Private Equity: Industry Review - Ed Mathias, The Carlyle Group

I'm very happy to be here, especially this week because it's the first week I've been here in about seven months. I have two of my colleagues here, both future MBAs, Evan Morgan and Dan Bowles, and I have a relative somewhere. hidden in the audience so you can try to figure it out well, let me just I don't want to dwell on my career, let me make a couple of comments because I came to

private

equity

via a slightly different route after graduating from school. where I have to say that Tom Robertson was my teacher and marketing advisor.

I joined Trowe Price when he had fewer than 50 employees and made less than $500 million. Today he has four hundred and fifty billion, so I tell you how the

industry

has grown and then we have. We were very active in creating a company called New Enterprise Associates, which I think is by far the largest venture capital firm, and in 1986 we founded the Carlyle Group. If we start it, today it seems ridiculous with five million dollars and we were allocated two million. for working capital and three million for investment and the idea was that the investors, one of which was the Mellon family, who I knew, did not want to be diluted, so they had some of the money allocated to deals, so it came to this. business with experience in both the public and

private

market you should now have three brochures one is a copy of the charts we are going to look at today second I hope you have an annual report from Carlisle and third each year for the last say 20 For years I have done a investment report on the

industry

and I would say a third of people throw it in the trash think it's ridiculous, a third really like it and a third don't care, but it's been a way for me to keep in touch with people and build relationships over time and one of the things I'm going to emphasize is the importance of that in our business.

Let me come now and talk a little bit about the Carlyle Group. This will be a kind of Cook's Tour. We're going to go through private

equity

real quick and if any of you have questions or want me to go into something, just raise your hand and hopefully I'll see it, or Evan or Dan will each take half the room and we'll do it. and let's talk a little bit about Carlisle, like I said, we started in 1986 with five million dollars, three of which we could invest and live off our wits for a while, today we have 86 billion dollars, we have 667 funds.

We operate around the world, we have 1,300 investors and we have almost a thousand employees, around 400 of whom are investment professionals and when you look at the industry you will see that each of the major companies has a different strategy. I'll comment on the others if you want, I could talk about it later, but ours are people on the ground and diverse offices and our funds are semi-autonomous, so the Japanese fund, the Middle East fund or the European fund are basically people. on the ground in their locations, but to borrow a phrase from Woodward and Bernstein, follow the money.

I don't know if any of you remember that from the Nixon days, but every investment decision goes through headquarters. I'm going to be wrong, right? Here and what we do, I'm going to focus first because I think that's the most important thing in the investment committees, but every fund has an investment committee with people in the Washington office, high-level investment professionals who sit on it and it's more like a capital commitments committee. of a brokerage firm and we don't do extensive due diligence, but we look at every deal to see if it makes sense and there has to be approval, no matter what, from the investment committee, as we've grown, you can see that we have developed a huge bureaucracy, that is my term and these are all areas that have a tremendous impact on the company and one of the real problems today and I guess this has always been true because if you are a larger company you have You have to fight bureaucracy every day. day to maintain the entrepreneurial spirit, I mean, we have external legal issues that you probably don't think about Foreign Corrupt Practices Act contracts, etc., it gets quite complicated on the investment side, we are divided not only geographically for the function we have. a buying

group

we have growth or expansion capital we have leveraged financing we have real estate one thing that is missing here or two things that are missing that Blackstone would have are one the advisory business that we are not going to get into the other is the management business of assets and that would be, whether it's hedge funds, public securities or whatever, you can laugh at this, but one of the important things in investing is to step back and ask what's going on and there are some lasting truths and not I'll have to go over each of these, but I think if you look at careers, investments, and companies, if you ask yourself some of these questions, you could improve your decision making and the reason I highlight them is because of some We've been through. a tremendous cycle in our business in which money followed performance.

We believe excess capital reduced returns. Size definitely has an impact on notoriety. Regression to the mean is a very powerful force and when you look at some charts, if the numbers look unsustainable, they probably are and people have said that the most dangerous phrase in investing is that this time is different. Now I'll tell you some reasons as we go why it's different, but I think these are things that are important to keep in mind and how you think. about private capital or alternative assets they are an integral part of the financial system they do not operate in a vacuum and what happens in the financial markets influences us, we do not influence it to a large extent a couple of things that I want to highlight I am not going to explain this whole picture , but we know that there is enough data now, people talk about making four, five and ten times their money.

Now we know if it's venture capital, private equity, real estate, if it goes back to the investor twice. they're capital invested, you're a very successful fund, certainly top quartile, maybe top decile, so that's where you want to go now. These numbers, as Evan has pointed out to me many times, do not allow for the end of investments, but if you take the first day of the money and you want to win twice, you can see what happens, how it decreases with a holding period and in the capital private there is another factor that you must compensate: we have to pay the rates and we have obstacles. fees at 8% and compounding fees at 8% and when you take transaction fees, investment management fees, etc., you create a big hurdle for yourself if you don't start returning capital.

Most of our clients look at IRR today, which in my opinion is a fallacious number, but we're starting to see people thinking more about money within money the way people have traditionally talked about real estate, so this is something you should have on your desk along with this. Now remember Warren Buffett's rule, first rules don't lose. money and second rule, don't ignore the first rule, if you have a loss in a private equity portfolio, it's very difficult to make up for it, so I'm sure they say it's not that difficult because you have great successes and we'll talk about that in a minute, but this It's just arithmetic, but it's very powerful, you know, private equity and venture capital have gotten tremendous publicity at times.

I just wanted to put into perspective where you are in relation to the financial markets and this is just the US market, not in As you know, the US stock market probably represents about 40% of the total. You know what number to market. If the financial market stock market is not kappa these days, it is China, but you can see the major stock exchanges. Evan, these are the correct numbers, fifteen billion. mutual funds stock funds four point seven hedge funds somewhere around two trillion with leveraged private equity we're not sure of the exact number, but something like this and then you move on to venture capital, which is the momentum business, so within the scope of the financial markets these are not huge assets and I thought just take a look at the market capitalizations of certain companies so you can see that Exxon has a market capitalization that is greater than the business of risk capital.

Microsoft's cash is twice what venture capital raises annually and again we could play. with these numbers and let's talk about it, but it's just for perspective, so Cisco is a much more active venture capitalist than anyone else if you look at the money they have, so let's talk a little bit about the private equity now that we have that in perspective. It went through what I would call the perfect storm where the numbers are not firm, but between 2002 and 2007 the returns look tremendous, especially compared to the stock market, huge amounts of cash were returned primarily through recapitalizations and this It was a tremendous opportunity because interest rates were going down and banks were lending more, so what you could do is refinance, you get a higher debt ratio and lower interest rates and it was a huge advantage and so Of course, those days are over, but many of the returns came from recapitalizations. and then I think in 2007 or 2008 90% of the high yield market was recaps.

One thing that people haven't recognized as an attraction of private equity is that for a financial institution you get non-recourse leverage if I went to the pen investment committee and said, look, we'd like to raise debt, we'd like to do an individual investment. , we want goalkeeper Craig Karna, the CFO, to take on half a billion dollars in debt. I mean, it would shoot us, but when you get it through a private equity fund, it's an inherent way to build leverage in your portfolio and people realize that as you got yield, you started to see bigger allocations, we saw a lot of new investors, a very traditional pattern, private equity became the hero of The Era and we've had other heroes, some of whom crashed, but you saw Steve Schwarzman, David Rubenstein, David Bonham and Henry Kravis in the cover of the newspapers in which they appeared on the cover of Newsweek, etc. or Businessweek, the industry began to become institutionalized.

When we started, we had mainly individual investors, some small institutions, some quite sophisticated people, some more international than others, but it started to spread to all institutions, so what you saw in our industry was tremendous growth in assets, so which, as I said, we start with three. fund of one million dollars, our second fund was one hundred million. I think our third was 500 and our last fund was 15 billion, so that was a big change. I just want to spend a minute on how investors thought about this and what led us to this situation. that and a school like Penn, are you all familiar with a spending rule?

How do they think about how the endowment works? It's something they've talked about or essentially a spending rule for pen pen believes they can spend around four and one. -half a percent of the endowment, that the return on the capital market will be around eight percent and that by reinvesting the money that is not spent the pace of inflation is maintained, so there is a spending rule and then pension funds, of course, have an actuarial assumption. The better thing is that they have less money to invest, so there is some interest in keeping that level high, so we ended up with a situation where, rightly or wrongly, people were not as enthusiastic about stocks, they were not so excited about fixed income, etc. they moved very dramatically into alternatives and diversified assets, whether it was private equity hedge funds and companies like CalPERS were writing $250.5 billion checks to private equity firms.

It was really amazing. I was a price level if we could get a two million dollar account we were very excited and it was a big change and then people of course all the strategies you have to follow to keep up with inflation and people have different points of view on it, okay, you know what happened with the stock market, but again, this affects our business quite dramatically because private equity, while the market was languishing, was showing very good returns, this is not has updated and the numbers are very weak, but basically what we have is that these types of assets provided a much higher return than the Nasdaq or the S&P. 500 now these numbers are nowhere near what people were talking about 30 35% 40% I just want to make the point again, you can look at this like your leisure financial crises are nothing new, markets live and die with them this time was maybe a little bit more about risk, but we've been through a lot of different ones over time and again, on each of these things we could spend a lot of time.

Well, what happened? We went through a very difficult period. People's performance expectations changed quite a bit.preferences and risk tolerances. In good times, people look at the advantages and in bad times they worry about the disadvantages and there were tremendous changes in the way investors looked at this: private investments when you go into a Carlyle fund or a KKR fund and effect, you are blocking your money. up to 12 years if you are with t rowe Price with an institutional common stock fund you call that night the bank transfers it and it is your money you settle it the next day you do it in Hong Kong whatever but you have your money immediately and these, the premium for locking up money for 12 years increased dramatically as a result of what people saw during this environment, the availability of bank loans just stopped, as you remember, the banks were just frozen, they had all these other problems for people in our business could I didn't get credit, it wasn't a question of price, it was just availability, everyone stopped fundraising, they hit a wall and we had a dramatic, you'll see some of the numbers, but what happened here is that both the private market and the public reduced the percentage of people in private.

Stock funds and hedge funds etc., which were relatively stable, went up, they called it the denominator effect and it was just a number that came out this week. Yale and I think this is the right number, they have a portfolio of about $14 billion, they have seven billion dollars of uncommitted buyout capital from private equity and other funds, and this just changes the attitude of people in the way they invest, so companies like ours, that had large pools of capital ended up not being able to invest, which clients then say, "Well, why are you sitting with our money?

Why don't you give it back?" ?You know the fees are piling up and you're facing a real hurdle to overcome, but if you look at the acquisition business, you'll see that virtually no investment was made over a period of 18 months and then eventually the phenomenon. of buyers and sellers were way ahead on pricing. I mean, we were looking at current conditions, having to put more equity into what the price should be. Sellers were thinking about what the price could have been two years ago and why. Golf has closed a bit and one side is going to have to capitulate, I think it's going to be us but that's how it is.

It still didn't happen well, so what happened in private equity there was less smaller investments, less investments and exits from smaller investments stopped with practically no distributions and historically the limited partners have thought that they are never going to invest more than 75% of what they allocate because I will receive money to compensate for that stopped fundraising fell precipitously. Are you familiar with the way benches flex? They have some freedom within the loan agreements, everyone either maxed out or folded. I mean, there was a phrase if you change your seat at the table it was an adverse material function of the closet and it stopped and people just walked out of the market we were dealing with covenant light loans.

I mean, there was nothing in the loans that would cause them problems and one of the reasons we haven't had bankruptcies. This is because lending was so light that companies began to think about how they could invest their money. They started looking at different parameters of the deal and we'll get into that in a minute, but historically companies like ours did simple LBOs, you borrowed money. you bought a company, you paid down the debt and you got a certain rate of return, now you're starting to see minority investments, you know, it channels a lot of different things, conspiracies of people together, but the other thing is that there were widespread fears of what was going to happen. happen, I mean, 12 months ago, maybe 13 months ago, we were at the lowest point, I mean, people thought the banks were going under, that we were going to go out of business, I don't know, the endowments were made , the markets, I think the markets are changing. with March 12 last year, but it was a really difficult period and then we had all these fears and this is just part of the great publicity that our industry received at that time for a break, this goes back a long time, barbarians at the door, but this was an industry that was very quiet, it wasn't very well known and I think three or four things generated a lot of publicity, one was the performance, it had several stars, three some of the deals started to have a much bigger impact . a more widespread impact than it had here too, because when KKR and TPG bought Texas utilities they had an agreement with a rate commission they had to deal with consumers they had to deal with lenders they had to deal with environmentalists this was something In what we're doing small business, you don't have to worry about those types of voters, that's fine, but let's ask ourselves what didn't happen.

There was a lot of talk that there were going to be widespread bankruptcies among the big businesses that were done in 2007. -2008 didn't happen, I'm not going to say it's not going to happen, but we are starting to see these things being refinanced, some of them are so light that the banks will end up owning them in five or six years. companies, but there hasn't been the collateral damage that people predicted. You may have seen that Blackstone just refinanced Hilton and there is a mountain of debt out there, but so far it hasn't happened. Second, people said the general partners were going to default. on your loans on your investments and I would like you to talk about the own risk terms if you default, that's fine, but basically, when you commit to a private equity deal so far, the terms have been extraordinarily favorable for the GP , so once you invest a certain amount of money if you don't continue investing that losses are at your own risk, they are basically recovered.

I won't go over all the details, but you get some of the money back. There was a lot of talk and a lot of money was raised. secondary sales, you may have read that Stanford wanted to sell a billion dollars to other companies, but that just didn't happen and I one of the reasons it didn't happen is that there couldn't be an agreement on the price, the buyers thought they would would do, the sellers were in such distress that they made demands that were simply unreasonable and these are reasonably complicated deals because if you want to buy a piece of Carlyle v let's say I'm a seller, you're a buyer, you're not just buying the asset but you're By purchasing the obligation to continue the transmission, you have to finance the rest, in addition, GPS has put a very interesting clause that we have to approve any transfer, so if KKR had a secondary fund, we would not be real.

We are eager to sell them a portion of our fund so for many reasons this didn't happen, there is still a lot of money available for secondary purchases and maybe if prices go up the market will. I've seen that China just committed a billion five in this area, okay, there was no implosion of private equity firms, there was a lot of talk about that, there was a lot of talk about the government action regulations

group

again, there was a lot of talk about one of problems. Now with taxes on carried interest, there is no carried interest, there won't be for a while, but there was talk about it, there was talk about registering with the SEC, etc., so far it hasn't happened, there are some things in the horizon.

You've probably read about the Volcker rule, these things are very complex. I mean, how can you tell when Goldman Sachs is operating as principal or agent and when they lend to a company if they are invested in it? It would be a real problem to disaggregate which would be good for us if they could do it. It was thought that banks would be stuck with these portfolios of leveraged loans forever. It didn't happen. I don't know if you've seen what's happening. This happened in the credit markets, but the credit markets have risen at an astonishing rate in the last 12 months, probably the average credit has increased by 60% to 70% and it has been indiscriminate, it is not just the higher quality That's all, there has been no sense of private capital contributing to the system. risk, I mean, we're not Citigroup or JP Morgan or anyone else, if that would contribute to some fears of that, and thirdly, I don't think there's been an abandonment in a private equity.

I've seen, for some reason, Yale just announced that they're ramping up their thing. We still see a lot of interest. The shape of interest is changing, but there is still a lot of interest. These are just the agreements. I'm not going to analyze them, but these are them. the deals, most of the big deals in history, other than RJR, that we've done in the last two years, are very big, of course, it's Texas utilities, they all have problems, but it's Hilton, but It seems like they are going to work. We don't want to provide returns to private equity, to investors, but not go bankrupt, let's look at fundraising, this goes back a long time, you can look at it quarterly, you can look at it on a yearly basis and it probably correlates with performance and distribution, now that we're down.

For you, it is a relatively small number compared to what we knew in these periods and there are many. These numbers are indicative, they are a little weak because they capture many different types of funds, but you can see that the trends are quite clear in availability. from the leverage you can see that the peak is falling and these are factors that really influence our returns again, for a long time you were not putting much capital into these transactions today you are up there somewhere around fifty percent and that it gives lenders a lot more support but it also has to reduce rates of return and how many people here think the stock market will capitalize at 10 percent in the next five years, how many fewer are okay, so if you think the markets stock market will pick seven, if you think the stock market is going to rally to seven, historically what people would say is I want 500 basis points above that for LBO or give or take risk, you know you're talking about a 12% return expectation for the investor, not 35 or 40. but the problem is that once we get to that type of rate of return, we don't make much money, the carry is only worth it if you have a profit rate high, this is true for hedge funds, whatever we do.

What we're seeing is that investors are very interested in making sure that we're not making money on revenue. I mean history. You are all familiar with the economics of funds. I mean, we basically charge twenty-two. Historically, that came through venture capital when very small companies needed 2%. People never imagined that you would be accumulating funds, so when you have Kleiner Perkins 12 or Carlyle 7 you are charging fees on five six seven funds, which means that you fear that you can probably win. a good amount of operating income clients perceive is not the best for them and therefore there will be pressure in that sense, so for us the real thing is to use the expenses to use the income to cover their expenses, but the carry provides the incentive and if the carry is not high enough if the returns are not high enough the carry will not justify it in some way make your economy work that is a Hopis chi that got lost in my own thought process, it is well, you can see the average LBO Perca, it has gone down a couple of turns, they are still relative prices still relatively high.

If you talk to most LBO players today, they will tell you that the prices are very high and part of that is institutionalization. There is a lot of competition. You know, there are a thousand companies with uh. Think about a billion dollars today, but what this really says is that if you pay this kind of price that you have and the kind of leverage that you can put on it, you have to create value or grow the company. Financial engineering itself is not going to provide the return you need now, if you look at this graph as an academic you will say something is going on right, like I said the loan market just disappeared and is coming back mainly because of the yield curve and the banks are solving their problems, but that is a major change, these are public to private transactions, you can see again, very, very important, these are the big deals that were made with the Texas utilities, Hilton, etc. ., but again, these have disappeared and what we see now are many more strategic buyers in the market, so we compete with strategies in addition to competing with each other, capital distributions are really important to the investor, the IRR changes, they allows you to continue investing etc. and you can see we are doing very well in these periods and now it has gone down it is very, very, very small, you will probably see this start to recover, there is no doubt that you cannot raise a successor fund if you have not distributed capital and it will probably be on the order of at least 75% return ofcapital before you can raise another fund and if you want your existing investors, I mean it's essential.

I talked a little earlier about how horizons have expanded, that is, cash flows or equity flows into emerging markets, you can see while the trends are very positive, the numbers remain relatively small and, of course, the increased interest It is in Asia and we still see that Asia is important both in terms of market opportunities and in terms of interest from investors, but it is still a relatively small country. We are now active in these markets in a small number. One thing we're seeing in Asia is that local competition is really increasing. I mean, our problem is not the black stones and kk r of the world, we are competing with the locals.

Investors, many of whom have Wharton MBAs, have direct or tacit state support and operate in the local currency and you may have seen that almost all major companies are forming funds in RMB so you can transact with fewer restrictions , not totally and wait, for example. We have two large funds that are focused on Asia, one is a buyout fund and the other is a growth fund. The buyout fund is subject to a lot more scrutiny than the Growth Fund, but when you see these numbers, our Growth Fund says, they remind you of what you used to call hockey stick venture capital and now like the downside is thirty-one. five percent a year, you know, the lead is sixty percent and interestingly, they're making it so that the Econo boom there is like the California gold rush, but the competition is increasing as it goes.

I said dramatically that Africa looks like one of them in the next frontier markets. I think it's a misnomer. I think these emerged in the markets and the emerging markets are North Africa, South Southeast Asia, etc., and what you are seeing in terms of the buyout funds is You have very large funds, KKR and Carlisle, the black stones, which will be global, and then you'll have the mid-market or domestic L funds, which will operate primarily in the US, which just gives you a sense in a more systemic way of some of the topics we've touched on but that we've gone through as you would at any stage in the industry and I'm going to touch on some of these things that we've alluded to. of them, but you can see it and you have all the graphs of this is one of my favorite graphs.

I may need Evan to help explain this to me as we go through it, but what we tried to do was show what it takes to create a successful fund and I'm going to spend a minute or two on this because I think it's really important for your thought process. We know that compensating twice the fund is very, very attractive for the investor. If you can do this in any asset class over a five-year period, you will certainly have a top quartile and probably a top quartile. decile fund so what we did to show you the dynamics here at Evan if there is a problem here to rescue me this is the fun size you have to get this amount to get here these are the rates these are the preferences This is the capital that you have in addition to these returns, so what you get is if you're going to take 80% of this and they're going to take 20.

These are the numbers and then what we're trying to do is the five-year horizon assumptions. 2% management fee for compounding, you need an 8% preferred return that compounds and then the 20% takes away and what we did, we just made some wild assumptions about what you had to achieve in terms of the portfolio to get there. there and what this says. It is a plug number that you must have, let me put it this way, you must limit the amount of losses and some investments must return 5 to 7 times your money. I mean, these are probably things that you know we try to do.

In a more systemic way and venture capital, the numbers would be: these two would be very different because there are more losses and more big hits are needed, so one of the questions is, given the leverage of current prices, etc., Can we get this number of companies? that will pay back more than five times and it becomes a much more difficult problem as the funds increase, so our 15 billion dollar fund is one percent one hundred and fifty million dollars, so if we are going to make thirty investments, you can see that each one has to be relatively large euros Warren Buffett has pointed out that the universe becomes relatively small, so this is one way, I mean, it is a kind of graph that we are thinking about the business , this is really what I call the billion dollar challenge that we have to multiply this. at 15 for our big fund, well, one of the big obstacles we face is that we have a mountain of debt that needs to be refinanced in this period, which is a real challenge and every buyout fund focuses on this;

You may have seen men shine before Blackstone. Remade Hilton, this is really important and there is a fear, because of what's happening with the government, that rates could be much higher in two or three years than they are today and it could really hit a wall, so there is a amount of Trump activity for Mendes. Try to fix this sooner rather than later and that means paying attention to the current portfolio versus the New Deal, okay, let's now go over some of the current issues and challenges facing our business and if I get too depressed. They hand this over to Dan or Evan to talk about it, but like any business you know, we're in kind of a cycle and right now we're in a situation, like all forms of asset management, where it's going through a tremendous structural process. change this is true for Wall Street firms this is true for traditional money managers this is true for private equity I mean, this is a change, I don't want to say it happens once in a lifetime, but it certainly is once in a generation and that We have to deal with many problems that are going to end, some of which will take a long time to solve.

Well, I'm going to lower the return on these investments. This is our lifeblood if we can perform at a very high level. we will not be captive to some of these other trends. I mean, people who can really perform won't have as much feeding pressure, won't have as much trouble raising money, especially in venture capital, but also in the private sector. equities the difference between the top tier and the top quartile and the third quartile is dramatic if you look at fixed income managers, there is probably a 20 basis point difference between the first quartile and the third quartile, it could be a thousand basis points in venture capital or private equity then there will be a migration of money to the best performing companies and then we can discuss what might constitute or what one of the best performing companies might look like, but this is going to be really important and it seemed that the consensus in the classroom was that returns in the public market could be something like 7% now it is simply illogical that private equity can reach 35% when it is a semi-institution analyzed more competitive capital positions higher cost debt that we can earn that kind of returns so the question is how much do people earn?

What can we expect and how much can we earn? I think most institutions are thinking about this in two ways: Mainstream investors - you're 500 basis points above the market, when they calculate a return, they think 16 to 18 percent if you could return 16 percent. net percent to its investors. You would be in very good shape now people dream 35 40 but 15 16 would be very good. I think it's okay, the country's leading investors have come together as a group and issued a set of principles about what they should do now. some belief that I don't subscribe to that this is a violation of antitrust laws.

I'm not sure the DOJ is going to protect private equity, but they're talking about fees and terms, like fees on invested capital versus a large amount committed and Again, if you play with these numbers, you'll find that carry has no bearing. both in its performance and rates. Can you imagine paying a 25 or 30 percent fee on private equity? Is that how it works. I mean, let's say. we have a billion dollar fund with a two and a half percent fee, so the fee is Evan, twenty five million dollars, okay, so if we invest a hundred million the first year, we'll pay 25 million on a fee out of a hundred, you have to think about that, but it's a pretty staggering number if you change that, the dynamic changes dramatically and you invest, big investors realize that historically we have charged transaction fees, so when you make a transaction you charge a fee and you're actually just borrowing from the fund because you have to pay. return it, but you have the use of the money, the same with the monitoring fees, the pressure on that is very, very strong, it is to return them to the limited ones or not have them and there are many other nuances welded on, but the pressure in terms of fees, in all likelihood the funds will be smaller, as I said, our fund was 15 billion.

Blackstone's last fund was 17. They've been in the market for about two years and I think they've raised nine or so. Aha, so there is a feeling that the smaller funds are better and that the mega funds have at least today little reputation and we are going to have to hold our deals probably longer partly because of the markets but partly because it takes longer create them. the value when your financial engineering if the market goes your way, you can do it immediately if we have to create value and build these companies, it will take longer, the same with the costs of debt availability, all of which will extract a price that we spoke of this change: value creation versus financial engineering.

This is very important. Our industry has become extraordinarily visible. There is a big push for transparency. I mean, we're much less susceptible to that than hedge funds because we don't really care about trading positions or current information, but we have to be much more careful about disclosure and regulation across the board. I mean, we operate in different states, all of our companies have problems, their foreign rules, etc. and then there is something here that is a very, very important factor for our industry. we're all familiar with FASB 157 yeah, it's basically yeah, invited into a market, meaning energy and everything related to cost, what that entails is tremendous and has had a huge impact on our portfolio.

One of the things that private equity investors really liked was that it wasn't a mark-to-market, it showed, even if it wasn't real, it showed a real sense of stability, so it was really marking the market. cost for a long time, so you didn't have the volatility now, so you had a very low price. correlation with the markets now you have to mark the market and most use a triangulation period to do this. I mean, you look at the transactions, you look at the free cash flow, anything that surrounds the problem and you get some interesting value. the limited partners have an obligation to authenticate those securities, which is just causing a lot of problems, so we spend a lot of time on this.

Now we have accountants make sure that some volatility has been introduced into the portfolio, so it is necessary to pronounce the In fact, interestingly, the valuations of these funds did not go down as much as the market for a variety of reasons, many of them which were based on cash flow analysis. Well, I talked earlier about the fact that many of our traditional investors are burned out. CalPERS allows that endowments are not going to be the source of capital that they have been, but there are new sources of capital that are being developed by sovereign wealth funds and many foreign banks, but curiously many of them have very different styles.

They are very interested in co-investment, sometimes they don't like the funds, sometimes they want secondary accounts, sometimes they feel like they know they should get certain fee reductions, etc., etc., this is a very controversial topic. I mean, my feeling is that all the major companies will do it. Republic and we have seen Blackstone as public. KKR's public Apollo is coming out of the Goldman stock exchange trees on the Goldman stock exchange, but I think there are many reasons for that. One is the monetization of the partners of this company. These companies well, I think. They have no intention of leaving now, they certainly feel that they have created a brand, they have created value and there should be some way to obtain liquidity.

A permanent capital could be very, very valuable if the tax law has changed to where we are paying ordinarily. partner carat income, unlimited partner carry, but we can invest our own money at capital gains rates, the spread would be pretty dramatic and having access to that I think is important.Another thing I have to say is that industries consolidate and having a currency to make acquisitions could be very valuable because in most acquisitions in this business people want part tax free and part cash, so if you have a public currency, no one has to argue about the value, it makes a big difference now, are there conflicts?

Is this good for the LPS, I mean, we could talk about that for a long time. I think the perception on the part of LPS is bad for them because there will be more constituencies that they will have to compete with and that you will have to show consistent gains in order to be public. company etc, this is happening in the repositioning, we consider ourselves an LBO company instead of a private equity company and we now consider ourselves an alternative asset management and this is a natural migration, probably the best example is Blackstone who has real estate.

They have private capital, they have advice, they have credit, they have hedge funds, etc. and this is a challenge that will affect some of you. Typically the people who ran these companies were investors, but investors never want to hand the reins to non-investors and you know it's the eternal conflict, so you have a whole series of problems with how organizations are run and In most major companies, the founders are still there and when the founders are there, they basically do what they want. I mean, you can have committees on anything. But founders have a disproportionate influence, but we're starting to think about some of the issues around professional development.

I mean, historically, when you came to Carlyle, I mean, you were just looking for a pass, you know, you worked at this, you worked. In terms of that, these companies are becoming much more institutionalized today, so you may be hired for the automotive group, you may be hired for the healthcare group, but you don't have the reach that you could have had. So how do we move people? We developed them and it's a really interesting thing to think about is that the entry level qualifications are very different to the Senior Partner qualifications? I mean, most of our senior partners.

I am absolutely convinced that they couldn't use Twitter, they don't know Facebook, they couldn't. They don't do spreadsheets backwards, but they know the relationships, they know the agreements, they know what the critical elements are, how we leverage, how we develop people to have those skills in the future, when we share them initially. I mean, we don't want to. Our core people are looking for deals on this event and in succession I think it's kind of a Trojan horse because most seniors love what they do and I don't think they have a good situation to have a good situation.

I think they're going somewhere, but that's something if you're a public company you need to address. Are you all interested in venture capital? We could spend a couple of minutes on that. In my opinion, that is a company. Business creation is eternal. I'm talking about wealth creation. Truly, an American phenomenon has not succeeded in our form anywhere else, probably the closest being in China, where there are many entrepreneurial companies, but they tend not to have capital. The question today has to do with the traditional model. broken or changed, is it secular or cyclical and always this is one of my favorite quotes from Bill Parcells, you are what is your record, aside from Google and a couple of other issues, the record of venture capital over a long period of time has been abysmal I mean it has been abysmal in terms of distributions it has been abysmal in terms of IRR whatever and now we are down, as you can see in the numbers that I will show you in a minute, the tourists have left, now we are in the people who really believed in the religion and It's a relatively small group and it becomes small because there are not many non-believers and many important institutions have just discovered that it cannot impact them.

Do you know if Penn has a portfolio of seven or eight billion dollars? 1% 80 Million, what do we get by investing 5 million dollars in Sequoia? Lots of accounting. You know they're going to invest a million dollars a year for us, so a lot of the big institutions have opted out and a lot of other people don't like it. the results, so you have a shrinking group which I'll talk to in a minute, it's changed the whole dynamic adventure, this is the way the adventure works and it's like an accordion that compresses and expands at times, you get that all these people are very interested in startups, whatever it is, at other times they wouldn't touch them, so now the only people who provide seed capital are angel investors and therefore what I I call serial entrepreneurs, you've got some traditional VC firms, you know the Kleiner and Sequoias benchmarks, they basically see the best deals, maybe they have a network, they see things, they've really been doing this for a long time, but they still so their track record, with few exceptions, has not been great and then there are people who like to jump on the bandwagon before it arrives and These are several people who will invest money at a later stage, what they call expansion financing or growth.

I guess you can guess what year it was ten years ago, but that was the dotcom bubble. Everyone loved it. Last year there were fifteen billion. dollars raised and again I said it's a third of the cash that Microsoft has, so it's become a relatively small industry, although you'll see in a minute there are many reasons why venture capital and entrepreneurship are important to the country we are talking about. The distributions raised the pot and 50 cents, but look at this, last year it was two billion dollars. This is a real problem and you probably know that there have been structural changes on Wall Street that prevent many small companies from going public. into some of the details of that, but believe me, the Goldman Sachs of the world is not going to do a $50 million deal, so you're really restricted to selling to a strategic company or holding the company until you can build it at a critical size. now Facebook wants to go public or Twitter, I mean, there are exceptions to the rule, but overall it's a very difficult area, although this doesn't mean that there aren't a lot of interesting things happening and I mean this is just a quick list, but There are many opportunities, but they are being approached in different ways and venture capital is very important for the country.

I don't think there's a decline in interest in starting companies, we see it every day, they're just being funded in non-traditional ways, but these are all companies that came out of venture capital and the Venture Capital Association would point out that they are creating jobs and they've done more than the S&P 500 Fortune 500, but there's no doubt that entrepreneurial spirit and we see, I would say not every day, but certainly three or four times a week we see people coming to us with a great idea. and they fund it in very unusual ways, but it's being done, but it's just not the traditional venture capital fund.

I want to talk a little bit about putting our industry in context. This is like a movie we have seen. Banks. Runners. Asset managers. Hedge funds. that happens and you might want to try to identify the next one, but basically performance leads to asset growth, you start product line extension, you get a brand, the industry consolidates, you go global, this is very controversial as you grow up, are you an asset manager? or you're an investor, you know, you negotiate that and eventually you go public or you sell the company and that's what we're seeing is that every day it's a little bit more difficult in private equity if you're a middle market company that's going to buy you, What I mean clearly is that large hedge funds and large buyout funds could establish strategic relationships or sales quite easily.

Let's talk briefly about what just ended. End up with a career in private equity and some of these that I've alluded to. I mean, first it is. We see tremendous interest, I mean, we're still inundated with resumes not just from MBA students but from all over, and I think other companies have this as well. Now we have a real dilemma because the industry is very likely going to We will be smaller in the private equity space if our next fund is five billion versus fifteen billion, we probably have more staff today, so what do we do?

I mean, what we have to do. We have two large companies that develop their own talent. I mean, there's no way. that we are going to capture a top cup player from KKR, they are just not going to let him go and we wouldn't have to so we have to grow our own talent which means we have to have a top more vigorous. implement a policy and continue to attract people and that's not easy, I mean it's a way of thinking, people in this business don't like personnel conflicts, I mean our chief investment officer, if I call him with a personnel like you're out of town let me know when it's over, I mean it's just not something people like to deal with, but these are real problems that we're going to have to think about, so the appeal and interest in private capital and our type of investment is very real, we also have to think.

How can we move younger people to broaden their exposure? I mean, can we take one person from our buyout fund and put them on credit? I mean, the Goldman Sachs of the world do that all the time, they say we don't have much opportunity privately. equity, you have the opportunity to become a partner in commodities, people run for the door, that doesn't happen here, so it will be a challenge. I mentioned this before, but it's very important, entry skills tend to be quite difficult, people are looking for you. They know the quantitative expertise of the industry, can they do this and that some of those skills do not naturally equate to being a senior partner and developing business, dealing with banking relationships, dealing with high-level professionals, etc., and in most Do companies think that senior management has repealed it? the responsibility of hiring, so if our automotive group is going to hire someone, they have their own criteria, I might have very different criteria, you know, something we have to think about the funds that you have, large, you have the middle market , small, all. which have different characteristics, the career path seems to be that if I talk to people who are coming into the business today, I mean they usually know they have an MBA, they probably have some experience on Wall Street, they would like to come to Carlisle or KKR, but Basically , they're back in mind, they're keeping their options open and they're looking, maybe it will work, but if it doesn't, maybe go with a smaller company, maybe we'll start our own company, which is harder. today, etc., but I think there is a lot more flexibility to come.

I'm going to spend my life here. I mean, clearly, this is a very interesting business, a very challenging peer group, you meet a lot of interesting people even if you're in a narrow discipline that we've talked about you know professional development along the way the one question I always think about It's if you joined Carlisle or KKR or Blackstone today how would you really set yourself apart? Is it doing something important? It's going to be when you enter a new area, it's going to be that your boss becomes the boss of the company, but I think this is something that people don't think about.

One thing I can tell you is that people will not be compensated for having this. In 2006 and 2007 you're going to have to make your own way and I think it's a real challenge to think about that and that would be true for the major Wall Street firms as well. I mean, Goldman has 35,000 employees historically, if you think about what they've been like. people really came out ahead, I mean, there are a lot of people who say they are smarter, they work harder, etc. I mean, generally, those are attributes that most people have. I mean, what do you join a company early? you get lucky in a big deal or whatever, but some dislocation happens that makes you move and I think that's something that everyone has to think about.

I put the economy last, not because it's last, but because that's not the main factor, I mean, I think in most races, if you do well, the economy will follow. I think the economy and this business will deflate a little. They will still be very good, but it is not the driving force. I just listed the teeth. I'm going to give you two packages of these. There are two very well-known people who have listed their investment rules. I'm not going to go over them. Bill Conway, who is our chief investment officer. He receives very little. He doesn't like publicity.

He only focuses on investments. He listed his own thoughts. What can you reflect on this in your free time and then there was a very well-known Wall Street guy Bob Barril who had tenrules in which he thought that he was the RO for 25 or 30 years and was selected as the best technical analyst on Wall Street. Street etc so I think that'll wrap it up with the formula and if there are things you'd like to discuss or topics you'd like to raise I'd be happy to entertain you, it's a long time to talk so any questions problems yes I really do have We have to break down that question because we have an infrastructure fund and many other companies do too.

That's a relatively new area and the way private equity is migrating is different than what we've done in the past. to a certain extent, if you take financial services historically, we always had assets under what we did, financial services, don't you know? The Financial Group infrastructure is so intertwined with government agencies and how fees are earned and what kind of performance and leverage I don't do. I don't think we have enough experience yet to know in the infrastructure area what it seems is that deal prices are not providing a great return and what we are starting to see is a lot of interest in emerging markets in international infrastructure. which offers perhaps higher returns with probably more risk the power is very different we have a Riverstone energy group that has been spectacular their funds have returned three or four times the capital and that area is a huge area, it is very relationship oriented, tremendous amounts of activity and that has done very well alternative energy, which everyone likes, has not done so well and I think that is what you may have been alluding to that they are very difficult, for example manufacturing wood pellets or ethanol or whatever?

These are very, very difficult businesses and there is a lot of interest in green and the environment, but so far they haven't been there. I don't know if that answers your question. Yes, if you look at the kind of area of ​​the private equity timeline that you refer to as the Golden Age panel. Whose was it today? When did you first realize that that was coming to an end and what was your reaction to what you and Carlyle, generally speaking, well, our chief investment officer, Bill Conway, wrote a kind of prescient analysis of what What was happening? an ending, then I would say: did we recognize that there were problems, etc.?

Yes, did we do enough actions to take advantage of it? No, you never do. I mean, there's no way that, if you're managing a lot of money, you can go to In an extreme position, I'd say we did better than most, but even recognizing the underlying issues that slow us down, it could have been done much more. I mean, everyone saw the excesses, but it was like a narcotic, yeah, if you join one. of these companies today, how do you make sure you have any idea if you are one of us? Yes, in fact, I would say that first, the first job is that you may have to disguise some of your personality to get the job.

I think things have to come up all the time and I think you have to be prepared to take some risks. , you know, let's say I'll tell you a couple of suggestions that I've made to Carlisle to several people. We are quite active in the telecommunication defense retail sector, etc. I personally think that agribusiness is going to be a very big area, so if a young person says, "Go to the director of the LBO fund and say, look, I would like to learn something about agribusiness if you are right, suddenly you become team leader, you jump over a lot of people who don't know anything about agribusiness, that kind of mentality.

I'll give you another example. We're thinking about doing some more things in Asset Management, which is a nascent division for us, maybe. leave the procurement group and say: I would like to help build this division. There won't be many volunteers to do it. I mean, most people feel that everything is going to work out very well. I'm a member of the automotive team and if I stay here. I'm going to run the company and achieve all this, that's not going to happen, so I think what you have to do is at some point take some kind of risk to differentiate yourself, you know if it's a small company, whether it's to try to develop a new area and we don't see much of it, maybe I don't know, heaven tells us what I eliminate, I mean most people.

Say, well, you know I'm working on a fifteen billion dollar fund. I don't want to go to something where there's nothing to do, yeah, yeah, buying 10, that's the consortium of investors that's trying to change the industry. I don't think so. It will happen in the extreme, but I think you could say they are jumping to the front of a parade and depending on their jump, pretending they are leading it, some of the issues they are talking about make sense, the buyers clearly have more power today and I think people where it is sensible will concede to some of their problems, I mean, they have certain problems that we would be crazy to grant, like the limited partners would put you out of business.

I mean, that's a non-negotiable thing, they know that if the fee structure changes. some of the terms that will be negotiated, so I think these are trends that are inexorable, they're not going to happen to the extreme, although yeah, what's that like? So you mentioned what the industry is like for the institution institution. I'm not able to see the word, it's gone through different stages and you made a point about how there could be a consolidation in the private equity industry. Yeah, could you talk a little bit more about that because it's been a cottage industry and different people think. most of the time they want to break away and form smaller companies that are not consolidated, well you know, it's not one or the other, I mean, there will always be entrepreneurial people that will go out and do their thing today, it's a lot.

It's harder to raise the money to stop it from happening. I think when in terms of consolidation there are companies that will want to be part of a larger organization to have access to capital. Have access to marketing. I think there are many companies. that's not going to be refunded, a lot of people were on the periphery, you know, CalPERS, I think they have something like 275 private equity firms, there's just no chance they're going to fund all of them, so the consolidation is going to take place. cape. that way, but I think it's inevitable, I mean, and it's really unraveling what happened in the glory days and someone once compared these funds to nuclear waste, they have a half-life, you know, each year they last forever. , but they are different types. sweeping them away, the Limited are going to say I don't want to keep paying fees, they're going to get a vote, they're going to stop it, so it's going to be a sort of war of attrition.

I think these are the biggest companies, right? I'll be consolidating unconsolidated yes 39 okay now I'm getting very comfortable with this yes well of course this comes back to the question of who hey there will always be opportunities you know whether it's currencies, ETFs whatever be. I think I was really talking about the top companies in the industry here, it's a pretty typical pattern. I mean, they create enormous brand wealth and let's take, for example, KKR if you think KKR was worth 10 billion dollars and Henry Kravis and George Roberts, let's pick a number of our own 50. % then someone has to pay them five.

I mean, these numbers sound ridiculous, but someone has to pay them five billion dollars. They will not be the young people of the company. Now they can say, "You know, this is great, why not?" just give it to all the young people and we've had a great run and it continues. I mean, I would choose the other side of that bet, but I think that monetization somehow gets the value out of what you've created and building a longer-lasting organization is just inevitable, I mean, a lot of small businesses are not going to have no option, really, absolutely yes, the question was: can you?

I mean, we're seeing that sovereign wealth funds basically have tremendous ability to invest and you know that if one of these funds invests with you, they send some people to learn the business. They like co-investment. They will put in a certain amount but they want to be guaranteed co-investment. Yes, I think there is no doubt about it. We are very sophisticated investors when it comes to selling more. Yes, I want to go back to my colleagues' question, but being specific, if you're working with a fund that just hasn't won in what focus and there's no room to go into a high growth area. are the things you need to focus on to advance and what are the partners in terms of personal characteristics that make an associate or AVP a person who is considered a potential successor or sort of someone who leads the company and be well prepared, You know, in the situation you described it is a very difficult situation because if there is no growth, you basically freeze in place and the senior partner has two questions, get rid of the guy in the middle who is costing them the most and promote you or just get promoted. you stay seated With the status quo, that is why companies, when they reach a certain size, tend to diversify and do different things, but a situation of stagnation is not good for professional development.

I mean, there's no question, there's no way around that, so I guess the answer. We'll start thinking and looking, yes, and that's just a natural evolution, so it's time to get bigger Roger fish. I think more and more we see the need to be specialists, even for small funds, they tend to be medical, biological or industrial, I mean. These are complex deals and interestingly some of the smaller deals are more difficult than the larger ones because they don't have the infrastructure, they don't have the accounting systems and they don't have the information, but there's no question that there's a tremendous amount of focus. in industry specific knowledge, you know, I'm hard pressed to think of anyone who's just looking for a pass, you know, we'll do anything now, having said that our fund in Asia is industry agnostic, we have a Carlisle Asia Growth Fund very successful. will do anything, any type of format, any type of industry, and their thinking is: we are betting on entrepreneurs, we are betting on growth, knowledge of the industry is secondary, so I think it is a little less important in the emerging markets, but clearly having the industry.

Experience as an advantage, the question is, as a young person, if you develop experience in the industry, how can you get out of that or make the most of it to some extent? Tremendous industry experience is more valuable to an investment banker than to a private equity fund. investor, you have a lot more options to make money is that the LP community is also looking for that, well, the money flow is clearly too broad based funds that have a focus on the industry. I mean, industry-specific funds generally aren't that big, so you know. Providence has a media bias.

I mean, they considered us a defense fund, but you know KKR has certainty, but normally, if you come out and say, I want to raise a fund to do media deals, it's a lot harder, it just means there's not a lot of interest. in that, yes, experience in the industry, English investors who simply say that it will be agribusiness as one, well, you know the industry, I really think it is very interested in energy, I mean its prejudices against people who do energy , I mean, if you tell someone you know Wall Street. Were you going to go into banking or do you want to go into entertainment?

The cool thing, you want to get into energy, so I think energy is a huge area. This large number of transactions. I think more and more private equity firms will get into that area. so I think that's agribusiness. I don't know if I have any other pounds in me. Yes, how do you see that? I think the traditional LBO market model does not work in emerging markets. In a nutshell, normally in India or China we are financing growth and from time to time you can go into debt, but it is not big, I mean, it is a different mindset, a different way of doing business and the lack of debt is compensated by the high growth rates, I mean, it is but you don't get the kind of leverage and like in our China growth fund, we know the leverage is zero, but I would say, what do you say?

Evan, growth rates average 50% to 55% over the years. I mean, look at this if it were. in the US you would say it's never going to happen but I think the model is different in emerging countries and it's much more equitable based on high growth and as you know in India it's much more the real problem is the governance between families because most companies are doing agreements or family agreements in an expansion capital, yes they have larger fines and how do you see this as an annual expense for a car that I approve today? He had 90 billion dollars. and find in 27 offices what is the optimal size for your group, which almost has to look by sector.

I mean, if in the credit area we could grow exponentially, the markets are huge in the US buying area. I said, I think you know the funds are going to be smaller and we see tremendous growth potential in some of thedeveloping countries or merged countries or whatever you call them Brazil India China, I think those funds will be larger, so if you have to look at these types of individuals, I think the most important factors are that many funds will be reduced dramatically or will not receive funding . I think there are other people who will try to affiliate with someone who can help them, I mean Evercore, which is a public investment bank in the last two weeks they bought a placement agent, they bought a fund of funds and they bought a, I mean they bought a traditional money manager and they bought a private equity firm and they're betting that they have the synergies or something, so I think you're you're going to see attrition you're going to see some affiliations you can see some buyouts this isn't going to happen in a day it's just a pattern rose yeah specialize and what do you think I guess in that sense because here um you I can expect a lot out there.

You should ask the teacher to leave. There have been a lot of studies done on what people really feel they got out of their MBA and one is the credential, one is the relationships they built, and one is the thought process. I personally. I firmly believe in that, it doesn't mean that I wouldn't be better off being pigeonholed, you know, in a very limited job, so the question: do you all have your own inclinations?, but the question is how to get out of that. I mean, the first step is how do you get into Carlisle kk or however you want to get into Goldman, then the next question is, once you're there, how do you distinguish yourself and develop your own career, but for some reason they are outstanding people? stand out, I mean, I could say in our company to three or four people who are very young that if that has caught the attention of senior management and eventually something will happen, now we could understand why, etc., but it happens and you move on. a fast track, very fast, some depends on who you work for.

I mean, in my opinion, we interviewed a lot of people. I would say most people don't, if you want me to get into it I'll give you an opinion. In my opinion, most of the people we interview have their priorities wrong because they want something very specific about what I would do, right? And the real key questions are who am I working for, is this a person who is going to develop me? Stop me, this person has influence in the company and then secondly, the Moores, in my opinion, this is my own personality, the more specific the job, the worse you would say that Evan, that's yes, now Evan works for us , he would take care of everyone. one of our senior partners, that's his job, it's a good job, yeah, why should I go to the business channel?

But it's because the job is flexible when he came, he had no idea what he would be doing and we hired other people. If you're in the automotive GRU, you stay in the healthcare group and a lot depends on the hottest area, like healthcare. Anyone who has seen our business today would say you should put more resources into healthcare. Okay, we have a small healthcare group. People should jump. To get into that, now your boss is trying to stop you, etc., but that's the kind of thought process I think you need to have. That's all. I don't know if that answers your questions like yes, what are the problems?

Private equity is a young professional, it's a relative use of skill outside the real world, see the proxy, but yeah, you don't know how to do anything, you don't make sales, no, you can just be a Photoshop, you can be a CEO, yeah , III, no. I don't see that problem, what I would see, I think you have, you've identified a problem, but you have the wrong analysis. The real problem that you would see is that there is a gap in terms of what compensation is in private equity, but could you be in a comparable position, I mean, do our people have the skills and everything necessary to operate the Procter & Gamble Corp absolutely?

But whatever, it's always said in the Navy that pilots get paid faster, not more, to some extent, that's true privately. equity, so our person who was five years out of school could be way ahead of a person at Procter & Gamble or IBM and in their opinion making that transition would be very difficult, they will have to learn to live with that, some from them. but I think that's more of an issue than the skill set and as I mean I can look at our hiring process we basically hire high quality motivated people who are going to be successful at our company or somewhere so I don't agree with its conclusion.

I agree. It is a problem, but I think it is almost all an economic orientation or not wanting to move geographically. Would you recommend that from your own professional texture and then work with someone on the portfolio without that? I was going to mention that, I mean one of the things if we go further. In growth investing, if you see a situation where you could come into the company and be a senior person and be a player right away, that would be a very interesting option. We came up with something interesting with one of the companies I'm involved with. where a young man is an expert in storage now and is a junior person that company does not have much influence what he thought was that the biggest idea he had seen offered him a position to be CEO or CEO, that's what it seems to me . he should take it, he has the experience that will stand out from the rest if he works and has storage knowledge, you get another job, but people don't, for whatever reason they see, that's pretty risky.

Yes, it was not my intention to pursue a career. development I don't know, this is a talk, you are right, but it is real, it is a key issue for us, you no longer see him as a person of treatment, I think that is probably the reason why you hold back. the people of you know how to negotiate well, that goes back to my point about risk, you know, if you really think about it, it's illogical that one person can be good at finding deals, structuring deals, managing the fund, managing the deal, and getting out of the deal.

I mean, there are four. disparate skills now people think they are Renaissance people who can do it all, but they are not, so I think what you are saying is that we hire more and more operational people like Carlyle, who was extremely well known because today we have a lot of this political people. when we add senior people, we really have to run companies, we have Lou Gerstner with us, we have John Brown from BP, we have Charles Rosati who ran the IRS, so the emphasis and importance of operational skills is There, it may not be as glamorous, but I want to say this, you have to make your own decisions when doing it.

I mean most people would agree with you. You say I'm a deal person that you know I can't trust, but the real need in the company may be somewhere else and it may be you. I would have to pick a company, yeah, so you mentioned there's so much negative press on private equity, kind of like absentee flows, we don't get as much as gold. It was biasing you as a white industry, we haven't taken a more proactive stance on driving positive PR in the industry maybe we should, rather than have seen it, our industry would be offended by that, which in fact would say that We've formed a private equity council, companies have come together in an attempt to do some of this, but you know sometimes you just can't change the news, I mean some of the things that people have written and talked about. and that the unions are looking for, it means it's just the fact that you have to deal with it and I think we've been quite proactive, I mean I don't know if you've seen it, but Carlisle and KKR have put forward green policies, you know we're doing things charities trying to help people get scholarships, but you know we're really a push... in the ml industry, you know when they talk about Citicorp or Citigroup going under and you know if we're doing something and I don't think we're not, you know These stories continue their course.

I think private equity is breaking news and maybe we'll come back one day, but there's not as much going on, we don't have as many problems, well, I really appreciate it, good luck to everyone.