Carlyle Founder Sees Banks’ Exit From Private Equity

Feb 11 2010 | 9:11am ET

Wall Street’s banks are likely to cut back or abandon their private equity operations, and private equity firms will face new regulation in the U.S., the head of the Carlyle Group predicted yesterday.

David Rubenstein said he’s not sure that the so-called Volcker Rule would bar banks from owning, investing in or sponsoring hedge funds and private equity funds. But whether or not it would, banks are likely to back away from p.e., both out of fear of the legislation and of possible criticism.

“I think what you’ll see—whether or not the legislation is adopted—is the sale of a number of captive private equity organizations of large banks and the sale of hedge fund-related operations,” Rubenstein told a private equity conference in Berlin.

More likely than the Volcker Rule becoming law—a near certainty, in fact, according to Rubenstein—is some form of p.e. regulation, which the Carlyle co-founder acknowledged the industry had so far avoided. Compulsory registration with the Securities and Exchange Commission was probable, Rubenstein offered.

Rubenstein also painted a relatively bleak picture for the private equity industry over the next several years, despite a boost last year.

“Returns from many pre-recession deals in funds will likely be modest at best,” he said. “Most deals I am aware of in 2009 were done at distressed prices and are probably going to be among the best deals done in the last 10 years or so.” But investors should expect lower returns and lower deal volume for the next two to four years.

The Carlyle Group is one of the world’s largest private equity firms with $87.9 billion under management and current investments in more than 200 companies.


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