Friday, October 10, 2008

A Tale of Two Meetings

The G-7 group of nations formulated a plan to address the faltering global economy in Washington, D.C. Halfway across the globe, private equity underwriters (PEUs) gather in Dubai for the SuperReturn Conference. In case anyone forgot, pursuit of super returns by Wall Street investment houses helped get us into our current pickle. The Scotsman reported on the G-7 meeting:

The wider, five-point G7 plan is:

• Take decisive action and use all available tools to support important financial institutions and prevent their failure.
• Take all steps to unfreeze credit and money markets.
• Ensure banks can raise capital via public and private sources.
• Ensure national deposit guarantee programs are robust.
• Take action, where appropriate, to restart the "secondary markets" for mortgages and other assets.

However, there was no further detail last night. In a surprisingly brief statement after their meeting, the G7 also stopped short of backing a UK plan to guarantee lending between banks – a move many on Wall Street saw as vital.

"The G7 agrees the current situation calls for urgent and exceptional action," the statement by US, Canada, Britain, France, Italy, Germany and Japan said.

Finance leaders are to continue meeting this weekend to agree a global solution. Analysts said the summits, which involve the G7 and G20 nations, as well as the International Monetary Fund and World Bank, are of "truly monumental importance".

The Gulf Daily News reported on SuperReturn:

A top private equity conference, SuperReturn, has a strong line-up of global thought-leaders speaking at its second Middle East conference taking place next week in Dubai.
SuperReturn Middle East will be held from tomorrow to Wednesday at the Intercontinental Hotel, Festival City, Dubai.

Headlining speakers at the event will include eminent and powerful global private equity figures, such as Investcorp's president and chief operating officer Gary Long, Carlyle Group chairman David Rubenstein and Blackstone Group chief executive officer and co-founder of Steve Schwarzman.

"We are delighted to be a principal partner of such a prestigious event," said Mr Long. "SuperReturn is the definitive private equity forum. Its success and standing in Europe is now being replicated here in the Middle East at a time of increasing excitement and opportunity for the local private equity industry

The Middle East is full of dollar stuffed sovereign wealth funds. They have $2.5 trillion in assets. They're front and center as U.S. banks look for new capital. World Bank President Bob Zoellick already had them on the agenda. What luck!

"You will also see the sovereign wealth funds – and they have already been doing this – play a role in recapitalising financial institutions. You've already seen some of those investments and I undoubtedly believe that you'll see more. So, it's part of the change in the international financial and economic system," said Mr Zoellick.

Restructuring the global financial system will take time. SWF's want in. A U.S. meeting on the topic is scheduled for Monday. "Keeping Markets Open for Sovereign Wealth Fund Investment" is headlined by a Treasury big wig and Goldman Sachs. It appears private equity and sovereign wealth funds will garner SuperReturns on their bank investments.

The Carlyle Group expects 20-25% annual returns and likes deals stacked in their favor. What can the boys at the G-7 deliver for Carlyle & company? Whatever it is, Carlyle co-founder David Rubenstein is optimistic.

".... by and large the private equity firms are probably going to emerge from this far stronger than many of the other kinds of economic engines of our society."

Carlyle hates a level playing field. How is this one stacked in their favor?