On the subject of Dubai, there is a big private equity industry shindig going on there at the moment (no all you can drink champagne brunches I hope).
Bottom line: lots of acquisition opportunities out there. Henry Kravis was there, but just for those that don't know, the other co-founder of his firm, James Kohlberg was elected to the Board of Directors of The New York Times Company in 2008. Mr. Kohlberg is another co-founder and has served as chairman of Kohlberg & Company since 1987.
Has Mr. Kohlberg got any 'Super Return' ideas for the NYT or indeed any other media ideas?
Did any senior IHT or NYT execs who attended the opening of the DMC last Sunday, stay on for the equity conference?
Private equity firms see a need to adapt
By Megan DaviesReuters
Thursday, October 16, 2008
DUBAI: Among the executives from the private equity industry gathered at a conference in Dubai this week, there was optimism about finding bargain investments amid the detritus of the global credit meltdown.
But there were also concerns about their own deteriorating assets and questions about whether the leveraged model of investing would bring the same level of returns as in the past.
Participants at the conference, titled "Super Return," included Henry Kravis, co-founder of Kohlberg Kravis Roberts; David Rubenstein, a co-founder of Carlyle Group; and Stephen Schwarzman, a co-founder of Blackstone Group.
"Despite aggressive steps by governments around the world," investors' and business confidence remains "shaken to its core," Kravis told the conference.
Loaded up with cash raised during a 2005-2007 boom period, buyout firms are reluctant to give it back to the pension funds and other powerful investors that allocated the money in more flush times.
Those investors want returns on their cash, and some are calling for a reduction in the hefty fees they pay. On the other hand, exiting investments through an initial public offering is not an attractive proposition because of the turmoil in equity markets, nor is it an ideal time to get a great price in any asset sale.
"It's going to be extremely difficult to deliver the kind of returns in the past when you're selling into a lower-priced environment," said Scott Schoen, an executive at Thomas H. Lee, the buyout firm in Boston.
There was also an elephant in the room: the pending stock market listings from KKR and Apollo at perhaps one of the worst times to go to market in history.
KKR has announced plans to go public this year through a complicated transaction that involves buying its publicly listed Amsterdam investment fund, delisting it from Amsterdam and relisting the new company in New York. Apollo, run by the investor Leon Black, filed in April to register securities, already traded on a private exchange, on the New York Stock Exchange.
At least neither listing relies on raising public cash, protecting them to an extent from a potentially embarrassing cut in offer prices to get the listings done. But the difficulty of being a publicly traded private equity firm is all too evident in the price of Blackstone shares, now trading at less than a third of their $31 IPO price.
For the buyout sector, some relief did come from the extraordinary efforts made by the United States and other governments to prop the financial system and struggling banks. The injection of government cash into banks could be the action that "breaks the back of the credit crisis," Schwarzman said.
Rubenstein said the actions could have the affect of freeing up leveraged buyout debt.
"My guess is the system will probably free up," he said, "and within a few months you'll begin to see buyout debt more readily available than it has been in the last nine months or so."
But ultimately, many agree that the industry must adapt, rather than bet on the hope that the availability of leverage will return to anywhere near previous levels.
"We should be looking at more transactions in which we partner with non-private-equity firms," Kravis said. "We should also look at a variety of investment options including mezzanine financing, even taking minority stakes in companies, as long as we have the ability to improve the strategy and operations of that company."
Mezzanine gained new luster as private equity firms found it harder to obtain the easier, cheaper lending options on which they had relied. This debt, typically exchanged for double-digit interest rates and a chunk of equity through warrants - or options to buy stock at a future date - is more expensive because it is unsecured and carries more risk should a company collapse.
Distressed assets are clearly among the most appealing.
Rubenstein is scouring the financial services sector. He said institutions like banks and insurance companies seeking to sell assets were probably going to part with them at distressed prices.
Looking ahead, private equity does seem to have history on its side. Various executives said at the conference that history showed that funds investing during downturns did better than those investing during better times.
Because pension funds have committed billions of dollars to private equity, many people will be hoping that these executives are right.
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