General private equity issues aside, I mentinoed earlier that if I was the OP, I would stay far away from that fund he mentioned. But I want to explain why.

First of all, doing a little research on the fund, I came across some article from earlier in the year, where the CEO discussed raising more funds to invest in Asia, specifically in China. What stood out to me is that the advantages of the China market that he cited were "digitization and demographics."

Carlyle CEO sees China opportunities from decoupling as it raises $130bn

quote:
With respect to China, I think it's fair to say the massive opportunities that are being created because of the digitization of their economy, the demographics of their population, the use of mobile, their fintech payment systems, their ability as a country to potentially leapfrog in certain areas like in climate and maybe in health care, these are all a wonderful backdrop for growth opportunities.

And I think that these are actually two huge disadvantages in China.

Specifically as it pertains to digitization, China has really cracked down on tech firms, with CEOs being pushed out of companies even going "missing" (e.g., Jack Ma). In addition, they've cracked down on their listings in foreign markets. Not to mention they're crackdown on cryptocurrency and even going as far as regulating the amount of time children can spend on video games. Plus it seems that since China uses technology as a means to control their population (facial recognition, mass surveillance, censorship, social credits, etc.) that they want to control the digitization of the economy, instead of private ownership even for domestic investors, let alone foreign investors.

Furthermore, although he wasn't specific about what he meant, demographics seem to be a major risk in China, as their birthrate has fallen substantially to 1.3 births per female, well below the 2.1 replacement rate, despite changing policies (allowing more children) to combat this. They had their first year of population decline in 5 decades.

In addition, I found this response in that same interview to be strange when asked about their investment strategy:

quote:
For SEC reasons I can't be specific about any funds that are currently in the market.

Now since Mo Jeaux works on the legal side of private equity (although maybe Carlyle being a publicly traded company makes things different), he would probably be able to explain this, but it seems odd to me that the SEC would prevent him from discussing his overall strategy, not even specific investments. But I would think that the SEC would be fine with more transparency, not the other way around. So unless I'm wrong, it seems to be that this was a strange and troubling deflection.

So maybe it's forgivable (although I expect more from those who specialize in the market) for not accounting for this risks earlier in the year. But since he made those comments, we've learned about the Chinese tech crackdowns and their population/birth rate declines. But most importantly, we've had the whole real estate crisis with Evergrande and things appear to be getting worse. In addition, we know that Chinese government makes investing in Chinese companies unique, where investors often don't really have an ownership stake in the companies like they would here in the US. And as the Chinese government gets even more authoritarian, I'm sure this may even become even more problematic.

So IMO, all of these things should make an investor reconsider the investments in China with these risks, and likely many more as a result, becoming known. However, the CEO double-downed in a recent interview:

Many Firms Are Underinvesting in China, Carlyle CEO Lee Says

It's one thing to say that they're confident in their investment strategy in China, even though I find it problematic. But it's quite strange that he says other firms are underinvesting, as if they not only share the same investing goals and risk tolerance and management, but they're WRONG for not investing more in China, despite all of these risks that have come to the forefront.

Now maybe he'll be proven right, and they'll have great returns and all of those potential risks will not result in real consequences. And of course, there is a risk-reward trade-off, but IMO, given then timing of these comments and his hubris to criticize other's strategy, it just seems like it a prime set-up for another investment firm meltdown, not unlike Bear Stearns, Archegos, etc. where things are going well and turn south quickly.

Of course they are large enough that it probably won't bankrupt them, but this makes me think that if the risks are so obvious here, then they're probably not exclusive to their Asia investments. And here is just one known example:

Chasing yield, U.S. private equity firms nudge up risk on insurers

quote:
Private equity firms have spent nearly $40 billion buying U.S. insurance companies in recent years, promising to earn higher returns on the mountains of money that insurers set aside to pay policyholders years or decades from now.

The firms are moving some of the money out of traditional low-yield investments such as government bonds into riskier, harder-to-sell assets such as private loans and equity.

The shift has caught the eye of regulators and raised concerns about a cash crunch if asset managers had to liquidate large portfolios in a hurry to meet insurance claims.

And you throw in things like this from their recent history:

Carlyle Group’s $1.4 Billion Folly: Inside The Biggest Buyout Loss In Washington, D.C. Firm’s 33-Year History

And then there are things like Glenn Younkin (running for Governor in VA) making a lot of poor investments, the gross mismanagement of some of the business they own (like a nursing home company), the whole Taylor Swift music catalog issue (which they seemed to fail to understand IP laws), and their massive hedge fund failures.

Now maybe this stuff is normal in private equity, and obviously there are going to be failures, but this just seems like a company that is benefiting from an economy where it's been easy to make money not because they're really good at it and at the expense of proper risk-management, which is fine until it's not. Of course, their stock performance suggests otherwise, but things looked good for Bear Stearns and Lehman Brothers too.