Who’s Who in Private Equity?
Date: 27 April 2016 Share on Twitter Share on Facebook
Private equity is a huge sector, and has never been healthier, with fund managers receiving a record $523 billion from investors last year, up over 10% from the previous high of $477 billion in 2014. Here are the top 5 firms by assets under management.
1. The Carlyle Group
The Carlyle Group is the biggest private equity firm in the world, with $194 billion in total assets under management including its asset management and financial services divisions. Its private equity assets are spread over 22 active buyout funds, with approximately $58 billion in assets under management, and 10 active growth capital funds, with around $5 billion under management. Each of its individual funds focuses on its own speciality. Carlyle invests primarily in aerospace, defense & government services, consumer & retail, energy, financial services, health care, industrial, real estate, technology and business services, telecommunications & media, and transportation.
Carlyle has many political business connections: George H.W. Bush, for instance, has served as an adviser to the group, and the ex-CEO of IBM, Louis Gerstner, was its CEO between 2005 and 2008. It has been the centre of many conspiracy theories, especially concerning the 9/11 attacks, due to its interests in private military contractors such as United Defense and Halliburton, which profited from the attacks. However, Carlyle has noted that its interest in defense was 7%, far less than that of other private equity firms.
With $102 billion in assets under management, KKR is private equity’s second largest firm. It has been a pioneer in the leveraged buyout industry, and the transactions it has completed since its foundation in 1976 by Jerome Kohlberg, Henry Kravis and George R. Roberts are worth $400 billion.
KKR is perhaps most famous for executing two record-breaking buyouts, of RJR Nabisco in 1989, at that point the largest in history, and that of natural resources company TXU, which remains the largest ever leveraged buyout to this day. TXU’s buyout was a drastic failure as it gambled on gas prices rising, and just after the deal prices tumbled, losing Goldman Sachs and KKR most of the $45 billion they had invested.
Blackstone is a diverse corporation, split between investment banking, asset management, financial services and private equity. Its corporate private equity division is the third-largest in the world with $94 billion in assets under management.
Blackstone’s leveraged buyouts have historically been both diverse and colossal. Its biggest deals include a joint leveraged buyout of Freescale Semiconductor for $17.7 billion, together with Carlyle, Permira and TPG capital in 2006. At the time, this was the largest ever buyout of a technology company. Unfortunately, the company came under great financial strain in the 2008 financial crisis. It also owns Michaels, North America’s largest arts and crafts retailer, together with Bain since a buyout in 2006 for $6 billion.
4. Apollo Global Management
Apollo Global Management (AGM) is private equity firm that also has credit and real estate funds. Across these three divisions, Apollo manages a total of $162 billion on behalf of its investors. The companies Apollo owns include Caesars Entertainment Corporation, a chain of casinos that include the infamous Caesar’s Palace in Las Vegas. The firm also owns CORE Media Group, which is most famous for producing the talent show American Idol.
Apollo was founded in 1990 by Leon Black, who adopted a novel approach to private equity and leveraged buyouts as funding was sparse. Black purchased distressed debt in companies facing difficulties, which may potentially become a majority stake in the company’s equity in a case when company faces bankruptcy or restructuring. The success of this strategy has enabled Black, whose net worth is estimated at $4.5 billion, to become one of the world’s most prolific art collectors, notably paying $119.9 million for Munch’s The Scream, more than anyone else has ever paid for a work of art at auction.
TPG, with $75 billion in assets under management, is fifth in the PEI 300 list of private equity firms. One of TPG’s first investments was in Continental Airlines, which it bought out in 1993. TPG was alone in its confidence in the airline’s potential. By 1998, however, TPG had generated a 55% annual rate of return on its investment.
TPG capital was involved in the worst private equity deal in history in 2008. TPG acquired Washington Mutual for $7 billion, and lost 1.35 billion dollars within 5 months as the 2008 financial crisis hit the United States. Customers of the bank withdrew 16.7 billion from the bank, and the deal resulted in the biggest bank failure in American history.