Thursday, September 30, 2010

Carlyle Group's Rubenstein Sells Lower PEU Fees

Bloomberg reported:

David Rubenstein, co-founder of the Carlyle Group, said that private equity firms are lowering their fees in the wake of the 2008 market crash.

Buyout firms such as Carlyle have traditionally charged clients a 2 percent fee on committed capital and an incentive fee that equals 20 percent of investment profits. As fundraising becomes more difficult, buyout firms are cutting management fees, Rubenstein said today at the Bloomberg Dealmaker Summit in New York.

“I’m not sure anybody really gets 2 and 20 anymore,” said Rubenstein. Large buyout funds now probably charge management fees of 1 percent to 1.25 percent, he said.

Despite that assessment, the 20% carry remains intact.

Most private-equity clients support the payment of a 20 percent profit participation, also known as the carry, because they want to encourage managers to make money.

The carry has been very good to Carlyle's DBD Investors V.  From two deals, the sale of Vought Aircraft Industries and CoreSite Realty's IPO, founders hold $744 million in stock.

Carlyle has invested about $65 billion of equity since its founding in 1987, Rubinstein said, adding that the firm’s internal rate of return has averaged 30 percent annually since then. After fees are deducted, Carlyle’s annual returns have averaged 25 percent.
It's hard to keep track of Carlyle's many affiliates.  The next natural supplement you take could fuel Carlyle 30% annual returns over a 23 year period.  That sounds unnatural, almost Bernie Madoff like.  Carlyle has been known to plead puffery.