Key Takeaways
- • Carlyle Group co-founder David Rubenstein, whose firm manages more than $70 billion in assets, told Wharton Private Equity Club members in March 2008 that the industry's greatest period is "probably ahead of us," following what he called a post-Golden Age phase from 2002 to mid-2007.
- • Rubenstein expects smaller deals, fewer large leveraged buyouts, more non-levered minority stakes, and greater overseas activity in China and India for at least the next year, as syndication capacity for large deals has dried up.
- • He cited historical data showing leveraged loan issuance fell to roughly one-third of its 1998 total in 2001-2002 before rebounding strongly, framing the current credit crunch as cyclical rather than secular.
- • Rubenstein cited sovereign wealth investments in alternative managers, including China Investment Corp.'s $3 billion in Blackstone, Mubadala's $1.4 billion in Carlyle, and Dubai International Capital's $1.3 billion in Och-Ziff, and said the relationship will be collaborative.
- • He argued the industry must improve its public explanation of job creation, taxes, and value creation, and that sellers' reluctance to accept lower valuations would likely fade within six to nine months.
Summary
David Rubenstein, co-founder and managing director of The Carlyle Group, the Washington, D.C.-based private equity firm with more than $70 billion in assets under management, discussed the credit crisis, industry outlook, and the rise of sovereign wealth funds in an interview with members of the Wharton Private Equity Club (WPEC) in March, as published by Knowledge at Wharton. Rubenstein characterized the period since mid-2007 as a post-Golden Age phase, which he expects to last roughly a year. During that time, he said, the industry will see smaller transactions, since large deals lack syndication partners, along with more non-levered minority investments and expanded activity in emerging markets such as China and India, where leverage is less central to deal structures.
On the credit cycle, Rubenstein pointed to the 2000-2001 downturn as a precedent. U.S. leveraged loan issuance fell to approximately one-third of its 1998 total in 2001 and 2002, and took roughly three years to recover to prior highs. He noted that issuance more than doubled between 2002 and 2004 and again between 2004 and 2006, rising about twentyfold between 2001 and 2007, which he cited as evidence of a clear cyclical pattern. He anticipates a return to what he called a "Platinum Age" once bank debt is sold and new lending resumes, with continued inflows of institutional and individual capital.
Rubenstein also addressed industry reputation, acknowledging that the sector has not effectively communicated its job creation, workforce investment, charitable giving, and tax contributions to stakeholders including labor unions, consumer groups, Congress, and the media. He said the industry must improve that explanation both domestically and overseas. On sovereign wealth, he cited China Investment Corp.'s $3 billion investment in Blackstone, Abu Dhabi's Mubadala Development Company's $1.4 billion stake in Carlyle, and Dubai International Capital's $1.3 billion investment in Och-Ziff, and said future collaboration through joint ventures is likely. Carlyle, which he said operates about 60 funds with roughly 1,000 employees and 550 investment professionals, has delivered a 26% net internal rate of return on realized corporate investments over 20 years, according to Rubenstein.
On the credit cycle, Rubenstein pointed to the 2000-2001 downturn as a precedent. U.S. leveraged loan issuance fell to approximately one-third of its 1998 total in 2001 and 2002, and took roughly three years to recover to prior highs. He noted that issuance more than doubled between 2002 and 2004 and again between 2004 and 2006, rising about twentyfold between 2001 and 2007, which he cited as evidence of a clear cyclical pattern. He anticipates a return to what he called a "Platinum Age" once bank debt is sold and new lending resumes, with continued inflows of institutional and individual capital.
Rubenstein also addressed industry reputation, acknowledging that the sector has not effectively communicated its job creation, workforce investment, charitable giving, and tax contributions to stakeholders including labor unions, consumer groups, Congress, and the media. He said the industry must improve that explanation both domestically and overseas. On sovereign wealth, he cited China Investment Corp.'s $3 billion investment in Blackstone, Abu Dhabi's Mubadala Development Company's $1.4 billion stake in Carlyle, and Dubai International Capital's $1.3 billion investment in Och-Ziff, and said future collaboration through joint ventures is likely. Carlyle, which he said operates about 60 funds with roughly 1,000 employees and 550 investment professionals, has delivered a 26% net internal rate of return on realized corporate investments over 20 years, according to Rubenstein.
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