For property investments, buyout funds must bid against publicly traded real estate investment trusts such as Mortimer Zuckerman's Boston Properties Inc., with $13.8 billion in assets and a 10-year total return of 352 percent, counting the share- price increase and dividends.
'Pricing Power'
"There haven't been many investment strategies that have survived unscathed," said Mitch Petrick, Carlyle's managing director, who is charged with moving the firm into hedge-fund strategies with the potential for more lucrative returns. "After the turmoil, many investors asked themselves whether they should've been paying 2 and 20 for some strategies."
Petrick, a Morgan Stanley veteran hired by Rubenstein last year, led the Claren Road acquisition. Similar deals are on the way, he said in an interview. Petrick said he also may hire new teams of traders whose performance can justify higher fees.
"If you have a unique product, you'll have pricing power," he said.
The firm has rebranded Petrick's unit Global Market Strategies, removing the word "credit" from its name, to mark a shift away from a business concentrated on low-risk, long-term loans to one whose investments fluctuate in value daily. One strategy is a long-short hedge fund that trades stocks and another seeks to capitalize on trends in emerging markets.
"We're building new products and adding new geographies and people to give our clients more choice and asset- diversification options," Rubenstein said in an interview.
Blackstone's GSO
That might appeal to James Dunn, chief investment officer at Wake Forest University in Winston-Salem, North Carolina, who said he's paring the number of his endowment fund's general partner relationships by more than a third, to 29 from 44.
"If you only do one thing really well, I can't deal with you," Dunn said May 4 during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California.
Among Blackstone's fastest-growing businesses is its credit division, comprised mostly of activities tied to its GSO funds. The unit uses hedge funds, loans to troubled companies and mezzanine lending for investment ideas distinct from traditional corporate takeovers, often involving targets too small to attract the firm's private-equity dealmakers. The name comes from founders Bennett Goodman, Tripp Smith and Douglas Ostrover, who worked with James at Donaldson Lufkin & Jenrette and sold their business to Blackstone in 2008.