Carlyle defends sovereign funds

The firm’s regulatory affairs head, David Marchick, warned a Senate committee today against protectionism, using Carlyle’s stake sales to CalPERS and Abu Dhabi as examples of government-affiliated investments that bolster US companies.

The Carlyle Group’s David Marchick today called on US legislators to “lead the way” in receiving investments from sovereign wealth funds, warning against a protectionist stance that would harm US investors and the country’s economy.

David Marchick

“There is cause for concern that countries are moving to tighten up rules on investment,” Marchick, the firm’s regulatory affairs head, said in testimony before the US Senate Committee on Banking, Housing and Urban Affairs.

“In the last two years alone, more than a dozen countries representing more than 40 percent of global inward foreign direct investment have adopted or are debating new investment restrictions,” he said, citing blocked deals in countries including New Zealand, Canada, Japan and China.

Unless a deal is deemed a true national security threat, the US should welcome sovereign funds’ investments and should adopt a sensible etiquette for other countries to follow, he said.

One can legitimately ask … whether there is a greater risk that receiving countries will block legitimate investments for political reasons.

David Marchick

“Just as sovereign wealth funds have been asked to establish codes of conduct, countries receiving investments from sovereign wealth funds need to act responsibly as well, and the United States needs to lead the way,” he said. “One can legitimately ask the question whether there is a greater risk that receiving countries will block legitimate investments for political reasons, or that a sovereign wealth fund will make an investment for political reasons.”

He also pointed to Carlyle’s experience with the California Public Employees’ Retirement System and the Abu Dhabi-backed Mubadala Development Company, both of which own minority stakes in the firm’s management company, as positive examples of investment from “government-affiliated entities”.

“They exercise no control or influence over our investment decisions,” he said. “Their investments have allowed us to create strong US companies, grow jobs and spur innovation.”

Marchick, who was hired as Carlyle’s first ever in-house head of regulatory affairs in September, joins a growing list of general and limited partners speaking out in defense of sovereign funds amid mounting legislative concern that investments could made for political purposes.

In March, the Canada Pension Plan Investment Board’s chief executive, David Denison, asked the same Senate committee to look “beyond the labels” of sovereign wealth and realise its importance to US economy.

Stephen Schwarzman, The Blackstone Group’s chairman and chief executive, has also sung sovereign praises, calling them sophisticated institutional investors akin to public US pensions.