The abrupt departure of global investment firm The Carlyle Group’s (NASDAQ: CG) CEO, Kewsong Lee, has raised many eyebrows. On Sunday, Carlyle announced that Lee would step down from his CEO role and member of the Board of Directors effective immediately. And Bill Conway, former co-CEO and co-founder of the firm, will be the Interim CEO until a suitable successor is found. Shares dropped 6.2% on the news to close at $35.29 yesterday.
Why is Lee’s Exit Surprising?
As per a WSJ report, Lee, along with his advisers, had submitted an initial proposal for a deal to the Board last spring, as his five-year contract was coming to a close. If sources are to be believed, the Board did not heed Lee’s proposal and instead, after discussions, both parties agreed to start looking for a suitable candidate for the role.
Since the Board did not heed his contract, Lee decided to step down immediately, although his tenure was to end later this year. But he will continue to support the smooth transition in the days ahead. This abrupt decision to let go of Lee without having a suitable successor in hand has raised many questions about the Board’s intent.
Lee joined Carlyle in 2018 and was tasked with the weighty agenda of improving the firm’s constantly underperforming stock price and business metrics. The firm’s greater dependence on unpredictable private equity investments and lower exposure to stable fee-related businesses such as credit and insurance may have been the reason for its constant dismal performance compared to its peers.
Lee directed his efforts to make changes to the firm’s top executives and also tried to push its fee-based businesses, while also trying to increase the assets under management (AUM). Lee was successful to a certain extent. CG had started showing accelerated growth, entering new verticals, and also growing its profitability.
In its second-quarter results, Carlyle Group recorded a total AUM of $376 billion, up 25% year-to-date and fee-earning AUM was $260 billion, up 34% year-to-date. Carlyle’s Q2 after-tax distributable earnings came in at $1.17 per share and total segmental revenue stood at $1.16 billion, growing 26% year-over-year.
Analyst’s Take on Lee’s Departure
Following the news, JMP Securities analyst Brian McKenna noted that although he was happy with the way Lee was running the show, he was not necessarily very forward-looking in the industry.
Furthermore, McKenna believes that there are significant secular tailwinds for the alternative investment industry. A more visionary CEO who has a longer-term view of the business would be apt to rope in higher market share gains and incremental growth.
McKenna has a Buy rating and $60 price target on CG stock, which implies a whopping 70% upside potential to current levels.
The other analysts on the Street also resonate with his stance and have a Strong Buy consensus rating on CG stock. This is based on nine Buys and two Holds. The average Carlyle Group price target of $53.64 implies 52% upside potential to current levels.
Is Carlyle Group a Good Stock to Buy?
CG stock has lost 33.4% so far this year amid the broader market volatility and macroeconomic uncertainty. Notably, the hunt for a new CEO has begun and will hopefully bring in someone with immense expertise in the business for the long-term interest of all stakeholders. Plus, analysts are highly optimistic about the stock’s future trajectory with solid upside potential. This could be a good opportunity to bet your horses on Carlyle, with the firm undertaking strategic changes to steer towards greater profitability.
