EFTA01452601

28 January 2014 Brokers. Asset Managers & Exchanges Alternative Asset Manager Initiation Rating Coal pa ny f;c ', Nth: Buy The Carlyle Group Research Ana t North Amt-ric a United States Price at 24 Jan 2014 36.04 (USD) I:friar:Fa; Price Target 4100 Brokers, Asset Managers & Exchanges CG 00 CGS 52-week range relat,e 3711- 24.19 An emerging consistent growth story with lower risk profile; initiate at Buy Initiating coverage with a Buy rating and $43 PT We see the following positive catalysts for CG units over the next 12 months: 1) an inflection from among the weakest distributable earnings (DE) growth stories in 2013 to the second strongest (behind BX) in 2014-15 upon greater DE contribution from a broader array of funds, 2) greater investor appreciation over the next several quarters for CG's lower risk profile emanating from its conservative investing philosophy and greater diversification by product type, asset class and business line, and 3) a strong pace of fundraising over at least the next several quarters, bolstering CG's' ability to maintain positive DE growth post the current industry realization cycle over at least the next 1-2 years. We see these dynamics helping CG narrow its P/E gap to traditional asset managers during 2014, though less so than peers given its current premium valuation to the group; hence the story is more DE growth-oriented. Earnings outlook We believe DE, from which cash distributions are paid to unit holders, is the most important earnings metric to value the Alts. rather than economic net income (ENI) that forms Consensus estimates. We forecast CG to grow DE per unit from $2.11 in 2013 to $2.84 in 2014E and $3.38 in 2015E. Key drivers are: 1) a relatively stable pace of realizations 2014-16, 2) CEP III moving into carry position in 4Q13-1Q14. & 3) strong fundraising across business lines. Valuation & Risks We think the catalysts outlined above will drive CG' PIE from 11.4x 2014E ENI to 13-14x 2015 DE 12 months from now, narrowing its discount to the S&P 500 P/E from -25% to -15%. This drives a $43 PT, which implies a total return of 25% over the next 12 months, inclusive of a 6.2% forecast distribution yield for 2014. Downside risks for CG are: 1) a slowdown in US/global economy, 2) a prolonged equity market correction, & 3) an inability to generate strong organic growth in 2014 that would jeopardize long-term growth in DE after a likely strong realization cycle over 2014-15 and 4) an inability to deploy capital effectively in its PE funds given the strong pace of fund raising. Deutsche Bank Securities Inc. —334. Cents Grout. SSP see INDEX 01•11~11 Performance (%) Absolute S&P 500 INDEX Sow* Chuncly Sn 1m 4.0 0.0 3m 21.2 4.7 12m 26.2 22.3 i at. Market Cap (USE) 11181.6- Shares outstanding (m) 314.9- Free float 1%) Volume (23 Jan 2014) 96.496- Option volume lund. shrs.. 1M 4,79S- ,v8.I .... .... ... .... ... ... ... .... Soca* /13/4**01* art Implied & Realited Volatility 13M f 110% 40% jr...4U1s ebdir 30% 20% 10% 0% Ju 13 INK I2 Page 49 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0 109735 SDNY_GM_00255919 EFTA01452601