The private equity industry’s leading groups are likely to follow Blackstone’s initial public offering by pursuing their own listings within five years, David Rubenstein, the co-founder of Carlyle Group, said on Tuesday.
Speaking at the Milken Global Conference in Los Angeles, Mr Rubenstein told a large audience of business leaders and politicians that initial public offerings were necessary for private equity firms to remain competitive.
“To be competitive and grow they will have to [go public] so they have a currency to attract employees [and] keep employees,” he said. “I wouldn’t be surprised if all the major firms were public four or five years from now.”
He added: “There’s also a generational issue. The founders of all these firms are in their mid-50s, late-50s or early 60s. And they probably want to take some money off the table before they are unable to do so.”
Blackstone, a rival buy-out group, is working on a $4bn IPO. Meanwhile, Apollo Management is also working on a fundraising but may pursue a private placement of securities as an alternative to an IPO.
Leon Black, who runs Apollo, was also speaking at the Milken event. He declined to comment on the firm’s fundraising plans but said there were “some real positives about going public”.
However, David Bonderman, who runs Texas Pacific Group, which has mounted a $45bn bid for TXU, the Texas-based energy group, said there was a downside to being in the public markets.
“All of us are in private equity because we want to be private,” he said.
Following a prolonged period of bumper buy-outs, the industry is facing increasing scrutiny in the US and Europe. In the US, Congress is examining the tax treatment of private equity firms and is believed to be leaning towards increasing the tax rate that applies to carried interest.
Such a change would severely dent in the earnings of top private equity partners. However, Mr Rubenstein warned that increasing tax on carried interest would be felt well beyond the buy-out industry.
“Every partnership in the US is governed by the same capital gains tax rules.” All kinds of businesses, such as family partnerships would be affected, he said. “If Congress tries to carve us out and tax us differently I think we will have people doing things that aren’t very desirable.”
Mr Black told the conference the industry was enjoying “abundant liquidity, the like of which I don’t think any of us have ever seen. It’s a terrific time to load up in private equity and other products.”
Meanwhile, Mr Rubenstein said the current climate “can’t get any better” for buy-out firms but added: “At some point it will turn”.