Rubenstein: Private equity to shrink

Private equity has changed significantly in the wake of the financial crisis, with everything tending toward smaller sizes, more favourable terms for limited partners and much more focus on emerging markets, according to The Carlyle Group co-founder David Rubenstein.

“I think private equity has rebounded and is now beginning to invest again with different rules,” Rubenstein said, speaking on a panel at the annual Milken Institute Global Conference. “There will be more equity, the funds will be smaller, the deals will be smaller, [there will be] more co-investment activity, the fees will be probably more favourable in many ways to LPs in some other respects, but more money will be put in emerging markets because the growth is much greater there.”

Fellow panelist and Apollo Global Management founder Leon Black said his firm would continue to look for investment opportunities based on “product” more than geography.

David Rubenstein

Black said investments in shipping were of particular interest to the firm as of late. “There are opportunities in shipping today tied into global trade but a lot of the traditional sources of capital have dried up for shipping,” he said. “Shipping has depressed in terms of the cost of vessels so we’ve bought a fleet of super tankers and then we have contracted them out to big oil companies.”

Black also mentioned investments in servicing businesses in Spain, Portugal, Germany and the UK.

“We are actually spending a lot of time putting capital to work in Europe. Why? Because the banks are being forced by governments to get into ratio on a regulatory basis and you have over a trillion dollars of assets being sold right now,” he said. “We’re buying billions of loans related to mortgages and real estate.”

Natural resources investments has proven one of the most attractive strategies for limited partners, according to David Bonderman, founding partner of TPG Capital.

“The flavour of the month at the moment for raising funds, the reason for raising funds…is natural resources,” said TPG Capital founding partner David Bonderman. “The price of oil having tripled, everybody is now interested in buying what they were not interested in buying when it was one third of the current price. That’s the way the world works.”