00:00Joining me now is John Redett, the firm's co-president and head of global private equity.
00:05John, great to see you, and thanks for having us here today.
00:07Great to see you, and thank you for making the trek down from New York to D.C.
00:11It's an easy one. Happy to ride the Acela down here.
00:14Look, this has been a very incredibly robust environment for fundraising for Carlyle.
00:18You saw that in Q2, and the projection forward has been really remarkable.
00:21Harvey has talked about a super cycle coming, $200 billion between 2026 and 28.
00:27What gives you and the team confidence of that continued appetite?
00:31Yeah, so during our investor day earlier in the year, we talked about this fundraising super cycle.
00:38And it's really spread across the platform.
00:41So it's our credit business, it's our private equity business, and it's our solutions business, Alpinvest Carlyle.
00:47And I'll zero more in on private equity because that's a business I run.
00:51You know, look, today the world is exactly where we want it from an investment environment perspective in the sense
01:01that if you think about where we've invested money for the last four decades,
01:05it's really more of the kind of the old world economy, the media uses the term hard assets, so industrials,
01:14which is very much being impacted by industrial policy, which a lot of countries are adopting,
01:18defense, national security, supply chain resiliency.
01:24And these are really areas where I'd say our power rallies, and they're really top of mind for our investors.
01:31These are areas that they see opportunity, we see opportunity.
01:33So I feel very good about the opportunity set that we're seeing.
01:37And, you know, I also feel very good about how we have really returned capital to our LPs.
01:41I know the industry has been heavily criticized for not returning capital to the industry.
01:46And if you look at historical levels, that's actually true.
01:48The industry is below where the industry has been historically.
01:53But when you look at Carlyle, we are outperforming the industry.
01:56In the U.S. in particular, we're really outperforming the industry.
01:59John, I think some people would look at that and say the only way you can return that much capital
02:03is if you're meeting the market where it's at versus commanding higher valuations.
02:08Is that the case?
02:09Yeah.
02:09Look, I think it comes back to a couple of things from my perspective.
02:12It really comes back to portfolio construction.
02:14And, you know, we construct a portfolio to perform through the cycle.
02:21And I don't really think about various points in the cycle or on the cycle.
02:27It's really we build a portfolio that will last through the cycle.
02:30And I think that's really important.
02:31You know, in 2020, 2021, almost 50 percent of all private equity activity was software technology.
02:38We did not get over allocated to those sectors because we believe in diversification and proper portfolio construction.
02:45Now, we're a leader in defense.
02:48That doesn't mean we're going to have 50 percent of our portfolio in defense.
02:51We're going to have a proper allocation defense.
02:52So I think it's a combination of just being really, really mindful of what we're good at and having a
02:58diversified portfolio.
02:59You know, it's interesting because we talked about this in Milken, too, this idea that the industry got over allocated
03:03to certain things like software.
03:05We also talked about this idea that the use of semi-liquid wasn't the right term.
03:09I feel like you're not afraid to kind of call out like bandwagon jumping in the industry, John.
03:14Like this feels like a common theme of whenever we speak.
03:16I wonder if there's anything now that you're concerned about that feels like the industry is over indexing to, over
03:22allocating, or maybe just making a mistake.
03:24Yeah, you know, you read a lot about the amount of money going into AI.
03:29So, you know, I've seen estimates that on a cumulative basis through 2030, people think there's going to be five
03:36and a half trillion dollars invested.
03:38I mean, these numbers are just staggering.
03:40And, you know, they might seem irrational to some people, and to an engineer at an AI company, they seem
03:46incredibly rational.
03:47So, you know, look, I think the way we think about AI is it's going to be incredibly transformative.
03:55I think there's going to be massive benefits to society.
03:58There's going to be some risk to society, and we're going to have to have the proper safeguards around AI.
04:04But the AI value chain is much more than just data centers, right?
04:08There's all sorts of different parts of the AI value chain.
04:11I mean, we just think it's going to be an amazing, amazing transformation.
04:15And quite frankly, it's going to create a whole new opportunity set with businesses.
04:19You know, we were just speaking with Jason Thomas, who has his new paper out.
04:23I was kind of mentioning what you're saying, that the market is pricing in that engineer's view, that spending needs
04:27to continue because compute's going to get better.
04:29But maybe economically, that's not as rational.
04:31What does that mean for the industry that's gotten very hyped around AI data centers?
04:36If it slows because of that, or even this current conversation about having to slow AI model growth because of
04:41concerns?
04:42Is this industry, does it face issues then if all of that starts to slow down?
04:46Yeah, you know, look, there's no doubt when you look at the economic data, and we have incredible data.
04:51We own 300 companies around the globe.
04:53I think we employ 700, 750,000 employees in our portfolio companies.
04:56So we have great data.
04:58There's no doubt when you look at the U.S. versus the rest of the world, we are growing faster.
05:02The economy is quite resilient, and AI has been a very big component of that.
05:09But, you know, we don't have the view that it's going to come to a crashing halt.
05:13And I also don't think the view of most people is, you know, we need to shut down the innovation
05:19to protect society.
05:21I think we should listen to the people that are closest to the technology.
05:25It's like any industry that's going through a transformation.
05:29During the implementation phase, you want to have the proper safeguards in place to ensure that it's implemented properly.
05:34And I don't think AI is any different.
05:36I also don't think that the progress and risk to society are necessarily in conflict.
05:41So we think it's going to be transformative, and it's going to create an incredible opportunity set for private capital.
05:47Hey, John, just before we go, tomorrow we're going to be getting a Fed rate decision.
05:50We're widely expected that we're going to get a Fed rate hike.
05:53And I wonder what it means for this industry, as you've pointed out, that unlike Carlisle has struggled with exits.
05:59Will it make things even more difficult?
06:01Does the can get kicked even further if we start to see higher rates?
06:04No, I mean, look, I think we don't really focus on any particular rate movement by the Fed,
06:10although the market is telling you that the Fed will raise rates.
06:13I mean, if you look at the hot number, inflation number that came out on Friday,
06:16the probability went from 50 to 80 right away, and the Fed's never acted when it's been that high.
06:20So I suspect the Fed will act.
06:22But I think, you know, look, the cost of capital is going up.
06:27And I think that just means the bar for your investments is also increasing.
06:33I think you need to be more laser focused on where you're allocating capital.
06:36But higher rates, you know, we've operated in higher rates.
06:40You know, everyone kind of thinks of the world as a zero rate environment.
06:43We've had higher rates before that zero rate environment.
06:45We never really thought that we were going back to a low rate environment.
06:49We've always assumed that we're going to be in a higher rate environment.
06:51So we can make money in any rate environment.
06:54And quite frankly, a higher rate environment might not be a bad thing for our type of capital,
06:59because it will create a whole new opportunity set for us to look at.
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