00:00Carlisle posting its highest quarterly earnings in almost four years boosted by private equity
00:05bets and private equity exits. Assets under management rose more than 4% from a year ago
00:11to $485 billion. And now Carlisle has ended this quarter with the record $97 billion available to
00:18invest. Joining us now with a Bloomberg exclusive is Justin Plouffe, Carlisle's chief financial
00:23officer. Justin, thank you so much for joining us. Great to see you.
00:26Thanks for having me. Look, a stellar quarter for exits. A lot of realizations. The conversation
00:31for this industry, especially private equity, had been it's gummed up. There's a dam that needs to
00:36break. Has the dam broke or is this just Carlisle doing a good job of selling things?
00:40Well, look, we've been exiting at a very good rate for more than a year now. And our exits have
00:45been
00:45really broad based. We have great exits in the quarter from Japan, from Europe technology,
00:50from U.S. real estate. And our U.S. buyout team, they've distributed 23% of fair market value over
00:57the last 12 months. That's twice the industry average. So for us, it's more of the same.
01:02Capital markets are open. It's a good environment. And we're finding great opportunities to exit and
01:06to invest. Can I ask how those exits are happening? Because again, part of the narrative had been
01:10there's a disconnect between buyers and sellers. Does that mean when you exit, you're having to take down
01:15valuations or is it just the best stuff that you're selling so you can sell it at a better valuation?
01:20Well, certainly not that. I think we're finding buyers both in the M&A market. We've also had very
01:26successful IPOs in the past year. So we're really taking all opportunities to realize investments
01:32when we think it's the right time to maximize value for the investors. And again, it's been global.
01:39We've had these exits all over the world across many different industry sectors. So it's not just
01:44one place that is open for exits. Really, the market is open if you have good companies and you know
01:50how to find the right buyer. Speaking of the right timing, we've got this little war going on. And now
01:54you have introduced a defense platform. Yeah, we've been investing in aerospace and defense for our
02:01entire history, almost 40 years. We now do have a specific platform aimed at defense and re-industrialization.
02:09And this quarter, we actually did our first deal out of that platform, a company called
02:13Sectarian Systems, which provides encryption to governments and to government contractors so they
02:18can send classified information securely. But this is a long-term focus for us, the focus on national
02:25security, on data infrastructure. We see an enormous amount of opportunity here. And so we think there'll
02:31be a lot of demand for that type of strategy. Justin, thinking about that platform, some of the big
02:35exits you had Medline, a healthcare company. These aren't exactly like high-flying AI names. Is that
02:42a coincidence or is that a specific choice that you're making not to really chase after the AI
02:47trade everyone else is? Yeah, when we invest at Carlisle, the core tenant is diversification.
02:52We've always been diversified across many different industries. Our power alleys are aerospace and defense,
02:58healthcare, financial services. And we found great opportunities to invest in these spaces.
03:03But I think it's important to understand AI as a technology, it's not just about pure play AI. AI is
03:10going to revolutionize every industry. And if you look historically at technological revolutions,
03:16some of the best investments are actually when a company takes the new technology, figures out how to
03:21apply it to their specific industry, their specific company, and then jumps to become a market leader
03:27because of that. So we're implementing AI. AI is a big theme. We're just not focused on only pure
03:33play AI. We're focused on many different industries. Do you think there is a risk though that this
03:38industry, and I guess maybe say for Carlisle if you're not doing it, is getting overly concentrated
03:42in AI? Well, there's certainly a lot of capital demand for AI. And clearly the hyperscalers have put
03:49massive amounts of capital there. They're now coming to the private markets to get more capital.
03:55But for us as a private markets investment firm, that's an opportunity. They need our capital. We can be
04:00very selective where we put our capital. So is there a risk? There's always a risk, but AI also
04:05is going to be transformative. And we're very front footed about employing it. You've talked about
04:10credit and alternative strategies being strong for you in the quarter. And there have been questions
04:15about the private credit market, certainly. How are you navigating that? Yeah, so I invested in credit
04:22for almost 20 years of my career before I became CFO. And I can tell you in our portfolio,
04:27our companies are strong. We're not seeing increases in default rates that you might expect.
04:32We're seeing management teams really able to navigate this environment. And it is a tricky
04:37environment, especially from a geopolitical standpoint. But our portfolios look very, very
04:42good. And ultimately, I think this narrative around private credit, the one thing that will solve it
04:48is performance. If our funds and the industry continue to perform well, as it has in the past,
04:53then I think investors will come back and see that it has a place in a well-diversified portfolio.
04:58We are, though, starting to see more broadly public markets, too, spreads start to widen. To be fair,
05:02a lot of that is concentrated in tech. But it does seem like a market is somewhat concerned about some
05:07of the borrowing levels, especially if the Fed doesn't seem like they're going to cut and might
05:11even hike rates. Is there something to that, some of the jitters that appear to be happening,
05:16at least in public markets at this point?
05:17So I'd say it's bifurcated. If you look at our markets outside of software, spreads are actually
05:23relatively tight still. They're coming off of all-time tights. But I would characterize those
05:27capital markets as very open to do business, and new deals can get done very well. Software is a
05:32little bit different. It's more difficult to get deals done in the software space. But remember,
05:37a few years ago, when rates went up for the first time in basically a decade, people said,
05:43wow, there have been so many defaults. These companies won't be able to make their interest payments.
05:46And what did we see? Well, management teams were able to handle that. They adjusted their
05:50business plans. We didn't see the wave of defaults that was predicted. So this market is very much
05:55able to handle different types of situations. We manage through all sorts of environments
06:01economically. I think the market will remain relatively strong, even if that happens.
06:06We have a new Fed chair who wants to increase surveillance of a lot of different parts of the
06:10economy. And you're a private company, and you say you're doing very well. But
06:16how much are you willing to work with them on giving information that would give them
06:20a better view into this sort of thing?
06:23We're very transparent. We've always been transparent, regardless of administration.
06:28I've been to Washington, D.C. many times to talk to regulators. Our firm was started in Washington,
06:34D.C. We have great connectivity there. There's nothing that private markets need to hide.
06:39We're very transparent about what we do and what we bring to the economy. Private markets are now so
06:44large that they are a massive force in not just the U.S. economy, but the global economy. And we're
06:50happy to work with the administration on showing them what really we do every day.
06:54And for the private capital funds, the larger are just getting larger. There's been a lot of M&A.
06:59And I have to say, maybe kind of the knock people would see on Carlyle, the reason maybe you're not
07:03participating in AI as much is because you're not one of these like behemoth platforms that have this
07:08insane amount of capital to invest. I wonder if you would want to grow and if you would want to
07:13do it
07:14inorganically specifically, because I'm assuming it is nice to grow regardless or not. But would
07:17you ever look at inorganic growth? Would you ever look at M&A to get bigger in general?
07:21We always look at opportunities, but inorganic growth is difficult. A lot of things have to work,
07:27right? The businesses have to work together. The people have to work together. And right now,
07:32we put out a plan in February that was 100% organic. We feel great about that plan. I think
07:38our shareholders feel great about that plan. So we don't need inorganic growth to achieve our
07:43goals. If something comes along that really is a good fit, of course, we'll look at that.
07:47Would it be helpful, though, to be bigger to start competing with some more of the
07:50infrastructure deals that are going on? Well, we're pretty big already.
07:53No, you are. No, no, no. You definitely are. I don't think size is limiting us.
07:55No, wait. To be very clear, you are one of the big players, but you're not like an Apollo with
07:59an
07:59Athene in your back pocket. Yeah. Yeah. Well, look,
08:02Apollo has a very different business model, right? They merged with an insurance company. They have
08:06a large balance sheet. We have intentionally been a balance sheet light. And for our entire history,
08:11we've been a firm focused on investments and investment returns. And we're going to stay that
08:16way. And a fantastic quarter.
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