Pricy Stocks—Not PE Bubble—Causing Record Dry Power, Rubenstein Says

Private equity firms will start shopping when an “inevitable” market correction arrives, the Carlyle co-founder predicts.

The private equity sector has a war chest of capital and the patience to wait out expensive markets, industry luminary David Rubenstein said on interview program “Wall Street Week.”

Liz Ann Sonders—Charles Schwab’s chief investment strategist who was moonlighting as an interviewer—asked the Carlyle Group’s co-founder on Sunday if “the golden age” of private equity had ended, given the abundance of dry powder. 

“We’ve had high stock prices for a long time now, and until there’s a market correction, it probably won’t be the case that you can buy many things,” Rubenstein replied. Private equity firms have made few acquisitions over the last year or so, he continued, in part because strategic buyers continually outbid them. 

“I do think that when there’s a market correction—which will inevitably come along—you will see private equity taking some of this dry powder and deploying it in interesting ways,” Rubenstein told Sonders and co-host Anthony Scaramucci, whose hedge funds-of-funds business produces the show.  

“Investors are happy with somewhat lower returns which are somewhat easier to attain.” 

Rubenstein also attributed the industry’s vast capital resources to its track record relative to other asset classes. Asset owners have also adjusted their performance outlook for private equity, making targets reachable for a larger number of firms.  

“In the old days, 20 years ago, investors might want 25% annualized net internal rate of return,” he said. “Today, if you can get 16%, 17%, 18%, that’s great too… That has fueled more money coming in, because investors are happy with somewhat lower returns which are somewhat easier to attain.” 

While private equity funds have been stockpiling wealth in anticipation of better deals, Rubenstein himself has been busy spending it. 

The former White House staffer joined Bill Ackman, Warren Buffett, Seth Klarman, Carl Icahn, and many other investment billionaires in pledging to give away at least half of his money during his lifetime. 

One of Rubenstein’s focuses has been on acquiring valuable historical documents for display in public. 

In closing the interview, Scaramucci asked him to name his most treasured possession.

Rubenstein’s response: “The Magna Carta.”

Related:Crowded: Is Private Equity in the Bubble of All Bubbles?