UBS downgrades Carlyle as weak fund returns threaten 2028 growth targets

Carlyle Group faces increasing challenges in meeting its 2028 financial targets as weaker private equity fund performance and delayed fundraising weigh on its growth outlook, prompting UBS to downgrade the investment firm to Neutral from Buy and sharply reduce its price target. 

UBS lowered its 12-month price target to $47 from $60, citing diminished confidence in Carlyle's ability to deliver the earnings growth outlined at its February 2026 investor day. The brokerage said its revised estimates point to a slower growth trajectory, with execution risks limiting the potential for a near-term re-rating of the shares.

The central concern is Carlyle's ability to achieve its target of more than $1.9 billion in fee-related earnings (FRE) by 2028. UBS forecasts FRE of $1.68 billion, approximately 12% below the company's target, while its projected 10.7% three-year compound annual growth rate falls well short of Carlyle's ambition of more than 15%.

A key factor behind the downgrade is disappointing performance at Carlyle's flagship private equity funds. Its Corporate Private Equity VII and VIII funds generated net internal rates of return of just 8% and 10%, respectively, as of the third quarter, below the franchise's historically low-to-mid-teens returns. UBS said weaker fund performance could make it harder to attract capital for successor funds, limit performance-related earnings and delay management fee growth.

The brokerage also raised concerns about fundraising timelines, particularly for Corporate Private Equity IX (CP IX). Fee activation for the fund is now more likely around the second quarter of 2027, as its predecessor still needs to deploy capital. UBS warned that delays could extend across other major fundraising vehicles, including CEP VI and CRP XI, creating further uncertainty around Carlyle's medium-term growth ambitions.

Although Carlyle is expanding into wealth management, insurance and private credit to diversify its revenue streams, UBS said these businesses remain too small to offset its dependence on flagship fundraising. Insurance-related assets under management stood at approximately $81 billion, representing around 15% of total AUM, while wealth and evergreen assets accounted for roughly $20 billion, or 4% of total AUM.

UBS said these newer businesses offer meaningful longer-term opportunities but are unlikely to become major earnings drivers in the near term. It also flagged challenges in Carlyle's private credit wealth products amid concerns about credit quality, liquidity and semi-liquid investment vehicles.

The brokerage lowered its 2027 and 2028 distributable earnings estimates by 5% and 2%, respectively, to $4.68 and $5.65 per share. It also reduced its fee-related earnings estimates by 7% and 5%, reflecting weaker fundraising visibility and slower growth.

UBS said Carlyle's shares are trading closer to fair value given the weaker growth outlook, despite the stock's relatively inexpensive valuation. It also sees more attractive risk-reward opportunities at Apollo Global Management and TPG, where valuations offer better upside relative to expected growth.