Saturday, June 5, 2010

Carlyle Group's David Rubenstein is Saying

Reuters reported:

Carlyle Group co-founder David Rubenstein said on Friday that he expects a greater share of capital invested in private equity to come from sovereign wealth funds, particularly from China.
Rubenstein spoke from the U.S. SuperReturn conference. He dissed hedge funds in his talk:

"They see that when you look across the alternative investment landscape, private equity probably did better during this period of time than many other alternative forms of investment," Rubenstein said, speaking at the Super Return U.S. private equity conference.

He compared the asset class to hedge funds, adding that a lot of those went out of business, causing some people to lose all of their money.

Like Carlyle investor Michael Huffington? Rubenstein failed to mention alternative investment Carlyle Capital Corporation, where investors lost all their money or BlueWave Partners, Carlyle's hedge fund which lost most of client investments. Rubenstein told McKinsey the firm would reenter such risky alternative investments.

Is this Rubenstein political speech or puffery?

people are saying -- private equity isn't as risky as maybe other types of alternative investments."
Private equity underwriters (PEU's) live off sovereign wealth fund and public pension fund investments.

Rubenstein said that public pension funds will also increase their allocations as they try and recoup losses they may have made in other parts of their portfolios.

Losses from other parts of their portfolios? Bloomberg reported Carlyle made over $680 million in capital calls on CALPERS during the financial meltdown. Private equity may have made some of that money back, but it clearly blew a huge hole in pension stability.

PEU's roll the dice for public pensions, which are backstopped by Uncle Sam. One might expect a modicum of oversight. However Congress and the White House gave private equity and sovereign wealth funds free passes in financial regulatory reform.

Rubenstein's greed translated:

Unsupervised China will probably become a huge back door investor in America.

That may give Carlyle a super return, but what does it leave for the rest of the country, especially those without access to champagne round tables?

Update: Rubenstein also said PEU deal sizes were increasing. A contrary opinion was on the future of finance was shared by Pete Briger of Fortress.