For Major Investor, Wall Street's Crisis Raises Questions and Opportunities

Bill Conway says the best time to invest is when the economy is gloomiest.
Bill Conway says the best time to invest is when the economy is gloomiest. (Courtesy Of Carlyle Group)
By Thomas Heath
Monday, September 29, 2008

It was just a few months ago when I was eating a hamburger with Carlyle Group co-founder Bill Conway and he was predicting that the mayhem on Wall Street would get worse and last at least a year.

Credit cards, auto loans, small-business loans, home equity loans -- every form of credit would be affected, he had said. He had added that the best time to invest would be when the economy and headlines were most gloomy.

After one of the scariest weeks in Wall Street history, I checked back with Conway. Carlyle Group is one of the richest and most successful private-equity firms in the world, with around $80 billion under management, $40 billion of which is cash that is ready to be deployed. As chairman of its investment committees, Conway has the final word on where Carlyle places investors' money.

I wanted to know whether the economy had bottomed out and what he thought of the bailout plan proposed by Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke.

First, the economy: "I knew it would be bad, but the current situation is much worse," he said.

He said the bailout's success may ride on whether Paulson gets the flexibility he needs.

"For example," Conway said, Paulson "should be able to buy auto loans, buy loans in packages or directly from homeowners or from commercial property owners. He should be able to buy equity in banks."

Conway said Warren Buffett's decision to take a $5 billion stake in Goldman Sachs "can serve as a template for certain institutions and certain situations." Buffett is a director of The Washington Post Co.

Conway says there's a possibility the bailout will cost taxpayers little or nothing, depending on how deeply the government enters the credit and banking crisis. For example, if the government buys toxic assets from banks at fair market value just to take those assets off their hands, it will cost less.

If, on the other hand, the purpose is to recapitalize the banks and make them healthy, the government would purchase the impaired assets for more than they are worth. In that case, Conway said the United States should receive an equity stake in some banks in return for saving them.

"I fear that the package is being 'sold' as the former (liquidity), but is in reality the latter (equity recapitalization)," he said by e-mail.

Conway likes Paulson, calling him "the right man for the job."

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