Monday, November 12, 2012

PEU Returns to Fall Says Rubenstein

Bloomberg reported:
David Rubenstein, co-chief executive officer of Carlyle Group LP (CG), said returns on private equity will decline from their historic averages as lackluster economic growth forces firms to put more money into deals and hold their investments longer. 

Carlyle, which has produced average returns of about 30 percent over the past 25 years, is targeting gains of about 20 percent when doing deals now, Rubenstein said.
The Carlyle Group's Rubenstein promised 20% returns on infrastructure projects, i.e. lower than historical PEU returns but with less risk.  Will he stick with those projections in light of his overall return downward revision

Another element cited by Rubenstein is the challenge in raising funds for investment.  Fellow PEU KKR will over two new investment funds to retail investors, according to FT:

The growing spread of businesses raises the potential for new conflicts with asset managers and the creation of the internal “Chinese walls” common at investment banks to protect against the inappropriate spread of information or unfair treatment of different investors
Not only can investors buy a KKR mutual fund, they can buy KKR or Carlyle Group common units on the stock exchange.  Carlyle's IPO stated common unit interest would come after private equity investor and partner interests.

With private equity searching out the common investor, the game may be nearing its end.  Founders want to cash in, which means they want to pass the bag.  Will the individual investor, shut out of high returns for three decades, suddenly become the bagholder? 

Update 6-22-14:  PEU's want individuals with defined contribution retirement savings to invest in private equity.  The story says there's lots of interest, but no one wants to go first.