Wednesday, November 15, 2017

Carlyle Says It's Not a Spent Force

FT reported:

The private equity model “is starting to look like a spent force” because more competition and record cash available is leading to lower returns as operators are forced to take on more risk, an adviser to the industry has said.
Carlyle Group co-founder David Rubenstein, ever the salesman, offered a different view:

Speaking at a trade conference in Amsterdam, David Rubenstein, the billionaire co-founder of the Carlyle Group, said the model of private equity had worked “pretty well” for both managers and investors and that was likely to continue for the next three decades, with minor adjustments.
Carlyle has roughly $100 billion to raise.  Carlyle knows when not to throw good money after bad, as it did with bankrupt Carlyle Capital Corporation (CCC).  The question is if and when investors decide PEU stakes are a bad deal.

The model of asset management charged no carried interest — the cut managers share with investors — for 200 years, he said, but private equity in the 1960s changed it because “money would be committed but not actually invested and more or less 20 per cent of the profits would go to the [manager]”.
The greed and leverage boys became ubiquitous in the last two decades.  The rise of the billionaire founders coincided with the decimation of the middle class.

Ironically, PEUs want to become part of that middle class retirement account, what's left of it.  Is more risk the tonic, or will it be toxic?    Ask the robot what you need to do the pay a management fee plus carried interest.  Surely, Carlyle funded artificial intelligence will give you an answer.