KKR, Carlyle chiefs look past debt showdown, see U.S. growth

Speaking to more than 500 private equity pros attending the annual Dow Jones Private Equity Analysts Conference at the Waldorf Astoria Hotel in New York, David Rubenstein, co-CEO of Carlyle Group, said Congress is currently engaged in a “game of chicken” over the debt ceiling and a government shutdown, but predicted that the issue will be resolved.

“There’s no political benefit for a shutdown,” he said. The U.S. will also avoid the drama that took place in 2011, when Standard & Poor’s downgraded U.S. debt by removing Uncle Sam from its roster of risk-free borrowers for the first time.

Rubenstein said he doesn’t expect the introduction of taxation on carried interest in the near future, but it could be included in tax reform legislation over the next several years.

The executive said he believes there is opportunity for private equity firms to receive fund investments from non-accredited investors, possibly through options in their 401(K)plans. Currently, KKR offers publicly-traded units, but only accredited investors with more than $1 million in net worth are allowed to invest in private equity funds. Not offering these options to retail investors “is unfair for the people who need a higher rate of return” to generate retirement savings, he said. Rubenstein did not specify any possible timetable for the effort.

Meanwhile, Kohlberg Kravis Roberts & Co’s Alex Navab said the firm’s $3.9 billion July 30 deal to take compressor and pump manufacturer Gardner Denver private reflects the firm’s expectation of sustained GDP growth.

“The recovery has further to go,” said Navab, member and co-head, Americas private equity, for KKR.  “We see several years of growth left in the U.S. economy.”

Unlike the peak buyout boom of 2007-2008, debt levels are generally lower and valuations, while higher than recent years, remain reasonable, especially if business growth continues as expected, he said. If you’re creative, you can find deals, he said.

KKR paid about 8x EBITDA for Gardner Denver. The company gives KKR the opportunity to benefit from increased economic activity, operational improvements and a long-term horizon for improvements, he said.