Friday Letter What liquidity crisis?

A flood of capital from the developing economies will have a bigger effect on private equity real estate than any credit crunch. 

The Carlyle Group has had a busy couple of weeks. The Washington, DC-based firm had its annual investors meeting, where limited partners learned about Carlyle’s proliferating investment platforms, heard speeches by political columnist George Will and TV host Chris Matthews and were serenaded by Lionel Richie. Then the firm closed its fifth US-focused private equity real estate fund on $3 billion, more than tripling the size of its last vehicle.

But Carlyle somehow topped all of this yesterday with the news that an affiliate of Mubadala, the Abu Dhabi government’s strategic investment and development company, was acquiring a 7.5 percent stake in the firm for $1.35 billion in cash.

Private equity firms have been in a mad rush to sell stakes in themselves lately. The California Public Employees’ Retirement System purchased a stake in Apollo Management Group in July for $600 million. In 2000, the LP bought a 5.5 percent stake in Carlyle. In May, The Blackstone Group sold a 10 percent stake to a just-unveiled sovereign wealth fund of the Peoples’ Republic of China for $3 billion in advance of its initial public offering. Fortress Investment Group, which also went public this year, sold a 15 percent stake to Tokyo-based investment bank Nomura Holdings for $888 million. There are pockets of wealth opening up all over the world, and in places that have caught some in the West off guard. And these geyser bursts of capital are flowing into alternative assets and real estate.

The news clashes somewhat with hand-wringing in the US and Europe over the much-discussed “credit crunch.” People are worried about the credit drought—and for good reason. Deals are falling apart, financing is getting harder to procure and debt is getting harder and harder to sell.

But the spectacle of firms like Carlyle, Blackstone and Fortress selling off chunks of themselves to investors in Asia and the Middle East shows an arguably more important force in the today’s market: The fact that, the world over, there are billions of dollars, euros, yen and renminbi looking to get into global real estate. They may be flowing out of Tokyo, from the vault of a Japanese bank, or the investment authority of an emirate in the Persian Gulf.

So while condo projects in Miami or the second-home market in Spain and Baja might be seeing their share of distress these days, market participants can take some comfort in the fact that there is money out there looking at real estate. It is flowing through the eager hands of professional asset managers, and—somehow, someway—this money could very well end up somewhere close to home.