They Make $5.7B/Year Playing With Other People's Money

Today I'm looking Carlyle Group, the large alternative asset manager (alternative assets = a lot of private equity).

The main lesson to take away from a business like this is OPM (Other People's Money).

Here's the model that should make every entrepreneur pay attention:

• They manage $453 billion

• They make $5.7 billion in revenue from it

• Annual capex: just $60 million

The OPM playbook:

• Charge 2% annually just for holding the money (some of their vehicles are sub-2% but it's still signficant)

• Take 20% of any profits above 8% returns

• Get paid whether investments go up or down

• Use investor capital for all the risky bets while keeping fees for themselves

How they've evolved the model:

• 32% of capital now in "perpetual" vehicles

• Created ESG-linked loans where hitting diversity targets cuts their borrowing costs (we'll see if these ESG type of programs will remain in favor going forward)

• Built a fundraising machine that brings in $41B of new OPM per year

Where the OPM model broke down:

• Carlyle Capital Corporation: leveraged OPM 32-to-1 and lost $16.6B

• Hawaiian Telcom: learned that OPM can't fix broken operations ($425M loss)

• The catch: when you lose OPM, you lose your revenue stream AND reputation

Your tactical takeaways:

• Any business can use OPM principles (property managers, consultants, SaaS platforms)

• Lock in management fees before performance fees

• The longer you can hold OPM, the more valuable your business

• Asset-light doesn't mean risk-light as reputation is everything

With that, check out the report below and I'll talk to you tomorrow!

Nick

TL;DR

• What: Carlyle manages $453B in alternative assets (mostly private equity) through the classic "2 and 20" model (2% management fees + 20% carried interest)

• Entrepreneurial lesson #1: Using OPM (other people's money)is a proven way to generate significant income with an asset-like business. Asset management has some similarites with something like the McDonald's franchise model. OPM is what is used to build new restraunts while McDonald's still receives significant revenue from these assets.

• Entrepreneurial lesson #2: New CEO is focused on building recurring revenue streams before chasing big wins. Carlyle's 32% perpetual capital provides stability (traditional private equity funds are raised one at a time and can provide for a "lumpy" capital base)

• Learn from fails: The $16.6B Carlyle Capital Corporation collapse proves overleveraging kills companies (a victim of the late 2000's Great Financial Crisis and 32-to-1 leverage (Started with $670 million in investor capital, borrowed $21.7 billion against it))

The 30,000-Foot View

Carlyle operates as a global alternative asset manager across three segments: Global Private Equity ($164B AUM), Global Credit ($199B AUM), and Carlyle AlpInvest ($89B AUM). They raise capital from institutional investors, buy companies, improve operations, and sell for profit.

Revenue mix (HIGHLY variable as performance fees are boom-or-bust):

• Management fees: 43-45% (annual charge on committed capital)

• Performance fees/Carried interest: 28-30% (20% of profits above hurdles)

• Transaction & advisory fees: 6-8%

• Investment income: 3-5%

Key stats:

• Market cap: $23.4 billion

• TTM Revenue: $5.71 billion

• FRE margin: 46%

• Net income (TTM): $1.09 billion

• Employees: 2,300+

• Industry: Alternative Asset Management

Company History

1987: Founded by Rubenstein, Conway, and D'Aniello in D.C. with $5M
1990s-2000s: Built defense industry specialty, major deals like United Defense ($850M)
2008: Carlyle Capital Corporation collapses with $16.6B losses
2012: IPO at $22.05/share, $147B AUM
2017: Founders step back; Youngkin and Lee named co-CEOs
2023: Harvey Schwartz appointed CEO after leadership chaos
2024: Record $1.1B fee-related earnings, AUM hits $453B

Show Me the Money

Stand-out features:

• Companies like this don't report traditional gross profit

• Earnings can be highly volatile due to the cyclicality of financial market

• Record 46% Fee-Related Earnings margin in 2024

• Minimal CapEx (~$60M) for $5.7B revenue business

• 32% of AUM in perpetual vehicles

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 3.1/5 - Strong position but this is a hard-to-dominate industry

Memorable Marketing

Carlyle positions itself as an ESG innovator rather than just another PE shop, using thought leadership to attract institutional capital.

Key campaigns:

ESG-linked credit facility (2021-2023)

• Tied $6B+ financing costs to portfolio company board diversity

• Hit 29% diverse directors, with 59% of new directors from underrepresented groups

• Why it worked: Made social responsibility financially measurable

ESG Data Convergence Project (2021-2022)

• Led initiative with 190+ firms ($22T AUM) to standardize ESG reporting

• Why it worked: Positioned as thought leader while solving industry pain point

Content engine strategy (2024-2025)

• Built owned media across LinkedIn, podcasts, video

• Why it worked: Direct audience relationships without media intermediaries

Tactical takeaways:

• Tie social goals to financial incentives

• Lead industry standards to become the authority

• Build direct audience relationships through content

• Segment messaging by stakeholder (LPs want returns, portfolio companies want playbooks)

AI Uses & Opportunities

Current uses:

• SESAMm partnership for NLP-powered deal analysis across 100+ languages

• Invested in HireVue (AI hiring) and Exiger (supply chain risk)

• BCG tech-driven value creation generated $250M portfolio value

Future ideas (of which I'm sure they are aware of):

• Infrastructure plays on AI electricity demand (Copia Power's $2B solar projects)

• Automate deal sourcing and competitive analysis

• AI-driven portfolio optimization and exit timing

• Hyper-personalized LP reporting

Bumps in the Road

• Regulatory: $8.5M SEC fine (2025) for WhatsApp violations; $20M pay-to-play scandal (2009)

• Epic fail: Carlyle Capital Corporation's $16.6B collapse (2008) from overleveraging

• Leadership chaos: Three CEOs in five years created strategic whiplash

• Portfolio problems: Hawaiian Telcom bankruptcy cost $425M; 16% of 2023 US bankruptcies were PE-backed

• ESG contradictions: Criticized for selling polluting assets rather than transitioning them

Your Swipe File

• Build recurring revenue first—32% perpetual capital provides stability deal-dependent models lack

• Avoid the leverage trap (negative lesson)—Carlyle Capital's collapse proves leverage is deadly in excess. And it's easy take on in excess when times are good

• Create industry standards—their ESG Data Project made them the de facto authority (I hesitated writing this one as the ESG winds have "turned")

• Failed integrations kill returns (negative lesson)—Hawaiian Telcom shows financial engineering can't fix broken operations