Carlyle co-founder points to brighter PE future
Relations between buyout firms and investors "have passed their nadir", according to Carlyle Group co-founder William Conway, with appetite for the asset class, and in particular co-investments, set to increase.
Speaking at the British Private Equity and Venture Capital Association’s 2012 Summit event in London, Conway said that since the financial crisis the private equity industry had made great strides in improving both transparency and reporting standards, to which investors had responded positively.
Conway added the firm was seeing increased interest from investors for co-investment opportunities and that the next significant disagreements in the community were likely to be between investors looking to get access to limited opportunities.
Taking a broader look at the macroeconomic environment, Conway said that despite the current low growth environment “investors have to put their money somewhere, they can’t cry and stay in bed” and private equity remained an attractive proposition.
He said that Carlyle had returned $18.8bn in 2011 and had already returned $12bn this year from its private equity investments “more than TPG, KKR and Blackstone combined” in both years, while it had also kept its preferred return rate at 8%.
The preferred return – otherwise referred to as the hurdle – is the minimum return an investor is guaranteed before a manager can earn carried interest from asset sales.
Conway said that the “US is the best place in the world” to be currently be investing, adding that its economy was creating 150,000 jobs a month. In contrast, Europe was creating “nervousness” but there were still opportunities in asset classes such as credit, distressed investing and areas of market dislocation which the firm would look to exploit.
Deal flow was likely to be constrained in the market as the number of expiring collateralised loan obligation funds – debt investment vehicles that historically have played a key role in the financing process for private equity deals – is on the rise, without replacement funds being raised.
Conway said that while Carlyle had managed to raise new CLO vehicles in the US in Europe, it was still a virtually “impossible” task due to the lack of leverage and yield available.
