Sunday, April 1, 2012

Carlyle Group's China Bubble

Two years ago CNN reported on The Carlyle Group's investment in China.  The quote is from Carlyle co-founder David Rubenstein:

We've invested more in China than any other private equity firm -- about $2.5 billion of equity and forty-some transactions in real estate, venture, and buyout types of investments. We have about 45 full-time professionals investing in China. All of them are Chinese natives who were educated in the U.S. or other places, in some cases China. We cannot put enough money in China. We'll do every good deal we can find.
The Carlyle Group added another $1 billion investment in China, reaching $3.5 billion.  Carlyle already lost face and money from accounting scandals at affiliates China Forestry and China Agritech.    Now they face a deteriorating Chinese economy.  Consider this Fall 2011 report:

The Financial Times recently reported that more than 90 factory owners have already abandoned their investments as large, cheap loans come due and sales dropped because of diminishing global demand.

What risk management moves are underway at Carlyle to minimize the impact of a Chinese meltdown?  Let's hope they're more substantial than a China Daily oped by David Rubenstein and a policy visit by fellow co-founder Daniel D'Aniello.

China reneged on its derivative commitments when the U.S. economy imploded in Fall 2008.  Will derivatives help ease Carlyle's China investment pain?  Will Carlyle monetize its Chinese affiliates in time?  Bubble or not, China's the economic Wild, Wild East.

Update 4-27-12:  China Forestry's situation didn't improve with the resignation of its Acting CEO