Good day, ladies and gentlemen, and welcome to the Carlyle Group's First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Daniel Harris, Head of Investor Relations. Please go ahead, sir.

Thank you, Charlotte. Good morning, and welcome to Carlyle's first quarter of 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, Adena Friedman. Earlier this morning, we issued a press release with our first quarter 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 unitholders. [Operator Instructions] And please contact Investor Relations following the call with any follow-up 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 Factor 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 any time. With that, let me turn it over to our Co-Chief Executive Officer, David Rubenstein.

Thank you very much, Dan. Thank you for joining the call this morning. We are pleased to report today that after a strong fourth quarter and a strong full year in 2013, Carlyle is off to a robust start in 2014. During the quarter, from our 2013 base, our investment pace improved, our portfolio continued to improve -- to appreciate, and our ability to achieve new fund investor commitments accelerated, a number of our funds achieved attractive exits, and several of our larger funds moved deeper into carry. Specifically, we produced $183 million in pretax distributable earnings for the quarter, up modestly from $171 million in the first quarter of 2013. But more importantly, over the past 12 months, our distributable earnings are up 25% to $852 million. Our carry funds appreciated 6% in the quarter and 18% for the last 12 months. We raised new commitments of $5.5 billion, up from $4.7 billion raised in the first quarter of last year. We realized proceeds of $3.1 billion, lighter than the $4.1 billion realized in the first quarter of last year, but we still produced $249 million gross and $141 million net in realized performance fees. We invested and committed $4.2 billion in equity, of which $1.1 billion was invested in the quarter and the remaining $3.1 billion will be invested in coming quarters when the relevant transactions close. And we achieved $322 million in economic net income in the quarter. Bill and Adena will shortly provide more detail on certain aspects of this quarter's performance. Let me focus my comments on 3 areas: our progress over the past 12 months, the management team that we've assembled, and our fundraising activities. Over the past 12 months, the firm has become much stronger by a great many of the metrics often…

Thank you, David. Let me start with a comment about the investment environment. Given recent geopolitical and macroeconomic events, we are surprised at how ebullient credit markets have been in 2014. The world continues to be awash in liquidity, and investors are chasing yields seemingly regardless of credit quality and risk. Tight [ph] leverage levels in the United States increasing by almost a full turn over the past year. Spreads between investment grade bonds and high-yield bonds a few weeks ago were around 130 basis points, almost 250 basis points below the 20-year average. Thus, the market is not assigning a significant premium to riskier assets. We continually ask ourselves whether the fundamentals in the global credit markets are healthy and sustainable. Frankly, we don't think so. What does this mean for our global investments? On the positive side, we are locking in low interest rates for our new investments and continuing to refinance existing debt. For example, one of our newest investments, Signode Industrial, expected to close in the second quarter, originally announced its acquisition financing at a blended interest cost of 4.75%, the lowest cost of financing we have seen in any industrial transaction. At the same time, historically low interest rates and a high appetite for risk are pushing up leverage levels and contributing to rising asset prices. This is good news if you are a seller, but bad news if you are a buyer. Given these dynamics, good deal judgment is paramount. Despite the frothy investment environment, by focusing on Carlyle's strengths like carve outs and mid-market deals, we are off to a good start this year, investing or committing more than $4.2 billion in equity. Last year, we were very busy in China and Europe. We invested more than $1 billion in China, the most…

Thank you, Bill. My remarks today will focus on our financial results, as well as an overview of the balance sheet capital raises we executed this quarter. As we highlighted in our release this morning, Carlyle generated $183 million in distributable earnings this quarter, up 7% from last year's first quarter. Distributable earnings for the quarter were driven by $141 million in net realized performance fees. Distributable earnings over the past 12 months of $852 million are up 25% over the prior 12 months. Strong performance in our carry and hedge funds drove significant unrealized performance fees in the first quarter and were the main driver of Carlyle's $322 million in economic net income. Carlyle generated $356 million in unrealized performance fees due to a 6% increase in the value of our carry funds. Notably, strength in the U.S. and Europe buyout drove those funds deeper into accrued carry. Firm-wide, our net accrued carry balance, which nets out performance fee-based compensation and givebacks to the $2 billion as of the quarter end, up 36% from $1.4 billion at the end of the first quarter of 2013. Our net accrued carry equaled $6.16 per adjusted unit. As of the end of the first quarter, 72% of the fair value of our investments was in funds in carry, up from 66% in Q1 of 2013, but down from 80% as of the fourth quarter. On a quarter-over-quarter basis, while our overall accrued carry balance increased, 3 of our smaller funds that were in catch-up as of the end of the year end -- as of the year end 2013 fell out of carry in the quarter. All 3 funds have strong portfolios and are likely to reenter a carry position in the coming period. Carlyle generated $37 million in fee-related earnings in…

In sum, we had a strong first quarter and seem well positioned to achieve our goals for 2014 and beyond. Now we would be pleased to take your questions.

[Operator Instructions] Our first question will be coming from the line of Ken Worthington from JPMorgan.

Wanted to talk about the equity capital market environment. It appears to become more uncertain with some recent transactions breaking deal price and other deal price ranges getting lowered. Do you think the M&A environment is strong enough to make up for a less robust IPO market should the weak capital markets persist if we look out to the remainder of the year? And does the frothy credit market present a risk to the outlook for the M&A environment?

Thanks, Ken, for the question. This is Bill. I'd say the following that the -- focusing first, if I can, on the credit markets. The credit markets, just in the last 3 weeks, have been buffeted by what I consider some crosscurrents. On the one hand, by our calculations, about 20 deals have actually flexed their pricing upward in the last 3 weeks. And these deals range in size from deals of a couple of hundred million dollars to over $1 billion. And of course, the base rate is still very low. But the spread is increasing at least on those flexed deals. And that's far more flexed deals, frankly, than we saw in the last probably 6 months. So it's a big -- that's maybe an exaggeration, but there's a large number of flexed deals. On the other hand, the other crosscurrent, really frankly going in the opposite direction, is what we saw on the Numericable deal, where we were a big shareholder in Numericable, which is merging with SFR, and Altice is kind of a controlling shareholder now. And they're taking us out, and we're swapping part of our shares for shares in Altice. And they had to raise roughly $20 billion in financing. It was a combination of different maturities, it was floating and fixed, it was done in both U.S. dollars and in euros. And the deal, my understanding, was 4 or 5x oversubscribed. What that demonstrates is that I think that for a large deal with a lot of liquidity that the deal is still attractive to the market. They're still searching for the yield and they'll go get it, particularly because they know they can trade out of it if they want to or need to. I think in terms of the question in…

Our next question will be coming from the line of Robert Lee from KBW.

I guess my question is maybe for Bill. I mean, and I guess, maybe David somewhat. But you talked about kind of the defining opportunity but the more challenged investment environment. I think, David, in the presentation you gave a couple of months ago, you talked about returns on PE generally being way above market returns, but maybe more in the mid-teens range. So how is that impacting how you underwrite transactions? Has there been any change? Or do you have to kind of adjust your own expectations down when you underwrite a deal?

What I had said, for those who didn't know what I was talking about in that presentation or may not have been there, was that I think that investor expectations of rates of return have probably come down a bit in the last year or 2. And as we raise money, I think investors today would say, if I can get a net internal rate of return on my private equity investments of 15% or 16% or 17%, I'm very, very happy. 10 years ago, they might have wanted something in the low 20s as a net internal rate of return. And therefore, because investors have lowered their expectations a bit, and they don't see other attractive alternatives, we have found and firms as well, that fundraising is still pretty brisk. And I think it's in part because people think we can get these kinds of rates of return. As to how we underwrite the deals, Bill?

I'd say the following. First of all, although the investors may be willing to settle for a somewhat lower internal rate of return, that hasn't been what we've been willing to settle for. For 10 years, we've been telling our investors that it will be very difficult for us to sustain the levels of return that we have been able to sustain. And for 10 years, actually, I've been wrong. We have been able to sustain the -- those kinds of rates of return. In terms of our underwriting process, I would say that, today -- and of course, remember, we invest all over the world and we invest in lots of different asset classes. And so, it's a little difficult to generalize. And in addition, of course, not every deal has got the same risk profile, at least expected risk profile as we see it. But in general, I would say, we are still trying to underwrite our returns in the Corporate Private Equity business with a gross internal rates of return in excess of 20%. Now that means -- one thing I would say, sometimes, one of the areas that we really focused on a lot, frankly, is these large corporate carve-outs. The ExAlta business, which is the DuPont paint business we brought from DuPont, or the Ortho-Clinical Diagnostics business we're buying from J&J, or a business we bought last year from Hamilton Sundstrand business that we bought from UTC, and others. We focused really on that business. It's a tough dirty job to take a big division out of a giant big co and set it off on its own. We think we know what we're doing. We have a very good track record of doing that. We're looking for opportunities in that space. It's a lot of hard work, but hopefully we can do it, and earn attractive returns.

Okay. Maybe, as my follow-up, I guess a month or so ago, you announced the new head of your Private Client Group. And, David, you definitely talked about the high-net worth market as being a key market you want to grow and get some more penetration. If you maybe just update us on some of the initiatives there and maybe your progress to date?

You're referring to Jeff Holland, who joined us, who's heading our group there. And he has a wealth of experience in dealing with retail investment products, and also in dealing with people who help people like us raise that kind of money, often large commercial and investment banks who have so-called feeder funds that they often use to raise money for our products. Jeff just started, so I don't want to say exactly what he will do. But we are looking at products that will be geared exclusively to -- for those -- that was thunder for those who might have heard that. They're looking for products that are exclusively for retail investors. Though a lot of what we're raising right now is money from retail investors who are coming into products that are for all kinds of investors. So in other words, right now, we are raising a lot of money for our funds from retail investors, high net worth, typically. And they're coming into the same funds that the institutional investors are coming into. But we have work underway, and we will be having some more things that are focused only on retail or high net worth investors because they sometimes have different investment interests than the institutional investors. And we don't have anything to announce today, but we expect to be fairly active in this area.

[Operator Instructions] Our next question will be coming from the line of Mike Carrier from Bank of America.

Adena, can you give some color on the fee-related earnings? I was just curious, on GMS, was there anything on the fees that weighed on that this quarter? And then, when we look on the performance side, it just seems like the performance, like for the comp ratio out of the performance fees, it seems like it was higher. And seasonally, when we look at year-over-year, it's more meaningfully higher. So I didn't know if, like some of the recent transactions, there's been anything that's more nuanced or has it been just certain funds have different comp ratios that are just making that shift from quarter-to-quarter?

Sure. So I'll just -- but I'll just want to confirm your question on comp ratio, is it related to the full firm or just the GMS?

The GMS. It was more on just the fee revenues. The overall comp ratio was for the full firm.

Okay, great. So with GMS, there were some episodic fees that we received last -- first quarter of last year and fourth quarter of last year related to winding down of certain CLOs. And those fees generated -- it was about $7 million in the first quarter of last year and $5 million in the fourth quarter of last year. We just did not have that kind of -- those types of fees. Those episodic fees occur this quarter. We also had some catch-up revenues associated with finishing up the fundraising for CSP last year. And that fund is fully raised at this point. So those type of episodic fees that we experienced last year is we're just not -- we're not seeing more of. Where we are seeing benefit in GMS and growth in the management fees is in the AUM on the hedge funds. They continue to have the growth in AUM year-over-year. And then, also, the BDC that we launched. We're investing it now. And so, we're -- that's a vehicle that's paid on invested capital. And so as we invest that fund, we'll see fees continue to grow there. So we definitely have progress in the segment, it's just the episodic fees didn't recur. With regards to the comp ratio, I think it's probably good for me to give you a little bit of a breakdown of the increase in cash compensation from Q1 of last year to Q1 of this year. If we look at -- it's about $31 million increase in cash comp. And of the $31 million, about 40% of that is a result -- is an increase in solutions, which is primarily due to the acquisitions we completed after Q1 of last year. So that specifically is the majority that we acquired…

Our next question will be coming from the line of Marc Irizarry from Goldman Sachs.

Marc Irizarry, Goldman Sachs. Just maybe some more color on the funds that slipped out of accrued carry mode. If I look at the table and the disclosure around the couple of funds that look like they're no longer accruing carry. Can you give some perspective on those funds? Where the reversals of the accrual, was it driven by private market valuations or are there some public comps in there? Just trying to get a sense of how much of the change, I guess, in the carry ratio or the funds that are in carry that in carry ratio, how much of that delta was really just driven by a few funds crossing back over?

Sure. So if you -- on Page 26 of the release, we do provide a remaining fair value analysis. And the funds -- the specific funds that were in carry last quarter or frankly in catch-up last quarter, and are no longer in carry, are Carlyle Asia Growth Partners IV. And then you've got Carlyle Equity Opportunities Fund I, as well as a Renew II. Those are the 3 funds that crossed back out. In terms of -- but starting with actually Carlyle Equity Opportunities Fund I, that actually cross out because we made some big new investments in that fund and when we mark those investments on entry into the fund, they tend to be marked at cost -- as our cost minus the transaction fees. So that's just drove down the valuations technically. The rest of that portfolio is doing extremely well. It just happens to do when you burn in big new investments, that tends to be what happen when the fund is just early in its carry life. And that's an early fund. So it will be a while before we start to harvest significantly out of that fund. And in terms of Carlyle Asia Growth Partners IV, the majority of the change in the values there were based on the public markets. And that fund is heavily invested in China and India and the markets in those regions, the emerging markets were really mixed. And so just depending on what public securities we owned in that fund that definitely [indiscernible]. In Renew II its primarily a private mark and just has to do with -- that fund has been toggling in and out for several quarters. And I would expect it will continue to do that. And it's a relatively small -- in our Riverstone portfolio.

Remember also that -- this is Bill. That if a fund is not fully invested, and you do a new investment in that fund, if the fund was in carry and was achieving at least, let's say, the preferred return and paying back the expenses, then it can slip out of carry just because you did a new deal and you valued it roughly at cost.

Our next question will be coming from the line of Bill Katz from Citi.

Just given the addition of Mr. Cavanagh to the executive suite soon, wondering about any type of change of strategic direction or incremental opportunity that, that addition may offer?

We're very pleased that Mike has agreed to join us and he'll be actually starting, I think, in June. We don't really see it as any change in our strategy of what we're going to pursue. We would like to just strengthen our next-generation leadership and also strengthen our current management structure. And that's what really it did. But it shouldn't be seen as we're going in a different direction than we were before. Obviously, Mike can bring some great values to us and he'll have contacts and insights that maybe we didn't have before. But you shouldn't read into it that we're going in a direction, a, which is different than where we were before.

Our next question will be coming from the line of Brennan Hawken from UBS.

So in the Real Asset section, just hoping to flesh out maybe the continued losses in the investment income there. I know that's been a sort of repeating issue here. And last quarter, you indicated that you felt fully accrued on a -- from a tax perspective for Europe. So curious whether or not some of the losses this quarter had anything to do with that item? And maybe, if you could help us out with how much is attributable to LatAm and Europe, if those are still the 2 trouble spots. And then, whether or not maybe Renew II going into claw back might have had something to do there. And then finally, how long you might think Adam Metz, it would take him to get that turnaround really going for that division? Sorry about the multiple parts, just don't want to get chastised by the operator for the follow-up.

Let me start with that. Given how many funds we have, to be honest, that we have so few that really need kind of special attention or turnaround is really surprising. A biggest fund that we have to really focus on is our second European real estate fund. And that -- and some of the problems that we saw in the European real estate market. Adam was brought in to help with that turnaround and also to do other things for us in international real estate. He has worked pretty hard on effectuating some improvements there. There's nothing yet that we can cite that is going to say, immediately be a turnaround that will reverse some of the problems we've had. But I do think that Adam is an extraordinarily talented, well-respected real estate person. We're very happy to have him. And I think we will see improvements in the not-too-distant future, but nothing immediately. Adena or Bill?

So on the investment income. There is no further effects coming from the tax position in Europe flowing through the numbers in the quarter. As we've said, we felt fully reserved on that based on the facts that we currently have related to that matter. So the $18.5 million of investment loss, about half of that really comes from the continued losses that we have in the real estate investment in Latin America, and I mentioned on the last quarter call that, that will continue to be a loss that flows through our financials because we're consolidating that investment due to the way that we funded it. And that company is currently operating at a loss. And so that will continue -- you'll continue to see that coming through. The other half is coming from just a change in the value of a loan that we -- that the balance sheet made to the CEREP II Fund, the Carlyle Europe Real Estate Partners II Fund, that David just mentioned. And that value will fluctuate based on the underlying value of the assets there, so just we had some change in the asset values there and therefore, it took down the value of the mezz -- the loan. But those are the changes and that will sometimes be positive and sometimes be negative, kind of depending on how that portfolio is progressing.

Our next question will be coming from the line of Michael Kim from Sandler O'Neill.

Just wanted to follow-up with Adena on the recent capital raises. Just wondering if you could walk through in maybe a bit more detail in terms of how you're thinking about capital needs going forward? You mentioned the NGP option, but just beyond that, any color on how you're thinking about the mix or the balance, if you will, between sort of GP commitments versus just having some dry powder available for further bolt-on acquisitions? And then related to that, any color on sort of what you're seeing in terms of the M&A environment in terms of supply, pricing or just the competitive landscape more broadly?

Sure. So with regards to the capital raises. I think that, I would start by saying that as a publicly traded partnership, it is very efficient to the unit holders for us to distribute earnings. And I think, that we do that because of the fact that we have an efficient way of streaming the income to you. We think that, that's something we want to maintain. And so, we look at the fact that we are fundamentally a yield stock, and we continue to expect to be one. But at the same time, we want to fund growth. And as a result, we've used the capital markets as a means to fund our growth, both in terms of investments in our funds, and I'll go through that in a second, as well as strategic investments we want to make for the firm like the NGP option. And other bolt-on acquisitions that we will probably continue to do over time. And so, I think that -- so you could see that we try to use the balance of equity and debt, and we'll do that opportunistically, depending on the health of those markets and how accessible they are to us and what we're funding in terms of the types of growth that we're funding. So that's something that we would look at as a means to fund -- help fund growth. In terms of investments in our funds, if you think about it, we're making 1% investment into all of our funds. And if for instance, over the last several quarters, we've invested about $8 billion and we're making 1% investment in our funds, then you'd expect that we would have kind of somewhere around an $80 million investment intake putting into the funds over time, until those funds start to distribute back to us. So it will become a self-sustaining exercise over time, but I think that right now, we're building up the investment balance in our balance sheet and that will be a cash out flow for a period of time. It's, obviously, a very high return activity for us. It's well in excess of the RAC and that's what we will be measuring ourselves on in addition to providing accretion for our unit holders from anything we do. So those are the types of -- that's how we see the use of the capital markets. I don't know if want to add...

Just to add to that. Financial service industry acquisitions are not always the easiest to do and many if all of you probably are familiar with some haven't worked out throughout the recent years and for other large firms. In our case, we've actually been pretty successful in making the acquisitions that we've made. They've worked out, I think, quite well and our return on invested equity there has been quite high. And so, we are going to be continuously looking for other good opportunities that fit within our overall strategy of the businesses we want to be in.

Was your question about acquisitions by Carlyle or acquisitions in the -- the broader investment environment? We'll move on.

Our next question will be coming from the line of Warren Gardiner from Evercore.

So I was just wondering if you guys could give us a little more color on where maybe NGP X stands in terms of maybe an IRR or MOIC.

As of right now, because we don't own the carry in that fund, we don't publish the returns in that fund. But as we go forward, we would expect, once we exercise the option, that it will be included in our fund tables. As a general matter, I can say that the fund is doing quite well and it has a strong IRR, it's finishing up its investments -- it's investment period and they are -- they have launched the fund raising for fund XI and it is going well.

And perhaps, we wouldn't exercise the option if the fund were not doing well.

Right.

Our next question will be coming from the line of Patrick Davitt from Autonomous.

On the -- so you have now 7 of the CT funds accruing carry, but only 3 with LPM realized carry. The IRRs are getting fairly -- it was getting a fair amount of gap between that 8% bogey and where they are now. Just kind of curious how you think we should think about that 3 catching up with the 7 and what the timeline for that might be?

Sure. I'll take that one. And I'll -- the -- as we explained, I think, at the earnings day and maybe even on the last earnings call, we have -- it's not a total science determining when exactly we're going to take carry. The investors obviously hate it when you go into clawback. And so, that, for example, our gross accrued carries about $3.8 billion and our gross clawback is about $40 million. So we avoid clawbacks and that makes us maybe a little conservative when we're going to start taking the carry. I would point you in the earnings release obviously, and I think you got it to the gap on maybe it's Pages 26 and 27 of where the -- let me see. If you look for example at Europe III, which is a very good example. Total fund size was 5.3 billion. We've really -- it's fully invested now at just under 5 billion. Total fair value of $7.9 billion and a 1.6 multiple. Then that's the fund in total. Then when you go to the remaining fair value analysis, you can see on CEP III that the remaining fair value actually exceeds the average fair value of the fund at 1.7x. And you can do some of the multiplication yourself. I would expect that fund would be taking cash carry within a year. It is obviously, a big fund. When you have a EUR 5 billion fund, it's a lot of money and hopefully, we can move that into taking cash carry in that period of time. Asia III is another one. Although the gap is not as great there between the unrealized MOIC and the remaining fair value, it's another big fund. It is performing very well. It is exceeding its hurdle. It's another fund…

So the key takeaway being that the gap in those MOICs is more important than the gap of the IRR from the preferred return.

They're both important, but I'd tell you, it's partly it depends on the timing of the fund, the life of the fund. As you get closer to the end of the fund, it shifts a little bit to which becomes the more important. It's interesting also that the -- these funds generally require exceeding the preferred return. And so, what happens also is when you sell an asset, that it's a big asset and you don't cover the whole preferred return on that, it can make it look like the entire fund is moving out of realized carry. It's kind of a strange mathematics. But generally you're right, look at both of those things, and you're on the right track as to what we're doing.

Our next question will be coming from the line of Christian Bolu from Crédit Suisse.

Just the dry powder continues to build and is now equivalent to, I think, roughly 40% of fee pay in AUM. In light of your comments on the [indiscernible] of the market, at what point do you think you get some pushback from LPs when you try to raise new commitments?

Pushback in with respect to...

Just trying to raise new commitments given you already have so much dry powder on hand already.

Okay, investors don't really look at our dry powder. I mean, that's something that you and people who do what you do look at. And we look at it as well, but each investor looks at his or her own fund and what fund they're going to go into and what kind of rate of return they're going to get. They don't really look at our overall dry powder. They really look at our track record. So I don't think we're getting pushback from that factor. Right now, we've seen a lot of interest in our funds. And as some of you have heard me say, probably more times than you want. 60% of our capital comes from investors who have 6 or more of our funds. And as a result, we find going back to investors who are already with us is very, very productive and they don't really focus on how much dry powder we have. They tend to focus on whether we can invest the money in a sensible period of time and get the rate of return that they want. And generally, that's been pretty good for us, and I think for the entire industry. The industry right now is experiencing pretty good fund raising numbers and I think we reflect that.

But I think it's also a function of -- it's really, I would think of it as dry powder per investment strategy or per fund. If you raise a $10 billion fund, if you are 3 years into a 5-year investment period and you have invested 10% of the fund, that's dry powder that everybody is very concerned with. Are you going to be able to get the full fund invested and the question. Remember of the $56 billion as well, about $20 billion of it is in the solutions business, which is a different kind of dry powder that's being put together there than the dry powder in the other funds. So people also look at it fund by fund. Tell me about my fund. Its earnings, its preferred return, its expense ratio, it's covering its capital. When are you going to sell that deal? When are you going to give me a distribution or realization? Not so much about the overall.

One final point I'd make on this is that when you have a large amount of dry powder, it does help you get deals sometimes. People come to people who have the capacity to put forth a large sums of money out, and we are fortunate to have a fair amount of capital. So we are seeing deals all over the world where people come to us and say, we know you have the money to do this, we'd like you to consider this deal. And it's been a big advantage for us, I think, having this kind of level of dry powder.

Our next question will be coming from the line of Mike Carrier from Bank of America.

When I asked that comp question, I was actually talking about the performance or the incentive comp versus the base comp. So I just wanted to find out if you have any color on that because it looks like the ratio picked up this quarter, and I know it can vary by fund and all that kind of stuff, so maybe it was something related to that. And then [indiscernible] just on your M&A comment, I was just wondering when you look at the sectors and where you guys are invested, is there any activity that you would say is picking up maybe more than other sectors or more than the overall market, where you may be better positioned or is it much more of a broader comment for the overall business?

Okay, let me start first on the investment environment and what sectors look particularly strong or less so. The -- in first of all, we invest all over the world, but I'll concentrate my comments on the United States, which is where we have a lot of the industry specialization. I would say, out of the businesses that we have, industrial has obviously been very strong. Partly it's a function of the U.S. energy revolution. But we've been very busy. We did the Signode deal as part of that business, the Axalta deal was part of that business, the ADT deal was in that field as well. Allison Transmission is in the industrial business. So we've been very strong in the industrial side. And that's, of course, where there are carve outs, as people are trying to optimize their own business and what businesses do they want to invest in and grow. And frankly, when something is a little bit of a corporate orphan to a big strategic, sometimes it's pretty attractive to somebody like us. I'd say -- so that would be #1. I'd say #2 frankly is healthcare. In that business, we've obviously been successful with Manor Care in the past and PPD, which we did a couple of years ago. And of course, the Ortho- Clinical business from Johnson & Johnson at a purchase price over $4 billion is obviously a very big deal as well. It's another carve out where you have to take a big company out of another even bigger company as well. Consumer, we see some action there as well. There's action all over the portfolio, but if I had to cite 2 businesses, I would probably say industrial and healthcare are the most active today in terms of both recent deals done and the pipeline.

And Mike, with regards to your comp ratio question. Thank you for clarifying, sorry, I didn't understand it before. But on for performance fee-related compensation versus total performance fees, the ratio is going to change quarter-over-quarter, and I'll give you a little bit of explanation of it. But this quarter, it was about 50%. It was the first quarter of last year, it was around 60%. And the reason for that is going to be the composition of the carry. So where is the carry coming from? In Corporate Private Equity, you're going to see a relatively consistent 45% comp to 55% coming to the firm, 45% going to the teams. And that's going to be relatively consistent quarter-over-quarter by design. Whereas if you look at global market strategies, it really depends on where the performance fees are coming from. So in the hedge fund, we recognize proportionate consolidation of our hedge fund, but we do have comp against those funds -- those fees as well. And that ratio is going to change quarter-over-quarter, just depending on how the performance is doing. And it's not a fixed ratio. Whereas in the carry funds in that, that, that segment it is a 55:45 split. So in this particular quarter, most of the performance fees came from the hedge fund because the GMS carry funds increased 3% versus 9% of first quarter of last year. But the ratio is going to be different. We -- that's not as much of a science. And I think that with Real Assets, remember that Riverstone, when we have carries that comes from Riverstone, we have no compensation offset. And we did have some carry in the first quarter of last year. We do not have carry coming off of Riverstone in the first quarter of this year. And so the comp ratio is going to be different than it would be in the prior quarters. And then lastly, in solutions that -- I just wanted to remind you, the AlpInvest, the legacy business of AlpInvest, they received 85% of the carry on all the legacy carry that they owned coming into the acquisition back in 2011. And they receive 60% on a go-forward basis on investments they've done since then. So that ratio should improve over time in terms of how much we end up keeping. But for the most part, they had very strong performance in the first quarter of this year versus the first quarter of last year and so they are a bigger part of our total performance fees. And they end up with a very high ratio -- comp ratio against that based on the legacy deal that we did with them. So I hope that explains the details, but it will fluctuate every quarter and every segment has its own characteristic.

Our next question will be coming from the line of Brian Bedell from Deutsche Bank.

Most have been answered, but one on just fund raising. That seems to go pretty well. The question would be are you -- looks like you're on track to exceed the $15 billion to $20 billion guidance that you have for the full year, and then maybe if you could just talk about some of the funds that you're in the market for in the near term? Or is the first quarter pace running ahead of schedule?

Chris, if I say we're ahead of pace and I set a high bar, then I don't want -- I won't be able to say how we've exceeded our targets later on. So I don't want to say we're ahead. We are in a pretty good shape. We did $22 billion last year. I think, we projected we would do around $20 billion this year, but I think we may well do more, but I don't want to guarantee it. The funds that we have in the market that are experiencing enormous demand are our international energy fund. And that is the first fund, but it's a somewhat unique because there aren't a lot of international energy funds, i.e., they don't invest in the United States. And we have a very talented person leading that fund, and that one will do quite well. Our U.S. real estate fund, our seventh one, is meeting very strong demand as well. Our fourth Asian fund is, I believe, going to exceed our target. And that's in pretty good shape as well. We think that our European buyout fund, which is doing quite well now, is going to do well in the market. And we've had a number of large buyout funds in the market, and it's hard to have an infinite number of buyout funds in the market at the same time. U.S. fund is out of the market, I think the Asia fund will be out of the market in the not-too-distant future. And a lot of our energies can also now focus on the Europe buyout fund, and that will be pretty attractive. NGP is -- has its own marketing team that works closely with us, but I believe that, that as you heard earlier is in pretty good shape and will be very attractive as it raises money. We have a lot of other funds. I won't go through all of them now, but I'd say that investors have money. They're more discerning than they might have been 5 years ago in some respects. They negotiate somewhat harder than they did in some areas. But generally, I think investors have money to deploy, and I see it more ebullient now than I did in the last 2 or 3 years.

And does it seem like it's more than the fundraising demand or the demand for investments is a sort of exceeding the -- your sort of ability to invest? In other words, turning down investments to some degree?

I wouldn't say that, Bill?

I wouldn't say it either. David and I, periodically argue whether or not he is better at his job or I'm better at my job in terms of putting the money to work. It varies all over the world by fund and by product, but I think it's pretty well in balance, that the market actually figures out that they don't want to give you money that you're not going to be able to invest and earn realistic returns as well. So they look at the team, they look at the market environment, they look at the opportunity, perhaps the competition, and all those things considered, I would say, they're in balance pretty well.

The argument is that I think Bill is doing a better job than I'm doing, and he thinks that I'm doing a better job than he's doing. In other words, it's not that we're arguing each of us is doing our job better, it's the other way around.

Our next question will be coming from the line of Bill Katz from Citi.

Two-part question. First part is maybe update your thoughts on the ability to penetrate further into the U.S. retail channel. And secondly, you mentioned with all the growth capital that you're raising, some of it's the [ph] investments, so curious when you look at your products set and where you feel like you might be somewhat deficient?

Raising retail products for a firm that has kind of a background we have is going to take a long time. It's not overnight that you can evolve the kind of products that we will want to evolve in our space just for the retail markets. So it's not something that's going to dramatically change our composition of the firm overnight, but we brought in somebody as you heard, who's going to focus us on that and we have a lot of things in the works, but nothing that I think, in the next quarter or so are going to dramatically change our earnings. But it is an area that we're focused on because increasingly, retail investors are not happy with some of the products they have had over recent years from other areas. And now, they think that firms like ours can justify the kind of rates of return that they want and can achieve them. But it takes time and I wouldn't expect overnight to see any dramatic change here.

Yes. And then in terms of the acquisition environment. Bill, I think that as we always said, we're going to be opportunistic. And I think, that if we look at where we have been doing acquisitions, I mean, there continue to be opportunities in those spaces generally, in GMS, we've been active with the hedge funds, and if we find some very accretive and interesting and scalable hedge fund strategies, we would probably continue to look at that space as well as in the credit space there. I think, that in solutions, we've done a fair amount. I don't think we see something that's imminent, but that would be an area that we would continue to look at how we grow our capabilities. And I would say, in international real estate, that has both -- we look at both buy and build there. So that's just -- we're always looking at how we're going to continue to reposition that business.

Our last question will be coming from the line of Patrick Davitt from Autonomous.

One last question, given your position and do you see that you have a unique kind of perspective on this stuff. The last few weeks you may have been hearing about increasing regulatory focus on so-called hidden fees that maybe LPs don't know about that you charge your portfolio companies or what not, not you in particular, but the industry. The wording was quite vague. I'm wondering if you have any thoughts or insight as to what exactly they're looking at, and if at all, it could be an issue for you and/or the industry?

Well, I would say that we do not anticipate that, that would be an issue for us. I think, that what they're talking about has to do with transaction fees and portfolio advisory fees that are charged out to the portfolio companies. And whether or not they're disclosing those fees appropriately to their LPs that they're -- they have the right amount of sharing of these fees with their LPs and just making sure that they're being open and honest with their LPs around the charging of these fees and making sure these fees are not -- they're not overcharging. So I think we feel quite confident that we do not -- are not big collectors of those fees. We do it when we can, but we don't try to drive our business based on it. And we've been very disclosive to our LPs and we have actually had a recent visit from the SEC just on a normal 5-year basis, they do that for all of the investment advisors, and we feel confident that we have done things the right way in that regard for sure.

Yes, I'd say, that every -- twice a year, with our big funds, we meet with the biggest investors in the fund on an international advisory committee. And as part of that, we do a big portfolio review, an investment environment review, as well as we do a very transparent -- this is how we value the portfolio, this is our valuation methodology. These are all the fees that we charge the portfolio companies, these are the expenses. Frankly, what we have to rebate to them, the rebate rate is obviously very high today or 100% in terms of a lot of things. So I would say, I worry about a lot of things, but that's not one of them.

And that concludes our Q&A session for today. I would like to turn the call back over to Mr. Harris.

Thanks, everybody, for your time and attention today, during the call. If you do have any follow-up questions, please free to reach out to me after the call, and we do look forward to speaking with you again next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.