Carlyle Sees Opportunity in Toxic Assets

MIAMI (Reuters) – David Rubenstein, co-founder of private equity firm Carlyle Group, said the U.S. government program to buy toxic bank loans and securities should provide opportunities for good returns, but he needs to see the rules before committing to it.

“We’re always interested in looking for opportunities for good returns. I suspect this will be a good opportunity, but we need to know what the rules are. They haven’t been formulated yet,” Rubenstein said Tuesday on the sidelines of the Super Return private equity conference in Miami.

He said Carlyle would assess whether to make investments under the Public-Private Investment Program.

Money manager Invesco Ltd (IVZ.N) and billionaire investor Wilbur Ross on Monday announced plans to lead a group committing $1 billion to PPIP.

Rubenstein said in March that Carlyle was considering participating in the program but that investors were concerned about whether they would be subject to additional regulations, disclosure or compensation limits.

“People want some assurance that if they do this and make money, they won’t be seen later as doing something improper,” he said in a panel discussion at the Super Return conference later on Tuesday.

“People in the private equity world are interested in this but they want to make sure they know the ground rules, that the rules won’t change later, and that there’s going to be something to buy,” he added.

Rubenstein also said on Tuesday that he did not expect a big impact on fund-raising from Carlyle’s decision to stop using placement agents. In the past, Carlyle used agents only on rare occasions, he added.

Carlyle said last week that it would stop using placement agents when seeking investments from public pension funds in the United States.

Placement agents are used by private equity firms to help raise money. The industry suffered a blow last week when the New York State comptroller moved to ban placement agents, paid intermediaries and registered lobbyists as a result of federal and state probes into kickbacks.

The probe has been gathering steam since March, when New York and the U.S. Securities and Exchange Commission charged two top aides to the state’s former comptroller with making more than $15 million in fees for helping private equity firms get a piece of the state’s pension fund.

More than 20 investment deals made by the state’s $122 billion pension fund were “tainted” by the kickbacks, and five of the investments involved Carlyle, New York Attorney General Andrew Cuomo has said.

Carlyle has not been accused of any wrongdoing in the probe and said at the time that it had fully cooperated with Cuomo’s office.


The private equity industry has suffered since the credit crisis from the lack of easily available leverage to do deals.

“Leverage still drives the private equity industry in the U.S. and Europe and without the availability of leverage it is very difficult to do the kind of things we used to do,” said Rubenstein at the conference.

Rubenstein added that for the next couple of years buyout deal sizes would probably be restricted to $1 billion to $3 billion, with the amount of equity the private equity firm has to commit to a deal increasing.

The private equity business is not a counter-cyclical one, and virtually no private equity firm has done well in this environment because it is hard to exit investments, he said.

“When markets go down, we don’t go up. We’ve never said we’re counter-cyclical. We’ve said that we can do better than the markets,” he added.

(Reporting by Megan Davies; editing by John Wallace, Richard Chang)