Glenn Youngkin, President and Chief Operating Officer at Carlyle Group, spoke with Bloomberg Television’s Erik Schatzker about the firm’s leadership and its real estate and energy businesses.
On Carlyle’s competition, Youngkin said: “Our competitors at Blackstone have a wonderful real estate business. They right now are very much the standard of the industry. I don’t think that diminishes the performance of our real estate business at all. I’m 6’6″, and when I’m standing next to my kids I look really tall. When I’m standing next to the Washington Wizards I look short.”
On whether Carlyle Co-President and Co-COO, Mike Cavanagh’s sudden departure was related to t the transition to new leadership Youngkin said: “David, Bill and Dan are still very much involved at Carlyle, and very much so. I mean they’re in their mid-60s. They’re deeply engaged. They’re hugely capable. And so, generational change that’s something that people in their 90’s are worried about….When [Cavanagh] joined I think the whole discussion around succession planning and generational change kind of took on a very high profile, and almost too advanced discussion around it, because David, Bill and Dan are still deeply, deeply engaged in Carlyle.”
Glenn Youngkin: Carlyle to ‘Eventually Catch Up’ on Energy
ERIK SCHATZKER: The trouble is of course investors are wondering about something else, why Carlyle Co-President and Co-Chief Operating Officer, Mike Cavanaugh, abruptly and unexpectedly left the firm in May after only nine months.
The other Co-President and other Co-Chief Operating Officer, Glenn Youngkin, faced questions about it yesterday at the Deutsche Bank Financial Services Conference. I had the opportunity to ask Glenn Youngkin about Carlyle’s next generation of leadership, and if the transition to new leadership had anything to do, or the pace of that had anything to do with Cavanaugh’s departure. Here’s the beginning of our conversation.
GLENN YOUNGKIN: David, Bill and Dan are still very much involved at Carlyle, and very much so. I mean they’re in their mid-60s. They’re deeply engaged. They’re hugely capable.
And so, generational change that’s something that people in their 90s’s are worried about. And I just don’t think that that’s something that we should be overly preoccupied with. I do think, Erik, that when Mike Cavanaugh came to Carlyle, and it was a very high-profile hiring, I was thrilled to have him as my partner. And we get along great, but when he joined I think the whole discussion around succession planning and generational change kind of took on a very high profile, and almost too advanced discussion around it, because David, Bill and Dan are still deeply, deeply engaged in Carlyle.
SCHATZKER: How do you dispel the notion that Carlyle is very good at exiting investments, but not so good at making new investments?
YOUNGKIN: Well, Erik, that’s a tough one because we couldn’t exit good investments unless we made them to begin with. And I do think that one of the things that we have really done extraordinarily well over our now 28-year history is know when to make investments, and really spend a lot of time throttling down during periods where we think there is a lot of opportunities, and being very selective during periods of time where we think, yes, there’s maybe not so many right now.
SCHATZKER: So why then would you say investing new money is so hard right now?
YOUNGKIN: Yes. I think it has everything to do with asset prices relative to value creation. What we try to do is always balance the price we pay with the value that can be created over a certain period of time, and does that risk/reward feel right? And I have to say in today’s environment the value creation relative to the price that you pay is pretty tough to kind of get comfortable with all the time.
SCHATZKER: Here’s another notion for you to dispel that Carlyle is good at private equity, but not so great at real estate, credit or energy.
YOUNGKIN: Yes, I think —
SCHATZKER: And there are some numbers to back that up.
YOUNGKIN: Yes. First and foremost, I think that a lot of the — a lot of the assessment that — that some people make that result in what I would call a preliminary conclusion along those lines is really based first and foremost — in fact we’ve been in private equity for 28 years. And some of these other businesses are reasonably new, energy for us.
I mean with our acquisition of NGP in 2012, and then the raising of an international energy fund, and now a power fund and the raising of an energy mezzanine business, those are all two and three-year-old businesses. I have to say the performance for those funds have been really very good, but three years versus 28 years, we’ll eventually catch up and have a robust track record to compare with it. Interestingly, on the real estate side our U.S. real estate fund is always rated as one of the top-performing opportunistic real estate funds.
SCHATZKER: Other people’s real estate businesses better?
YOUNGKIN: I think there are — there are some real estate businesses, and our competitors at Blackstone have a wonderful real estate business. They right now are very much the — the standard of the industry that people talk about. I don’t think that diminishes the performance of our real estate business at all.
I’m 6’6″, and when I play — when I’m standing next to my kids I look really tall. When I’m standing next to the Washington Wizards I look short. So —
SCHATZKER: Like the analogy. What about energy? Why hasn’t it been more active, not just for Carlyle, for everybody?
SCHATZKER: Because this was supposed to be the opportunity of a lifetime, and if not a lifetime, of a generation.
YOUNGKIN: Yes. And I think that’s one of the reasons why it hasn’t been that businesses is because everybody concluded it’s the opportunity of a lifetime. And so like all good rent-seeking economies, everybody moved capital in place, and in fact the liquid markets, the capital markets relieved a lot of the stress. So the amount of equity placements in the capital markets and credit placements, or fixed income placements has really alleviated a lot of what would have been the early stress in the energy — in the energy space.
I think with the oil prices actually rebounding a bit, and remember a lot of the expectation that there are going to be great deals to be done was when WTI was low 50s, —
SCHATZKER: Yes, or below.
YOUNGKIN: — and it’s — and or below. It’s crept up into the low 60s. Meanwhile sellers were thinking 70, and so we’re beginning to see a period of time where I think this bid-ask spread is compressed a bit.
SCHATZKER: So we will see activity.
YOUNGKIN: I think we’ll see activity. It’s not going to be second quarter, but I do think that the pipelines are busier. I think the bid-ask spreads are tighter. And I fully expect there to be a meaningful amount of energy investing that happens. It’s just not going to happen tomorrow.