♪ jason: it's a $2.5 trillion industry populated by some of the most influential investors in the world. i am jason kelly and i am here in berlin. it's the biggest gathering of private investors of its kind. we talked to some of those investors about what's on their minds. in a world awash with money, they make dealmaking more difficult going forward. our first conversation is with david rubenstein.

david: we are enjoying what the president is talking up. i don't think anybody anticipated this. a lot of stocks are up. i think i've at equity has benefited from that. when public equity goes up, this is good if you are selling things. it makes things more expensive, but this conference indicates it's a bullish about the economy. jason: what has the president said or said he is going to do that makes people enthusiastic? david: people from all over the world are here. they are not affected by the united states completely. i think the reason people are excited about it is they feel there will be less regulation.

the animus that some people have for private equity might not be there. some people think private equity people don't do great things. they feel there is some feeling we are not as good as we think we are. the feeling is now the administration will focus on other things and not beating up on private equity. the atmosphere is private equity is welcome and it and the regulations coming out of washington, there may be some lower taxes. jason: an overall list view? david: very bullish. i've been coming to this for 20 years and i've never seen anything quite as bullish. jason: a topic that has come up a lot and the president reiterated it is infrastructure. this is something we haven't heard a lot about. how realistic is this trillion dollar figure he is talking about? david: i think it's unlikely for it to go into effect.

it takes a long time to build infrastructure and get congress to authorize it. no sources have been identified. i think it's possible the money that comes from u.s. companies overseas could be used for infrastructure. that would only be $200 billion. that's a lot. a trillion dollars may take many years to get done. there may be some private partnerships. our firm is involved in investing in infrastructure. the interesting thing is in the old days congress was called a pork barrel and people used to say we were building bridges and dams. now we recognize we need these things and it's not called porkbarrel. infrastructure is a word everybody likes. jason: the enthusiasm is overall for the industry, fund raising hitting new record levels, dealmaking seems robust.

how sustainable is that? david: you never know when you are at the peak of the cycle until the cycle has peaked. i do think people think there are good returns coming out of private equity did they had drifted down a little bit, but we are 800 basis points above. as long as those average a stake, people will put money in private equity and there will be more value than there used to be. we have value to companies. i think the industry is justified. jason: given the perennial overhang of capital, how quickly can managers like yourself put it to work? david: when you take the stock markets around the world, it's probably $85 trillion. it's maybe $4 trillion total that has yet to be invested. it still a relatively small

percenge. the monecan estebe inv it can be invested, yes. jason: is money still very easy to? david: if it was that easy, i wouldn't be around the world all the time. you can't just call it in. i wish i could just call people up in abu dhabi and singapore, but i have to show up. people want to put money in private equity because they think the returns are higher than any other asset class and they think the risk reward is better than anything else. people want to be in the first part of your fund. we don't want to get shut out. people used to wait until the end and now they want to get their fair allocation. it's a good time to raise money. jason: that was david rubenstein. one of the themes was the amount of money pouring into the industry. i asked the global head of private equity what that meant

for dealmaking going forward. hugh: fundraising returns to be strong and returns are up. the dealmaking has been very difficult because of high prices that have continued to persist in the industry. that provides a lot of headwinds for people trying to get a lot of money. jason: that's what we are hearing. let's talk about fundraising for a second. especially for the mega buyout funds, 5 billion plus funds raised since the crisis, how long can this go on? hugh: it's going to get harder. the deals of been monetized over the last four years. they have had their coffers filled with tremendous amounts of cash and what to put money back into the industry.

as the fundraising markets have been very strong, putting that money back into the market over the last two years, the of seen the elephant pastor the snake. there will be fewer distribution sales going forward. everybody is thinking it's late in the day in the economic expansion. thery be a macro shock that may drive things down. there may be a pfe storm in the future of less cash flowing. that will lead to potentially tougher fundraising environments down the road. jason: you mentioned the challenging dealmaking environment as well, valuations are extremely high. we have had a huge run of the u.s. stock market. what is the outlook? hugh: dealmaking is tough because prices are high. we have dry powder in the industry. we have a tremendous amount of shadow capital which is institutional money.

that is also there and that adds 20% to the dry powder that is already in the marketplace. the amount of equity chasing deals is huge. the number of companies to buy is not growing. cheap debt is playful. prices are going to remain high in the future. that makes it tough to get the returns. jason: one of the areas you pointed out in your report was technology, and a huge amount of money chasing those deals and deals getting done. hugh: seven of the largest transactions were in the tech space. i think technology offers a couple of different ways to add value. one is on the software side in the server side, it has a growth rate that will support the multiples required to buy these assets. i am confident that's going to continue in the future and it makes me feel better about paying up for a good asset. we see a lot of maturing

technological hardware where it's not so much rapid revenue growth, but reasonable growth with cost improvements because the go-go years of growth are gone. now it's time to get more efficient and focus on the cost structure and get more lean and that adds value as well. the technology sector is using both of those. jason: with that as the backdrop, i asked the managing partner how that changes his pitch to investors in berlin? >> i've been hearing this for the last 20 years of my career. it's true. it's even more true today because in some respects, we are returning capital. we are returning it almost three times. as a result, there is a lot of capital people want their allegations in private equity.

what we need to do, we need to stick to our knitting and stick to our strategy. for us, it's clear. we invest in our sector teams and spent years thinking about not trends but themes, the investable themes in the sectors and the sects and deploy resources and crte an ecosystem to find opportunities that are differentiated. companies can grow once we own those companies. i think of us as long-term, sector driven investors. i think we spend those years looking for the management team and once feel that business, we're going to keep growing at until we create something special. jason: does dealmaking get harder with that money out there? todd: you have to stick to what you are good at.

there is a tension between what is interesting and what's actionable. the actionable is the investment bank companies that go to 10 or 12 of your closest friends and you get a chaperoned dinner. we found we are not very good at the actionable without angles or a perspective. we will spend a ton on interesting. some of the deals that i've been involved with, it's worth that pay off. in environment like this, it's more important to figure out what your strategy is and build your ecosystem. you curate that ecosystem and then you take your time and find the things we have and the deals we have filled out our portfolio with have been consistent with what we're trying to do, even as the world has gotten more competitive.

jason: one area where it has gotten competitive is technology. this is a space you played in. can you continue to be competitive given all the money that is there? snap is going public this week. todd: i think we can be very competitive. we have an excellent team. if you think about tech knowlee he, you have to go to the subsectors. take about cybersecurity. two crimes people fear identity and computers being hacked. this is important and it's becoming more so. we've been focused on that for years. we have smaller investments for our growth fund that have helped us understand the landscape. after years of knocking on the door, we have taken partnership with intel in what was a

proprietary dialogue and we are taking it to the next level. we have an ecosystem for it. we have a plan. again, it's the importance of focusing ahead of time. our investments in caa, cirque du soleil, these are the results of working in what we think of as different segments of tech knowledge he where we can have a differentiated approach. jason: coming up after the break, who is buying and who is selling? we hear from more voices. roberto: we did not get brexit. i don't think we're going to get anything else in the short-term. we need to stay calm. ♪

♪ jason: welcome back. i am jason kelly here in berlin. one station in the hall, there has been a mood of optimism and part of the caution comes from concerns about regulation that may be headed for private equity in europe and back in the united states. i asked the coo of riverside what that might mean for her investment going forward. pam: when you think about some of the things that need to happen or might happen, it's hard to get things done. no government in the world short of a dictatorship can really move things along quickly. let's talk about border tax. that came out and now there is a

deluge of people going wait a minute, you can't do that. mary barra says if i assemble the car in detroit, what does that do to me? on deductibility of interest, you have really a lot of small businesses going wait, this is how i have financed the creation of my company. the fact is to lower tax rates, you ed tpay foit. there has to be a border tax. they have to get that done. tax policy doesn't adjust that much. my suspicion is we get little r reform. jason: you have been to capitol hill as an advocate. how do you play out how

something like deductibility of interest, how does that affect your business? pam: private equity people, we been doing this a long time and investing for multiple cycles. as long as the interest rates stay low, it probably doesn't impact us terribly much. i think you heard capital structures largely won't change that much because interest is still a cheaper form of financing than equity. if interest rates go really high, that could change. we will figure it out. jason: where'd you see corporate tax rates going? will they move down? pam: i think there will be effort to bring them down.

to do that with budget reconciliation, you've got to pay for it. there is so much controversy around the pay for it. but i see most likely happening is you get a holiday on repatriation. that's the kind of thing you see more than a reduction in rate. jason: how is it affecting your dealmaking? pam: i said this the other day, we owned a italian gelato ingredients company. people will probably eat gelato regardless of who is in power. we find ourselves as a very

micro firm looking for great companies that are going to do regardless of who is in power. well through different environments. i think where we are probably more cautious is on issues where the supply chain is reliant on another country or where the growth strategy is reliant on being able to sell it in some of those countries where there is talk about what is going to happen. jason: the stock market has gone robustly up since the election. what affect has that had an valuations? pam: it has -- valuations are incredibly high. we have then modeling a lower exit and entry multiple. we don't think we can make money. once in private equity you could do that, now it's about having a well articulated and well executed growth strategy. i think we heard somebody say it's really about controlling

the factors you can control and only investing when you can control those factors. jason: politics is a topic that was in every conversation. elections in france and germany are on the minds of everyone in europe. i asked roberto what this means for him in terms of navigating his field. roberto: we are to have to get used to uncertainty. that is the order of the day. we were worried about latin america, columbia, the u.s. election. here we are now with what you describe, the trump effect in the u.s. and what's going to happen here in europe. private equity has been very good in the past and adapting to change. frankly, i think we have to step up to the plate. i think we have to have a degree of caution and thoughtfulness

relative to where we should be investing, that the opportunities will be there. the challenges will be even greater in this environment. jason: you mentioned the trump effect, how is that bleed over into dealmaking? roberto: i think we are more focused than europe. we are more focused with what's happening with brexit. that is just beginning to show its effect. the elections in germany and france are being watched very carefully. the focus for those of us in europe is primarily europe. we do acquire companies that are global. they may be in the u.s.. one has to keep an eye on both sides.

first and foremost, we are looking in our backyard. perhaps we are taking more cautious views until we see the outcome of those elections and we see a bit more of what this brexit is going to look like and what the implications of brexit are going to be as investors. jason: valuations are still very high, stock markets are going up. how does it play through to your strategy? roberto: i think those who follow private equity, we have had golden years. you will see more and more exits given the high vuas. i think from a buying perspective, that is something we need to think about. jason: there are a lot of big dealmakers here in berlin. what struck you?

is there anything a surprising you would point out? roberto: i heard this morning as i came in that this is the best attended super return in 10 years time. it tells you that the private equity is thriving. it's facing the challenges we discussed before. certainly, it is focused on some of the issues that are being discussed here. the themes of capital, lots of dry powder, everyone will tell you that. the challenges will be in deploying it based on what we talked about earlier. we need to be selective and focused and. jason: another theme we heard a lot about and even in the halls is regulation and taxation and policy that may or may not change business. how do you feel about that? you have been in business a long

time and you've been there for more than a decade? roberto: does anybody really have the answer? the best thing is to stay cool and watch and see how it develops. it is a big issue. we will have to see how that plays out. the implications of that would be far-reaching, not just for our industry, but elsewhere. i think it's a wait and see. there are a lot of moving parts. we did not guess the u.s. election, we did not guess brexit. we need to stay calm and stay focused. jason: thanks for joining us for this special program from berlin. i am jason kelly. so long. ♪

very few people in the world are known by one name. did you ever think you could run for present? >> i don't know enough. now i am thinking, oh. >> >> would you fix your