A Carlyle IPO: David Says it Like it Is

David Rubenstein has finally said publicly what I've been saying for a long time: the private equity giants will invariably go public, and Carlyle is likely to be among them. The Washington Post had some great quotes from Mr. Rubenstein concerning the private equity industry and its march towards becoming publicly-traded in a story that ran today. I have taken the liberty of putting some subject headings at the top of each quote and some related post references where appropriate:

ON SELF-INTEREST (see Blackstone post)

"These guys who built these private-equity firms: You can say many things about them, but one thing you can't say is they're stupid, or they are not an alpha male," said David M. Rubenstein, Carlyle's managing director. "These guys are going to be fairly forthright about getting what they think they earned for building these firms."

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ON WHY WE SHOULD HAVE A BLOW-OUT IPO (see Fortress post)

"It's fair to say that Carlyle . . . would be thought to be a natural candidate to go public," Rubenstein said. "We don't have our heads in the sand and we're not ignoring what's going on with Blackstone or Fortress [Investment Group] or others.

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ON WHY WE LET OTHERS INCUR RISK BEFORE WE PILE ON

"Today we are not working on an IPO. But . . . if our competitors all go public and all of them seem to be stronger than they were before, obviously we would have to take a look at the situation."

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ON WHY WE BETTER GET MOVING AND GO PUBLIC SOON (see KKR post)

"We might have lower rates of return for investors than they would like, but I don't think they're going to see big losses of capital."

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ON WHY CONGRESS SHOULD BACK OFF BECAUSE WE'VE ENRICHED KEY CONSTITUENCIES

"If it ain't broke, don't fix it," he said. "We have an industry that works very well. We have benefited public pension funds, we have benefited endowments."

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MORE ON SELF-INTEREST - AIN'T PRIVATE EQUITY GREAT? (see PE Leaders post)

"What is really going on is that you have a generational transfer," Rubenstein said. "Most of the large private-equity firms today have been built by people who are today in their 50s, mid-50s and 60s. A lot of people who have built these firms have said these things are very valuable . . . and one of the best ways to realize the value of that is to take the company public."

Way back last summer I posited that Carlyle was doing some stuff to prepare for going public, like starting a hedge fund arm to augment its private equity activities (a la Blackstone). And now the Carlyle-Blue Wave multi-strategy platform is about to launch and talks of an IPO are heating up. The fact of the matter is that Carlyle is a great candidate to go pubilc - it has a portfolio diversified by geography, industry, and size, involves multiple levels of the capital structure and will soon have a hedge fund offering as well. While not as diversified as Blackstone, which has both an advisory component and a significant fund-of-funds business (via BAAM), it has a stellar track record and a roster of managers that is the envy of the industry. While Mr. Rubenstein and Carlyle might neither be the most aggressive mega-PE player out there nor the one most likely to lead the charge towards going public, the are smart, deliberate and unquestionably successful. And these qualities will undoubtedly be valued highly in the public markets when, not if, their IPO is launched. Just how highly these qualities (and its cash flows - level, growth and riskiness) can and should be valued is fodder for another post.

Comments

[Jenn]

I have gotten very friendly with one of the Gentlemen who has begun the process of managing Carlyle and all the talk of it going public. All your predictions are forth coming but no one will speak about it. Top Secret--World Wide Web info. Will the stock be successful? Yaser you say No but many in the playing field are planning early retirements. No need to get too excited though I asked how to be apart of future endeavors only to be laughed at. It's an exclusive invitation only for carefully selected private groups. So even if all was successful, there is no way to capitalize. The return is limited. The reward will be found for the ones who build it up though. Who knows if they can keep up the hype to master the ultimate plan.
Either way they will be buying vacation homes abroad. Now that is a win-win for them no matter which way it goes.

[Yaser Anwar]

The Hedgies & PE firms who want to go public will keep doing so. All of them have distinct edges/advantages which they can paint in their offering memorandums.

What we will see is each of 'em will take a different route. Citadel raised money through fixed income paper, Apollo is said to seek a payout before IPO, now this Carlyle thing.

Will they be successful in raising that extra 700+ mill? Probably.

Will their stocks follow that success? Mr. Market has spoken through FIG and KKR's Netherlands issues, and the answer Ladies & Gents is, as you know, No!