No buyout bubble, but concerns loom -Carlyle Group

By Michael Flaherty

FRANKFURT, Feb 28 (Reuters) - Despite the massive amounts of money earned and raised by private equity firms in the last two years, there is no buyout bubble forming though several concerns loom, Carlyle Group co-founder David Rubenstein said on Wednesday.

"I don't think we're in a bubble, but there will be declines. We can't continue like this forever," Rubenstein said, speaking here at the annual SuperReturn private equity conference.

The title of Rubenstein's speech was "Comparing the Tech Bubble and Private Equity Today."

Washington D.C.-based Carlyle Group is among the world's largest private equity firms with more than $54.5 billion under management. Recent investments include car rental firm Hertz, coffee and snack chain Dunkin' Brands and energy company Kinder Morgan.

Large, top quartile buyout funds have produced returns on investments of more than 30 percent, Rubenstein said, and that will not be sustainable.

"Returns will be lower, a downturn will occur. The Fed might tighten credit, regulatory constraints might happen. But are we really in the same situation (as the late 1990s technology bubble)?" he said. "I don't think it's quite the same."

Part of the difference is that private equity is still only a tiny part of the public marketplace, he said, and deals are better equitized, with larger cash commitments from private equity investors.

Managing directors of major buyout firms have lived through the tech bubble and other downturns, and in many cases these investors are closely reviewing worst case scenarios, he said.

In addition, Rubenstein said that the industry is investing in companies with real revenues and profits, and is attracting top level managers to run the companies. He also pointed out that with fund raising increasing, funds are in better shape to commit extra money to shore up a failing company.

But Rubenstein did acknowledge that in some private equity circles, fear of a downturn is nonexistent and that worries him.