Carlyle’s Rubenstein says firms should buy own debt

Photo of David Rubenstein

Carlyle Group co-founder David Rubenstein said the best deal in current markets was for companies to buy their own debt, and said Asia — especially China — was the best region for investors.

“While growth will be down in Asia, it will not be negative,” the private equity executive said at speaking at the Asian Venture Capital Journal (AVCJ) conference on November 13. “Asia has been more resilient to the downturn.”

Rubenstein said that he expected a recession in the US to last longer than the historical average of around 9 months.

“The recession this time will be far deeper than what we’ve seen for quite some time,” he said. “Unemployment is up, retail sales are down. I suspect the recession will last at least a year, and I suspect quarter over quarter to have negative growth of 2% to 4%,” he said.

The US unemployment rate was likely to go up to 10%, from a 14-year high of 6.5% in October, Rubenstein added.

Adding to the difficult economic period was a U.S. government administration in transition, he said, with President-elect Barack Obama not taking office until January 20.

David Bonderman, founder of TPG Capital said at the conference that his firm wanted to buy debt assets offloaded by troubled hedge funds. Bonderman, also said a global recession would be deep and prolonged, and the US housing market would probably fall further.

“When people are giving you debt that is grossly mis-priced, you opt to take it,” he said.

Volatile markets have forced hedge funds to sell off assets and securities to pay back investors who are keen to scale back on risk and hold cash. But private equity firms typically have long-term investors, with up to 10-year lock-up periods.

“Since a lot of hedge funds have a side pocket with a two- to three- to four-year lock-up period, that means that liquid assets are under great pressure,” Bonderman said. “And guys like us who have the capital should be buying them.”

Asia would emerge from the global downturn earlier than elsewhere and was well-positioned for recovery, said Bonderman. He also said culprits in the credit crisis included the accounting profession and mark-to-market accounting rules, adding that banks had been shoring up their balance sheets but had not been providing liquidity.