Wednesday, October 15, 2008

Carlyle's Rubenstein Weighs in from Dubai's SuperReturn Conference

Private equity underwriters and sovereign wealth funds gathered in the United Arab Emirates at the annual SuperReturn conference. Both groups, PEU's and SWF's, are flush with billions in cash and trillions in total assets. David Rubenstein, co-founder of The Carlyle Group, spoke at the meeting. According to Reuters, he said:

"Right now there's an enormous opportunity for private equity to get into the financial service industry and invest in banks, insurance companies, other organizations that are heavily hit ... by the credit crunch."

The article clarified the role Mr. Rubenstein expects PEU's to play in recapitalizing banks and financial institutions, once taxpayers shoulder their toxic assets.

He said private equity has longer-term capital and can strengthen the balance sheets of firms or recapitalize them.

Carlyle has previously argued that regulations on private equity investments in financial services companies should be eased to make more money available to the business.

The U.S. Federal Reserve recently relaxed bank ownership rules, allowing investors to buy up to 33 percent total equity interest, including voting and non-voting shares, instead of the 25 percent prior limit.

Rubenstein also said that credit-related investments, such as buying debt, remains very attractive.

Carlyle can win two ways. They can recapitalize firms, becoming new owners while squeezing out the old. And the PEU can buy back their affiliate's debt on the cheap. They financed past acquisitions with leveraged debt, some of which will end up in Hank's junk sale. Carlyle can buy back their mortgage related debt for ManorCare at a deep discount. It's a PEU economy, entering its finest hour!