Investments

Investments consist of the following:



	As of
	September 30, 2015		December 31, 2014
	(Dollars in millions)
Equity method investments, excluding accrued performance fees	$	874.3	$	918.7
Trading securities and other investments	22.9		12.9
Total investments	$	897.2	$	931.6

Strategic Investment in NGP

On December 20, 2012, the Partnership entered into separate purchase agreements with ECM Capital, L.P. and Barclays Natural Resource Investments, a division of Barclays Bank PLC (“BNRI”), pursuant to which the Partnership agreed to invest in NGP Management Company, L.L.C. (“NGP Management” and, together with its affiliates, “NGP”). NGP is an Irving, Texas-based energy investor.

The Partnership’s equity interests in NGP Management entitle the Partnership to an allocation of income equal to 55.0% of the management fee-related revenues of the NGP entities that serve as the advisors to certain private equity funds, and future interests in the general partners of certain future carry funds advised by NGP that entitle the Partnership to an allocation of income equal to 47.5% of the carried interest received by such fund general partners. For periods prior to 2015, the Partnership’s allocation of income related to management fee-related revenues of NGP was 47.5%. This increase in the allocation of income did not result in a change in accounting for the investment as an equity method investment. The Partnership has an option, exercisable by the Partnership in approximately 10 years, to purchase from ECM Capital, L.P. and its affiliates, for a formulaic purchase price in cash based upon a measure of the earnings of NGP, the remaining equity interests in NGP Management.

In July 2014, the Partnership exercised another option granted in 2012 to acquire from BNRI its interests in the general partner of the NGP Natural Resources X, L.P. fund (“NGP X”), which entitles the Partnership to an allocation of income equal to 40% of the carried interest received by the fund’s general partner. The Partnership additionally acquired certain general partner investments in the NGP X fund. As of September 30, 2015 there was no carrying value of the Partnership’s investment in the NGP X general partner attributable to the carried interest allocation, while at December 31, 2014 it was approximately $18.5 million. The carrying value of the Partnership’s general partner investments in the NGP X fund was $20.7 million as of September 30, 2015 and $20.4 million as of December 31, 2014.

In consideration for these interests and option, the Partnership paid an aggregate of $504.6 million in cash to ECM Capital, L.P. and BNRI, and issued 996,572 Carlyle Holdings partnership units to ECM Capital, L.P. that vest ratably over a period of five years. The transaction also includes contingent consideration payable to ECM Capital, L.P. of up to $45.0 million in cash, 597,944 Carlyle Holdings partnership units that were issued at closing but vest upon the achievement of performance conditions, and contingently issuable Carlyle Holdings partnership units with a value of up to $15.0 million that will be issued if the performance conditions are met. The contingent consideration is payable in 2018, depending on NGP’s achievement of certain business performance goals. Additionally, the transaction includes contingent consideration payable to BNRI of up to $183.0 million, which will be payable in 2016 approximately one-third in cash and approximately two-thirds by a six year promissory note issued by the Partnership, if the performance conditions are met. The promissory note will accrue interest at the three month LIBOR plus 2.5%.

As of September 30, 2015, the NGP Natural Resources XI, L.P. fund (“NGP XI”) had closed on aggregate commitments of approximately $5.3 billion. The management fees for this fund will turn on January 1, 2016 or sooner as the fund deploys capital. Based on the amount of NGP XI commitments raised through September 30, 2015, it is probable that BNRI will be entitled to receive the contingent consideration when such payment becomes due. Accordingly, as of September 30, 2015, the Partnership has accrued $183.0 million related to this future payment obligation. The timing of the cash payment and issuance of the promissory note to BNRI is based on the contractual agreement between the Partnership and BNRI, which is estimated to be in early 2016.

The Partnership also has a senior advisor consulting agreement with the chief executive officer of NGP and granted in 2012 deferred restricted common units to a group of NGP personnel who are providing the Partnership with consulting services.

The Partnership accounts for its investment in NGP Management under the equity method of accounting. The Partnership recorded its investment in NGP Management initially at cost, excluding any elements in the transaction that were deemed to be compensatory arrangements to NGP personnel. The Carlyle Holdings partnership units issued in the transaction, the contingently issuable Carlyle Holdings partnership units, and the deferred restricted common units were deemed to be compensatory arrangements; these elements are recognized as an expense under applicable U.S. GAAP.

The Partnership records investment income (loss) for its equity income allocation from NGP management fees and performance fees, and also records its share of any allocated expenses from NGP Management, expenses associated with the compensatory elements of the transaction, and the amortization of the basis differences related to the definitive-lived identifiable intangible assets of NGP Management. The net investment earnings (loss) recognized in the Partnership’s condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in millions)
Management fees	$	14.5		$	13.8		$	41.4		$	43.4
Performance fees	(3.4		)	3.1			(18.5		)	3.1
Investment income (loss)	(2.0		)	—			(2.5		)	—
Expenses and amortization of basis differences	(15.3		)	(19.3		)	(53.1		)	(57.6		)
Net investment income (loss)	$	(6.2	)	$	(2.4	)	$	(32.7	)	$	(11.1	)

The difference between the Partnership’s carrying value of its investment and its share of the underlying net assets of the investee was $99.1 million and $141.6 million as of September 30, 2015 and December 31, 2014, respectively; these differences are amortized over a period of 10 years from the initial investment date.

Equity-Method Investments

The Partnership’s equity method investments include its fund investments in Corporate Private Equity, Global Market Strategies and Real Assets, typically as general partner interests, and its investment in NGP Management (included within Real Assets), which are not consolidated. Investments are related to the following segments:



	As of
	September 30, 2015		December 31, 2014
	(Dollars in millions)
Corporate Private Equity	$	228.1	$	246.3
Global Market Strategies	24.0		25.3
Real Assets	622.2		647.1
Total	$	874.3	$	918.7

The Partnership evaluates each of its equity method investments to determine if disclosure of summarized income statement information is required under Article 10 of Regulation S-X. As of September 30, 2015 and for the three and nine months then ended, no individual equity method investment held by the Partnership met the threshold for disclosure of summarized income statement information.

Investment Income (Loss)

The components of investment income (loss) are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in millions)
Income (loss) from equity investments	$	(14.7	)	$	4.3		$	0.5		$	32.3
Income (loss) from trading securities	(1.3		)	(0.9		)	(1.5		)	0.5
Other investment income	6.5			0.4			7.5			0.8
Total	$	(9.5	)	$	3.8		$	6.5		$	33.6

Carlyle’s income (loss) from its equity-method investments is included in investment income (loss) in the condensed consolidated statements of operations and consists of:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in millions)
Corporate Private Equity	$	(10.0	)	$	12.1		$	20.2		$	40.1
Global Market Strategies	(1.3		)	0.7			(0.4		)	2.4
Real Assets	(3.4		)	(8.5		)	(19.3		)	(10.2		)
Total	$	(14.7	)	$	4.3		$	0.5		$	32.3

Trading Securities and Other Investments

Trading securities and other investments as of September 30, 2015 and December 31, 2014 primarily consisted of $22.9 million and $12.9 million, respectively, of investments in derivative instruments and corporate mezzanine securities and bonds, as well as other cost method investments.

Investments of Consolidated Funds

During the nine months ended September 30, 2015, the Partnership formed five new CLOs. The Partnership has concluded that these CLOs are VIEs and the Partnership is the primary beneficiary. As a result, the Partnership consolidated the financial positions and results of operations of these CLOs into its condensed consolidated financial statements beginning on their respective closing dates. As of September 30, 2015, the total assets of these CLOs included in the Partnership’s condensed consolidated financial statements were approximately $3.2 billion.

There were no individual investments with a fair value greater than five percent of the Partnership’s total assets for any period presented.

Interest and Other Income of Consolidated Funds

The components of interest and other income of Consolidated Funds are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in millions)
Interest income from investments	$	219.0	$	217.0	$	654.7	$	653.0
Other income	40.4		17.1		88.0		75.5
Total	$	259.4	$	234.1	$	742.7	$	728.5

Net Investment Gains (Losses) of Consolidated Funds

Net investment gains (losses) of Consolidated Funds include net realized gains (losses) from sales of investments and unrealized gains (losses) resulting from changes in fair value of the Consolidated Funds’ investments. The components of net investment gains (losses) of Consolidated Funds are as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015		2014
	(Dollars in millions)
Gains (losses) from investments of Consolidated Funds	$	(337.8	)	$	169.5		$	738.1	$	1,151.4
Gains (losses) from liabilities of CLOs	306.6			(45.3		)	197.0		(158.4		)
Gains (losses) on other assets of CLOs	(0.1		)	1.3			0.7		1.5
Total	$	(31.3	)	$	125.5		$	935.8	$	994.5

The following table presents realized and unrealized gains (losses) earned from investments of the Consolidated Funds:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in millions)
Realized gains	$	433.8		$	248.2		$	867.9		$	1,194.4
Net change in unrealized losses	(771.6		)	(78.7		)	(129.8		)	(43.0		)
Total	$	(337.8	)	$	169.5		$	738.1		$	1,151.4