? And maybe what you guys are forecasting as the potential impact over the next couple of quarters? Thanks.

Hey, Dean, it’s Curt. Hey, thanks for that question, really appreciate it. So, let me start with maybe a little bit of background. We have a large CLO business, where probably top three market share manages $27 billion of U.S. and European CLO funds. It's an experienced team. They've been through the wars before, including the great financial crisis and we came through that really well. We had some sub-fees back then that turned off. And we turned them all back, got them all turned back on and recovered all of those fees before. Our CLOs are performing better quarter-over-quarter. And, the performance and the trajectory is better than we initially thought at the beginning of this pandemic, probably if I knew what I knew now, I probably wouldn't even as mentioned the CLOs as much as we did in the first quarter. But one at least get that out there. I would say our team, what I'm really proud of is the activity of our team. There's been probably $3 billion of activity that the team's taken into account here in the second quarter, really to reposition the portfolio, make sure we're in the right place, manage our default rates, get the portfolio structured the right way. It's appreciated, I know on our own balance sheet, which isn't necessarily the same thing, but it's our CLOs and amount balance sheet is up about 13% quarter-over-quarter, reflecting kind of that improved performance. None of our European CLOs have turned off, while the U.S. CLOs are continuing to show some deferrals. We expect that either by the end of this year or beginning in 2021, we'll see those fees start to turn back on and possibly recoup all those deferred fees. The activity that we've had is really been really good in terms of focusing on cash. And really default rates at the end of the day is what you want to really look at. And our default rates continue to track very favorably to all kind of industry stats. And, this is amidst a time period where rating agency downgrades, at least year-to-date have far exceeded anything that's been before really in the broadly syndicated loan space. And so, this is despite all of that. So, again, I'm pleased with where we are. But, look, risks are ahead, you get a second wave, things get bad, the world changes. Obviously, what I've just said could be impacted. But right now, I'm feeling pretty good about our CLO book.

Very helpful. Thanks.

And our next question comes from Patrick Davitt with Autonomous. You may proceed.

Hey, good morning, guys. Thank you. My question is more broad, I guess, in terms of the cadence of economic shifts you're seeing kind of geographically and by vertical across the portfolio, maybe compare and contrast versus, when we were talking three months ago.

Hey, Patrick, it's Kew. Thanks for the question. It's a great question because what we're noticing is that this recovery is really uneven in different regions and different industries and different sectors are being affected very differently. From a regional perspective, clearly, Asia is out ahead. And by our estimates, China probably won't even enter into a recession this year. I would also point out that part of the world, particularly China, much of their recovery has been organic with very little fiscal stimulus. So they have a lot of ammunition left to deploy from a macroeconomic perspective. But clearly, what we're seeing there, though, is consumer behavior, even there is changing with skittishness. Travel's not yet fully recovered. Consumer discretionary is not as high as it used to be. And of course, the big issue is at some point, if the rest of the world doesn't pick up, what does that have implications to China. Europe is probably doing a little bit better than we thought and dependent on country. But in general, it's correlating to the fact that they may have made more progress on the health care front than we have. And as such, we're hopeful they're not out of the woods. But we're hopeful that there's a little bit of a step in Europe. America, you see what I see, it's uneven. Certain states are doing better than others. Certain industries are certainly going to be affected more than others. And I think it's fair to say there's still more to go with respect to declaring victory as it relates to health care, but also progress on the economic recovery front. In terms of industries, look, I think it's very clear there are some industries that have been very badly hit by COVID. And quite frankly, there are others that are just moving along and even have had their growth accelerated because of COVID. Especially those are tech enabled e-commerce, collaboration-based or cloud-based. And so, so really, it's one of the reasons why having a global platform like ours, having deep industry expertise, like ours, and being in all the asset classes with really strong investment teams is truly an advantage in this type of an uncertain and uneven recovery. It's why, per my comments, we can be cautious about the real economy, but are quite selectively aggressive in the areas we like, and are going to maintain a bit of caution and prudence as it relates to those companies and industries that are going to get hit harder. So, it's very difficult to characterize or answer your question with just a very flip, monolithic statement. It is a very uncertain, uneven, very differing recovery based on region, industry sector and asset class. But that's exactly the type of situation which quite frankly, Carlyle is well-positioned to handle.

And our next question comes from Michael Cyprys with Morgan Stanley. You may proceed.

So you had some strong performance, appreciation in the funds this quarter. I just hope that you could share a little bit more color around the performance in the funds. What are you seeing in terms of EBITDA and revenue trends among the portfolio companies? And what portion of the book would you say is more impacted here from this environment versus what portion of the book, would you say is not impacted? Or maybe even benefits from this backdrop? And how is that evolving relative to your expectations last quarter?

So, Mike, I'll start and then Kew might add on a little bit. So, just you know, again, if we look at it, we saw really good appreciation in our corporate private equity funds, and also real strength in our global credit business. And I'll just point out that the numbers that we do share on appreciation and global credit, really just relates to the 20%, 25% of the book that is in traditional carry funds. So, it doesn't really talk about, the CLOs which make up half and I told you that that's up, a lot or some of the other areas like direct lending and the like. And again, good performance across that entire book. In corporate private equity, the public markets are incredibly volatile. We've had real fortune with respect to some of the public companies that we've been able to take public, as well as some of the existing ones they've not only performed well, but the market has appreciated by and large, and so you see real appreciation there. A lot of that is in just the areas that Kew mentioned, we're strong in healthcare, and we're strong in technology, not just in terms of our public portfolios, but that's really makes up a good percentage of the way we've constructed. And again, what I like about where we are in even real estate, our U.S. real estate team has done a fabulous job of diversifying our portfolio, don't have exposure really in any material ways to hotel, no material exposure to big office buildings, no material exposure to retail. So, we've done a nice job of really being diversified and constructing our portfolios both in the buyout business and in the real estate business. And the footprint in global credit is really starting to take off nicely. So, I think that's good. Now, the one thing I will point out is, that I mentioned in my opening remarks, is our appreciation in carry was a lot driven by not just corporate private equity, but our sixth U.S. buyout fund, which is great. And I'm glad that that's a good place to have a little bit of concentration risk, but I want everyone to be aware of that concentration risk, but it's in there. If I had to look at my own dollars, that's a good place for me to be parking my dollars with that theme. I like that theme a lot.

Yes. Curt, that was a great answer. Michael, I'll just add maybe just two quick thoughts, which is first, we're really pleased with two quarters worth of portfolio performance. But I just want to make sure everybody appreciates. We and the industry we're by no means out of the woods, in terms of, there is still a lot to play out with respect to this recovery. So, having said that, I can't emphasize enough the importance of how well we have focused on portfolio construction. Look, while every fund will have one or two deals that aren't going away, we'd like them to, in general, our funds have been constructed very well. Case in point is our U.S. real estate portfolio, where they have virtually no exposure to office, hotel or retail sectors in that portfolio, and thus performing exceptionally well. But to Curt's point, it's a lot of hard work that's gone in over the years with respect to constructing these portfolio as well. And assuming we can stay focused and work with our management teams, and stay vigilant we're hoping to continue to navigate through this environment, because of the fact that portfolios have been constructed so well. So, look, it's a great quarter. But by no means are we going to be complacent. There's a lot more work to do, which we look forward to doing moving forward to the second-half of the year.

Okay, great. Thank you.

And our next question comes from Gerald O'Hara with Jefferies. You may proceed.

Good morning. Perhaps picking up on the increased target for the FRE range. I appreciate the outlook there but perhaps a little bit of color on what gives you comfortability on that increased range? And then also if there's any expectation around sort of FRE margin? I think you talked a little bit about kind of grinding towards 30% in the past. And now we're sort of at that level, what we might expect in this kind of new and updated range, if anything? Thank you.

Gerry, it's Curt. Thanks for the question. Let me just kind of level set give a little backdrop and then dig into it a little bit for you. So, as we've said, $256 million year-to-date FRE now, and that has some benefit in the first quarter of the $30 million, CTC expense recovery. And then obviously, again, with the Fortitude transaction, we recovered some expenses there. So, I would say we're naturally tracking to the middle of our range of $440 million to $475 million. But, there's a lot of things I'm really pleased with this point in time. The fee growth and the fundraising that we've seen, really in our investment solutions business, particularly at Alpinvest, has been fantastic. The Improvements that I've already talked about and our CLO platform is good. In addition, we recently activated fees on our latest aviation fund, and we also expect to activate fees on our most recent Japan fund here in the second-half of the year. Although, that will have some timing dependency upon completing the deployment of the existing fund. And we have further initiatives underway, specifically in credit, which should also give us some uplift. As everyone knows the pandemic has helped to curtail some expenses, especially travel and conference costs. And look, we're continuing to be very diligent on expense management. And so if all of that continues, and if we get some further help from transaction fees, but as Kew mentioned, I'd be careful there because large M&A deals may be tough to do this year. But if things were to pop favorably, we could end at the top end of the range. But to be clear, I wouldn't guide you really at this point in time to that middle point of our range, but we remain focused on continuing to grow FRE over the long-term. And as it relates to our margins, but we're hovering kind of 28% to 32% this year, we're at 32%, year-to-date 31% here in the quarter, and we'll bounce right around that. So yes, we've achieved that. We'll get higher in terms of the mid-30s and higher upon completion of the fundraising for our big flagship funds. As that occurs, that's when you'll see the next major step up. Until then, I would think that we'll be kind of in the same kind of ballpark zip code.

And our next question comes from Bill Katz with Citigroup. You may proceed.

Kew, maybe I want to come back to you. You had mentioned some cautionary comments on the sort of infrastructure outlook. I was wondering if you might be able to expand on that a little bit, and perhaps tie it into where Curt just left off. How should we be thinking about maybe some of the flagship fund raising as we look out into ’21 and ’22 given your comments about some second-half plus or minuses? Thank you.

Sure. Thanks, Bill. Look, as a sector, infrastructure is something that has been affected by COVID. Clearly, the finances of municipalities and the tax base has been hit. And there are other weird ways that implications of the current environment affect infrastructure, for instance, general contractors with working safety rules have difficulty completing projects. So clearly, certain types of projects, development projects in general are -- they’re complex to begin with. They get even that much more harder to complete in this type of environment. So, I would expect to see deployment to be more of an issue broadly speaking in the infrastructure sector. Now having said that, it's the type of conditions which over the medium to longer-term present great opportunity. When you have disruptions like this and dislocations, clearly, capital is there [ph] to complete important projects and to invest in infrastructure. And so, this is one of the things where I do believe in the short-term there are issues, but over the medium to longer-term the winds at the back of the infrastructure asset class in general. With respect to your question on fundraising for some of our flagship funds, all of this is interrelated to pace of deployment and pace of exits. And to the extent that that gets pushed out a little bit, it shouldn't be a surprise that fundraising would similarly get pushed out a little bit. I think, it's too early right now to tell you precisely, exactly when we think we'll be raising money for our next cycle of funds, so stay tuned for that. But clearly, mission critical right now is just to make sure our portfolio is in good shape, is to find these opportunities as the environment and adapt to the environment to find these new opportunities. And as our pace picks up, and no doubt as our exits pick up, you'll start hearing from us much more about beginning the next leg of fundraising.

And Bill, I’ll just add to that, even with all those challenges and issues, fundraising first six months of this year $12.5 billion, and that's without really anything significant in corporate private equity, really just showing the strength of fundraising in global credit and solutions, and more to come. So, we're always having activity from a fundraising perspective. It just may not be at those super or larger amounts with the flagship funds.

Thank you, both.

And our next question comes from Robert Lee with KBW. You may proceed.

Thanks for taking my questions. And even though, he's not on the call, I'm sure he’s listening, so Glenn, best of luck in your new endeavors and congratulations. Anyway, one business wanted to focus on was investment solutions doesn't get a lot of attention, but as a secondaries business, it seems like place that there should be pretty healthy growth and you've doubled FRE there. So, can you maybe update us on that? It kind of feels like maybe that business has finally reached some type of inflection point. And how should we think of that as an outside source of growth kind of the opportunities set there?

On this one Robert, it’s Kew. Let me start with some very high level comments and then Curt can help you a little bit with some figures. Look, we're really happy with our investment solutions team. I have to be careful, they are in the market right now raising a secondaries fund. But suffice it to say, when you have a strong team and a great track record, even in a COVID type of fundraising environment, it's a lot easier because of their ability to market their track record. So I've got a lot of confidence in that team. And I think you're exactly right. We are seeing broadly speaking opportunities in secondaries as limited partners and other owners of Alps are looking to find ways to manage liquidity and manage their portfolio, and manage allocations across their investment portfolio. So it's actually a very good time to be thinking about secondaries types of strategies, which positions our solutions segment and our Alpinvest team in a very good way. With that, let me turn it over to Curt.

So, thanks Kew. The thing that I've always been really pleased about, our investment solutions business is its performance. So, if you think about just our most recent the prior secondaries fund, for example, which was fully invested, and it’s a Fund part [ph] 2011, it's 18% net IRR. If you look at Page 27 of our materials in the earnings release, the Alpinvest funds on a net basis -- and these are primary, secondary and co-investment blends to a 12% net IRR. I mean it's just really good performance for these products. The investors really appreciate it. It's allowed us to scale this business. And you're right, that's contributing to a real nice uptick in fee-related earnings, going from call it $6 million in Q2 last year to call it $12 million this quarter and they're not done. The other thing that I like about this business is, when we bought it, we didn't buy the embedded carry. And these are European style waterfall's, which means it takes a while for that carry to come into and be in and really be attributed to us. So, while you'll see low net carry numbers coming off of this business, because most of that's going out to other owners. As we move forward, our percentage of that will increase and that will make this also a stronger driver of DE going forward. Now, again, this business is not going to be like a corporate private equity business, but it will be a bigger component. And I like its increasing contribution to our overall platform.

Great. Thank you very much.

And our next question comes from Alex Blostein with Goldman Sachs. You may proceed.

Hi. Good morning. This is Daniel Jacoby filling in for Alex. Thanks for taking my questions. Not to beat a dead horse here, but just to clarify a little bit on the updated FRE guidance. I guess two questions. One is what does this contemplate in terms of CLO subordinated fee deferrals, so kind of the range of sub-fee deferrals that you're assuming, it's in that for $440 million to $475 million range? I mean, just for comparison sake, as we think about kind of the increased FRE range, was the impact of the Fortitude transaction contemplated in the prior quarters, $400 million to $450 million? Or is that something that wasn't in that $400 million to $450 million guidance?

So, let me take a shot at these answers and thank you for the good questions. So the CLOs, just to kind of remind everybody, we are in about a $120 million a year annually on management fees out of the CLO business. So it's an important part of our business. Again, it's a $27 billion AUM business for us. So it's significant. Now, about two-thirds of that number roughly speaking, are subordinated fees that could be shut off. And so therefore, the concern at the beginning of the year was that could obviously have a significant impact, if rating downgrades were significant. That's proven not to be the case thus far. And so I'm feeling good about that. That has obviously helped us in terms of thinking about expectation for the balance of this year. But as I said earlier, there's a lot of other things to think about, the expectation. The Fortitude transaction coming through obviously helps. And as we look forward, our Alpinvest business is performing very well and that's done great. And so all of these things together has helped me, think through kind of the increasing our range, from where we were from the $400 million to $450 million to the $440 million to $475 million. On top of this, the comments really around -- I get a part of that was what drives, and again, it's these factors that they kind of get us there. And so, hopefully that’s responsive to your question. But I just would caution people that things, there's a lot of uncertainties that continue to pop up in 2020. And so, we just have to be continue to be cautious while actually effectively executing what we do.

Thank you, that's helpful. And can I ask a follow up?

Sure, Dan. Go ahead, please.

Thanks. Just maybe you've touched on this throughout the call, but maybe just to kind of tied all together, some of the fundraising that you expect kind of between now and that’s fundraising super cycle. What should we keep an eye out for?

So this year, we've done about $12.5 billion year-to-date. Early in the year we indicated $20 billion, that's still possible. I don't want you to put that down as a hard number. We just told, the second-half could be lighter. That's still a possible number for this year. And somewhere kind of hovering in that high teens to that level is what the business generally will be doing on an annual basis prior to the super cycle coming back in.

Got it. That’s helpful. Thank you.

And our next question comes from Jeremy Campbell with Barclays. You may proceed.

Sorry, juggling a couple calls this morning. So, forgive me if you've addressed this already in your FRE step up walk through. But I was hoping to give us some context on how to think about management fee rates? [Indiscernible] it looks like it stepped up a little bit quarter-over-quarter in both investment solutions and credit after you adjust to the CLO sub-fee drag. Now, I know obviously when fee paying AUM changes more dramatically like it did the quarter-over-quarter that there can be some denominator averaging issues involved. So maybe that's the culprit. But just wondering if you can give us an update on management fee rates and any potential impacts from here around either new funds turning on or any Fortitude impact?

Sure. So generally speaking, the funds that we have been raising from a fee rate perspective have been either equivalent to, or in some cases slightly better than their predecessor funds. So, the movement that you see up or down generally have to do with mix. And also the other key factor is when you get -- the new funds also coming in and you get the big step up from a larger fund, at full committed capital levels, that helps. And then you need to also take into account some places in particular our global credit business. Those fees tend to be more on invested capital rather than committed capital. And so as you invest more, you earn more in management fees, obviously, which makes sense. And that from an operating margin perspective, that is obviously very helpful because you're generally not adding the same type of expenses to the equation as you are from a management fee perspective. So, I would not get too focused on the effective rates at this time, because there's a lots of gives and takes. But the overall piece that I really would think about is that generally on a like-for-like basis, we're not seeing any decreases in terms. The terms are generally flat to better.

Great. And then now that Fortitude is all buttoned up, any potential impact to call out on that one too?

I guess, I wouldn't call quarantine or pandemic or uncertainties buttoned up. As Kew mentioned, I think we're still at the early stages of kind of recovery and seeing how things really play out. But what I do like is our core business. Our core business model 98% of our fee earning AUM is not subject to redemption. 90% of our fee revenues are long-term oriented. And that's all good. And then with respect to Fortitude itself, that Fortitude transaction changes essentially the dynamics around how we operate. So you saw the gap charge. But from an investment perspective, that business is well. It's marked 10% above what we have carried for. Its performance is right on track. Things are going well. With this closing, there's $2 billion of capital we raised, which will earn management fees on. You only saw one month here in the second quarter from that. So that's additive going forward. And then you have essentially as they continue to rotate capital in, essentially about $4 billion about now and are close to either committed or slotting in and then get up to the $6 billion, we'll see further uptake as that all rotates in. And then if we're fortunate to grow that business, I would expect further growth from said growth.

Great, thanks a lot.

And our next question comes from Adam Beatty with UBS. You may proceed.

Thanks for taking the question. Just to follow-up on CLOs maybe add to your having flagged it before. But I wanted to ask about the environment there. I mean, it sounds like your team is doing a really good job kind of managing it. Is it a case of your team kind of outperforming in a weak environment? Or not to take anything away, but is the CLO environment generally just better than folks would have expected? Thank you.

Yes. Thank you. So let me just give you a little bit of color. So, from a macro environmental perspective, clearly, one thing that really affects this business is our rating agency downgrades. And that came in spades last quarter. It has slowed down. And if all continues as currently right now, to Curt's earlier comments, I think we'll be in good shape. Of course, if the real economy goes in a different direction, then the downgrades accelerate, then I think that does pose headwinds for the CLO business. In terms of new issuances, but we didn't quite mention earlier or maybe we did, but we didn't highlight it. But we did partake in two recent issuances. One in Europe, one in the U.S. I would say those two does not a trend yet make. But certainly, it's encouraging that we're starting to see some life with respect to new issuances of CLO structures. An important aspect of execution in this business is, quite frankly, our team's ability to trade in and out and manage the CLO portfolios. And to that, to your question, on this front, I think our team did an amazing job over the past three, four months, trading out of certain positions and trading into higher yielding positions, with dislocations in the market, such that our positions are better yielding and performing today than they may have been during the depths of the crisis. So, hats off to the team. But to your point about what's environmental versus what are we doing. I think that's one element where having great investment teams and having the scale and the breadth that we do, really helps in this business. So, when you throw all those things together, you can see that it's a big business that we have, we think we've got a great team, the portfolios have been repositioned in a way that I think makes a lot of sense. We're all keeping an eye on rating agencies and what they're up to. And quite frankly, we are among the first if not the first in terms of being able to issue new CLOs. And hopefully, that'll pick up in the second-half of the year. But no promises on that, because I think it's not quite yet in a place where you're going to see sustained new CLO structures emerging.

Great, that's a really valuable context. Thank you. Then just a quick follow-up, if I may, on flows in fee AUM, maybe it's little bit housekeeping. But it seemed like a little lumpy in corporate private equity and investment solutions on the outflow side. So, I'm assuming some of that was some funds exiting the investment period, is that correct or any other color? Thank you.

So, keep in mind as we sell, that's our goal here. Our goal is not to in these closed end fund structures, which is kind of driving 90% of our revenues, our goal is to invest it, and then to sell it at a multiple and make money for our investors. And so you should always expect that our business to see outflows. It's not redemptions. Again, 98% of our fee earning AUM is not subject to redemption, but it's from realizations. And so, we had good realizations this year, and that's a big part of which we'll see. And obviously, other things that can contribute to that are some, step downs when you move around fee earning AUM and you move from the committed to the post the investment period, and so you can see a step down at that time. But generally most of the activity is from exits. And then inflows are obviously as we're raising capital around it and that’s really has been a big piece. You also see some inflows as we activate for fee earning AUM, so as we activate funds that we have raised, which would be otherwise included in total AUM but not included in fee earning AUM, until we activate them, and so they'll come in there. And then some of the funds which are dependent upon us investing, they'll flow into fee earning AUM as we invest that capital. So those are what really accounts for some of the ups and downs in the roll forward.

Fair enough. Thank you very much.

And our next question comes from Ken Worthington with JPMorgan. You may proceed.

This is Bill Cuddy filling in for Ken. So, focusing on your energy business, NGP XII is about half invested. So, getting to the range where we can think about the next vintage. But we have returned after fees negative NGP X and XI. What are the prospects for raising energy assets going forward? Do you think energy assets are going to be an asset class that investors will invest in? Or dedicated energy funds a thing of the past?

Hey, Bill, it's Kew. So look, your question has a lot to do with what's going to be happening with carbon and alternative forms of energy. And clearly, there is a transition going on, but this transition in our views can take a long time. And in the short-term, obviously, the energy markets right now have been very impacted, with demand destruction, as well as destruction on the supply side, and a whole bunch of geopolitical factors that are impacting conditions in the energy market. But the switchover to alternative is not as easy or as quick as people would want it to be. And so our view is, there's going to be a period of time where both traditional forms of energy, as well as new and emerging forms of energy are all both going to be viable. Now, from an investment perspective, how we play this is very dependent on values, valuations, as well as the ability of management teams that we partner with to actually drive operational improvement, irrespective of commodity prices. And suffice to say, I think in the short-term, we're in a little bit of a wait and see cautious mode, because of all the issues that are affecting the energy sector, broadly speaking. We do have a lot of optimism for finding great investment opportunities in renewables and alternative forms of energy. And we have teams that are looking at that. But clearly, this is not just a switchover. And in a snap of a finger, one whole sector is gone and another whole factor has phased in. It's going to take time. There's going to be bumps along the road. There's clearly a transition. And while that transition plays out, my personal perspective is there'll be great investment opportunities in both worlds. And it's up to our platform to try to figure out how to best navigate that.

Okay, great. Thanks for answering the question.

And we have a follow up question from Michael Cypress with Morgan Stanley. You may proceed.

Thanks for taking the follow up question. Just on fee-related earnings, about two-thirds nearly of your distributable earnings this quarter. I guess where do you see that in the medium-term? Obviously, there's some moving put some takes near-term, performance fees a little bit more subdued and then you raise the next flagship funds, which would help on the FRE, but at some point performance fee get to more of a normalized level, which I think maybe would drive that FRE contribution or I guess, where do you see that going? Anything through the puts and takes? And where would you like the FRE contribution to be longer-term?

So, I think you're asking about the performance fees currently and longer-term?

The mix of FREs longer-term.

You're breaking up a little bit. FRE longer-term.

Yes. The mix.

Okay. So look, on fee related earnings, we have been really clear in terms of growing FRE and committed to growing margins. Given guidance for this year, $440 million to $475 million and then as we go forward, the real question is I got to get 2020 done before I can really definitively answer what happens going forward. I think the right way to think about near-terms call it ’21 is probably flattish, is slightly up, again depending upon all of these issues from an environment perspective that we talked about. And then, I think you see a real recovery and a further opportunity to really stand upon FRE and margin, again as we’ve said, when the flagship funds return. And so, I think we'll be really -- but even before then, just to be more subdued but we're going to do whatever we can to drive growth in that near-term period. On net realized performance fees, I like the fact that we have $1.8 billion of accrued carry. I would like where some of our larger funds are positioned. But in the short-term, what you saw here in the first-half of this year was essentially, we're really good at focused on exits. I congratulate our teams for doing that across the board. And then pull forward, some of the carry that I thought would happen later in the year into the second quarter. And so, that's why I said realizations and carry will likely be well below first-half levels than the second-half. And look, there's always things that people are working on and we get surprised in Q4 by something kind of written or commented, but I think the more realistic place is well below kind of first-half levels for 2020. And then again, on ’21 and ’22, I think the engine is set up right to get us back to historical levels on much more -- $0.5 billion to $600 million of net carry per year. But when that happens, patience is the right word, especially in this world where big transactions are tough to do, and so calling timing on that is really hard. And my crystal ball just doesn't work that good right now.

Great. Thank you.

And our last question comes from Robert Lee with KBW. You may proceed.

Thank you for taking my follow-up and patience. Real quickly, Kew you kind of touched on the resiliencies so far fundraising, but may be drilling into that a little bit. Are there -- what are the different pockets where it’s been more resilient than others? Is it kind of I would assume endowment, a tension or be more reticent to make your commitments compared to maybe some other investors? Just trying to get a sense on maybe the complexion of fundraising and how different parts of the marketplaces are reacting?

Sure, Robert. Thanks for the question. So, yes, in general fundraising the environment has been more resilient. But I think in a virtual video, COVID type of a world obviously that has implications, so what are those? So, first of all, re-ups are easier than first time funds. Dealing with existing LPs is easier than trying to meet new LP's and new investment committees over video technology. And in certain asset classes, things like credit and credit opportunities, things where you can take advantage of dislocation like in our secondaries area, all areas where LPs are showing a real appetite. My general view is that for the most part the largest LPs are very sophisticated. They have a plan, they are fine tuning it, but we are not experiencing or seeing any dramatic changes in their appetite or their desire to keep allocating and keep investing in the asset class. The two last things I would state are, first, in times like these, I think our brand and our platform has particular appeal. LPs are comforted by the fact that we have enormous resources, our global platform being what it is, that we can really engage with our portfolio companies and bring full force to bear to help these companies, navigate through turbulent times. All the functional resources we have, procurement specialists, supply chain specialists, human capital experts, capital market experts, all that comes to bear at Carlyle around the world, as we're working with our portfolio companies. That is just a huge advantage to our platform that I think LPs appreciate and they become more aware of in times like this. The second thing I would say, and I'll finish with this. Taking a big step back, we're in a world where interest rates could be zero for a very long period of time. And I'm exaggerating a little for effect. Obviously, interest rates right now are going to be, in my mind, could be low for a very long period of time. In that type of an environment, there is no better way for our LPs to meet the needs of their investment objectives, than have to allocate and continue their investment into alternatives. And so from a longer-term perspective, I think the current economic environment and current outlook is such that, it further supports and reinforces the tailwinds that our asset class has. And within those tailwinds, I do believe Carlyle, with our platform and our global presence and the history and the depth of our teams, I think we're extremely well-positioned. So that makes fundraising for us easier. But, let's be clear, it's logistically more challenging, if you're trying to deal with new LPs. And obviously, first time funds are also a little bit harder.

Great. I appreciate you taking my follow up question. Thank you.

Thanks, Rob.

And this now concludes our Q&A portion for today's conference. I would now like to turn the call back over to Daniel Harris for any closing remarks.

Thank you all for listening, and for your time and attention this morning. If you have any follow-up questions, please follow-up with Investor Relations at any point. Otherwise, we'll look forward to speaking with you again next quarter. Have a nice day.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.