Carlyle Group Inc. (CG)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Carlyle,” the “Company,”

“we,” “us,” and “our” refer to The Carlyle Group Inc. and its consolidated subsidiaries. The following discussion and

analysis should be read in conjunction with the consolidated financial statements and the related notes included in this

Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the year ended December 31, 2025.

Overview

We are one of the world’s largest global investment firms and deploy private capital across our business. We conduct our

operations through three reportable segments: Global Private Equity, Global Credit, and Carlyle AlpInvest.

•Global Private Equity — Our Global Private Equity segment advises our buyout, growth, real estate, and infrastructure &

natural resources funds. The segment also includes the NGP Carry Funds advised by NGP. As of June 30, 2026, our

Global Private Equity segment had $162.7 billion in AUM and $96.6 billion in Fee-earning AUM.

•Global Credit — Our Global Credit segment advises funds and vehicles that pursue investment strategies including

insurance solutions, liquid credit, opportunistic credit, direct lending, asset-backed finance, aviation finance, infrastructure

credit, cross-platform credit products, and global capital markets. As of June 30, 2026, our Global Credit segment had

$211.1 billion in AUM and $167.6 billion in Fee-earning AUM.

•Carlyle AlpInvest — Our Carlyle AlpInvest segment advises global private equity programs that pursue secondary

purchases and financing of existing portfolios, managed co-investment programs, and primary fund investments. As of

June 30, 2026, our Carlyle AlpInvest segment had $111.7 billion in AUM and $70.2 billion in Fee-earning AUM.

We earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for

transaction advisory and oversight services provided to portfolio companies of these funds. We also typically receive a

performance fee from an investment fund, which may be either an incentive fee or a special residual allocation of income,

which we refer to as a performance allocation, or carried interest, in the event that specified investment returns are achieved by

the fund. Under U.S. generally accepted accounting principles (“U.S. GAAP”), we are required to consolidate some of the

investment funds that we advise. However, for segment reporting purposes, we present revenues and expenses on a basis that

deconsolidates these investment funds. Refer to Note 14, Segment Reporting, to the condensed consolidated financial

statements included in this Quarterly Report on Form 10-Q for more information on the differences between our financial

results reported pursuant to U.S. GAAP and our financial results for segment reporting purposes.

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Our Global Investment Offerings

The following table provides a breakout of the product offerings and related acronyms included in our total assets under

management of $485 billion as of June 30, 2026 for each of our three global business segments (in billions):

Note: All amounts shown represent total assets under management as of June 30, 2026, and totals may not sum due to rounding. In addition,

certain carry funds included herein may not be included in fund performance if they have not made an initial capital call or commenced

investment activity.

(1)Includes our Financial Services (CGFSP), Sub-Saharan Africa Buyout (CSSAF), Peru Buyout (CPF), and MENA Buyout funds, as well

as platform accounts which invest across Corporate Private Equity strategies.

(2)NGP Energy funds are advised by NGP Energy Capital Management, LLC, a separately registered investment adviser. We do not serve as

an investment adviser to these funds.

(3)Includes our Infrastructure (CGIOF) and Renewable Energy (CRSEF) funds.

(4)Includes Carlyle FRL, capital raised from strategic third-party investors which directly invest in Fortitude alongside Carlyle FRL, as well

as the fair value of the general account assets covered by the strategic advisory services agreement with Fortitude.

(5)Includes our business development companies (CGBD / CARS), Europe Direct Lending funds (EDLF / ETAC), and our evergreen fund

(CDLF).

(6)Includes our Real Estate Credit fund (CNLI).

(7)Includes Carlyle AlpInvest Private Markets (CAPM) and Carlyle AlpInvest Private Markets Secondaries (CAPS) funds.

Trends Affecting Our Business

Our global business is affected by the conditions in the global financial markets, global economies and the geopolitical

landscape, particularly in the U.S., Europe, and Asia, as discussed in Item 1A “Risk Factors” of our Annual Report on

Form 10-K.

Equity markets posted their strongest quarterly returns since 2020 in Q2 2026, rising despite persistent geopolitical

tensions in the Strait of Hormuz. Although a ceasefire agreement improved market sentiment, geopolitical tensions persisted,

and shipping through the Strait of Hormuz remained well below pre-conflict levels, leaving physical supply constraints largely

intact. The S&P 500, NASDAQ Composite, and Russell 2000 returned 14.9%, 21.4%, and 21.2%, respectively, supported by

upward earnings per share (“EPS”) revisions—consensus 2026 S&P 500 EPS growth has risen 1,440 basis points (“bps”) since

the onset of the Iran conflict. Rotation was a defining feature through the first half of the year: the Magnificent 7 stocks

declined 10% from their peak and software stocks finished the half down 20%, while traditional economy sectors such as

construction & engineering, communications equipment, and marine transport, as well as hardware, led performance, and small

caps outperformed large caps by over 1,000 bps. Globally, Europe’s Euro Stoxx 50 returned 13.6% during the quarter, while

Asian markets were the strongest performers—Korea’s KOSPI, Taiwan’s TAIEX, and Japan’s Nikkei returned 67.8%, 45.4%,

and 37.2%, respectively, driven by semiconductor demand tied to AI infrastructure. However, record earnings from memory

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chip manufacturers paradoxically triggered a sharp KOSPI selloff of 25% from peak, as investors grew concerned that surging

circuit board costs could impair the economics of the broader AI value chain. In private markets, buyout performance improved

somewhat compared to the S&P 500 for Q1 2026 (the latest data available), but this was primarily due to quarter end volatility.

Over longer periods against benchmarks that align more closely with market capitalization and display less concentration,

buyouts continue to outperform. Compared to the S&P 600 small-cap index, U.S. buyouts have generated outperformance of

506 bps over the last five years, 386 bps over the last 10 years, and 310 bps over the last 15 years.

Official estimates of U.S. GDP surprised to the downside in Q2 2026, but real final demand came in right on top of the

2.2% estimate implied by our proprietary portfolio data, as a surge in AI-related capital goods imports slowed topline GDP

growth relative to what would be implied by investment outlays, and inventory liquidation also reduced growth. Our measure of

corporate revenue growth accelerated to 6.2% annualized in Q2 2026, up from 5.7% in Q1 2026, but price rather than volume

accounted for a disproportionate share of that growth. Our data imply real consumption slowed to 1.8% annualized as

households absorbed the price shock, with spending among top-third households growing at 2.3x the rate of bottom-third

households. Headline inflation finished June at a 3.7% annual rate, and with core inflation above 3%, the Fed has not hit its

inflation target in five years. Against this backdrop, interest rates no longer appear to be on a pre-set path toward sub-3%, and

market participants largely expect the Fed’s next move to be a rate hike. The clearest source of strength was business

investment: our data indicate U.S. business spending rose at a 15.8% annualized rate, with corporate information technology

services up 28.3%. AI-related investment remains the primary driver—compute capex has grown at an 80% annualized rate

since year-end 2024, and data center real estate is now roughly 3.8x its year-end 2022 level. This spending surge is also bidding

away finite resources—grid capacity, engineering talent, construction labor, and key materials—raising input costs and creating

headwinds for competing capital projects.

European conditions stabilized as the quarter progressed. German factory orders, while still negative, rebounded from

post-conflict troughs, and euro area order books improved, signaling firmer forward demand. A notable structural development

was the agreement by the EU’s six largest economies on capital markets integration, which could mobilize an estimated €8

trillion of household savings currently held in low-yielding deposits toward more productive investment. In China, domestic

consumption continued to contract, with weakness particularly evident in big-ticket categories previously supported by trade-in

subsidies. Exports remained the structural growth driver, with export growth to the U.S. turning positive for the first time since

the 2025 trade war. Taiwan and South Korea continue to benefit from AI-linked semiconductor demand—South Korean

semiconductor exports are growing at a record 180% annual rate—though concentration risk remains elevated, with Samsung

and SK Hynix’s combined market cap reaching approximately 135% of South Korea’s GDP. Japan has also benefited from AI-

related export growth, and recent moves in the yen and JGB yields appear to reflect a gradual normalization rather than a

sovereign or currency crisis. In India, growth appears resilient, but the country’s reliance on imported oil and gas leaves it

exposed to renewed energy supply disruptions.

Merger and acquisition (“M&A”) activity in the first half of 2026 surpassed the record aggregate deal value set in the

first half of 2021, though those headline figures increasingly reflected a relatively small number of large transactions.

Transactions totaled $1.75 trillion, a 23% increase quarter-over-quarter and a 66% increase over the same period a year ago,

even as transaction counts declined 15% quarter-over-quarter and 12% year-over-year. Leveraged buyout (“LBO”) activity was

more subdued. U.S. buyouts slowed in the second quarter, with deal volume falling 45% from the first quar

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Unless context suggests otherwise, references in this report to “Carlyle,” the “Company,” “we,” “us,” and “our”

refer to The Carlyle Group Inc. and its consolidated subsidiaries. The following discussion and analysis should be read in

conjunction with the consolidated financial statements and the related notes included in this Annual Report on Form 10-K.

The following discussion includes a comparison of our results for the years ended December 31, 2025 and 2024. For a

discussion of our results for the year ended December 31, 2023 and a comparison of results for the years ended December 31,

2024 and 2023, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

of our Annual Report on Form 10-K for the year ended December 31, 2024, which specific discussion is incorporated herein by

reference.

Overview

We are one of the world’s largest global investment firms and deploy private capital across our business. We conduct

our operations through three reportable segments: Global Private Equity, Global Credit, and Carlyle AlpInvest (formerly,

Global Investment Solutions).

•Global Private Equity — Our Global Private Equity segment advises our buyout, growth, real estate, and

infrastructure & natural resources funds. The segment also includes the NGP Carry Funds advised by NGP.

As of December 31, 2025, our Global Private Equity segment had $163.5 billion in AUM and $101.4 billion

in Fee-earning AUM.

•Global Credit — Our Global Credit segment advises funds and vehicles that pursue investment strategies

including insurance solutions, liquid credit, opportunistic credit, direct lending, asset-backed finance, aviation

finance, infrastructure credit, cross-platform credit products, and global capital markets. As of December 31,

2025, our Global Credit segment had $211.3 billion in AUM and $169.5 billion in Fee-earning AUM.

•Carlyle AlpInvest — Our Carlyle AlpInvest segment advises global private equity programs that pursue

secondary purchases and financing of existing portfolios, managed co-investment programs, and primary fund

investments. As of December 31, 2025, our Carlyle AlpInvest segment had $102.0 billion in AUM and $66.0

billion in Fee-earning AUM.

We earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for

transaction advisory and oversight services provided to portfolio companies of these funds. We also typically receive a

performance fee from an investment fund, which may be either an incentive fee or a special residual allocation of income,

which we refer to as a performance allocation, or carried interest, in the event that specified investment returns are achieved by

the fund. Under U.S. generally accepted accounting principles (“U.S. GAAP”), we are required to consolidate some of the

investment funds that we advise. However, for segment reporting purposes, we present revenues and expenses on a basis that

deconsolidates these investment funds. Refer to Note 15, Segment Reporting, to the consolidated financial statements included

in this Annual Report on Form 10-K for more information on the differences between our financial results reported pursuant to

U.S. GAAP and our financial results for segment reporting purposes.

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Trends Affecting Our Business

Equity markets closed out 2025 at or near new all-time highs, with major indices across the United States, Europe, and

Japan setting new records in the fourth quarter. In Europe, the Euro Stoxx 50 rose 5% to end the year 18% higher, while the

Nikkei rose 12% in the quarter to tally more than 26% for the year, firmly surpassing the 1989 peak that took nearly 35 years to

regain. Returns in the United States decelerated from a strong third quarter with the S&P 500 gaining 2.3% for the fourth

quarter and 16% for the year, marking the first time in 20 years that the S&P 500 was the worst performing major equity index.

While continued economic growth and a resolution to the U.S. government shutdown helped support momentum across many

sectors, concerns regarding an “AI bubble” intensified in November and dragged down many of the largest technology

companies in the last two months of the year. The “Magnificent 7,” which generated annualized returns of 29% over the last

five years and represented over half of the S&P 500’s gains from 2021 through their peak on October 29, 2025, have declined

7% from their top (as of February 24, 2026), offsetting gains in the rest of the index. By contrast, cyclical, value, and quality

factors have strengthened since the start of the year; after a period of large-cap growth dominance, more reasonably priced

value stocks have outperformed by over 600 basis points (“bps”) year-to-date in 2026. Public equity markets overall have been

volatile in recent weeks; individual stocks have experienced large price swings in apparent response to headlines, new AI

product offerings, and “viral” research reports. The software sector in particular has sold off on “AI disruption” fears and is

down 33% year-to-date through February 24, 2026. Meanwhile, the public-private market valuation gap widened to its largest

level in at least a decade in 2025, as buyout purchase multiples in the United States fell to 11.2x earnings before interest, taxes,

depreciation, and amortization (“EBITDA”), while public market valuations rose to 17.7x EBITDA, about half a turn below

their 2021 peak of 18.2x EBITDA. Importantly, this valuation differential is not a reflection of underlying performance. Every

year since 2019, including the twelve months ended September 30, 2025, which represents the most recent private markets data,

the median buyout company has matched or beaten the revenue and EBITDA growth rates of the median company in the S&P

500.

While headline U.S. GDP growth of 1.4% disappointed in the fourth quarter, real underlying demand as proxied by

real final sales to private domestic purchasers (which strips out effects from trade, inventories, and government spending) was

more resilient and expanded at a 2.4% annualized rate. Business spending remained a key contributing factor; our proprietary

portfolio data indicate technology spending growth ended the year at a record 30% annualized rate. Consistent with prior

quarters, much of this momentum remains concentrated in AI-related investment, particularly data centers, where hardware

shipments are 7.5x higher than 2021 levels and capital expenditures continue to grow rapidly from a much larger base. While

many observers focus on the economy’s “dependence” on the surge in AI-related capex, there are increasing signs that it is

“crowding out” other forms of real estate development as data centers consume a larger share of the finite supply of investible

capital. For other real estate sectors, capital is increasingly scarce, setting the stage for strategies focused elsewhere, such as our

own real estate funds, to find greater opportunities to generate higher relative returns. Despite a constructive macro backdrop,

our portfolio data suggest U.S. labor market momentum has softened further as the deceleration in payroll employment growth

now appears to exceed what could be explained by the labor-supply shock from immigration enforcement. Some hiring

weakness appears tied to corporate AI-integration efforts, as companies reassess workflows and pursue efficiencies to create

financial capacity for incremental tech-enabled services spending. Recent statements from the Federal Open Market Committee

(“FOMC”), however, suggest that they are no longer as concerned with the labor market as they were in the fourth quarter of

2025, and feel comfortable with the current policy rate. Given the Federal Reserve’s historically dovish bias, continued cooling

in employment and inflation indicators could increase the likelihood of additional easing down the road, despite core Personal

Consumption Expenditures (“PCE”) inflation that remains near the 3% levels that have maintained for the better part of two

years.

In Europe, there is a push for greater strategic autonomy that can only be achieved through a substantial increase in the

domestic development and production of defense technologies and systems. Early signs of these efforts have started to become

visible through improvement in broader economic data, supported by a notable pickup in factory output that seems to be tied to

defense-related orders. Germany has also been part of that improvement, though energy-intensive industrial production remains

roughly 20% below levels seen prior to Russia’s invasion of Ukraine, and momentum may hinge on how quickly Berlin can

translate public investment plans into executed spending. Federal investment in Germany rose 17% in 2025 to €87 billion,

though still came in nearly €29 billion below the original budget. In China, the key story continues to be the divergence

between household consumption and industrial output: retail sales grew just 0.9% in December 2025 from a year earlier, the

slowest pace since 2022, while industrial output grew by over 5%, contributing to a record $1.2 trillion trade surplus for the

year. In India, our data suggest domestic demand grew at its fastest pace in over two years, supported by the Goods and

Services Tax reform and low inflation that continues to support real household incomes. In Japan, recent moves in the yen and

Japan 10-year government bond yields have fueled concerns of fiscal sustainability and the risk of a sovereign debt or currency

crisis. However, these concerns overlook key attributes of the Japanese economy. Nominal per capita GDP has grown at an

annualized rate of nearly 3% over the past five years, and public net debt looks manageable, particularly when viewed through

the lens of substantial broader economy-wide savings. The normalization of rates appears to be more consistent with an

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economy exiting its deflationary slump than of one in crisis. Japanese policymakers want this process to unfold gradually while

preserving the benefits of a competitive exchange rate. Given recent election outcomes, Japan’s new leadership may also be

able to move faster on its stated plans to increase defense spending and potentially ease restrictions on weapons sales to allies

and partners. These shifts could create capital deployment opportunities surrounding increased defense expenditure.

Additionally, tax reform could provide a near-term boost to growth by increasing disposable income for households and

supporting domestic demand.

Global mergers and acquisitions (“M&A”) activity was very strong in 2025, with total volume of $5.1 trillion, a

notable 44% increase over 2024 and the highest annual volume since 2021. The fourth quarter was the busiest of the year, with

over $1.5 trillion in transactions, up 19% from the prior quarter, and 57% from a year ago. However, headline volumes were

boosted by a shift toward larger deals. In 2025, average deal size was $125 million, a nearly 50% increase over 2024 and a 40%

increase over the average size in the preceding five years (2020 through 2024). Buyout activity rose at a similar pace. Globally,

financial sponsors announced $657 billion in buyout transactions in 2025, roughly 48% higher than 2024, with U.S.-target deals

accounting for nearly 60% of global volume amid a surge in large transactions. In the fourth quarter, general partners

announced $155 billion in global leveraged buyouts, nearly 50% higher than a year earlier, though underlying deal counts

remained subdued at 420 deals, and the top 10 deals represented 53% of quarterly volume. Despite blockbuster deal volumes,

buyout exits remained slow. Aggregate exit volumes of $116 billion in the fourth quarter of 2025 were roughly flat t

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