Co-CEOs Youngkin, Lee on Carlyle’s Future

please welcome to the stage the Carlisle co-ceos cue song Lee and Glenn yankin and bloomberg's Jason Kelly alright hello again so I think this audience is now a little better caffeinated than they were this morning Anna that seemed more rousing that was good not I'm not making any judgments it's cuz the caps won last night and everybody's excited right you know I brought this notebook out but for those of you who were here last night and saw David Rubenstein I'm very reluctant to open it because you know he never takes notes it was very it felt very judgmental to be honest with you witty it was like you know I never have notes I just ask questions because I want to keep eye contact so I'm gonna keep eye contact the whole time welcome so what's the state of the world for an investor right now for an investor sitting at carlow queue in a couple words I think what's interesting is we've been through a period of time which has been really a wonderful time to really invest the real economy was growing a lot of central bank liquidity low volatility rates were low and it has shown up in our performance our performance has been terrific and I think recently obviously everybody knows some volatility has been introduced geopolitics trade tensions a whole host of issues and I don't look at the volatility as an increase in volatility I think we have to understand that there was an absence of volatility over the past five or six years and now that the volatility is back I think a little bit healthy because it it allows us to avoid complacency but let's be clear valuations are high the real economy is still pretty strong um it is very difficult to find great deals but we have a great platform with which to do that and the emphasis now for investing I think moving forward is not necessarily to buy things low to sell high but to find those great companies where we can really add value changed the business plan make real fundamental business improvements to capture a private equity returns going forward valuations are high you and net seller and net buyer Glen you know we've actually been you know pretty stable over the course of the last five years consistently selling mm-hmm so we've had five consecutive years of exiting over twenty five billion dollars of portfolio value I'm over that time period twenty five total twenty five billions now each year each year each year and so we really haven't had peaks and troughs from an investment standpoint our investment rate has actually increased a bit and it was just under twenty two billion over the last twelve months but that really is bringing on some of the new strategies and you and I are pretty enthusiastic about in the credit business and the real assets business and so the overall investment pace has been maintained and I think it's because of what Q said the key here is not putting up the sale and just going it's finding assets companies real estate properties energy properties that you can do stuff with to create value because if you're just gonna put the sale up you're not gonna be happy right I mean the role of private equity really has changed and we're no longer private equity investors these are broad platforms and it's the role of private capital in the economy that's really growing mm-hmm and the value add that we can bring to companies whether it's in real estate or in debt or in equity is just enormous right and that's the way we drive returns and so I think in the future and and you know all these statistics the the number of public companies have gone down by fifty percent over the past twenty years number of IPOs that are happening now are dramatically reduced it's just the role of what private capital does for companies and in the economy has just grown and I think will continue to grow over time we spent some time together obviously on the interview that is featured on the cover of Bloomberg Markets magazine is available on newsstands now please check it out shameless but one of things that you guys talked about that really struck me in that interview was this notion of where we are in the cycle and essentially not getting out too early not being that the risk of being overcautious Glen talk more about that how do you guard against that well first of all when we now have enough data over the last 20 years in private capital to actually see the private capital performance through what was the worst downturn we've all experienced in the great financial crisis and we all look back at that and the big mistake that anyone made was actually trying to time the private capital markets because if you wait you're gonna miss the opportunity to invest and stay consistently invested and the second reality is that 60 to 70 percent of the value that's created in private capital backed investments comes from operating performance and so that hesitancy to invest because we think prices are high right now really in fact causes folks to have a gap mm-hm and as a result have holes in their portfolio and to wake up and say I'm under invested I wanted to have 10 percent in my private equity portfolio or private real estate portfolio and I'm at four because I missed I missed a whole three or four year period of investing and so what we've really been talking about with our investors is first this value creation approach second of all staying consistently invested and third having an open dialogue about yes maybe there's a period of time where we just can't find quite enough to do when you pull back a little bit or there's a period of time where because of two years of work we find lots of good stuff to do but consistently working hard to find deals that fit that quotient and how does that fit in with their with your investors mood at this point q yeah it's it's a great question I think the industry as a whole has given back about one and a half dollars for every dollar we've called from them that in addition or who over the past several years okay and in addition to that with with asset values generally going up in them having to readjust their allocations they find themselves a war in liquidity to try to figure out how to actually invest that and it's it's as you know the alternative asset management class in every single product you can talk about has had really good relative out performance relative to public indices so they're trying that the real issue for them right now is how do we deploy yeah and so the value of of a platform that can take in large amounts of money responsibly manage it and give back even greater sums of money is a really important value add that that is is missing that that they look for is the ability to actually deploy and actually also get good returns and so I think the biggest issue and and my take on it Glenn's absolutely right in terms of consistently investing when you walk around the world and talk to CEOs and CIOs at some of our major clients their biggest worry despite all the volatility that's happening is not one of a mark-to-market this quarter or next quarter it's what's the risk if we're under invested and asset values keep going up to miss out on ten to fifteen or twenty percent of upside in a still relatively yo low yield environment is really penal right right and so for them the real challenge is how do we keep deploying into this asset class with responsible investors just because of that relative out performance has occurred and and and to avoid being under invested in in this asset class so we've talked about private investors and you mentioned their their mood public investors still it seems we talked a little bit about this before have not totally gotten their head around private equity or alternatives as an investable asset from a public market perspective what is gonna change their minds well I think there's two factors of play here so the private investors have been investing with us for thirty years they know what we do they know how we do it and of course just to remind everybody the construct would that they invest with us is usually a 10 or 12 year partnership that we have full discretion over and they trust us and off we go the public investor hasn't really had that length of experience with us yet and I think one of the things that Q and I find to be very convenient is that David Rubenstein bill Conway and and Danielle o initiated this transition at a great time I mean the firm is in spectacular shape our investment portfolios are performing extraordinarily well the market has been very good q and I have a chance we think to really focus on some key levers for the public investors you've heard us talk about our real focus on growing fear related earnings and that's very important to the public investors and so we see this as a tremendous opportunity to almost reintroduce Carlyle as and as a great public investment as well I mean Jason it looks like this we have about a billion dollars of economic net income over the last 12 months we have about a billion dollars of cash a billion dollars of investments and 1.8 billion dollars of a crude carry on our balance sheet we traded a seven and a half billion dollar market cap I view that as a real opportunity so our job is to stay focused have the firm perform and make sure we communicate well and I think over time it really takes care of itself how hard is it you've worked you worked for two decades at another private equity firm where we're Pincus before you came to Carlisle and I want to get to the transition in a minute but before we get there how hard is it when you go out to a private investor or a public investor to differentiate between especially the big private equity or alternative assets or firms at this point well you'd have to ask them but my sense that you have to talk to them and so how how hard is it to make the kick we're all very different the cultures are different styles are different we're stronger in some places others are stronger and others and our LPS are very sophisticated and their advisors and consultants that that they use as well and it may have been 20 years ago that it was more of a generic industry kind of the tide is rising type of a decision but these days there are they they do very thoughtful work around what is the best firm that slots in for this particular strategy that they are they want to implement and they break it down regionally they break it down by product they break it down by asset class so it has gotten much more sophisticated over the past 20 years and by the way I welcome that because it makes us better right right I mean the good customers blends you know that that's a good partnerships form and is there a product that you are consistently hearing demand for today that maybe you weren't hearing five years ago private credit comes to mind is something that I feel like we hear about private equity we know has really grown maybe two and a half trillion availing right now I think private credit will be the next thing which already has happened but it's in the early innings with maybe four or five hundred billion of AUM and I think as after the the whole financial crisis direct lending really picked up and the role of private credit really picked up I think that's a trend that that is is here to stay and that's a secular shift right that's not it that's we're not gonna see you're not gonna see that all the sudden it goes away I think you're gonna see and and the numbers which suggest that the private credit asset class is growing maybe twice the rate that of private equity right now and so what do you have to do to stay competitive or get competitive in that well we start with a great credit business to begin with our credit business today's about thirty four billion dollars in assets under management on its own it's one of the leading credit platforms but I think one of the things that Q and I identified very early on is this opportunity and so we're putting an enormous amount of resource behind it and that resource is both in investment capability as you've seen us hire a bunch of folks that we think are world class added to an already existing world class team where we're adding fundraising capacity inside the credit business and we're launching new strategies and I think the combination of that people will see over time our credit business really grow so I do want to spend a few minutes on this idea of of you guys taking taking the reigns notably you are the first of your ilk where the founders have essentially said here you go here the keys you're the CEOs now not the presidents you're not chief operating officers you had that role before you know you're the guys really truly on the front line how different is that for you in terms of your day to day in dealing with them and in dealing with the outside world you take that one Thanks first of all just almost in a in a light-hearted way there's a couple big changes one you get more emails than you could ever imagine it's unbelievable I got yes I mean I got any other day from a customer of one of our portfolio companies in Italy um who had bought some shoes that she wasn't so happy with are you kidding no no and so I had to pass that on to the team I know yeah so one there's just a lot more flow second of all I to be candid I don't think I fully appreciated just how much David and Bill did every day because as they pulled back there's just a lot to do but I think from a overall transition standpoint we worked hard to prepare the founders did a tremendous job and getting your organization ready and really us ready and so we have a construct that works we stepped in on January 1st they have been fabulous they have practiced and said many times nope that's Glenn and cue go deal with them and so I think um five and a half three months in I'm very pleased with the way it's gone and I think we've got good momentum behind us from from a firm standpoint an industry standpoint and I think we just look ahead and see nothing but blue sky there's just real opportunity to take this great firm in this industry that's got great tailwind behind it and really do something special yeah the only thing I would add is your question was you took the reins we are enormous ly lucky that we had some amazing founders and a board that basically created the opportunity for this to happen so it's not one of taking anything and and we have to understand the hand is there these are these are large shareholders and they are very motivated to make sure that that we can succeed because the firm will succeed yeah so one thing that I wanted to make sure we talked about is this sort of the co nature of this and we talked a little bit for the article about and and you alluded to this too that you know the founders are good about saying mmm that's not me anymore it's these guys how much do you guys as co-ceos have to deal with dad said no go ask other dad you know like how much does how much that'll happen in the early days you know one thing Glen and I you know promised each other and this is what we do we we never ever ever are caught in a place where we are doing this or disagreeing with each other and it requires us syncing up all the time but I would say for the vast majority of issues we're right on in terms of what we think needs to be done and where there are points of difference and then they're naturally will be because you know he's been there forever I just got there we have different skill sets but they're quite complementary and it's in that different point of view we're actually better ideas occur around how to get things done or this is the right way to do this issue or maybe we should avoid that and deal with this one now and and deal with this one later mom but for the big picture stuff we're very much in sync but it does require that we think up and that's what we do and I think having certain areas that are just you you're on point there and go deal with it and I got over here and trust you and you trust me that just matters because if you're having to discuss every possible decision you have to make one organization grinds to a halt right but then second of all neither one of us is really getting a chance to put on our track shoes and run and so we've just said you know you got that those parts you got these parts on these issues will come together and talk about them you know we call our poor CFO Gumby because poor curb user gets pulled both directions by both of us and we do everything we can to not pull them apart but most that most of this is about making sure your your your really aligned on the big issues you've got certain areas where they wear each other runs ahead and deals with and that you just spend time syncing up and just keep in mind that you know Karla all firms are different but we have in our genetic code a culture of cooperation it's just just how the firm was founded we have three founders were very engaged up until recently co-ceos and most of our funds have Co fund heads so the whole structure and the whole approach of working together in partnership is something which just just runs in the halls ever you know from from inception and so it's just a natural extension of that culture that we have an ability to to sync up at the top to stay here so here's how we want to do things q when we were talking backstage you were talking about and you started to talk about this a little bit earlier this idea of kind of the broader private capital world being police for another kind of set up function for one of the elements that people talk a lot about is a possibility of fuelling that is bringing more investors into the fold retail investors specifically into private capital and specifically private equity how close is that to happening and what what needs to happen next to catalyzers I'll take a stab at this retail big picture looks incredibly alluring right there's so much money that we could attract into this alternative asset management asset class and it's a type of investing that generic Legionnaire generally speaking retail has not really had access to so big picture wise obviously it seems like a huge opportunity and we are exploring it really really really carefully and intensely but there are also lots of complications that come with retail operationally liquidity regulations and regulatory aspects as well and so we break it down and say where should we focus and it may not be that private equity is the best place for it maybe that parts of credit and parts of real estate may be better suited initially for some type of retail or more permanent capital type of up structure and I think you're seeing that so you're seeing in real estate folks in our industry by Reed's or have more open-ended funds to create a sense of permanence and attract more high net worth investors into them I think you're sitting in the private credit class certainly fun structures that are being designed which attract more retail investors and we have one of those BDCs and BTC Lasher which which we've done obviously but also certain types of Rick's and other types of products but I I think you'll see this certainly take on and firms are really going to focus resources around it but I don't necessarily think you're gonna see it widespread across every single private asset class I think there's certain products which are more amenable to to retail than others right now I want to spend the last couple minutes we have just doing a quick around the world because one of the hallmarks of Carlisle since inception you know owing to your predecessors and founders David Rubenstein's personal ubiquity in terms of raising money around the world but also the deal-making that happened in a lot of overseas regions you Glen were specifically a part of that going to Europe earlier in your career where are the real pockets of a investable opportunity at this point as you look around the world and maybe let's start with Europe it's been in the headlines a lot whether it's Italy or other places how does Europe feel right now so Europe actually feels very good the European economy continues to perform well it's growing in about two percent there are pockets of news between brexit and Italy and maybe Greece every quarter as its quarterly report but the net takeaway in Europe is you have a European economy that is both being driven by exports and it's being driven by consumption and that that results in a much stronger European economy than we have seen in a long time we think Europe's four years behind the United States and its recovery if you remember companies in Europe didn't really compress their cost structures when the economy went down and as a result as as revenues recover margins expand faster and so we see Europe to be from an economic standpoint steady and stable and growing and but and that tends to lend itself to a good private equity environment a good real estate environment a good energy environment I'm a good infrastructure environment and a good credit environment and that's where we're spending our time what are you looking for ex Europe and us where's the most exciting place for you well I think um country or region you you have to you you can't ignore the Far East you know what we're seeing in China six six and a half percent growth this is despite the financial de leveraging that has occurred and the the tremendous growth in in in in the consumer sector that's happening there the opportunities in tech and also in healthcare it just can't be ignored so I think you're gonna see real opportunity there believe it or not Japan is not only growing in real terms but there's a fundamental restructuring happening not only with large corporations needing to spin off and sell subsidiaries but also privately owned firms that need to transition to the next to a next uh form of ownership and so we're seeing tremendous opportunity in Japan as well India of course also with with with very high levels of organic growth potential and so I think the Far East you can't ignore I would say though that you know our asset class we can make what we're designed to find deals and make money through good cycles and bad cycles because it's a it's a longer term orientation that we have and even though we're talking in real economy turns about growth here and Europe's a little bit behind so that's where some opportunities I also think you can't ignore the fact that as volatility picks up you will see signs of distress and then we have distressed investing strategies that will find opportunity or we have credit opportunity strategies that will figure out ways to make money when there is when there's volatility so in good times and in bad with the right perspective I think even though you started with with kind of is a buyer or a seller type of mentality I think there's just lots of opportunities look looking for the route so buyer seller you say yes I see there's always a buyer and the seller in every transaction great queue something like done young can thanks so much respect you very much thank you very much [Applause] [Music]

Channel: Bloomberg Television

Views: 38,038

Keywords: Bloomberg

Id: Ke9vzOr7ohE

Length: 25min 16sec (1516 seconds)

Published: Tue Jun 05 2018