Humour and wisdom mixed recently as broadcast financial journalist Maria Bartiromo moderated a private equity panel discussion featuring “the titans of investment management today”, as she put it – Apollo Management co-founder Leon Black, TPG co-founder David Bonderman, Thomas Lee, founder of Thomas H. Lee Partners and now Lee Equity Partners, and The Carlyle Group co-founder David Rubenstein.
The four were participating in the annual gathering of global movers and shakers put on by Mike Milken's Los Angeles-based economic think tank. Over the course of three days, the Milken Institute's 10th Global Conference featured nearly 500 speakers at 120 sessions. An overview of the often highly entertaining private equity discussion is below:
“Is this the best time you've ever seen?” Bartiromo asked.
“Ask David Rubenstein – he's got the most money, so he must have the best answer,” Bonderman quipped in the first of several teasing comments directed at the Carlyle sage.
“None of us ever dreamed when we started these firms that they would grow into the kind of money management arms that they did today, or that we would be global,” Rubenstein said. “None of us probably thought we'd have as many people working for us today. This is due in large part because the returns have been very good and the investors have a large amount of capital to deploy.”
But he admitted, “It's not likely we can continue at this pace, with everything working perfectly forever.”
One thing Bonderman said he was sure about: the increasing attention the industry has attracted from the public, as well as US and European lawmakers and various trade unions is “bad for business”.
“Nobody likes to be under this kind of scrutiny,” Bonderman said. “All of us are in this so-called private equity business because, at least until now, we've all wanted to be private.”
Without addressing what Bartiromo called the elephant in the room – speculation that Apollo is on the verge of a public offering – Black outlined the merits and drawbacks of an IPO.
“The real negative is being public, it's being in that fish bowl, it's Sarbanes-Oxley, it's having any little shareholder sue you for whatever. I'm not sure any of us needs that,” Black said. “So the question is: do the positives outweigh the negatives?”
A public offering, he said, is a great tool for attracting and retaining talent, and provides an attractive currency stream. But, he added, going public may not be the best means for creating that currency. “There are many paths to Rome,” he said.
“These are issues everyone is grappling with post-Fortress and I think a lot of us were thinking about it before Fortress,” Black said. The success of Fortress Investment Group, which floated about 10 percent of its management company last year, was “a real wake-up call”, he added.
“Obviously the Fortress deal was a tremendous success,” Lee agreed. “I'm sure Blackstone's [IPO] will be too, but it's sort of old thought.” The path brokerage firms took to going private is similar, he said.
Rubenstein agreed: “It was said all along … if they're going to grow and be competitive, at some point, probably, they will all go public.”
Going public would also ease performance pressure on GPs, Bonderman said. “We all ought to be thinking about how to replace the pension funds with public markets because the pension funds want us to give them 20 to 30 percent returns – markets are ecstatic if we give them 11 to 12 percent returns,” he said. “The nirvana in our business is permanent capital and the ultimate permanent capital is the public markets.”
“One thing I think is clear,” Bonderman said, “is the industry is going to change radically over the next decade whether or not we want it to.”
OAKTREE TO LIST ON NEW GOLDMAN EXCHANGE
Los Angeles-based Oak Tree Capital Management intends to raise $700 million (€515 million) with an offering on a private stock market created by Goldman Sachs, the Wall Street Journal reported. The alternative investment manager plans to sell a 13 percent stake at $40 to $44 per unit on GSTrUE, or GS Tradable Unregistered Equity OTC Market. GSTrUE will only be accessible to institutions and “highly sophisticated” investors. Floating itself on the private market gives Oaktree the “benefit of liquidity without subjecting us to the full panoply of regulations applicable to publicly traded companies in the US”, a placement memorandum reads. The firm is led by Howard Marks, a former TCW Group executive.
FORMER PCG HEAVYWEIGHTS FOUND RIVAL FIRM
A new private equity advisory firm, Leucadia Capital Partners, has been founded by three ex- Pacific Corporate Group executives including its former president, Monte Brem. Brem is Leucadia's chief executive officer, while co-founder Thomas Keck is the firm's chief investment officer and cofounder Jose Fernandez is a managing director. At PCG, Keck was a managing director, head of research and chair of its investment committee, while Fernandez was a managing director and member of PCG's management and investment committees. Their new firm is located in La Jolla, California – less than five miles from PCG – and has already snagged major clients including the Kuwait Investment Authority and the George Kaiser Family Foundation.
CARLYLE CFO TO STEP DOWN
The Carlyle Group's chief financial officer, John Harris, is scheduled to leave the firm soon, a spokesman confirmed. “John has indicated he is going to leave sometime late summer or so,” said spokesman Chris Ullman. “He is leaving for family and personal reasons that are all positive and will enable him to fulfill some personal goals.” Harris has been with the firm since 1997; before, he was a vice president with private equity firm Golub Capital and a senior manager with accounting firm Arthur Andersen. A search for a new Carlyle CFO is already underway. Harris is expected to continue his association with Carlyle, acting as a senior advisor following his departure.
BEAR STEARNS SNAGS EX- ILPA CHIEF
Bear Stearns' Private Funds Group continues its expansion with the hire of Arlett Tygesen. She was the first executive director of the Institutional Limited Partners Association, a 4-year old Toronto, Canada-based organisation that represents the interests of limited partners. Her departure from the ILPA – and replacement by former Macdonald & Associates COO Kathy Jeremaz-Larson – was announced in January. Prior to the ILPA, Tygesen was a manager and senior analyst for the private equity unit of Canadian pension fund Ontario Municipal Employees Retirement System. As a managing director for Bear Stearns' Private Funds Group, Tygesen will concentrate on fund manager origination. She will be based in Toronto.
TXU-DEAL BANKER ARRESTED FOR INSIDER TRADING
Kohlberg Kravis Roberts and TPG's bid for US energy company TXU has received some unwelcome notoriety as one of the energy bankers working on the deal for Credit Suisse Group was arrested last month. He was charged with 25 counts of securities fraud and one count of conspiracy. Hafiz Naseem, from the Swiss bank's New York office had allegedly been involved in insider trading in deals on which Credit Suisse advised including the TXU buyout. US prosecutors alleged Naseem's scheme netted $7.5 million (€5.5 million). A recipient of Naseem's information was a Pakistani banker who provided the information to high profile Pakistani financial executives, the Security and Exchange Commission also said in a civil complaint.
DUBILIER & CO. HIRES JOURNALIST
Dubilier & Co. is the latest private equity firm to add a journalist to its ranks with the hire of Anne Gordon. She had been managing editor of The Philadelphia Inquirer for the past five years, and was also the business editor at The Denver Post for eight years. As a partner with Dubilier & Co., she will focus on acquiring, building and managing media, technology and entertainment portfolio companies. The firm founded by Michael Dubilier, son of Clayton Dubilier & Rice co-founder Martin Dubilier, is the latest to tap journalism talent to assist with media and communications investments. Last year The Carlyle Group hired former Time editor-in-chief Norman Pearlstine, and in 2000, former Wall Street Journal and Boston Globe journalist Jon Auerbach joined Highland Capital.