Private-Equity Firms Face Public Future

Carlyle Co-Founder Concedes the Trend

The co-founder of the Carlyle Group, the giant District private-equity firm that invests tens of billions of dollars on behalf of pension funds and other investors, said over the weekend that he expects most of the major firms in his industry to become public companies in the next few years.

"These guys who built these private-equity firms: You can say many things about them, but one thing you can't say is they're stupid, or they are not an alpha male," said David M. Rubenstein, Carlyle's managing director. "These guys are going to be fairly forthright about getting what they think they earned for building these firms."

What about his company? Rubenstein, 57, said Carlyle is in "a monitoring mode" and would closely watch how one of its chief rivals, the Blackstone Group, does with the initial public offering it announced last month.

"It's fair to say that Carlyle . . . would be thought to be a natural candidate to go public," Rubenstein said. "We don't have our heads in the sand and we're not ignoring what's going on with Blackstone or Fortress [Investment Group] or others.

"Today we are not working on an IPO. But . . . if our competitors all go public and all of them seem to be stronger than they were before, obviously we would have to take a look at the situation."

Rubenstein made his comments in an interview at a downtown Washington hotel on Saturday, where he, Starbucks Coffee chairman Howard Schultz, former NBC News anchorman Tom Brokaw, Intel board chairman Craig R. Barrett, Darden Restaurants chief executive Clarence Otis Jr. and others were honored by the Horatio Alger Association of Distinguished Americans, which is hosting its 60th anniversary celebration this weekend.

Some of Carlyle's private-equity rivals, including Blackstone, Kohlberg Kravis Roberts and Texas Pacific Group, took center stage over the past decade as they bought and sold tens of billions of dollars worth of companies, earning billions of dollars for investors and hundreds of millions for the firms' owners.

Rubenstein said Carlyle passed up some potentially lucrative deals in the past five years as competition drove up the prices of some marquee companies. "Because we were nervous, we didn't do deals in the last five years that in hindsight we should have done," he said. "There were many deals that we looked and we just passed on because we thought they were too expensive."

Rubenstein also said during the interview:

· He does not think private equity is in a financial "bubble" and considers the industry better able to weather an economic downturn than the high-tech industry was in the late 1990s. "We might have lower rates of return for investors than they would like, but I don't think they're going to see big losses of capital." The major firms have put up to 35 percent cash into their investments, have more expertise in running companies and have financial arrangements with investors that are likely to allow them to deal with setbacks.