We Hold These Truths To Be Self-Evident. David M. Rubenstein Co-Founder & Co-Chief Executive Officer February 26, 2014

Transcription

1 We Hold These Truths To Be Self-Evident David M. Rubenstein Co-Founder & Co-Chief Executive Officer February 26, 2014

2 Important Information This presentation has been prepared by The Carlyle Group L.P. ( Carlyle ) and may only be used for informational purposes only. This presentation provides an overview of Carlyle and is not intended to be taken by, and should not be taken by, any individual recipient as investment advice, a recommendation to buy, hold or sell any security, or an offer to sell or a solicitation of offers to purchase any security. An offer or solicitation for an investment in an investment fund managed or sponsored by Carlyle or its affiliates ( Fund ) will occur only through an offering memorandum and related purchase documentation, and subject to the terms and conditions contained in such documents and in the Fund s operative agreements. By accepting this presentation, the recipient agrees that it will, and will cause its representatives and advisors to, use the information contained herein for informational purposes only. Recipient also agrees that neither this presentation nor the information contained herein may be copied, disclosed or provided, in whole or in part, to third parties without the prior written consent of Carlyle. This presentation may not be referenced, quoted or linked by website, in whole or in part except as agreed to in writing by Carlyle. Certain information contained in this presentation has been obtained from published and non-published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for the purpose used in this presentation, Carlyle does not assume any responsibility for the accuracy or completeness of such information and such information has not been independently verified by Carlyle. Except where otherwise indicated herein, the information provided in this presentation is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. References to portfolio companies are presented to illustrate the application of Carlyle s investment process only and should not be considered a recommendation of any particular security or portfolio company. Information about recommendations over the last year is available upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of past recommendations. Statements contained in this presentation that are not historical facts are based on current expectations, estimates, projections, opinions and/or beliefs of Carlyle. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Certain information contained in this presentation constitutes forward-looking statements, which can be identified by the use of forward-looking terminology such as may, will, should, seek, expect, anticipate, forecast, project, estimate, intend, continue, target, or believe or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. None of Carlyle or any of its Funds or representatives makes any assurance as to the accuracy of those predictions or forward looking statements. Carlyle expressly disclaims any obligation or undertaking to update or revise any such forward-looking statements.

3 What happened in the private equity industry in 2013? 3

4 Global Private Equity Fundraising Volume Was Up 26% In 2013 But Remains 30% Below The 2008 Peak $800 $700 $600 $500 $400 $300 $200 $100 $0 Global Private Equity Fundraising Volume ($ billions) $688 $320 $294 $332 $384 $ Largest fundraising volume since the Great Recession 970 funds were raised Record average fund size of $555 million 1 Funds raised by geographic focus: North America 63% Europe 23% Asia 9% Rest of World 4% Source: Preqin. There is no guarantee these trends will continue. 1 Average fund size calculated for funds with available fund size data. Fund size data is not available for all 970 funds raised Source: in 2013 Preqin so dividing the aggregate fundraising volume by 970 funds does not equal the average fund size raised. 4

5 Global Private Equity Deal Volume Was Up 15% In 2013 But Remains 50% Below The 2006 Peak $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Global Private Equity Deal Volume ($ billions) $785 $781 $253 $134 $252 $321 $337 $ Largest deal volume since the Great Recession Average purchase price multiple of 8.8x Average leverage multiple of 5.4x Deal volume by geographic focus: North America 59% Europe 28% Asia 8% Rest of World 5% Source: Thomson One & S&P Leveraged Commentary Data, Q Update. There is no guarantee these trends will continue. Source: Preqin 5

6 Global Private Equity Exit Volume Was 14% Above The 2007 Pre-Great Recession Peak $350 $300 $250 Global Private Equity Exit Volume ($ billions) $313 $266 $222 $285 $303 Second highest exit volume on record Record ~1,350 exits Exit count by type: Trade sale 51% $200 Sale to GP 26% $150 $163 $116 IPO 19% Restructuring 3% $100 $50 $ matched 2010 for record 19% of exits via IPO $ Source: Source: Preqin. Preqin There is no guarantee these trends will continue. 6

7 Purchase Price Multiples & Equity Contributions Are Generally Back To Pre-Great Recession Levels LBO Purchase Price Multiples LBO Equity Contributions 12.0x 60% 10.0x 8.0x 8.4x 8.4x 9.7x 9.1x 7.7x 8.5x 8.8x 8.7x 8.8x 50% 40% 43% 51% 44% 42% 39% 37% 32% 33% 33% 6.0x 30% 4.0x 20% 2.0x 10% 0.0x % Source: S&P Leveraged Commentary Data, Q Update. 7

8 Self-evident truths about the private equity industry 8

9 Emerging markets have emerged and will increasingly play a larger role in private equity 9

10 Emerging Markets Now Account For More Than Half Of Global GDP 60.0% Emerging Markets Share Of Global GDP 55.0% 50.0% 45.0% Emerging markets account for ~85% of the global population today vs. only 68% in 1950 Emerging markets are expected to account for more than half of global GDP growth from 2013 to =54% 40.0% 35.0% 2004=38% 30.0% Source: Carlyle Analysis of IMF Data as of 12/31/13. 10

11 Emerging Markets Have Increased As Both A Source Of And Destination For Private Equity Capital 14% Rest-of-World (Ex. North America & Europe) Share of Deal Value 13% 20% Rest-of-World (Ex. North America & Europe) Share of Capital Commitments 20% 12% 18% 10% 16% 14% 8% 12% 11% 6% 5% 10% 8% 4% 6% 2% 4% 2% 0% % Source: Thomson One & Preqin Private Equity Quarterly. 11

12 Emerging Markets Are Still Relatively Under-Penetrated By Private Equity 1.20% 1.00% 0.80% 1.03% 1.02% 1.04% Private Equity Investment As A % of GDP 0.89% 0.60% 0.40% 0.20% 0.00% 0.28% 0.20% 0.24% 0.19% 0.20% 0.13% 0.12% 0.06% 0.05% 0.09% 0.09% 0.07% 0.04% 0.09% 0.04% 0.01% US UK S. Korea India Brazil SSA China S. Africa Japan MENA Source: Emerging Markets Private Equity Association Q Industry Statistics. 12

13 Sovereign wealth funds will become the largest single source of capital for private equity firms, replacing U.S. public pension funds 13

14 SWF Assets Have Increased By More Than $4 Trillion In Less Than A Decade And Are Projected To Grow Faster Than U.S. Public Pension Fund Assets $10.0 $9.0 Sovereign Wealth Fund Assets Under Management ($ trillions) $8.9 $8.0 $7.0 $6.0 $5.0 $5.4 $4.0 $3.0 $2.0 $1.4 $1.0 $ P Source: 2014 Preqin Sovereign Wealth Fund Review and PWC Asset Management 2020: A Brave New World. There is no guarantee these trends will continue. 14

15 Sovereign Wealth Funds Have Quadrupled Their Share Of Commitments To Private Equity Funds Since 2010 % of Total Commitments To Private Equity Funds 2010 SWFs 3% 2013 SWFs 13% All Other Investors 97% All Other Investors 87% Source: Dow Jones Private Equity Analyst Sources of Capital Survey, 5/29/13. There is no guarantee these trends will continue. 15

16 Individual investors (including non-accredited investors) will become a larger part of the private equity investor base 16

17 Mass Affluent Assets Under Management Are Larger And Faster Growing Than High Net Worth Assets Under Management Mass Affluent AUM ($100k - $1mm net worth) $ trillions High Net Worth AUM ($1mm+ net worth) $ trillions $120 $120 $100 $100 $100 $80 $80 $77 $60 $60 $60 $52 $40 $42 $40 $38 $20 $20 $ P $ P Source: PWC Asset Management 2020: A Brave New World. 17

18 US Retirement Plans Alone Have $20 Trillion In AUM $25 Total Value of US Retirement Plans ($ trillions) $20 $20 $15 $9 $10 $11 $6 $5 $5 $- $3 $5 $ IRAs Defined Contribution Plans Other (Incl. Defined Benefit Plans) Source: Investment Company Institute Fact Book There is no guarantee these trends will continue. 18

19 Individual Investors Have Almost Doubled Their Share Of Capital Commitments To Private Equity In Just The Past Few Years 20% Industry-Wide % of Capital Committed by High Net Worth Individuals & Family Offices 19% 18% 16% 14% 12% 10% 10% 8% 6% 4% 2% 0% Source: 2014 Preqin Global Private Equity Report. There is no guarantee these trends will continue. 19

20 Returns will continue to come down but private equity will still outperform public equities 20

21 Returns Have Come Down Over The Past 20 Years 35% U.S. Private Equity Fund Pooled Net IRR By Vintage 30% 25% 20% 15% Median = 15% 10% 5% 0% Source: Cambridge Associates LLC U.S. Private Equity Index and Selected Benchmark Statistics. As of 9/30/13. Excludes vintages with less than 3 years of performance. 21

22 But Top Quartile Private Equity Funds Have Significantly Outperformed Public Equities Over A Variety Of Time Horizons 30% 25% Buyout Fund Net Returns vs. Public Equity Total Returns (5-,10-, & 20-year net returns) 26% 29% 20% 15% 10% 5% 13% 8% 7% 8% 11% 11% 7% 0% 5-Year 10-Year 20-Year MSCI World Index All Buyout Funds Top Quartile Buyout Funds Source: Cambridge Associates, Thomson One Financial as of 9/30/13. There is no guarantee these trends will continue. 22

23 Private Equity s Focus On Value Creation Will Drive Outperformance 100% Source of Value Creation 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Leverage Era (1980s) Multiple Expansion Era (1990s) Earnings Growth Era (2000s) Operational Improvement (2010s) Operational Improvement Multiple Arbitrage Leverage Source: Goldman Sachs, BCG-IESE estimate. 23

24 Allocations to private equity will continue to increase 24

25 Allocations To Private Equity Have Gone Up Across-The-Board 30% 28% Private Equity Allocation as a Percent of Total Assets 25% 20% 18% 15% 10% 13% 8% 9% 12% 5% 5% 6% 6% 4% 3% 3% 0% Family Offices Endowments Foundations Public Pension Funds Private Sector Pension Funds Insurance Companies Source: 2013 Preqin Investor Network Global Alternatives Report & Preqin 2014 Global Private Equity Report. There is no guarantee these trends will continue. 25

26 Almost 40% Of Investors Are Below Their Target Allocation To Private Equity And Almost 40% Of Investors Plan To Increase Their Allocation Proportion of Investors Relative To Their Target Allocation Investors Intentions for Private Equity Allocations 100% 90% 18% 100% 90% 10% 80% 80% 70% 60% 44% 70% 60% 53% 50% 50% 40% 40% 30% 20% 10% 0% 39% Dec-13 30% 20% 10% 0% 36% Dec-13 Above Target Allocation Increase Allocation At Target Allocation Maintain Allocation Below Target Allocation Decrease Allocation Source: 2014 Preqin Global Private Equity Report. 26

27 The private equity industry will be seen as mainstream rather than alternative 27

28 Private Equity AUM Has Grown At A 20% CAGR Since 1980 And Now Stands At $3.5 Trillion $4.0 Global Private Equity AUM ($ trillions) $3.5 $3.0 $3.5 $3.3 $3.0 $2.8 $2.5 $2.3 $2.3 $2.5 $2.0 $1.7 $1.5 $1.2 $1.0 $0.5 $- $1.0 $0.7 $0.8 $0.9 $0.8 $0.0 $0.0 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.2 $0.3 $ Source: Source: 2013 Preqin Investor Network Global Alternatives Report and McKinsey. 28

29 Alternatives Have Doubled Their Share Of Total Asset Management AUM In Just The Past Decade Alternatives AUM is $6 trillion today vs. $2 trillion a decade ago (14% CAGR) Asset management AUM is $62 trillion today vs. $38 trillion a decade ago (6% CAGR) 12% Alternatives AUM As A % Of Total Asset Management AUM 10% 10% 8% 6% 5% 4% 2% 0% Source: BCG Global Asset Management 2013 Report: Capitalizing On The Recovery. There is no guarantee these trends will continue. 29

30 Public firms will become more common; larger firms will get a greater share of commitments 30

31 Seven Private Equity Firms Have Gone Public Since 2007 (2007) (2007) (2007) (2010) (2011) (2012) (2012) Note: Year respective firm went public. Presented for illustrative purposes only. 31

32 Investors Are Increasing Commitments To Global Alternative Asset Managers Market Share of Fundraising (3-year rolling average) of publicly traded alternative asset managers as a % of total industry fundraising 1 6.8% 10.9% Driving Factors Stability Consistency of returns Brand Size Transparency Global Presence Value Added Public Visibility Source: Preqin. Industry fundraising includes Buyout, Growth, Real Estate, Natural Resources, Mezzanine, Distressed, Early/Venture, Balanced,, Special Situation, Timber, and Turnaround. Represents the rolling 3-year average market share of The Carlyle Group & US publicly traded peers relative to overall industry wide fundraising. There is no guarantee these trends will continue. 32

33 Private equity firms will continue to diversify their product offerings 33

34 Today Non-Corporate Private Equity Assets Make Up A Larger Share Of Publicly Traded Alternatives Firms AUM 70% Median Non-CPE Assets As A % Of Total AUM 66% 60% 50% 47% 40% 30% 20% 10% 0% IPO Q Source: SEC Filings. Calculated as the median of non-corporate private equity assets / total assets for Carlyle, Blackstone, Apollo, KKR, & Oaktree. Calculated as of each company s respective IPO date and 9/30/13. 34

35 Interest rates will rise but cheap credit will be readily available 35

36 Non-Bank Lenders Provide A Significant Majority Of The Types Of Loans Used In Private Equity Transactions 100% Bank vs. Non-Bank Share of Highly Leveraged Loans Non-Banks (86%) 75% 50% 25% Banks (14%) 0% Banks Non-Banks Source: S&P LCD Quarterly Q Non-banks include: institutional investors, insurance companies, and finance companies. 36

37 Interest Costs For Corporate Borrowers Have To Rise 200 Basis Points Just To Reach Pre-Great Recession Levels 8.0% 7.7% 7.0% 6.0% 3.3% 5.7% 5.0% 4.0% 3.0% 2.0% 4.4% 4.5% 1.0% 0.0% 1.2% Avg. 5 Year Treasury Avg. B-Rated Corporate Spread Source: St. Louis Federal Reserve. B-Rate Corporate Spread represents BofA Merrill Lynch US High Yield B Option-Adjusted Spread. 37

38 Europe will be the market of focus in

39 Europe s Economy Has Reached The Bottom GDP: ~$17 trillion The European Union economy accounts for nearly one-quarter of the global economy Growth of just 1.2% will add more than $750 billion to global GDP. This is the same contribution to global GDP that China generates by growing at 8.5%. Spain was the biggest upside surprise in 2013 of all economies. Instead of contracting at a 1.2% rate as forecast by the IMF, Spanish GDP was flat, with growth strengthening throughout the year and exceeding 1% in Q Germany has the largest current account surplus in the world, exceeding China, thanks to manufacturing export growth 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Euro Zone GDP Growth Rate 3.0% 0.4% -4.4% 2.0% 1.6% -0.4% -0.7% 1.0% 1.4% Source: U.S. Bureau of Economic Analysis & 2015 Projections from IMF January 2014 World Economic Outlook Update. 39

40 Europe s Share Of Private Equity Investment Has Unduly Declined 60% European Private Equity Deal Volume As A Percent Of Total Private Equity Deal Volume 50% 46% 51% 52% 44% 48% 48% 40% 30% 39% 34% 33% 32% 36% 31% 28% 23% 20% 10% 0% Source: Thomson One. 40

41 EBITDA Multiple European Assets Are Priced At A Substantial Discount US & European EBITDA Multiples, EBITDA Multiples on Major Stock Market Indexes as of 1/12/ x 10.00x 9.00x 8.00x 7.00x 6.00x 8.2x 7% 7.6x 10.1x 23% 7.8x 14.00x European Average: 7.8x R.O.W. Average: 9.4x 12.00x 10.00x 8.00x 6.00x 4.00x 2.00x 12.3x 7.3x 8.1x 10.1x 9.1x 9.3x 8.9x 8.0x 7.7x 8.2x 6.2x 5.00x 0.00x European Avg U.S. Value-Weighted Source: S&Q Capital IQ, Bloomberg EEO. 1. FTSE 100, DAX 30, CAC 40, AEX, Ibex 35, FTSE MIB; arithmetic mean. The EBITDA multiples and financial indices referenced herein as benchmarks are provided for informational purposes only. 41

42 Truths That Will Become More Self-Evident In The Future Private equity enhances the value of companies and generally prevents job loss Private equity s high returns will increasingly be sought by and made available to non-accredited investors Current regulations of the private equity industry provide appropriate oversight and protection Private equity cannot appropriately be seen as a source of systemic risk Private equity will continue to have one of the best risk-return profiles of any area in money management Governments should welcome private equity investment and the growth of the private equity industry in their country 42

43 Bonus Truths: 100% of private equity funds will continue to be in the top quartile All private equity firms will continue to avoid participation in any auction The new name for the private equity industry will be 43