Sunday, January 11, 2009

David Rubenstein: Snake Oil Salesman?

CSPAN broadcast Hank Paulson's talk at the Washington Economic Forum. Hank's final question from Q & A moderator David Rubenstein was "Now that you're a private citizen, where will you be investing your money, other than private equity?"

Emirates Business showed Rubenstein to be the perpetual salesman. Despite the bankruptcies of Carlyle Capital Corporation, Blue Wave Partners, Semgroup, and Hawaiian Telecom, David Rubenstein said:

"This is a good time for private equity underwriters (PEU's) if the industry moves carefully and skillfully with corporate partners and sovereign wealth funds. Low prices can yield attractive returns for the PEU industry – perhaps the best ever," said David Rubenstein, Co-founder and Managing Director of The Carlyle Group, one of the world's largest private equity firms. He described this as "perhaps one of the finest hours for private equity markets".

"An enormous number of companies need capital and the private equity industry has the necessary money. The US Government can't do everything. Private equity players can play an important role by re-capitalising many institutions."

Funny, Hank Paulson provided $153 million in capital for Carlyle affiliate Boston Private Financial Holdings, while David held tens of billions in dry powder. Senators Hutchison and Cornyn are yet to explain how this is a good use of taxpayer's money. But back to that ammunition, itching to be used:

Rubenstein believes that there are huge opportunities for PEU's. "They [PEU's] can invest in financial services businesses, an industry that hasn't previously seen a great deal of PEU involvement. With $1 trillion of dry powder, the PEU industry is in a stronger position than anyone else to help in economic recovery by providing capital and management expertise to financial services businesses. PEU can re-tool itself by coming in and offering longer-term capital to these institutions and helping them turn around," he said.

Distressed PEU has never seen so many opportunities, with one expert describing the current situation as a "once in a lifetime" opportunity. Most analysts favour investments in the US in this particular area – buy cheap and reap the benefits, they believe.

According to experts, infrastructure is another hot area, with lots of opportunities expected to continue. Likewise, mezzanine funds are expected to see huge growth and opportunities

"Huge opportunities, once in a lifetime, best ever, finest hour"? That's why Carlyle laid off 100 employees and lost numerous affiliates to bankruptcy. Step right up, the PEU boys have something to sell! How about the Brookly Bridge, anyone?

As author of this commentary, I took the liberty of adding a U to Mr. Rubenstein's designation of PE. For an accurate interpretation of his remarks omit the U.