Carlyle Ought to Give up the Roadshow & Salvage Shareholders’ Value

Carlyle co-founder David Rubenstein. Photo by Fred Prouser, Reuters

Forget it, David. Do yourself a favor. And all of the folks who work alongside you, too. Dump the S-1, take some money from foreign investors and keep Carlyle a private equity firm.

Just look at what happened to Oaktree Capital Group. Precedent doesn’t paint a pretty picture for either of you.

Have you seen KKR’s stock performance over the last 12 months (down 20%)? How about Blackstone (off by more than 50% since its 2007 IPO)? The debt financing markets haven’t gotten back to where they were in 2007, which might help account for why Blackstone shares have struggled even as global markets rebounded. Three public private equity firms and not a single one of them can whip the measly Dow as of late.

Perhaps private equity as an asset class can perform listed market benchmarks, but it doesn’t seem as if its stock can. There is no universal ‘why’ that explains investors’ shunning of KKR, Oaktree and Blackstone shares. Public perception in an election year? Fear of higher taxation on the industry? (Its prospectus hints at this.)  Increasing expenses from regulatory burdens? (Ditto.) But Carlyle’s taking itself public is akin to Gilt Groupe throwing an S-1 together right now. What happens if Congress does the impossible, and somehow passes legislation increasing private equity’s carried interest tax? Based on the results of what’s out there, there must be better ways to get capital. Should other stakeholders in PE firms expect that their asset’s value will be marked down to market post IPO?

Carlyle is still among an elite class of PE firms that can summon billion-dollar commitments from sovereign wealth funds with the tweak of a fee, or less, even. Where else should SWFs park their capital—with Google, Facebook or any of the other power-drunk CEOs of listed (or soon-to-be) American companies? One—or several—would make a surefire silent partner for Rubenstein and his team, even into leadership transition.

With major succession questions hanging over KKR and Carlyle—never mind how far in advance executives claim things have been coordinated—and the additional nettlesome issue of another layer of compliance, will future rainmakers want to head to a public company, or would they prefer to remain as private as possible? More executives I spoke with at Thomson Reuters’ PartnerConnect earlier this month said they will stay private, and aren’t even considering an IPO. I didn’t ask whether they’d be more likely to go to a public PE firm, but then again, I didn’t exactly expect them to be honest about it, either.

While share performance offers a view into the market’s immediate perception of a company, we will have years to see (through IRR calculations, for those PE shops with public pensions) whether the IPO marks a point of inflection, or destruction, for private equity firms. So far, the picture isn’t pretty.

Image Credit: Carlyle co-founder David Rubenstein. Photo by Fred Prouser, Reuters

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