The business of private equity is, by definition, one of adding value, because firms buy companies with the intention of selling them at a profit.
The Washington-based private-equity giant lately has invested billions in basic, old-line industries such as railroads, refineries, pumps and paint companies, while many of its competitors have remained relatively quiet.
Carlyle’s moves are especially surprising, given that U.S. manufacturing dipped in August for the third month in a row, a sign that the economy — and production in particular — may be slowing.
William E. Conway Jr., 63, a co-founder of Carlyle and chairman of its investment committee, took a contrarian point of view in a wide-ranging telephone interview in which he discussed his thought process behind the focus on factories.
He also talked about other sectors he likes and ones he doesn’t, the current mess in Europe and what keeps him up at night.
Carlyle’s stock price isn’t keeping him awake. The shares have marched 19 percent upward since their initial public offering in May.
The bottom line for Conway, and for closely watched Carlyle, is that the firm’s vast portfolio of companies serves as a sort of instant heart monitor of the U.S. economy, and, far from flat-lining, the numbers are telling him that the United States is the most attractive market in the world in which to invest.
“We track that growth through data in our portfolio companies, which helps us make smart new investments and best manage current investments,” said Conway, a data hound who scrounges through obscure metrics in search of “ahas.”
“We, in some ways, have better data than economists and some government people. That data tells us things like cargo-shipping rates, leisure-car rentals from Hertz and commercial building-supply sales. Based on that data, we continue to see real growth. We have real growth on the order of 2 percent.”
Not exactly robust, but Conway said the United States is riding big business advantages that may create lots of future wealth — if the decision-makers on Capitol Hill ever get their act together.
He cited two big reasons to back up his thinking.
“One is the domestic energy revolution, which you could call shale gas,” he said, adding that it is cheap, plentiful and used to heat homes as well as power industry. “It’s going to make our lives a lot better and a lot better for the rest of the world.
“The second big thing we have going on that makes the U.S. attractive and doing deals is reindustrialization, which has two big parts. The first part is the operating costs, which includes cheap energy. The second is increasingly competitive labor costs, due in part to the weaker dollar. Japan and parts of Europe and China are very competitive, but perhaps a little less competitive because of the dollar’s relative weakness.”