The Carlyle Group Inc. · NASDAQ:CG
The Carlyle — SuperReturn 2014
43 slides from The Carlyle's conference presentation, Feb 26, 2014
Slide 1: We Hold These Truths To Be Self-Evident…
We Hold These Truths To Be Self-Evident… David M. Rubenstein Co-Founder & Co-Chief Executive Officer February 26, 2014
Slide 2: Important Information
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 investme
Slide 3: What happened in the private equity industry in 2013?
What happened in the private equity industry in 2013? 3
Slide 4: Global Private Equity Fundraising Volume Was Up 26% In 2013
Global Private Equity Fundraising Volume Was Up 26% In 2013 But Remains 30% Below The 2008 Peak • Largest fundraising Global Private Equity Fundraising Volume $800 ($ billions) volume since the Great Recession $688 $700 • 970 funds were raised $600 $485 • Record average fund $500 size of $555 millio
Slide 5: Global Private Equity Deal Volume Was Up 15% In 2013
Global Private Equity Deal Volume Was Up 15% In 2013 But Remains 50% Below The 2006 Peak • Largest deal volume Global Private Equity Deal Volume $900 ($ billions) since the Great $785 $781 Recession $800 $700 • Average purchase price multiple of 8.8x $600 • Average leverage $500 multiple of 5.4x $38
Slide 6: Global Private Equity Exit Volume Above 2007 Peak
Global Private Equity Exit Volume Was 14% Above The 2007 Pre-Great Recession Peak • Second highest exit Global Private Equity Exit Volume $350 ($ billions) volume on record $313 $303 $300 $285 • Record ~1,350 exits $266 $250 • Exit count by type: $222 • Trade sale – 51% $200 • Sale to GP – 26% $163
Slide 7: Purchase Price Multiples & Equity Contributions Back To Pre-Recession Levels
Purchase Price Multiples & Equity Contributions Are Generally Back To Pre-Great Recession Levels LBO Purchase Price Multiples LBO Equity Contributions 12.0x 60% 51% 10.0x 9.7x 50% 9.1x 8.8x 8.7x 8.8x 44% 8.4x 8.4x 8.5x 43% 42% 39% 8.0x 7.7x 40% 37% 33% 33% 32% 6.0x 30% 4.0x 20% 2.0x 10% 0.0x 0% 2005
Slide 8: Self-evident truths about the private equity industry
Self-evident truths about the private equity industry 8
Slide 9: Emerging markets will play a larger role in private equity
Emerging markets have emerged and will increasingly play a larger role in private equity 9
Slide 10: Emerging Markets Now Account For More Than Half Of Global GDP
Emerging Markets Now Account For More Than Half Of Global GDP 60.0% Emerging Markets’ Share Of Global GDP 55.0% Emerging markets account for ~85% of the global population 2013=54% today vs. only 68% in 1950 50.0% Emerging markets are expected to account for more than half of global GDP growth from 4
Slide 11: Emerging Markets Increased As Source And Destination For Private Equity Capital
Emerging Markets Have Increased As Both A Source Of And Destination For Private Equity Capital Rest-of-World (Ex. North America Rest-of-World (Ex. North America & Europe) Share of Deal Value & Europe) Share of Capital 14% Commitments 13% 20% 20% 12% 18% 16% 10% 14% 8% 12% 11% 10% 6% 5% 8% 4% 6% 4% 2
Slide 12: Emerging Markets Still Under-Penetrated By Private Equity
Emerging Markets Are Still Relatively Under-Penetrated By Private Equity 1.20% Private Equity Investment As A % of GDP 1.03% 1.02% 1.04% 1.00% 0.89% 0.80% 0.60% 0.40% 0.28% 0.20% 0.24% 0.19% 0.20% 0.20% 0.13% 0.12% 0.06% 0.05% 0.09% 0.09%0.07%0.04% 0.09% 0.04% 0.01% 0.00% US UK S. Korea India Brazil
Slide 13: Sovereign wealth funds will become the largest source of capital
Sovereign wealth funds will become the largest single source of capital for private equity firms, replacing U.S. public pension funds 13
Slide 14: SWF Assets Have Increased By More Than $4 Trillion
SWF Assets Have Increased By More Than $4 Trillion In Less Than A Decade And Are Projected To Grow Faster Than U.S. Public Pension Fund Assets Sovereign Wealth Fund Assets Under Management ($ trillions) $10.0 $8.9 $9.0 $8.0 $7.0 $6.0 $5.4 $5.0 $4.0 $3.0 $2.0 $1.4 $1.0 $- 2004 2013 2020P Source: 2014
Slide 15: Sovereign Wealth Funds Quadrupled Their Share Of Commitments Since 2010
Sovereign Wealth Funds Have Quadrupled Their Share Of Commitments To Private Equity Funds Since 2010 % of Total Commitments To Private Equity Funds 2010 2013 SWFs 3% SWFs 13% All Other All Other Investors Investors 87% 97% Source: Dow Jones Private Equity Analyst Sources of Capital Survey, 5/29/13.
Slide 16: Individual investors will become a larger part of the investor base
Individual investors (including non-accredited investors) will become a larger part of the private equity investor base 16
Slide 17: Mass Affluent AUM Larger And Faster Growing Than High Net Worth
Mass Affluent Assets Under Management Are Larger And Faster Growing Than High Net Worth Assets Under Management Mass Affluent AUM High Net Worth AUM ($100k - $1mm net worth) ($1mm+ net worth) $ trillions $ trillions $120 $120 $100 $100 $100 $80 $80 $77 $60 $60 $60 $52 $42 $38 $40 $40 $20 $20 $- $- 2
Slide 18: US Retirement Plans Alone Have $20 Trillion In AUM
US Retirement Plans Alone Have $20 Trillion In AUM $25 Total Value of US Retirement Plans ($ trillions) $20 $20 $15 $9 $11 $10 $6 $5 $5 $3 $5 $3 $- 2002 2012 IRAs Defined Contribution Plans Other (Incl. Defined Benefit Plans) 18 Source: Investment Company Institute Fact Book 2013. There is no guaran
Slide 19: Individual Investors Almost Doubled Their Share Of Capital Commitments
Individual Investors Have Almost Doubled Their Share Of Capital Commitments To Private Equity In Just The Past Few Years Industry-Wide % of Capital Committed by High Net Worth Individuals & Family Offices 20% 19% 18% 16% 14% 12% 10% 10% 8% 6% 4% 2% 0% 2008-2010 2011-2013 Source: 2014 Preqin Global P
Slide 20: Returns will come down but still outperform public equities
Returns will continue to come down but private equity will still outperform public equities 20
Slide 21: Returns Have Come Down Over The Past 20 Years
Returns Have Come Down Over The Past 20 Years U.S. Private Equity Fund Pooled Net IRR By Vintage 35% 30% 25% 20% Median = 15% 15% 10% 5% 0% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Cambridge Associates LLC U.
Slide 22: Top Quartile Private Equity Funds Outperformed Public Equities
But Top Quartile Private Equity Funds Have Significantly Outperformed Public Equities Over A Variety Of Time Horizons Buyout Fund Net Returns vs. Public Equity Total Returns (5-,10-, & 20-year net returns) 30% 29% 26% 25% 20% 15% 13% 11% 11% 10% 8% 7% 8% 7% 5% 0% 5-Year 10-Year 20-Year MSCI World In
Slide 23: Private Equity's Focus On Value Creation Will Drive Outperformance
Private Equity’s Focus On Value Creation Will Drive Outperformance Source of Value Creation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Leverage Era (1980s) Multiple Expansion Era Earnings Growth Era Operational (1990s) (2000s) Improvement (2010s) Operational Improvement Multiple Arbitrage Leverage
Slide 24: Allocations to private equity will continue to increase
Allocations to private equity will continue to increase 24
Slide 25: Allocations To Private Equity Have Gone Up Across-The-Board
Allocations To Private Equity Have Gone Up Across-The-Board 30% Private Equity Allocation as a Percent of Total Assets 28% 25% 20% 18% 15% 13% 12% 10% 8% 9% 6% 6% 5% 5% 4% 3% 3% 0% Family Offices Endowments Foundations Public Pension Private Sector Insurance Funds Pension Funds Companies 2009 2013 S
Slide 26: Almost 40% Of Investors Are Below Their Target Allocation
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 Investors’ Intentions for Private To Their Target Allocation Equity Allocations 100% 100% 18% 10% 90% 90% 80% 80% 70% 70% 60% 44%
Slide 27: Private equity will be seen as mainstream rather than alternative
The private equity industry will be seen as mainstream rather than alternative 27
Slide 28: Private Equity AUM Has Grown At A 20% CAGR Since 1980
Private Equity AUM Has Grown At A 20% CAGR Since 1980 And Now Stands At $3.5 Trillion Global Private Equity AUM ($ trillions) $4.0 $3.5 $3.5 $3.3 $3.0 $3.0 $2.8 $2.5 $2.5 $2.3 $2.3 $2.0 $1.7 $1.5 $1.2 $1.0 $1.0 $0.9 $0.7 $0.8 $0.8 $0.5 $0.4 $0.3 $0.1 $0.1 $0.1 $0.2 $0.0 $0.0 $0.1 $0.1 $0.1 $- 1980 1
Slide 29: Alternatives Have Doubled Their Share Of Total Asset Management AUM
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) Alternatives AUM As A % Of Total Asset Mana
Slide 30: Public firms will become more common; larger firms gain share
Public firms will become more common; larger firms will get a greater share of commitments 30
Slide 31: Seven Private Equity Firms Have Gone Public Since 2007
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
Slide 32: Investors Are Increasing Commitments To Global Alternative Asset Managers
Investors Are Increasing Commitments To Global Alternative Asset Managers Market Share of Fundraising (3-year Driving Factors rolling average) of publicly traded alternative asset managers as a % of • Stability total industry fundraising1 • Consistency of returns 10.9% • Brand • Size 6.8% • Transpar
Slide 33: Private equity firms will continue to diversify their product offerings
Private equity firms will continue to diversify their product offerings 33
Slide 34: Non-Corporate Private Equity Assets Make Up A Larger Share Of AUM
Today Non-Corporate Private Equity Assets Make Up A Larger Share Of Publicly Traded Alternatives Firms’ AUM Median Non-CPE Assets As A % Of Total AUM 70% 66% 60% 50% 47% 40% 30% 20% 10% 0% IPO Q4 2013 Source: SEC Filings. Calculated as the median of non-corporate private equity assets / total assets
Slide 35: Interest rates will rise but cheap credit will be available
Interest rates will rise but cheap credit will be readily available 35
Slide 36: Non-Bank Lenders Provide A Significant Majority Of Loans
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% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2
Slide 37: Interest Costs Have To Rise 200 Basis Points To Reach Pre-Recession Levels
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% 4.5% 3.0% 4.4% 2.0% 1.0% 1.2% 0.0% 2005-2007 2013 Avg. 5 Year Treasury Avg. B-Rated Corporate Spread Source: St. Louis Federal Reserve. B-Rate Corpora
Slide 38: Europe will be the market of focus in 2014
Europe will be the market of focus in 2014 38
Slide 39: Europe's Economy Has Reached The Bottom
Europe’s Economy Has Reached The Bottom • GDP: ~$17 trillion Euro Zone GDP Growth Rate • The European Union economy accounts 5.0% for nearly one-quarter of the global economy 4.0% 3.0% • Growth of just 1.2% will add more than 3.0% $750 billion to global GDP. This is the 2.0% 2.0% 1.6% 1.4% same cont
Slide 40: Europe's Share Of Private Equity Investment Has Unduly Declined
Europe’s Share Of Private Equity Investment Has Unduly Declined European Private Equity Deal Volume As A Percent Of Total Private Equity Deal Volume 60% 51% 52% 50% 48% 48% 46% 44% 39% 40% 36% 34% 33% 32% 31% 30% 28% 23% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201
Slide 41: European Assets Are Priced At A Substantial Discount
European Assets Are Priced At A Substantial Discount US & European EBITDA EBITDA Multiples on Major Stock Market Multiples, 2010-20131 Indexes as of 1/12/13 11.00x 14.00x European Average: 7.8x 10.1x 12.3x R.O.W. Average: 9.4x 10.00x 12.00x 10.1x 9.00x 10.00x 9.1x 9.3x 8.9x 8.2x 23% EBITDA Multiple
Slide 42: Truths That Will Become More Self-Evident In The Future
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
Slide 43: Bonus Truths
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