Texas Private Equity Conference 2022: Session I: The State of and Prospects for U.S. Private Equity

Abstract

Kewsong Lee, CEO of the Carlyle Group was interviewed by Rich Hall, Chief Investment Officer of UTIMCO. From his vantage point at Carlyle overseeing 300 portfolio companies, Lee sees US economic growth as positive but decelerating while inflation continues to be high. So far, Carlyle-owned firms have been able to pass through higher costs to their consumers although the expected Fed tightening would reduce asset values and general confidence.

Lee identified the international focus on climate change and achieving a “net-zero” CO₂ emissions level as a secular change. He warned that decarbonizing will be expensive and difficult to achieve and that divesting of carbon producing assets offered no solution. Private equity firms make their money by improving the operations of the companies they buy and not through financial engineering, according to Lee.

Lee cautioned listeners that a forty year long trend of declining interest rates is now reversing. This will have consequences for the real economy. Nevertheless, Lee emphasized, one should not underestimate the power of companies and technology to improve productivity. Relatively modest rate increases will not damage Carlyle's ability to buy companies as money is available and the leveraged finance markets are “wide open.”

Despite his industry's success, lee said that PE industry has “done a very bad job in helping the outside world appreciate who we are and what we do.” Accordingly, the PE industry must become becoming more stakeholder focused, and more socially comprehensive and aware, while also generating high returns.