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Carlyle (CG) Boosts Global Credit Arm With Fortitude Re Deal

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The Carlyle Group Inc. (CG - Free Report) through its newly-formed insurance advisor, Carlyle Insurance Solutions Management L.L.C, has struck a new advisory agreement with reinsurer Fortitude Re. This will advance CG’s Insurance Solutions strategy and offer the companies leadership in the insurance industry space.

Per the agreement, Carlyle will provide Fortitude Re with merger and acquisition, transaction origination and execution, capital management services, as well as other growth opportunities. For these services, Carlyle will be paid a fee based on Fortitude Re’s general account assets and overall profitability.

The company expects this agreement to increase CG’s Global Credit segment’s fee-earning assets under management (AUM) by $50 billion and incremental annualized fee related earnings (FRE) by $50 million, beginning immediately. As Fortitude Re delivers on its growth strategy, Carlyle’s fee-earning AUM and FRE are expected to rise further. In fact, if Fortitude Re continues its expected growth trajectory, Carlyle anticipates this advisory deal to more than double the FRE generated by the deal by 2025.

As of 2021 end, CG’s credit business had $52 billion in fee-earning assets, and $598 million in fee-related earnings. Hence, the agreement will further scale its credit business. Also, it will likely aid the company to meet its targets of growing global credit assets to more than $80 billion by 2024 and doubling the segment’s fee-related earnings.

This aside, it underlines the increasing preference for investment in the insurance industry as it offers a source of steady fees.

Carlyle has also raised $2.1 billion in equity for Fortitude and will contribute up to $150 million from its balance sheet toward the total capital raise. This will enable Fortitude Re to pursue further growth opportunities and provide innovative solutions.

Brian Schreiber, Head of Carlyle Insurance Solutions, noted, “These milestones significantly accelerate our Insurance Solutions strategy and enhance our capabilities to pursue the multi-trillion dollar global market opportunity for legacy liabilities.”

Currently, Carlyle carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have gained 30.9% compared with the 6.4% growth recorded by the industry.

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Some better-ranked stocks in the finance space are Bank of Hawaii (BOH - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both Bank of Hawaii and PCB carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past six months, shares of PCB have jumped 16.6%, whereas BOH stock has gained 1.1%.

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The company's surprise history is impressive, with earnings having surpassed the Zacks Consensus Estimate in all the trailing four quarters. However, we expect Wells Fargo’s loan balance to be limited by the asset cap remaining in place in 2022, thereby hurting interest income, until it fully meets regulators’ demands regarding compliance and operational risk management.