Thursday, May 12, 2016

Carlyle Group Earnings Call Revealing

Carlyle Group co-founder David Rubenstein offered the following take on Carlyle's performance in Q1 2016:

We raised a gross amount of $2.2 billion in the first quarter, however approximately half of our previously disclosed hedged fund redemptions were returned to investors during the first quarter and those outflows countered a majority of our gross inflows.
Details showed hedge fund redemptions countered all but $100 million of the $2,2 billion funds raised figure.

The fund raising environment remains favorable for alternative investment firms and investors continue to respond positively to our offerings.
This is why Carlyle and its PEU brethren returned to excessive fees while telling investors to expect lower returnsNakedCapitalism reported:

Private equity investors are getting a dose of the new normal as the hottest fund managers again demand general partner-friendly terms and fees that investors have not seen since the pre-crisis go-go fundraising days.

Some managers are again charging “premium carry” similar to 2007 vintage funds and are eliminating terms from their current funds that are designed to protect limited partners, such as preferred returns, also called hurdle rates, and clawbacks
Pensions+Investments reported:

Meanwhile, private equity returns that had been an average of 15% historically are down to 12%, Mr. Rubenstein said: “I suspect that is where returns will stay.”
Rubenstein spoke to Carlyle's catering to the wealthiest of the wealthy in the Q1earnings call:  
High net worth people who have their own family offices. I would say today everybody wealthy seems to have their family office in the old days everybody wanted to have their son grow up or the daughter grow up to be President of United States, now everybody wants to have their son or daughter have a family office, everybody wants a family office. And so there are plenty of family offices out there and you take the wealth around the world everybody who seems to have a net worth of about $300 million or more has a family office. And so these people are investing very significantly as endowments are in alternative private equity. And so we are working very hard with these family offices and all of the family office conferences and so forth. the last I’d say the first quarter of 2016 and for the last 12 months our biggest second category has really been high net worth individuals...
So we continue to see this and one other trend that I would mention is it’s not just high net worth in the Western world of the United States and I’d say Europe it is all over the world, increasingly the wealth in the emerging markets is winding its way into the family offices or the kind of other things that I mentioned. And so it’s a very important part of our fund raising operation now.
It's a PEU world created in part by Mr. Rubenstein and The Carlyle Group.  We'll see if elected officials give the PEU boys another decade of preferred taxation via the carried interest loophole.

Update 5-15-16:  The Fort Wayne Journal Gazette picked up a Bloomberg piece on family offices.