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David Rubenstein on the global economy, geopolitics and the state of private equity

There are few speakers that need no introduction and perhaps even fewer that leave a room with standing room only but SuperReturn speaker and private equity veteran, David Rubenstein, is definitely one of them.

The man credited with doing so much for the private equity industry has recently stepped down from the day to day running of Carlyle, but the SuperReturn audience was still keen to hear his personal views on the question on everybody’s lips here in Berlin, how much longer can the global economy be this good?

End of the bull run?

Mr Rubenstein’s answer, in short, was that things are great for now, but might not be a couple of years from now, and there are plenty of risks for us to think about.

For instance, he says that the US  expansion – one of the longest on record – will definitely end, which everyone knows of course, but that there was actually plenty of life in it yet.

Almost everywhere you looked the picture was rosy; GDP growth, unemployment figures, stock market indices, corporate defaults declining and corporate profits on the up.

In the near term, Mr Rubenstein thinks there is more room for US and European economic growth, additional upswing still to be seen in the Chinese economy and that even the Japanese economy is “in pretty good shape economically speaking.” The risk of a recession in the next year was only around 40%, he said.

Watch our exclusive interview with David Rubenstein, Co-Founder and Co-Executive Chairman at The Carlyle Group, as we talk about the global economy and the trends to look out for the future. 

So what could go wrong?

Well, plenty. Public equity valuations are high all over the world, prompting endless speculation as to whether this is a bubble. The average rate of recession was every seven to 10 years, said Rubenstein, and the longest run was 120 months. “We are in month 103, are we going to break the record or not?”

Federal debt  and household debt also concerned him, those levels just weren’t sustainable. Higher interest rates meant a tougher environment in which to generate alpha, and GDP growth had done nothing to alleviate income inequality.

Over in Europe, sovereignty issues continued to dominate, in China the pension deficit was extraordinarily high and Japan was grappling with one of most serious demographic issues in the world – “at some point their population will really begin to shrink and that’s a real problem for their economy.”

Rubenstein wasn’t overly concerned about an immediate recession, though. The tax bill was bound to extend the expansion, he said, and the new Fed chairman was bound to continue along the same trajectory. US unemployment figures would remain largely unchanged.

Core inflation would stay below 1.5%. NAFTA would be renegotiated, and oil prices would hover around $70b a barrel. Europe’s GDP will grow by 2%, and China, along with India, would keep growing. We would also see recovery in Brazil and Russia.

“To summarise, I don’t see anything bad in the near term but we have some risk because we are borrowing a lot of money.” What really worries him is the geopolitical  landscape.


Rubenstein felt that the North Korean dialogue would happen but it would be a long and drawn out negotiation. “I do worry that if some missile goes somewhere it’s not meant to go it could be costly.”

There would be no immediate end to the civil war in Syria, and problems with Iran would continue. He didn’t see much change in the Ukraine, at least not until after the Russian elections. Brexit  would definitely happen, but wouldn’t be as bad as people think.

The prospect of US trade wars was still very much alive, and the prospect of global terrorism, pandemics, and cyberwarfare were all alive and kicking. Nuclear proliferation was also a very real concern: “Clearly we don’t have ability to control nuclear and who has it.”

The state of private equity

Rubenstein remained upbeat about private equity, though. “It’s in pretty good shape. It’s the best time ever for raising money. Investors are more willing to accept lower levels of returns, because they recognise that private equity is still the best place for decent returns,” he said.

Within a decade, private credit would become even larger than private equity.

In the future, sovereign wealth funds and national pension funds will replace US public pension funds as the biggest single source of equity capital. Retail investors will become much more significant, and separate managed accounts will become a larger part of the LP investor base.

The US will become less dominant in the private equity world, and its public image would improve. There would be consolidation among private equity firms, and the asset class would move out of alternative into mainstream. Within a decade, private credit would become even larger than private equity. Fundraising will continue at a “pretty good clip” but perhaps not beating 2017’s record.

Reports of Rubenstein’s retirement have been greatly exaggerated

Anyone who thought that when Rubenstein handed over the day-to-day running of Carlyle to his successor he would go and live the quiet life somewhere, couldn’t be more wrong.

Besides a number of high-profile nonprofit positions, Rubenstein has become quite the television interviewer. He hosts ex-Presidents and high profile citizens with his customary wit on his own Bloomberg Television Series.

Luckily for us, he’ll also be returning to SuperReturn next year, though the conversation may well have changed. One of the things he said this year may well end up being prophetic: “When things seem great, that’s when something bad happens.”

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