Tuesday, April 29, 2008
Carlyle Tops PEI 50 List
The Private Equity International Magazine just went online with its May 2008 issue, which includes the second annual listing of the world's top 50 private equity firms (PEI 50 - www.peimedia.com/pei50/). Working on background with many of the firms themselves as well as with market sources and industry data services, PEI determines the rankings based on the amount of private equity direct-investment capital raised by each firm over the past five years. Private Equity International is written by a team of experienced, international journalists who are dedicated solely to covering the global asset class. Combined, the editorial team has over 25 years of experience writing about private equity
The Carlyle Group again tops the list, having raised a whopping $52 billion in direct private equity investments over the last five years, and maintains its position at the top of the list as the biggest private equity firm in the world. Carlyle is followed by Goldman Sachs Principal Investment Area in second place with $49.05 billion, and third place is taken by TPG with $48.75 billion. Bain Capital is in seventh place and the Blackstone Group takes the tenth place. All 50 firms put together have raised a mind-boggling $810 billion over the past five years. Here's (pdf) the executive summary of this year's list and last year's list can be seen here (pdf).
But in spite of these sterling results, the first quarter of 2008 has seen a marked slowdown in investments by these firms, with $82 billion raised and $73 billion invested, as compared to the same period last year, when $234 billion worth of investments were announced. Carlyle's share of first quarter private equity investments was just $568.6 million, as compared to $4 billion last year.
The year has been especially tough for Carlyle, with difficulties in financing new leveraged buyouts like its buyout of Home Depot Inc.'s contractor supply unit, and problems with recently completed deals like the still ongoing union face-off with SEIU over Carlyle's purchase of nursing home chain Manor Care Inc. Also, Carlyle's mortgage bond fund, Carlyle Capital Corp. found itself overleveraged, faced incoming margin calls, lenders sold off about its securities to cover about $17 billion worth of debt and as a result, the fund went belly-up with a loss of about $150 million. More details here.
On top of all this, private equity firms face regulatory pressure for a carried interest tax hike, with prominent Democrats in Congress and special interest groups calling for private equity firms' managers to be taxed on the carried interest at the ordinary income tax rate of 35%, rather than the current 15% capital gains tax rate which they are liable for.
But Carlyle has the heft and clout to turn even such a negative business environment to its own advantage. Leaving aside the traditional private equity invetsment model of leveraged buyouts, Carlyle, and other players are seeking to benefit from oppurtunities in the distressed debt market. Carlyle raised $1.35 billion for a new fund, Carlyle Strategic Partners II, which will do everything from investing in publicly traded bonds and bank loans to purchasing ailing companies outright. More details here. Carlyle also said it was raising a $500 million collateralized loan obligation to buy high-risk, high-yield debt that banks are selling at discounted prices. Also see this Bloomberg article which outlines the LBO model and how things have changed.
As for the regulatory concerns and a negative image of private equity firms as being Wall Street fat cats detrimental to the interests of the ordinary investor, Carlyle is planning to cut invetments in the United States and focus on international markets. Jason Kelly, Bloomberg News, reports that David Rubenstein, co-founder and managing director of the Carlyle Group, predicts that within five years, about two-thirds of the firm's investments will be in non-U.S. companies. Currently, 64 percent is in North America, 26 percent in Europe, and 10 percent in Asia.
The Carlyle Group again tops the list, having raised a whopping $52 billion in direct private equity investments over the last five years, and maintains its position at the top of the list as the biggest private equity firm in the world. Carlyle is followed by Goldman Sachs Principal Investment Area in second place with $49.05 billion, and third place is taken by TPG with $48.75 billion. Bain Capital is in seventh place and the Blackstone Group takes the tenth place. All 50 firms put together have raised a mind-boggling $810 billion over the past five years. Here's (pdf) the executive summary of this year's list and last year's list can be seen here (pdf).
But in spite of these sterling results, the first quarter of 2008 has seen a marked slowdown in investments by these firms, with $82 billion raised and $73 billion invested, as compared to the same period last year, when $234 billion worth of investments were announced. Carlyle's share of first quarter private equity investments was just $568.6 million, as compared to $4 billion last year.
The year has been especially tough for Carlyle, with difficulties in financing new leveraged buyouts like its buyout of Home Depot Inc.'s contractor supply unit, and problems with recently completed deals like the still ongoing union face-off with SEIU over Carlyle's purchase of nursing home chain Manor Care Inc. Also, Carlyle's mortgage bond fund, Carlyle Capital Corp. found itself overleveraged, faced incoming margin calls, lenders sold off about its securities to cover about $17 billion worth of debt and as a result, the fund went belly-up with a loss of about $150 million. More details here.
On top of all this, private equity firms face regulatory pressure for a carried interest tax hike, with prominent Democrats in Congress and special interest groups calling for private equity firms' managers to be taxed on the carried interest at the ordinary income tax rate of 35%, rather than the current 15% capital gains tax rate which they are liable for.
But Carlyle has the heft and clout to turn even such a negative business environment to its own advantage. Leaving aside the traditional private equity invetsment model of leveraged buyouts, Carlyle, and other players are seeking to benefit from oppurtunities in the distressed debt market. Carlyle raised $1.35 billion for a new fund, Carlyle Strategic Partners II, which will do everything from investing in publicly traded bonds and bank loans to purchasing ailing companies outright. More details here. Carlyle also said it was raising a $500 million collateralized loan obligation to buy high-risk, high-yield debt that banks are selling at discounted prices. Also see this Bloomberg article which outlines the LBO model and how things have changed.
As for the regulatory concerns and a negative image of private equity firms as being Wall Street fat cats detrimental to the interests of the ordinary investor, Carlyle is planning to cut invetments in the United States and focus on international markets. Jason Kelly, Bloomberg News, reports that David Rubenstein, co-founder and managing director of the Carlyle Group, predicts that within five years, about two-thirds of the firm's investments will be in non-U.S. companies. Currently, 64 percent is in North America, 26 percent in Europe, and 10 percent in Asia.
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