Much of the focus of the US market has been on the Federal Reserve’s more aggressive interest rate hikes due to recession fears. but Carlyle Group Co-founder and co-chairman David Rubenstein, a billionaire investor and philanthropist, says the path to the economy may be beyond the control of the central bank, and that two other global players may be more important when assessing recession risk. It comes to
The Fed’s effort to fight inflation with higher interest rates “may make it difficult to know how this will work,” Rubenstein said in an interview with CNBC from the Aspen Ideas Festival on Monday. “No one knows how it will work.”
Still, he thinks the two most important issues are going to be with China, including its COVID policy that has slowed the global economy further, and the length of the Russia-Ukraine war, which is affecting the energy market. has been
“Currently, no one has the answer,” Rubenstein said. “I don’t think it’s inevitable that there will be a recession. I think it’s hard to avoid a recession, but it’s not inevitable,” he said.
Inside a large organization like private equity giant Carlyle Group, he says there’s “no consensus on any one thing,” but he added, “we don’t think we’re going into a recession.”
As a risk factor, China could remain unstable until the end of this year and the Communist Party of China may decide to offer a third term for President Xi Jinping. Once the politics becomes more clear, there should be more clarity on the regulation of the tech sector along with the covid policy, which has irked investors. He expects a somewhat softer tone with tech companies than China recently.
As the Russo-Ukraine war raises concerns about rising energy prices and energy shortages in Europe, Rubenstein said the energy transition is under way. “Everyone wants more climate-friendly energy, but getting there is not easy. What we learned from the Russia-Ukraine war is that the world is still heavily dependent on carbon energy, and right now, the world is getting more carbon energy. scrambling to do.” He added, “The world is realizing that you cannot switch to carbon-neutral policies overnight, it will take some time.”
Oil prices have already dropped from about $140 to $108 a barrel, and Rubenstein thinks the trajectory for prices remains short, with US supplies increasing and other major players like Saudi Arabia likely to increase production.
In Carlyle’s deal market, prices have come down, he said, but there is still room for further reduction in valuations, driving EBIT multiples to buy companies that are still at “double-digit levels” — almost Down from 14 times to 11 up to 12 times.
“They’ll probably drop down a bit,” he said.
The bargain market is slow, but not dead. Debt remains readily available, the debt component of deals has historically been very low (less than 50%), and equity valuations are slightly lower if not yet lower. “The deals are happening,” Rubenstein said, and after a record year for buyout deals in 2021, “we are on pace to do a fair number this year,” he said.
Disclosure: NBCUniversal News Group is the media partner of the Aspen Ideas Festival.