Saturday, July 21, 2018

Carlyle's Rubenstein Says Let Good Times Roll

Billionaire Carlyle Group co-founder David Rubenstein said on CNBC on 7-18-18:

And when the economy's in good shape, people tend to be happier. Now, obviously people at the bottom of the economic totem pole are not happy. But unemployment is at a record low, and therefore you've got a lot of people working, a lot of people are making money...
CNBC Reporter Becky Quick kindly gave Mr. Rubenstein time to promote private equity underwriters (PEU) and The Carlyle Group.

Carlyle raised $17 billion for Carlyle Partners VII with an $18.5 billion hard cap in sightPitchbook reported:

Carlyle's largest-ever effort, Carlyle Partners V, brought in $13.7 billion in 2007.
Carlyle's website pegs the close in 2008.

Carlyle's $13.7 billion Carlyle Partners V closed at the end of 2008 
The bulk of PEU fundraising occurred before the September 2008 financial meltdown. What does this mean for investors today?

Rubenstein spun history with Becky Quick:

"During the Great Recession, which happened after 2006, around 2007, 2008, the industry went down, as most of the economy around the world went down. And a lot of buyout fields didn't work out as well as people thought. It was a complicated industry at the time, complicated for the economy about whether we could do the things we said we were going to do for our investors."-Rubenstein
The PEU model did not get less complicated since then.  Becky Quick commented on high prices PEUs are paying to buy companies:

"I think if you go back and you look over the last year, you see about seven times EBITDA. Now, it's closer to 12 to 13 times. So almost doubling over the last year."-Quick
Froth has returned.  Rubenstein reinforced Quick's observation:

"Deals are getting done at higher prices than they were in 2006 or '07. But because investors are willing to accept somewhat lower rates of return, it works."-Rubenstein
Carlyle investors don't take kindly to a 100% investment loss as experienced with Carlyle Capital Corporation's bankruptcy in March 2008.  

Financial crisis arrive when the big money boys no longer trust one another to pay their debts and investors fear losing principal.  That may be near.  It may be far, but it will return again.  The question is when?

Until then, totem pole toppers enjoy!

Update 7-22-18:  Institutional Investor issued a warning on PEU froth.

Update 7-31-18:  Carlyle hit the $18.5 billion hard cap, it's largest ever.  Great PEU times!