Despite recent financial crises, four factors remain positive for private equity, said William Conway Jr., ’74, founding partner and managing director of The Carlyle Group. Enormous liquidity is still available in the world, all-time high corporate profits will likely revert to their mean levels, the world’s financial system has proven to be “wonderfully resilient,” and the world is less U.S.-centric than before, Conway said during the lunch keynote at the Sheraton Chicago at the seventh annual Beecken Petty O'Keefe & Company Private Equity Conference, presented by the student-led Entrepreneurship, Venture Capital & Private Equity Group and the Michael P. Polsky Center for Entrepreneurship, February 22.
Meanwhile, the negative factors include enormous direct and indirect leverage within the financial system, incredible price inflation, regulators’ inability to “reflate’ the market, and complacency, he said. “The latter is the biggest problem of all,” Conway cautioned. “People ought to be scared out of their minds right now. This is a situation you have never seen before, and people ought to be very, very careful about what’s going on.”
A big sign of concern is the fall of pricing of major financial companies, who are going to the Middle East, Asia, and other regions to raise billions of dollars in capital, he said. “A bubble has burst,” Conway said. “The world has changed and people are far too complacent about what has happened and what is likely to happen.”
No matter what happens, the fundamental principles will remain the same in private equity, he said. Conway has guided Carlyle successfully with 10 rules focusing on the obvious and worrying less about subtleties:
“That last one is the one I get wrong most of the time,” Conway said. “I’m very human and I like to think with my personal involvement I can make things better, so I try to help my managers. I admit I’ll be making this mistake on my last day in private equity. I always wait too long.”