Michele Tantussi/Bloomberg NewsDavid M. Rubenstein, co-founder of the Carlyle Group, at the SuperReturn International conference in Berlin in 2010.BERLIN — European investments could provide significant returns for those private equity firms willing to take risk, according to David M. Rubenstein, co-founder of the Carlyle Group.
Speaking at an industry conference in Berlin, Mr. Rubenstein said on Tuesday that asset prices across the Continent were likely to fall over the next two years, allowing buyout firms the chance to pick up bargains.
The continuing debt crisis will be the impetus for private equity investment, he added. Many of Europe’s companies are struggling to refinance debt as the Continent’s capital markets remain largely closed. Local banks also are looking to shed so-called noncore assets as they try to meet new regulatory capital requirements.
“Europe is one of the world’s greatest investment opportunities right now,” Mr. Rubenstein said at SuperReturn International. “There’s no part of the world that will see so much assets sold at a discount as in Europe.”
The opportunity could be huge, particularly for private equity firms focused on buying loan assets from European financial institutions. Noncore loans held by European banks currently stand at 2.5 trillion euros ($3.4 trillion), according to the consultancy PricewaterhouseCoopers. Loans with a face value of 50 billion euros are expected to be sold in 2012, and analysts say many of these assets are likely to be sold at a discount.
Leon Black, founding partner at Apollo Global Management, is also looking to Europe. The amount of assets expected to come to the market, as well as the rising levels of loan defaults currently on banks’ balance sheets, means investment opportunities in Europe will rise for private equity firms, he said.
“The European credit situation is where we’re spending a lot of time right now,” Mr. Black said on Tuesday at the conference.
Despite the bullish outlook by some of private equity’s biggest players, Europe still remains a risky bet. The gross domestic product of the so-called euro zone is expected to contract 0.5 percent this year, according to the International Monetary Fund. The gloomy economic situation and the limited debt financing currently available make it hard to complete traditional leveraged buyouts of European companies.
Distressed assets also may not be the easy investments that many think they will be. European politicians, for example, have provided the Continent’s financial institutions with billions of euros of support, relieving some of the stress associated with rising loan defaults.
“Distressed sellers are holding out in the hopes that the economy will get better,” said a leading private equity manager, who spoke on the condition of anonymity. “They still don’t want to sell to private equity buyers if they don’t have to.”