Private equity poised for a comeback

The recent subprime credit woes brought an end to the third era of private equity, but the fourth era should begin in early 2008, according to David Rubenstein of the Carlyle Group.

Rubenstein is one of the founders of the private equity group, which has focused heavily on deals in the government market.

In a speech liberally sprinkled with self-deprecating humor, Rubenstein explained that private equity deals will return. "They will come back because investors know the returns are better than they can find anywhere else," he said. Rubenstein was the keynote speaker at the annual Northern Virginia Technology Council annual banquet Nov. 5.

The first phase of private equity deals, from 1978 to 1990, were known as leveraged buyouts. The second phase was from 1991 to 2000 and was notable for the bursting of the dot-com bubble. The third phase was from 2001 to the summer of 2007, when the subprime credit problems scared off investors, Rubenstein said.

Private equity will be back in 2008, but it may need to find a new name because activity by groups such as Carlyle no longer take place behind the scenes. They are watched by the public, the media and Congress, he said.

"Private equity has never been very good at explaining what it does," said Rubenstein, who co-founded the Carlyle Group in 1987. "We have to retool how we explain ourselves."

The next phase of private equity also will be different because investors around the world will be looking to participate, he said. It likely will be marked by new types of investors, such as pension funds and corporations, that will try similar types of deals.

The Carlyle Group, which has long been an active investor in the government market, will be looking to increase investments in Asia and China, the Middle East and the Washington area. Washington is attractive because the federal government will continue to grow and spend heavily on defense, he said.

"People will continue to look to buy companies in this area," he said.