Fundraising efforts for the private equity sector are up 26% in the first half of 2010 versus a year ago. Does this mean the industry is storming back to where it was before? Not so fast, says David Rubenstein, Co-Founder and Managing Director of The Carlyle Group.
Rubenstein was interviewed on-air recently by CNBC during the 6th annual Aspen Ideas Festival. He says the best opportunities in private equity are shifting to the big emerging markets of China, India and Brazil. And while there still may be deal flow in the U.S. and Western Europe, it’s not going to be as robust as before.
Carlyle, which has some $90.5 billion in assets under management and 67 different funds, is investing heavily in China. But they are shifting their focus to companies that produce products for the Chinese domestic market, as opposed to export-oriented firms. Examples include a fisheries company that sells 75% of its products domestically, and a milk producer.
Rubenstein is bullish on Africa right now, too, as an overlooked emerging market. While Africa has received a lot of attention from Middle Eastern and Asian investors (particularly China and Japan), American investors have tended to ignore it.
“You have to distinguish between the various parts of Africa,” Rubenstein said. “I think the greatest opportunity right now is probably in South Africa, then sub-Saharan Africa. Natural resources are really the dominant thing area where you’ll see growth, but as countries get wealthier, there are going to be more consumers that need financial services and telecommunications services and other kinds of products.”
It all underscores the growing globalization of the private equity industry. Not simply because the U.S. economy is in recovery mode. But because of shifting economic clout, says Rubenstein. The United States represented 48% of the world’s GDP after World War II. Today, the U.S. represents only about 22%. So increasingly, PE firms will be looking for opportunities around the world.
“Also, as Americans have taken their private equity skills to other parts of the world, indigenous private equity firms have set up and now they’re investing in these countries by themselves, without Americans being involved.”
What’s your opinion? Do you see a growing and permanent shift toward greater private equity investment overseas? Add your comments below.
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My firm invests in US firms heavily. But due to constant interest on China by our partners for last three years, much of our wealth is in export-based Chinese companies. This year our focus is on Chinese companies that cater to markets within.