Carlyle’s Rubenstein: ‘Debt is the biggest threat to private markets’

The firm’s co-founder says the amount of debt in global economies is worrying, along with dysfunction in government and challenges brought by ageing societies.

The biggest threat in private markets today is the amount of debt in the system, The Carlyle Group founder David Rubenstein said in Geneva on Thursday.

“Let me just take the US, which I am most familiar with,” Rubenstein said before a crowd of around 400 LPs and GPs at industry body Invest Europe’s Investors’ Forum 2019. “Before the great recession, there was roughly 240 percent of GDP in debt, a large part of that is consumer debt. Today, 10 years later, we have a 240 percent debt-to-GDP ratio – it’s just [that] the debt has been transferred from the private sector to the government.”

Rubenstein said in the last 10 years, about $15 trillion had been added to the US debt.

“The US owes other people roughly $22 trillion; $22 trillion is a lot, and we are adding $1.3 trillion a year in new indebtedness.”

He warned that while the market has “tolerated” the amount of debt, it will soon “wake up and say the debt is too big to roll over”.

“That could be a threat to the global economy, not just to the private equity market. Debt right now is readily available. If it was more constrained, that would be a problem for the private equity market.”

Rubenstein also expressed concern about the US government.

“Right now, the dysfunction of government has not adversely affected our economy for a lot of reasons I can’t explain, but at some point nothing can ever get done by government because of this dysfunction and political opposition…That can be a big problem.”

The ageing US population and the entitlements programme are two other concerns for the private equity veteran.

“The biggest problem we have in entitlements in the US right now is that we need to pay these entitlement benefits, but we don’t really have the money to do it.”

Average life expectancy in western Europe and the US has been increasing, Rubenstein noted. “The health benefits that we need to pay to people are very, very high and it’s not likely that we can pay for those with the current system.”

Carlyle’s private equity platform has $81 billion in assets under management, according to the firm’s website.

More news on Carlyle this week: Rivendell Partners, a Hong Kong-based mid-market firm founded by former Carlyle managing partner Alex Ying, has lost a majority of its staff while raising its debut fund, which has a target of up to $500 million.