Four Princes of Private Equity Speak Out
Bonderman: "I don't think bigger is necessarily better. There's lots of liquidity but not much buoyancy in the U.S. ... Sarbanes-Oxley and public limitations have led to more private-equity deals. The [price-to-earnings] ratios of the 50 largest U.S. firms declined 70 percent over the last five years. But now, about $50 [billion] to $60 billion is the most you could raise without too many people; $100 billion is a possibility, but it would have to be a real-estate deal, where the markets are deeper and more liquid."
Rubenstein: "The problem with big deals is if they don't work, it takes years to dig out. KKR [Kohlberg Kravis Roberts] put 60 percent of its fund into RJR Nabisco [in 1989], and it took years to unwind that."
On the future of private-equity firms:
Black: "Capital is a commodity today. We're all overinflated with capital. The big difference is human capital. It really comes down to people."
Rubenstein: "One of the changes is that we have hundreds of experienced people now, and we can recruit good CEOs like Dave Calhoun [former vice chairman of General Electric, now CEO of the Nielsen Co., a Carlyle property]. The way we compensate people is we reward them dramatically if they do dramatic things."
Bonderman: "The risks I see are tightening liquidity, an incompetently run war in the Middle East, the only superpower going in who knows what direction. The Big Three in Detroit going under, over time. But the market shrugs this all off. Two years ago, I was skeptical, and we slowed down our investing. Last year, I became unskeptical, and we stepped it up again."
Lee: In auctions [of companies or divisions] today, there's a lot of competition. There are no real bargains. If you don't have a specialized point of view, you don't know what to do if you buy, especially if you paid too much. Also, big companies, like Microsoft, that have a lot of money, like Microsoft's $30 billion–maybe they will turn out to be buyers like us."
On careers at private-equity firms:
Rubenstein: "Twenty-five percent of the graduates at Harvard Business School want to go into private equity. Probably another 10 percent want to go into hedge funds."
Bonderman: "It's a sure sign the end is nigh when one third of business school graduates want to go into private equity or hedge funds. It is the flavor of the month, and it will continue as long as the salaries we're willing to pay people remain unreasonable."
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