VIEWS

What would happen to Tesla’s stock price if we woke up to the news that Elon Musk had resigned and had already left the building? We’d guess the price would fall out of bed and not recover till investors got some hard answers as to the whys, wherefores, and what’s coming next. By contrast, the CEO of Carlyle Secured Lending (CGBD) – Aren LeeKong – who we heard from on February 27, 2024, leading the latest earnings conference call – can depart overnight, and the markets just yawn. CGBD’s stock price increased 0.3% by the close of the day, a tad over the sector as a whole. Trading volume was only 10% higher than the regular daily average.

We suppose the immediate naming of Justin Plouffe from Carlyle’s deep bench of executives as President, CEO and board member must have helped to quiet investors nerves. This episode, though, must be depressing for BDC CEOs everywhere to see how little their involvement at the head of a firm – or their departure therefrom – makes to their shareholders.

Of course, the asset managers who run BDCs like CGBD will hail the market’s equanimity as proof positive that you are investing in a “team” rather than an individual and the group is far stronger than any individual. We don’t disagree. However, this episode is also proving a reminder that shareholders know very little about the inner workings of the BDCs they invest in, notwithstanding those periodic conference call, earnings releases, investment presentations and endless SEC-required filings.

We are unlikely to ever be told why Aren LeeKong left CGBD less than two years after being brought in to replace former top gun Linda Pace, who remains in the asset manager’s top rungs. The published gossip is that the fomer CEO was a casualty of internecine warfare within Carlyle, but for all we know he’s got a plummier job elsewhere. Or something. We also don’t know how this sudden change might impact the BDC’s day-to-day management and underwriting process. From the outside looking into the offices at One Vanderbilt Avenue in New York everything might seem the same, but organizations are run by people, and each one brings something different – for better or worse. There could be raging battles going on inside or everyone could be sitting around the conference table reading from the same hymn book. We just don’t know…

We’d feel better if Carlyle held a special shareholder/analyst meeting ASAP; candidly explained why Mr LeeKong left so abruptly and so soon after arriving and what Mr Plouffe brings that is special to a BDC with an $825mn market capitalization and then answered questions. We know this won’t happen because both the asset manager and the analysts don’t want to rock the boat and give any impression that any of the above matters.

The BDC Reporter, though, would like to gently remind Carlyle and its army of lawyers and investment bankers that despite branding their name on CGBD, the BDC itself is supposed to be an independent entity that leases their services. The capital at risk is not Carlyle’s (only 0.5% of all shares outstanding are owned by the BDC’s executive managers and directors, as per the latest Proxy) but the shareholders. If you were on a transcontinental flight and suddenly saw the head pilot pop out of the cabin and run down the aisle, you’d want to know more – even if the ultimate answer proved to be banal.