Carlyle’s Rubenstein Says Fail to Buy and Repent in Five Years

Investors who fail to take advantage of low prices and an improving economy to buy European assets will regret their decision in five years’ time, Carlyle Group LP co-founder David Rubenstein said.

“Five years from today, people will go back to Europe and say, how could we have missed the fact of this gigantic economy with so many good assets,” Rubenstein, 63, said at the SuperReturn International conference in Berlin today.

Carlyle is the second-largest U.S. private equity firm and, like its rivals, is diversifying into areas such as commodities, real estate and credit to reduce a reliance on leveraged buyouts. Firms are also seeking to purchase companies offloaded by Europe’s banks, which are under pressure from regulators to cut the size of their balance sheets and improve capital ratios.

The easy availability of credit, with borrowing costs near the lowest ever, will help private equity outpace other parts of the financial industry, Rubenstein said. Asset prices are already buoyant in Europe compared with the U.S. because of banks’ reluctance to realize losses, he said.

“When the economy went down in Europe, people all of a sudden thought this will be like the U.S., people will sell assets quickly and there’ll be opportunities to buy things at distressed prices, an enormous amount of distressed debt,” Rubenstein said.

“The reason it didn’t occur is the banks realized that if they actually sold the debt at prices given by the market they would go bankrupt and government regulators let them get away with that,” he said. “Now, the economy has come back a bit and assets can be sold without bankrupting the banks. So I think you will see distressed sellers, or semi-distressed sellers, finally unloading assets.”

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit after about 10 years. The firms use debt to finance the deals and amplify returns.

Before it's here, it's on the Bloomberg Terminal.