Exceptional, January 2014

The Carlyle Group

The underestimated overachiever

  • Share

The Carlyle Group is one of the world’s most successful alternative asset management firms. Co-founder David Rubenstein reflects on his tenure with the firm and his decision to give away more than half of his personal wealth.

When David Rubenstein was starting The Carlyle Group with his partners in Washington, DC, in 1987, he was thinking small. “When I negotiated the original lease, I said I didn’t want any expansion space and didn’t ever want to expand beyond 10 people,” he remembers.

“That was obviously not great foresight.” Indeed, 27-year-old Carlyle is now one of the largest alternative investment firms in the world, with more offices in emerging markets than any other buyout firm.

In 2012, the company went public, invested US$8b and returned approximately US$37b to investors. Luck played a role from the start, Rubenstein says, with a modesty not always seen in corner offices.

He certainly had a few things to figure out at the beginning. His Co-founders, Daniel D’Aniello and William Conway, Jr., had investment skills, while his background was law and public service.

Unsure where he might fit, Rubenstein did what he now advises others to do: he made himself useful. “Find something that isn’t being done, make yourself an expert on it, and you will accrue more and more authority as you expand your area of expertise,” he says.

In doing so, he stumbled on to something that, in his words, “actually became a goldmine.” Rubenstein decided to become the firm’s fundraiser, but when he approached investment bankers in New York, he ran into the proverbial Catch-22 since he had no track record of raising money.

What Carlyle did have was a plan that would disrupt the industry. Private equity firms had always offered one fund. Rubenstein, however, decided to offer multiple funds of different types on a global basis.

2013 led to one of the strongest markets on record for PE-backed IPOs. Learn more.

The beauty of that idea, he explains, is “when you’re raising money for multiple funds simultaneously, you have more options.

If you go to an investor and say, ‘I’d like to talk to you about investing in my buyout fund,’ and they say, ‘I don’t want to be in a buyout fund, I need a venture fund,’ I’d say, ‘OK, I have a venture fund.’” By having multiple products, he was able to take advantage of the contacts he made and build a large investor base.

Find something that isn’t being done, make yourself an expert on it, and you will accrue more and more authority.

Rubenstein is just getting warmed up on this topic; it’s obviously an experience he considers instructive. “When a company disrupts the existing players in a particular space, other companies don’t always take the innovator seriously,” he says.

As a result, the financial community underestimated Carlyle. “They often said: ‘These guys don’t know you can’t do that, or how difficult that is, or they don’t have the experience we have in New York.’”

Because the fundraisers didn’t take the DC firm seriously, it was already a major player before competitors realized what Carlyle had actually done. It was not the first time Rubenstein’s genius had gone unnoticed.

Years earlier, his Duke University classmates had also underestimated him. “If they had a poll [for] who would be the least likely person to become Chairman of the Board of Duke University 40 years later, I would probably have won,” he says.

The title is only one of several honors he’s achieved. He’s currently Chairman of the John F. Kennedy Center for the Performing Arts, a Regent of the Smithsonian Institution and Vice Chair of the Brookings Institution.

Impressive statistics

Today, Carlyle has a breadth and depth most firms can only dream of accomplishing. The company is invested across corporate private equity, global market strategies, real assets and global solutions (in North and South America, Africa, Asia, Australia, Europe and the Middle East).

It has US$180b of assets under management, 118 funds and 81 fund of funds vehicles, and more than 1,400 employees in 34 offices around the world. In 2012, The Carlyle Group went public, a move Rubenstein describes as timely for several reasons.

“First, a lot of our peers were public and had stock they could use to recruit and retain employees. Second, I thought we would want to grow the firm through acquisitions that are often tax free if you use stock, and that would be an advantage. Third, I wanted to increase the amount of money we had in the firm, our balance sheet capital, and by going public we could obtain some funding.  Fourth, I thought we would be a more transparent and better-run company,” he explains.

Visit ey.com/privateequity for more insights on private equity.

Rubenstein’s experience in public policy has informed much of his decision-making. From 1977 to 1981, he worked in the White House for President Carter as Deputy Assistant to the President for Domestic Policy.

During that period, inflation rose as high as 19%. “If you can survive that, you can survive a lot of things,” he says, with the humility that comes from recognizing that not everything is going to work out perfectly.

“But I did get a sense of the whole country, the world, how things fit together and how many different constituencies you have to touch to get something done.” Some might consider Rubenstein an atypical fundraiser.

Knowing that, he has taken what he calls “a cerebral approach” when meeting people. “I talk about serious subjects and try to give insights on what it was like to work in the White House and what was going on in Washington,” he says.

“I’ve tried to provide information on topics that might not be directly relevant to what I was fundraising for but would get people interested in the idea that, if I was intelligent enough to talk about these subjects, maybe I was intelligent enough to have a good firm behind me.” His fundraising abilities have extended from the public to the private sector, from the US to the rest of the world — including successful activities in the Middle East, a feat he never thought he would achieve.

It was former Secretary of State James Baker who encouraged Rubenstein to take Carlyle to the Middle Eastern market when he joined the firm at the end of the first Bush administration. Baker’s encouragement paid off:

Rubenstein’s Middle Eastern hosts welcomed him, and since then, Carlyle has grown to include an office in Dubai. Rubenstein turns droll when queried about why he’s not retired and sitting on a beach when he easily could be.

“I don’t want to relax,” he says. “When people retire early, their bodies sometimes fall apart. My theory is the adrenaline I use to keep going is probably keeping me healthier. I’ve never missed a day of work because of illness, never been in a hospital.”

Recalling his modest beginnings, Rubenstein wonders if he would be as driven if he had been very successful when young. He often tells young people who win Rhodes Scholarships, White House Fellowships or Supreme Court clerkships: “Congratulations, you’ve won the first third of life. The trick is winning the second third and the third third.”

To Rubenstein, starting a company and seeing it become successful is one of the great pleasures of a professional life. However, in his case, it’s not about creating wealth for wealth’s sake.

“Virtually none of the people who have built large companies, or who, by virtue of luck and hard work, are in the Forbes 400 today, got there because they said: ‘I want to make a lot of money, and I’m going to go figure out a way to do it,’” he says.

“They got there because they had an idea, wanted to prove that idea worked and were willing to work as hard as possible. In some cases that idea worked and took off because they had innovative products or services. But it’s the drive and the willingness to work hard, rather than the lust for money, that creates wealth.”

If his philanthropy is not his top concern today, it’s a close second. Rubenstein has signed the Giving Pledge, an initiative through which the world’s wealthiest individuals agree to give away more than half their wealth to charity or philanthropic causes.

And time is on his mind. At 64, he knows he’s lived more than half his life, and he feels the pressure to do as much as he can in the years of active life remaining.

“I don’t know how long the body or the mind will hold out — 5 years, 10 years, 15 years, 20. But I now have more money than I need to spend or to give to my family, so I want to give it away while I’m alive.”

After Bill Gates visited him and talked at length about the Giving Pledge over a cheeseburger and fries, Rubenstein became the first person from the private equity world to sign. He is actively involved in giving away his money, buying historic documents and donating them to the National Archives, for example.

Anybody can be a philanthropist if you give away your time, energy and ideas.

He has been generous to Duke University. In 2012, he donated US$7.5m to fix the damage to the Washington Monument caused by an earthquake in 2011, and in September 2013, continuing his support of the Library of Congress, he donated an additional US$5m to the National Book Festival.

“I think I’m doing good things,” he says, modestly, “but others will have to judge.” He wants to be able to say he “did a little bit here and there to make the world a better place.”

He’s also recruiting others to follow his lead. Recently, he had dinner in Taiwan with one of Carlyle’s investors and the Giving Pledge came up in conversation.

“He thought it sounded good, so I asked him to join in, and he agreed,” Rubenstein says. He’d like to think there are other people who have joined because he suggested it, too.

In Rubenstein’s words, he’s sprinting to the finish line rather than ambling to retirement. To sit on a beach is fine for some people, but he has many other plans.

Advice for entrepreneurs

No great company in the world was built during nine to five, five days a week, Rubenstein asserts. You’ve got to work long hours, be willing to take no for an answer and not be personally dejected over it, and believe your idea and your skillset are better than somebody else’s.

It’s also important to excel at persuasion, he says. You want people to buy your product or service, so you need to communicate well, and he cites three ways.

First, by leading by example. Second, by writing well. And third, by speaking well. His final advice for entrepreneurs concerns philanthropy.

He wants them to know that you don’t have to be a billionaire to be called a philanthropist. “Anybody can be a philanthropist if you give away your time, energy and ideas,” he insists.

And if you listen to Rubenstein, you understand that when you give to others, what you get back is immeasurable.