Waving goodbye to the entrepreneurs

When Private Equity International was launched 16 years ago, “private equity was a little child with his nose pressed up against the door of the candy store”, as David Rubenstein put it when we spoke to him for our 15th anniversary edition last year.

Rubenstein was referring to the fledgling asset class eyeing up the trillions of dollars of sweet institutional capital that lay beyond its grasp. Since then that little child has grown up, entered the shop and – for want of a kinder metaphor – filled its pockets. More than $2 trillion has been raised by private equity firms in the last five years. The most forward-looking firms are now considering wealthy individuals as a source of capital.

The industry has matured and most of the original crop of “buyout shops” have grown into multi-strategy asset managers. For Carlyle’s part, it now manages $170 billion across its various strategies, just $54 billion of which is in private equity. At our last count, we ranked it as the third-largest firm in the world behind KKR and Blackstone.

Part and parcel of this industry evolution is the gradual withdrawal of the personalities that helped shape it. The most successful have managed to create institutions that bear their cultural DNA, but that will ultimately outlive them with new generations at the helm.

This week we reported on the second succession-related watershed moment this year. Carlyle told the market that Rubenstein and co-founder Bill Conway would step aside as co-chief executives and be replaced by new leaders. Earlier in the year, KKR announced that two of its younger executives would be stepping up to take day-to-day control of the firm, while founders Henry Kravis and George Roberts would continue as co-chairmen and co-CEOs.

Kravis and Roberts are both 73, while Rubenstein and Conway are 68. As we noted earlier, Blackstone’s 70-year-old founder and CEO Steve Schwarzman must be mulling a similar transition. These succession events are, of course, inevitable and necessary.

From an industry observer’s standpoint, though, they are also tinged with regret. Rubenstein, in particular, has been a source of colour and column inches since he first graced the pages of PEI in our first edition. Who could forget the holiday rap he recorded for investors back in 2014? (Try as they might.)

The entrepreneurial spirit needed to found a firm in a nascent niche of alternative assets is not necessarily the same spirit required to guide a publicly listed asset management business. The challenge, as Rubenstein told us last year, is to find someone with the creative mindset of an entrepreneur.

Of course, Rubenstein, Conway, Kravis and Roberts have not left the building: they are all still involved in their firms. And less operational responsibility frees up time for more extra-curricular activities – like rapping.

Nevertheless, one can’t help feeling that as the founders of the industry take their steps away from the limelight, the industry will lose some of its colour.