Carbon-based energy, agriculture and health care will be the biggest growth areas for private equity in the next few decades.
“By 2050, there will be another billion people in the global population … and in the past 50 years, there hasn’t been an attractive an energy source as carbon energy,” said David Rubenstein, co-founder and managing director of the Carlyle Group, a venture-capital firm based in Washington, D.C. that has completed more than 900 corporate private equity deals worldwide.
Rubenstein delivered the keynote address at the 2012 Private Equity Symposium in Toronto, hosted by Canada’s Venture Capital and Private Equity Association, on Tuesday.
Despite developments in other sources of energy, such as solar and wind power, there isn’t as efficient a resource as oil and gas, he said: “Nothing has been as in demand as oil and gas.”
Agricultural businesses also represent a new growth area as the populations in emerging markets such as China, India and Brazil become wealthier and demand higher-quality foods. As a result, this should drive up the cost of food prices worldwide.
“We have seen evidence that as emerging markets become wealthier, they demand the food and lifestyle of that in the West,” Rubenstein said.
Meanwhile, health care represents the third-largest growth area as baby boomers in North America continue to age, added Rubenstein: “Boomers will not shy away from their expenditures on health care.”
Any private equity firm can add value in these areas, he said. However, he expects the internal rate of return on venture capital deals to fall into the late teens from 20% or higher.
“The cost of deals is rising,” he said. “It’s why we need to do a better of communicating the value we can offer to [clients].”