HALB Private Equity Roundtable | David M. Rubenstein of The Carlyle Group

to Harvard Law School Private Equity Roundtable organized
by Harvard Association for Law and Business. My name is Vladimir
Bosiljevac, and I teach courses on private
equity here at the Law School. It is my great
pleasure and honor to introduce David Rubenstein,
the keynote speaker for today’s roundtable moderated
by Heather Lee, who is co-president of HALB. David Rubenstein
is, as you know, co-founder and co-executive
chairman of the Carlyle Group, one of the world’s largest
and most successful investment firms with over
$210 billion in assets under management. And before co-founding
Carlyle in 1987, Mr. Rubenstein practiced law
and served at the White House for 14 years. Besides his tremendous success
in his business career, he’s equally known
for his philanthropy. Mr. Rubenstein is
chairman of the boards of trustees of the
John F. Kennedy Center for the Performing Arts,
the Smithsonian Institution, and the Council on
Foreign Relations; trustee of the National
Gallery of Art, the University of Chicago,
Memorial Sloan Kettering Cancer Center, John Hopkins
Medicine, Lincoln Center for the Performing Arts, the
Institute for Advanced Study, the Brookings Institution,
the World Economic Forum; and president of the
Economic Club of Washington. Among many other philanthropic
initiatives and awards, Mr. Rubenstein is an original
signer of The Giving Pledge, and the recipient of Carnegie
Medal of Philanthropy and the Museum of Modern
Art David Rockefeller Award. Mr. Rubenstein, here
at Harvard, also gives through his positions
as a Fellow of the Harvard Corporation, as chairman
of Harvard Global Advisory Council, and as a
member of the Board of Dean’s Advisors at HBS. Mr. Rubenstein is a 1970
magna cum laude graduate of Duke University,
and a 1973 graduate of the University of
Chicago Law School, where he was also an
editor of the law review. [APPLAUSE] DAVID RUBENSTEIN: Thank you. HEATHER LEE: Thank you,
Professor, and thank you, Mr. Rubenstein, for taking the
time to be with us today. DAVID RUBENSTEIN: My
pleasure to be here. HEATHER LEE: So I’d like to
begin with how you grew up, the stories that molded you
as a youth that brought you to where you are today. So you grew up in a blue-collar
neighborhood in Baltimore. DAVID RUBENSTEIN:
That’s correct. HEATHER LEE: Your father
was a postal worker. DAVID RUBENSTEIN:
That’s correct. HEATHER LEE: Your mom
worked in a dress shop. DAVID RUBENSTEIN: That’s right. HEATHER LEE: What were some of
those stories from your youth that led you to become
the self-made man that you are today? DAVID RUBENSTEIN: Well,
without me complicating it, I’d have to be on
a psychiatric couch to answer that
appropriately, probably. But– [LAUGHTER] One of the great
advantages in my life is that I grew up with no money. If you grow up with a great deal
of money, as my children have, it’s harder to be as
highly motivated as when you grow up in a modest family. So my father made about $7,000
a year in the post office. I was their only child. Neither of my parents graduated
from college or high school. So you have a sense
that if you’re going to get somewhere
in the world, you have to do it on your own. And the result is you
tend to work harder and maybe you absorb learning
more readily because you know you need to do well in school. So it’s a big advantage. And I think the greatest
thing that parents can give their children
is unconditional love. So my parents supported me. They couldn’t open doors for me. They couldn’t get me jobs. They couldn’t get
me in the schools. They couldn’t do anything that
would be the kind of thing that wealthy parents
might today– leaving athletic teams aside– get you into school
with or help you with. But in the end, it
was a great advantage. So I got lucky and
did OK in school, but I wasn’t a superstar. And some of you
may be superstars. There are people– some of you
may be in this audience who are these kind of people who, you’re
first in your class in high school, All-American athlete,
first in your class in college, Rhodes Scholar, president
of the Harvard Law Review, Supreme Court clerk,
White House fellow– everything that you
could possibly want. My experience is that,
with some exceptions, those people don’t actually
do as well later in life because they often coast. So I divide life
into three parts. The first third is when you can
be a Rhodes scholar, president of Harvard Law Review, first
in your class at Harvard Law School or the equipment
somewhere else. And the second third of
life is when you’re really getting your career
underway, you kind of decide what you’re really going to do. And the third third is
where you’re really– I don’t want to say
coasting, but you’re reaping the benefits of what you
have done in the second third. In the first third, if you
are all those wonderful things I describe, you might
tend to just coast the rest of your life and
not accomplish as much. So when I worked in the White
House for President Carter, there was a person who
went to Harvard College. He was in the administration
of Harvard College, summa cum laude, president
of the Harvard Crimson, Rhodes Scholar, PhD from
Berkeley in economics, Yale Law School, editor-in-chief
of Yale Law Journal, Supreme Court clerk. And when people saw
this resume, they said, well, no point even
in interviewing the guy. Plus he was blond hair,
blue-eyed, great athlete– everything you’d want. I mean, say, this is perfect. Every time he would get
a job, people would say, you’re too good for this job. We’ll give you another job. And he got all these jobs after
just one year at each thing. The result is when
he got to be 45, he had not actually
accomplished anything because he was just getting jobs
based on his resume from when he was 20 or so. So the advantage of not having
that kind of resume was I knew I had to work harder. And so the advantage of coming
from a more modest background is you’re more likely, I
think, to accomplish things. And if you look
at the people that have won Nobel prizes
as an indicator, they are almost
always people who came from lower-income families. Very rarely did somebody come
from a billionaire family and they won a Nobel Prize. I haven’t seen that happen yet. HEATHER LEE: So
even though you say you’re not an academic
superstar in high school, you still won a scholarship
to Duke University. DAVID RUBENSTEIN: It wasn’t
a basketball scholarship, I assure you. HEATHER LEE: It wasn’t? DAVID RUBENSTEIN:
I am a Zionist now. I love Zion Williamson, but
I was not a great athlete, either. In fact, I was the only
person in Duke’s history who got cut from an
intramural basketball team. And there were only four
other people on the team, so it’s hard to do that. But I did get a
scholarship, but it wasn’t– I still had to work
through college and I still needed
to have summer jobs. So I got enough to get through
it, but it wasn’t spectacular. HEATHER LEE: I see. You also went to University
of Chicago Law School. DAVID RUBENSTEIN:
Well, I had intended to come to this law school. But what happened was, I
applied to a lot of law schools and I said, whoever gave me
the biggest scholarship, that’s where I was going. So I was thinking
I was coming here, and all of a sudden, the
University of Chicago said they had a program
to give a full scholarship to certain students. I hadn’t even heard of it. I’ve never even
been to Chicago– the city or the university. So I said, OK, a full
scholarship was great. And they said, send in your
$50 and you reserve your place for your full scholarship. You come next year. Then they sent me
another letter saying, send in your $50 and you reserve
your place in a law school dorm if you want to live
in a law school dorm. So I said, well, $50 was
a lot of money to me then. So I said, well, using
the course in logic that I had taken at Duke, if
I send in the $50 to the law school dorm people,
surely they’ll tell the law school people I’m
coming to get the scholarship. Why would I need a law
school dorm if I’m not going to be in the law school? Well, that logic
didn’t really work. And so the first day I
showed in law school, I said, here I am,
David Rubenstein, full scholarship recipient. They said, well, you
didn’t send in your $50. We gave that to somebody else. I said, well, I sent in the
$50 to the law school dorm. Why would I need a law school
dorm if I’m not coming here? They said, that’s a completely
separate department. We don’t even know those people. And so I started to cry and
say, my legal career is over. I thought I’d be on the Supreme
Court, all these great things I was going to do. And finally, they
didn’t want anybody crying in the admissions office,
I guess, so they said, OK, we’ll give you the scholarship. So I was very grateful for them. I’ve now given them $45
million in scholarship money to make up for their gift. And some of you, maybe,
have been offered this. I have a program
where I bribe people to go to the University
of Chicago Law School. The best people– I get 20 a year. So we have 60 people who are on
full scholarships at University of Chicago, and it’s designed to
bribe people to maybe go there over some other law schools. Any of you ever been bribed
or tempted by anybody? They have a lot of people
who are tempted to go, and bribery usually works. So they get some pretty
good students who otherwise would probably go to Harvard. HEATHER LEE: And after you
graduated from Chicago Law School, you went to
work at the White House as the assistant
to the President. DAVID RUBENSTEIN: I did
work in White House. HEATHER LEE: At the White
House, you were known for your Herculean work ethics. You were first to
come, last to leave. What drove you to be
such a workaholic? DAVID RUBENSTEIN: Well,
if you want to work in the White House– and I did. I had no interest
in making money. I grew up in a poor family. I was interested only in
giving back to society. John Kennedy gave
this great speech when I was in sixth grade. He said, “Ask not what your
country can do for you, but what you can do
for your country.” And I wanted to help my country. I thought I could go in
government, politics. That would be what I could do. There were no hedge funds,
private equity funds, tech startups in those days. If you wanted to practice
law, you could practice law. If you wanted to
be in business, you went to your family’s
company, or maybe you went to a large company like IBM. But there were no
entrepreneurial kind of startups. So business wasn’t
quite as exciting. And I was only interested
in helping my country. I had no interest
in money at all. So I went to work at Paul
Weiss after law school for a man named
Ted Sorensen, who had written this
great speech for John Kennedy, which I
just referred to– the great inaugural address. I thought some of his
luster would rub off on me, and it didn’t really. And after a couple years of
practicing at Paul Weiss, they said, well, you’re
not that good a lawyer, and maybe you should
think of something else. And my clients
said to me, you’re really not cut out
for this, so maybe you should do something else. So I got the hint that I
should leave Paul Weiss. And I was hoping that Ted
Sorensen would get me a job, and he got me a job ultimately
with a man who he said was running for president,
had a good chance. I said, who is it? Jimmy Carter. I said, isn’t the peanut
farmer in Georgia? Has no chance of being
President of the United States. But I had nothing else to do,
so I went to work for him. And I joined Jimmy
Carter when he was 33 points ahead
of Gerald Ford in 1976 in the general election. And when I was
finished with Carter, Carter won by one point. So Carter said, what
was your contribution? I was way ahead
before you showed up, and now I barely won. So I did that. I managed to get inflation to
19%, which is the highest we’ve had in 50 years. So nobody thought that
I’d done a good job. But I said, we can’t possibly
lose the election because we’re running against an old, old
man who’s such a fossil, he can barely get out of
the bed in the morning. He’s 69 years old. Ronald Reagan– how could
we lose to this old man? I was then 31. I’m now 69, so I’m the same
age as Ronald Reagan was, and now it doesn’t
look quite as bad. But Reagan beat us. And some of you will have the
same experience that I had, that people tell you
how great you are. When I was in the White House,
everybody wanted to lobby me. I had a lot of influence
with the president. I’m going on Air Force One,
Marine One, Camp David. And people come and tell
you how brilliant you are and how great you are because
they want something from you. And they always said, and by the
way, if you ever want to leave, call me up. And I said, well, I
don’t want to leave. I’m going to be in the
second term with Carter. I’ll be the senior
domestic policy advisor, and I’ll be very
influential then. Really great. They said, well, OK, but if
you change your mind, call me. Well the day after
we lost the election, I started calling
all these people and they didn’t call back. And some of you may
have this experience, as well, where people tell you
how great you are because they want something from you. But when you don’t
have what they want, then they don’t
give you anything. So I couldn’t get
them to call me back. I went back and
practiced law again. And some of you will probably
have this experience. You’ll realize, despite
your years of law school, if you’re in law school here,
you’re not cut out for it. You don’t like it as
much as you thought. So I went back and practiced
law after the White House. It was hard to get a job because
nobody wanted a Carter White House aide. Finally, somebody
felt sorry for me. They gave me a job. But I realized I was
not very good at it. And you can’t accomplish
anything great if you don’t like it because
you’ll never manage the skills. So nobody, again,
ever won a Nobel Prize by hating what they
do or by doing it 9:00 to 5:00, five days a week. You have to love what you want
to do and work around the clock really to accomplish something. And I just didn’t do that
in the practice of law. So I started my
firm in 1987, and it became a large
private equity firm and enabled me to do a lot of
the other things I’ve now done. HEATHER LEE: So let’s talk
about that a little bit more– the founding of the
Carlyle Group in 1987. The industry was still
very nascent at that time. Why did you choose to
join the buyout industry? Why not venture or real estate? DAVID RUBENSTEIN: Well,
I was practicing law, not that successfully. Once again, my clients
said, well, you’re not that great a lawyer. You sure you really
want to do this? And my partner said, well,
you’re not that great a lawyer. Why don’t you try
something else? So I was looking about something
else to think about doing, and nobody wanted me to go back
in government because Ronald Reagan was then in
government, and he didn’t want a Carter White House aide. So I read two things that
have changed my life. And you will all have
this experience, probably. You read something that
registers in your brain, it changes your life. The two things were this. One, a man named Bill Simon
who had been Secretary of the Treasury in the
Ford administration left the Ford administration
after Carter became president, and he went out
and did something called a leveraged buyout. And he bought a company
called Gibson Greeting Cards, and he put in roughly $1
million of his own money, and made roughly $80 million
in about 2 and 1/2 years. So I read about it
in the early ’80s. I said, wait a second. This guy made $80 million on two
or three years of investment. He only put $1 million
of his own money in. That’s better than
practicing law. But I didn’t know exactly what a
leveraged buyout was, so I went down the street to
Bill Miller, who’d been Secretary of the Treasury
in the Carter years, and said, your predecessor did
a leveraged buyout. Maybe you could do one and I
can do your legal work for you as you’re building this company. And he said, well, are you
really that good a lawyer? I said, well, I’m
a great lawyer. Of course, everybody knows that. But of course, he probably
knew I wasn’t a great lawyer. He ultimately
decided not to do it. So I was thinking, maybe I
should start a leveraged buyout firm in Washington
by myself, but I had no financing experience. So I finally I recruited some
people who had some finance experience in Washington. And I was hurrying to do
it because of this reason. The second thing
I read was this. I read that an
entrepreneur will start his or her first company
between the ages of 28 and 37, on average. There’s always a Bill
Gates or Mark Zuckerberg, but on average, an entrepreneur
starts his or her first company between 28 and 37. And after 37, it’s like a
woman’s biological time clock. Your chance of reproducing
goes down after a certain age, and your chance to
become an entrepreneur goes down after a certain age. Well, I read that when I was 37. So I said, uh-oh. If I don’t do it now, I
may never start a company. I’ll be doomed to practice
law for the rest of my life. So I decided to do it. I recruited three
people who had finance experience in Washington. And I did it in Washington
because that’s where I lived. And I had a theory. Everett Dirksen, who was
a former Senate Minority Leader in the 1960s,
said, if you’re getting out of town,
get out in front and pretend you’re
leading a parade. Now, what does that mean? It means take advantage of the
situation you find yourself in. You’re getting
kicked out of town? Pretend you’re leading a parade. So I’m saying, I’m
in Washington, DC. We understand companies
more heavily affected by the federal government
than those guys in New York. Now, that might have been true. It might not have been
true, but it sounded good. So we were able to raise a
little money around the idea that we would do investments
in companies heavily affected by the government, and the
deals tended to work out, so we built the business. HEATHER LEE: Let me ask you
about a deal that brought you and the Carlyle Group
to national attention. That was the $130 million
purchase of BDM International from Loral in 1990. What was it about that
made it a deal that defined Carlyle Group three
years after its foundation? DAVID RUBENSTEIN: Well, we were
doing a few deals from time to time and they were
OK– nothing spectacular. And then an
opportunity came along to buy up what is called in
Washington a beltway bandit. Now, for all of you who
don’t know what that is, that’s kind of a
company that services the Pentagon or services
the federal government. But it’s– does a
consulting firm, it does some work
for the federal government that the government
doesn’t want to do itself. So one of the larger ones
in the defense industry was something called BDM. It stood for the founders. The last names were
B, D, and M. And it was a good-sized company,
and it had been acquired, in effect, by Ford Aerospace. And Ford Aerospace wanted to
sell it for lots of reasons. So we tried to buy it. I had bought it in the firm a
former Secretary of Defense, Frank Carlucci, who had
been Secretary of Defense under Ronald Reagan. So he had lot of
credibility in this area. We bought it. We made six times our money and
it gave us some credibility. And from that, we could
go out and raise funds and build a real business. So it worked out. HEATHER LEE: And a lot of times
at that period of your founding of the group, a lot of
people identified you as a buyout defense firm with
deep sourcing connections in the government, DC. Was that a fair
characterization? DAVID RUBENSTEIN: Well, there’s
an old saying that generals like to fight the last war. Some of you must
have heard this. So I had brought
in Frank Carlucci. When we only had about
six people in the firm, I brought in a former
Secretary of Defense. I didn’t really know him. He was in the Carter
administration as a deputy CIA director, but I had never
been involved with the CIA when I was in the Carter so
I didn’t really know him. He was looking to come
on corporate boards, but he wasn’t a lawyer,
didn’t want to be in a part of the law firm. So he kind of was looking
for a perch to hang out on. And he said he
could work with us. He’d go on a lot of
corporate boards. But he was able to call
people, as a former Secretary of Defense, and get
people on the phone. So four years later, when
George Herbert Walker Bush lost the presidential
election to Bill Clinton, I said, well, the same technique
might work with people who are in the Bush administration. Let me go after the ultimate
gold standard of people leaving the government, Jim Baker,
former Secretary of State, former Secretary of Treasury,
former chief of staff to Ronald Reagan. So I didn’t know Baker,
but somebody introduced me. And finally, after a few
months, I convinced him to come. He said, can I bring
my deputy, Dick Darman? OK. And then he said later, can I
bring my friend George Herbert Walker Bush, former president? I said, OK. And then George Herbert
Walker Bush said, can I bring my friend John Major? I said, OK. So we had a former prime
minister, former President of the United States,
former Secretary of Defense, former Secretary
of State, former head of OMB. And people said, hey, this
is a government exile. And it worked
wonderfully for a while because people would
want to see us. If you go to Kuwait
to raise money and you take George Herbert
Walker Bush with you, not that difficult to
raise money in Kuwait with George Herbert Walker Bush. Or you go to Saudi Arabia with
Jim Baker– not that hard. If your last name is
Rubenstein, you probably wouldn’t raise that
much money normally. But you have Jim Baker with
you, you’ll probably be OK. When George W. Bush got
elected, his father said, I can’t be in business anymore,
so I’m going to retire. Fine. But then after a couple months,
he got tired of being retired. He came back and said, I can
still do some things with you. But then when the
Iraq war went forward, we were blamed for
it because we were seen as a government in exile. We were like the
Bush administration, so we had all these former
government people with us. So kind of, you live by the
sword, you die by the sword. It was very helpful for a
while in giving us credibility, but then when the war in
Iraq got blamed on us, it was harmful. So I had to retire all
these people one week, and then I brought
in Lou Gerstner, the former chairman of IBM and
CEO of IBM, to be our chairman. That was a technique
that worked, but sometimes it didn’t work
perfectly towards the end. HEATHER LEE: Let me ask
you about fundraising. So you have told people
that you subscribe to Woody Allen’s maxim
that 80% of success comes from simply by showing up. DAVID RUBENSTEIN: Right. HEATHER LEE: You travel
non-stop around the world to meet with
investors, often going to places like the
Middle East where no PE measures have been before. DAVID RUBENSTEIN: Right. HEATHER LEE: Were you
a natural fundraiser, or did you have to pick up
some skills along the way? DAVID RUBENSTEIN: Well,
when I started the firm, I thought buyouts mean
you analyze a company, you do your due diligence,
then you arrange the financing, then you do the
oversight of the company, then you figure
out how to exit it. And that’s the basic business. It’s different than
it was 30 years ago. It’s more intensive oversight
of the companies and more value added, but essentially,
look for companies, negotiate the deal if you can
get it, finance the companies, oversee it, figure out how to
exit, and how to add value. OK. But to do all that,
you have to have money. So where does the
money come from? It doesn’t come from trees. So you can borrow money from
banks for leveraged buyout, but you’ve got to
have the equity. So where does the
equity come from? Well, somebody has to
go out and ask for it. So my partners all had MBAs
and they were finance people. I didn’t have an MBA and
I didn’t really understand finance that well at that time. So I said, OK, I’ll do the
job of going out and asking people for money. Now, I had always
associated fundraising with backslapping,
beer-drinking, suspender-wearing kind of
guys with slicked-back hair, playing golf on the weekends and
all that, none of which I did. So I wasn’t sure I
would be good at it because I was more mild-mannered
and just kind of knew my brief. But I basically started with a
concentric circle of friends, relatives, former friends,
kind of acquaintances, and worked my way
around the world. And I was willing to do it
because the others didn’t want to do it. It was necessary. And I kind of invented something
that hadn’t happened before. Historically,
private equity firms were mom-and-pop operations. When KKR did the famous
RJR deal in 1989, they only had seven
people in the firm. Why? Because the
partnership agreements all said you can only
have one fund at a time because all the
people in the firm have to spend 100% of their
time managing that fund, which makes sense. If you give money to people, you
want them to spend their time managing this fund. I decided, as most entrepreneurs
do, to kind of break the rules. By definition, if
you’re an entrepreneur, you’re doing something
nobody else did before and you’re probably
breaking rules. The rule that I broke was this. I said to my partners, after
I spent a few years finally helping them raise a
$100 million fund– which was all I could
raise, $100 million– I said, tell you what. You guys manage
this buyout fund. I have an idea. I’m going to create a Fidelity,
or a Vanguard, or a T. Rowe Price of private equity the
way those people had done it in the mutual fund
business, which is to say, have multiple funds. And you can say to people, you
want to be in a buyout fund? We have that. You want to be in a
growth capital fund? We have that. You want to be in
a venture fund? We have that. You want to be in
a real estate fund? We have that. You want to be in a
distressed debt fund? We have that. And take advantage
of our brand name, centralize fundraising,
legal, tax, accounting, other administrative
things in Washington, and then have these
dedicated funds, all of which we would control the
investments and oversight of. So people laughed at me, and
people said I was a franchisor. I was like McDonald’s, selling
out franchises everywhere. But the truth is, I was
creating these funds. It was a model that
hadn’t happened before. Others have, I think,
done it probably better than we have now. But that was the model. And so to do that, I
had a lot of funds. And to do that, I had to go out
and raise money for these funds perpetually. So I did it myself for a
while, but then ultimately I built a gigantic
fundraising operation, because we were always in
the market for something. The sun never set on a
Carlyle fundraising effort. We were always raising money. And so I got to know
people all over the world, and I was on the road for six
days a week all over the world. So I’d be going everywhere. I knew more people in Abu
Dhabi than I think I knew in my hometown of Baltimore. I was running around the world. So ultimately, I built
a network of people. Now we have at Carlyle
about 125 people in the fundraising effort. But that’s what I did. I did it. And the Woody Allen
line you referred to is a line that
Woody Allen famously came up with years ago. Either– I can’t remember. It’s 80%, 85%, or 90% of
life is just showing up. So what that really
means is, if I want to raise money in Abu Dhabi– it’s still this way. I’ve been to Abu Dhabi 10
times in the last three years and I know everybody in the
Abu Dhabi Investment Authority, or the Kuwait Investment
Authority, or any equivalent group. If I say to them,
we have a new fund, you know all our people
from the previous fund, you liked the previous fund,
I’ll just do this by telephone and tell you the new
fund, read the documents, and tell us how much
you want to put in. Or maybe we’ll do it by video. No, no. You got to show up. Show me that you love me. Show me that you really care. So fly to Abu Dhabi and
do the meeting in person. So I don’t know whether it’s
really necessary to do it, in many ways. You can get the same
information by not showing up. But people like you
to show up, and it’s like Woody Allen’s
phrase of showing up is 80% of the effort, because
it doesn’t really add that much, but it gives you a personal
sense that you really care. HEATHER LEE: Then other
than by just showing up, how do you convince
people to give you their money ticket for
potentially 10 years or more? DAVID RUBENSTEIN: Well,
it’s obviously not by charm and good looks, right? It’s obviously something else. People give you their money
because they trust you. They believe what you say. They think that
they’re going to give– they’re going to get their
money back and a profit. And I think that you develop
trust over a period of time. So people will say, well,
you’ve made money from before. You might make it again. My theory on having
multiple funds was this. If you were in my buyout fund
and you made money with me, if I come to you and say, I
have a venture capital fund, you should say,
logically, you know nothing about venture
capital, so I’m not going to give you money. I’ll give it to people that
only do venture capital. But you say, well,
you’re honest. I like you. You guys treat me well. I’ll give you a chance. And that was basically
the leap of faith that people were
willing to make. And I would say in
terms of fundraising, nobody here in this audience
has gone to Harvard Law School or wherever you’re in school
and told your parents, you know what I want
to do when I grow up? I want to be a fundraiser. Nobody says, I want
to be a fundraiser. They want to be a lawyer, a
judge, or a business person, or a private equity person. Nobody says, I’ve grown
up to be a fundraiser. And why is that? Because people think that
asking people for money is a little dirty,
difficult, it’s unseemly. I don’t quite look
at it that way. I maybe did years
ago, but I basically say, if you’re
selling something, you should be proud of it. And if you have something
to sell that’s good, why is it harmful
to say to somebody, why don’t you give me money, and
I’ll invest it on your behalf, and you’ll get money
back and a profit? Now, in life, you all
will find that when you’re out of the
school, if I were to ask the question
of this audience when they’re out of school,
about 90% of the people will raise their hand when
I ask these questions. One, what percentage of you
have asked people for money in the last month for a
business, philanthropic, or political activity? And the answer will be probably
half of the people asked people for political contributions,
or for somebody for a business venture, or
for a philanthropic activity. And what percentage of you
have actually been asked for these kind of investments? You’ll find that
life is all about fundraising to some extent. We’ve become a perpetual
fundraising machine in the Western world. People are always
asking people for money. So I’ve gotten used to it and
I get asked for lots of money for charitable contributions. I ask people for
charitable contributions. And people can say
yes or no, but that’s how the world really works. So it’s not that difficult
to ask people for money. I think if you have something
to sell, you think it’s good. In the investment world, if
you have a track record that’s good, people will
keep giving you money ’til you don’t have
a track record that’s good. And also, if you treat
the investors well, you give them information,
you treat them appropriately, if your record is not the
best, they will probably give you some credence. But if your record is
really, really good, you don’t have to treat people
quite as well because people will beg to give you money. HEATHER LEE: Let me ask
you about cyclicality. So you said about private
equity, back in 2006, “This has been a golden
age for our industry, but nothing continues
to be golden forever.” So here we are 13 years later. Some people are saying that
the music is slowing down. Is this is a time to harvest,
or are you and your team still out there buying more? DAVID RUBENSTEIN: Well,
in 2006, private equity– let me start back. The Earth itself is about 4
and 1/2 billion years old. Life on this earth started
about 3 billion years ago. Humans and our
predecessors started maybe 3 million years ago– Cro-Magnon, Neanderthal. Homo sapiens, which
all of us are, are about 400,000 years old. So just think about this. Of the 400,000 years that we’ve
been on the face of Earth– and our ancestors– 400,000 years– for
99.9% of that time, there was no private
equity, amazingly. And for 99.9% of
those 400,000 years, people didn’t worry about having
money invested on their behalf. If you were living in
caves, you’re barely– you’re just subsistence. You’re just trying
to stay alive. When people were living in
caves 400,000 years ago, the average life
expectancy was 20. In fact, the life expectancy
in the United States at 1900 was 49. So people were worried
about three things– subsistence, shelter,
and basically continuing the species, which is what all
species really worry about. How to stay alive, how to
keep their species alive, and how to stay alive by either
sheltering themselves or having food. So for 99.9% of the
time that humans have been on the
face of the Earth, they didn’t worry
about investing money to get good returns. Probably in the Western world– I can’t speak as well
about the Eastern world. But in the Western world,
probably around the 1600s, 1700s, a new concept arose. Some people could worry about
things more than subsistence. They had a little
extra money, and they didn’t know what to do with it. So what did they do? They said, I’ll give
it to somebody else. And that person can give me more
money back than I gave them. We’ll call it investing. And so the first
kind of investing was you gave people some money. They were banks. And they would give you
back a fixed income amount. So the bank might charge you
a 1% fee, to make it simple, and they would give
you back 2% interest. And that was what a
lot of money investing was around the 1600s, 1700s. Then equity got invented, and
you could give people money, and you might get
an equity return. A higher risk, higher reward. And then stock
exchanges came along, and then people ultimately did
two things with their money when they invested it. They would basically
give it to somebody for a fixed income return– maybe 1% or 2% per annum– or equity return, 3%
or 4% or 5% per annum. And then that’s all
there really was. And then private equity came
along, and it came along– you could say Christopher
Columbus invented it because when he came over, he
got Queen Isabella to give him a carried interest in
the gold and the profits he realized, but there was no
gold or profits in the end, so he never got a
carried interest. But to be serious,
after World War II, some people came
up with the idea of starting a new industry. They call that
adventure capital. They were people that
came out of the technology part of the military. They wanted to
start new companies. They called it
adventure capital, and they asked people
for three things that nobody had ever done
before in money management. They said, one, we
want you to commit a certain amount of money. We don’t actually have any
things to invest in yet. Commit to it. Two, we would like you to pay us
a fee on the committed capital. OK, even though we’re
not doing anything to invest in your money,
you’re still holding onto it. And three, we want
20% of the profits– the so-called carried interest. And that revolutionized
money management. The adventure capital business
became the venture capital business, ultimately. And then around the
late ’60s, early ’70s, some people came up with
the idea of what they really called a bootstrap deal. You would get some
money from people. You would borrow 99%
of the purchase price. You would put up 1% of
the money as equity, and then you’d buy a
company at a discount you thought the real value. Make it a little bit
better, sell it at a profit. So the early adventure
capital deals, the early leveraged buyout
deals, called bootstrap deals, earned actually
very high returns. Not 1% and 2% or 4% and 5%,
but 40%, 50%, 60% per annum, in many cases. So people started to
rush into the industry. So all of a sudden,
people rushed in. And then 1978, the
Carter administration changed the law of
the land and said that ERISA funds could
invest under the prudent man rule in private equity. And therefore, public
pension funds and endowments started going into
private equity. So the industry grew,
and grew, and grew. Well, when things grow
and grow and grow quickly, sometimes you have excesses. So you had your ups
and downs and so forth. And around 2006, I thought the
industry was growing enormously and people were making lots
of money and I just thought, as Herb Stein, the former head
of the Council of Economic Advisors under Nixon, said,
if something can’t keep going on forever, it won’t. And so it just was
going too well. And I said, at some point,
this golden age will be over. And then 2007, 2008, 2009
we had the Great Recession, and things went down. But today, the
industry’s come back to the point where today,
there’s roughly, I’d say, about $1 and 1/2 trillion of
dry powder, $2 and 1/2 trillion in in-the-ground investments,
so $4 trillion in the industry. The industry is growing still
fairly nicely because there is a perception in
the world that we’re going to have another
recession at some point. And a very good anti-recession
way to invest, people think, is investing in private
equity, because it tends to not have to get mark to
market every hour on the hour. In private equity,
people know how to add value in
times of recession and they tend to buy things
cheaply in times of recession. So in the end, people are now
increasing their allocation to private equity. So I don’t know if I’d call it
a post-golden age or platinum age, but the industry
is in very good shape. And it doesn’t have the
bad PR that it used to have when people called us locusts. It doesn’t have people saying
we’re destroying the economy. It doesn’t have people
saying we’re not paying– well, some people say we’re
not paying adequate taxes. But it doesn’t
have people saying we’re destroying
the environment, we’re shipping jobs off-shore. So many of the criticisms
of the industry have abated, and I think the
industry is generally considered an important part
of the financial firmament in the United States
and Western Europe. HEATHER LEE: Let me ask
you about limited partners. Big investors have been
pressing for lower fees. Some are asking for
co-investment vehicles. Other investors, like Ontario
Teachers’ Pension Plan, have built a small group
of in-house managers. Given these pressures, where
do you see the economic model of private equity going? DAVID RUBENSTEIN: So the
private equity firms– when I started Carlyle, there
were 250 private equity firms in the entire world. Today, there are roughly 8,000. So it’s been a growth industry. Why is that? Well, it’s not, again,
because of the charm and good looks of the founders. It’s because in the end, if
you can get 20% of the profits on somebody else’s
money, that is better than practicing law for
whatever they get paid an hour. You’re going to make more
money doing that if you’re reasonably good at it. And today, many people
know how to add value. Many people are smart who
go in these industries. So if you get 20%
of the profits– if not 25% or higher–
on people’s money, you’re going to make a lot of
money, plus 100% of the profits on your own money. Today, I’d say that
the private equity world is at a point where people
think well of the industry, as I mentioned, and they
think that this will turn out to be a pretty good way
to invest their money, I would say, over a
longer period of time. I don’t think that it’s
going to abate anytime soon. Returns are coming
down, but investors are willing to take
lower rates of return. They used to want 20% net
internal rates of return. Today, they’re happy with
13%, 14% net internal rates of return. So I’d say, I think the
industry will probably do reasonably well for some time. It’s not as easy
to make large sums as it was years ago because
the industry’s more mature. But I do think it’s a
pretty good industry, and it has the
advantage of being a reasonably profitable
business if you’re reasonably good at it. I don’t think the fees are
going to go down all that much, and this is the reason. I think people recognize
to investors that you get what you pay for in life. So if somebody says, I’ll invest
private equity money for you. I won’t charge a fee. I won’t charge a 20%
carried interest. I’ll just want a 1% fee
if the profits are good. You get what you pay for in
life, so people would say, if somebody’s doing
that, they must not be able to get 20% profits. And therefore, maybe people
don’t think they’re that good. I think that there
was pressure on fees after the Great Recession. And the private
equity people may have charged too many fees early on. We were charging deal fees,
exit fees, entry fees, lots of management fees,
keeping them all ourselves. Now it’s changed. Basically, you make your
money on your commitment fee, which may cover your costs. You may have a little bit
more than cover your costs. You get 20% of the profits
above a preferred return. Today, you probably can’t
get a carried interest on a co-investment,
but sometimes you can. Now, what you’re referring to– the Ontario Teachers is this. Many large endowments or
national pension funds have said, well, I’ve looked
at Rubenstein, and Schwarzman, and Kravis, and Leon Black. They’re all very handsome
people, for sure, but I could probably do
some of the things they do. So why don’t I just
have an in-house group at my organization,
and I don’t have to pay the 20% to Blackstone,
Carlyle, KKR, or Apollo? We can do it
ourselves, and we’ll pay our people a little bit
more than they would otherwise get, but not so much
so that they’re really getting the same compensation
that we’d have to pay Carlyle. Some organizations can do
that and some pension funds, and like in Canada, it’s
not a terrible thing to let people make
millions of dollars a year being a government employee. But in most parts of the world,
certainly US public pension funds, you would not
be in a situation where an employee of a
US public pension fund could make $5 million
or $10 million a year without causing enormous
political problems. So I think in most
parts of the world, it’s not possible to retain
great talent if you’re not paying them large sums of
money, and very few places in the world are
doing that, so I don’t think it’s an existential
threat to our industry. HEATHER LEE: You also have
your own brand of philanthropy. You have given a lot of money
to the repairs of the Washington Monument, Montecello. You have made publicly-available
your collections of the Magna Carta, the
Declaration of Independence, 13th amendment. Why do you focus on these
types of patriotic gifts? DAVID RUBENSTEIN: Well,
when you get wealthy, what are you going to
do with your money? OK, so you can buy
a lot of artwork, and yachts, and
planes, and so forth. At some point, you realize
you don’t need all that. So how many houses
can you live in? How many works of art to look? And so forth. So throughout history, when
people got very, very wealthy, they would spend a
lot of money buying all these physical,
material things. And sometimes, they would do
with the ancient pharaohs did. They’d say, I like all
these things I have. I’m going to be buried with it. And so bring it into
the pyramids with me and let me take this
to the afterlife. There’s no evidence you
really need all these material things in the afterlife. So if you think about it, if you
don’t need all these material things in the afterlife, what
are you going to do with money? So if I said to all of you
today, I’ll tell you what– you will laugh when I say this– suppose I’m going to put you
in Bill Gates’ situation. I’m going to give each
of you $100 billion. Do anything you want with it. OK. The first thing
you’re going to do is you’re going to go buy some
art, a yacht, plane, houses– whatever you want. And then you’ve got
$99.5 billion left. What are you going to do? $99.5 billion. What are you going to do? What are you going
to do with that? Well, Bill Gates
obviously studied it and decided he wanted to
devote his life to health care in emerging markets and K
to 12 education in the United States, principally. Most people who have large sums
of money, they do these things. And throughout
history, most people who have large sums of
money, other than being buried with it
like the pharaohs– what do they do with it? They do nothing
with it except they give it to the next
generation when they die. There’s nothing wrong with that. In my case, I concluded that
my children would be burdened by giving them each $1 billion. Now, they might not
agree with that view, but I thought that it
would probably be better to do something else with it. So if you then
say you don’t want to give all your money to
your children, you can say, all right, I’m going
to give it to a charity or a philanthropic organization. But most people actually wait
to do that ’til their deathbed. In other words, I’m amazed that
so many people give away 99% of their wealth when they die. I say to myself, why not give
it away while you’re alive? You can see what’s being
done with it, unless you’re so certain you’re going
to be a place where you can see where it’s being done. I’m not certain I
will be in that place. So I concluded that I
should try to give away the money while I’m alive. And Bill Gates, at that
time, called me and came to have lunch in my office. And he said, are you
starting a giving pledge? Give away half your
money when you’re alive or upon your death, but
you can keep half if you want. I said, I’ll tell you what. I’m going to give
away all my money. And I just got lucky. I’m going to give it back to the
country that made it possible. So I do what most people do– I give an enormous
amount of money to educational institutions. I’ve served probably
on more university boards than most
people, so I served 12 years on the Duke board– I was the chair of
the Duke board– 12 years on the Hopkins
board, 12 years now on the University of
Chicago board, and now I’m on the Harvard Corporation. So I’ve spent a lot
of time giving money to educational institutions,
and obviously if you’re on these boards, they
expect you to probably give some money if you’re
in a position to do so. And I give a lot of money
to medical research, as many people do
who have wealth. But I got lucky in one case. One time, somebody asked me
to go see the Magna Carta. It was on display. I didn’t know why it was
in New York, not in London. It turned out, there
are 17 extant copies, one in private hands. It was owned by Ross Perot. He was putting it up for
sale, for whatever reason. I decided that I would buy
it to keep it in the country. Of the 17 copies, 15 are in
British institutions, one in the Australian parliament. This was the only
copy in private hands, the only one in
the United States. And as all of you
may know, if you know the history of
our country a bit, the Magna Carta
was the inspiration for the Declaration
of Independence and for many the people
in our country revolting against England because they
said, in our colonial charters, we have the rights
of Englishmen, and those include the
rights of the Magna Carta. So I thought one copy
should stay here. So I bought the Magna Carta. I put it on permanent display
at the National Archives. So then other people
started saying, well, why don’t you buy copies of
the Emancipation Proclamation, the Declaration of Independence? I started doing that and
putting them on display where people can
see these copies, maybe be inspired to learn
more about the history of it. Then the Washington Monument
had earthquake damage. I decided to put up
the money to fix it. Then Monticello had problems,
Montpelier, Mount Vernon. And I started with
fixing these places, and I ultimately decided
that what I was trying to do was remind people of our
history because people know so little about our history. We don’t teach American
history much anymore. We don’t teach civics
that much anymore. Today, it’s hard
to believe, but 10% of Americans who are
college graduates think that Judge Judy is on the
United States Supreme Court, which is not yet the case. [LAUGHTER] So people know so little
about our history. Actually, it turns out 3/4 of
Americans cannot name the three branches of government. 3/4 of Americans cannot name the
three branches of government. So it’s a sad situation. So by having these things
in American history, I kind of do something I
call patriotic philanthropy– reminding people of the history
and heritage of our country. And I started one program
to educate members of Congress about history, where
once a month for the last six years, I interview a
great American historian about American history in front
of only members of Congress. It’s a dinner I host at
the Library of Congress. Doris Kearns Goodwin, David
McCullough, Jon Meacham. And a book with some
of the best interviews is coming out in October– it’s called The American
Story– that I’ve written. And one of them was by somebody
who was not a historian, but he wanted to be. His name was John Roberts. All of you probably know him. He’s a graduate of the
Harvard Law School, a distinguished graduate
and Chief Justice of the United States. I am the chairman of
the Smithsonian now and he’s the chancellor, so
we work closely together. So I interviewed him in
front of members of Congress, because members of Congress
don’t really know the Chief Justice that well. And so I said to him, well,
this is about history generally, but we can talk about the law. And he said, fine. I said, by the way, did you
always want to be a judge? And he said, no, I had no
interest in being a judge. Oh. Did you always want
to be a lawyer? No, I had no interest
in being a lawyer. Did you always want to
go to Harvard Law School? I had no interest in going
to Harvard Law School. So what did you want to do? He said, I wanted
to be a historian. I cared about history
more than anything else. I thought it was a great way I
could spend time in a library. I loved history. OK, and write books about it. And my father said, John Roberts
told me in this interview, that you won’t make any
money as a historian. It’s very boring, and nobody’s
going to read your books, and you sure you can support
a family as a historian? John Roberts said, well,
I don’t really know. I’m not sure. But I really want
to be a historian. OK. His father said, all
right, do what you want. Goes to Harvard College
and he majors in history. At the end of his
sophomore year, he’s coming back from
Indiana, spring break. He gets off at Logan Airport,
off the plane, gets in a taxi, and says to the taxi
driver, take me to Harvard. He said, oh, are
you a student there? Yes, I am. What are you studying there? I’m studying history. Taxi driver said, well,
that’s what I studied at Harvard, as well– history. And John Roberts
said, well, jeez. [LAUGHTER] Maybe, maybe this is not
the right profession for me. So he ultimately went
to Harvard Law School. But anyway, OK. So I came up with the concept
of patriotic philanthropy to kind of just say, I want
to give back to the country, and I’m trying to
remind people in America about our history on the
theory that if they learn more about history, we won’t make
some of the mistakes we’ve made already. HEATHER LEE: Great. So before I ask
my last question, I want to give a heads
up to the students that we’ll open up the floor
for questions pretty soon, and there are two microphones
on either side of the aisle, and you can come up
and ask questions. DAVID RUBENSTEIN: OK HEATHER LEE: So my last
question is, what’s the next big challenge for you? What’s next for you? DAVID RUBENSTEIN:
Well, I’m 69 years old. So when you get to be
69, the biggest challenge is staying alive. My law school
classmates are generally being retired from–
these law firms generally retire you
by a certain age now. So none of you are
thinking about this, but generally law firms kind
of say, by 65 or something like that, you have to retire. Accounting firms
retire you at 60. So my theory is that
when people retire you and you don’t have anything
to do, your brain can atrophy. Your body can atrophy. And I notice a lot of people
retire early– they drop dead. So I just kind of keep going. I’m trying to keep
as active and get as many things done
before my brain collapses or my body collapses. So none of you are
worried about this. You’re all young. But I’m trying to
get as much done. So I call what I’m doing– I’m writing an
autobiography now. It’s called Sprinting
to the Finish Line. I’m trying to get as much
done before it’s over. So as was pointed out
in the introduction, I now spend half
my time at Carlyle. I have a family office
in New York where I invest things
outside of Carlyle, and a good-sized team doing
that in venture growth capital things. And then I chair
the Kennedy Center– the Performing Arts Center
in Washington– and I chair the Smithsonian,
and I chair the Council on
Foreign Relations, and the Economic
Club of Washington. And I have a TV show where I
interview prominent people. Some of you may have seen it. It’s called The Immodestly
Named David Rubenstein Show. It’s on Bloomberg TV. I told them, don’t
name it after me. It’s not a good thing
to have a name called The David Rubenstein Show– a long, ethnic Jewish name
was not going to work. And Mike Bloomberg, oh, I
don’t think that’s right. I think it’ll work. [LAUGHTER] So anyway, I do that, and then
I have a lot of other programs where I’m trying
to promote history. And I’m very involved with a
lot of philanthropic efforts, and serve on a number of
boards, and so I’ve got a couple of books coming out. And so I’m trying to keep busy. And my next biggest
challenge, I guess, is just staying healthy to
get all these things done before basically it’s too late. HEATHER LEE: Great. Thank you. And with that, we would
like to open up the floor for some audience questions. DAVID RUBENSTEIN: All right. Questions? HEATHER LEE: If you could please
come up, there’s microphones– DAVID RUBENSTEIN:
You have a mic? HEATHER LEE: At either side. DAVID RUBENSTEIN:
Here’s a question. HEATHER LEE: Yeah. AUDIENCE: Hi. Thank you. You mentioned that at least at
the beginning of your career at Carlyle, you were
responsible for fundraising while some of your
MBA friends were responsible for the finance
aspects of the business. I wonder if you could explain
a little bit more about that. When you’re out there
fundraising for a fund, aren’t investors asking
you specific questions about the fund strategies
and things like that? DAVID RUBENSTEIN: OK. In the early days
of fundraising, I could go out and say,
this is our track record, and I would talk to them
about the firm and so forth. Today, because people are
so intent on due diligence, they will say, OK, we’ve heard
your story, Mr. Rubenstein. Great. We like you. We know you. Bring in the people who are
actually running the fund. So you have to do that. But if I took all the
people, or my successors who are doing fundraising–
if I took, or they took, the people running the funds
to every single meeting, the people wouldn’t have
any time to run the fund. So you basically try
to narrow it down to figure out who’s interested
in having a serious discussion, and then you can trot
out the actual deal team. So a fundraiser today- I
can go to some people who’ve been investing with
me for 30 years, and I say this is a great fund. I’m putting a lot of
my own money into it. They would say, OK, I trust you. But that’s true of individual
investors, family offices, to some extent. But if you have large,
institutional investors that have fiduciary responsibilities
to large numbers of people, they always need to have
a gatekeeper consultant and they need to do a
lot more due diligence. But what you say
is generally right, in the sense that you
need to have the deal teams actually in front of the
people that have the money. AUDIENCE: Thank you. HEATHER LEE: And we’ll
alternate and take a question from this side. AUDIENCE: Thank you. On a personal note,
making a lot of money has admittedly lost
some of its attraction to us as a generation who grew
up with a lot more advantages than maybe our parents did. So what are the
implications that you see for high commitment jobs– DAVID RUBENSTEIN:
The question is what? AUDIENCE: What are
the implications that you see for high commitment
jobs like in private equity? And secondly, what
is your advice for us as a generation to prioritize
the many opportunities that we have? DAVID RUBENSTEIN: OK. I see. I couldn’t– what
was the question? HEATHER LEE: So
our generation is less interested in making
money than perhaps our parents’ generations. Given this, what
would you think is the attraction of some jobs like
private equity, where people are making a lot of money? DAVID RUBENSTEIN:
Well, every generation is somewhat different. And generally, younger people
are probably not as focused on the making of money as
saving the world and other kinds of things that’d be nice. Generally, though, we find that
people– if they get married, they have families,
they have children– they tend to focus
on the same things that previous
generations have done. So at the early ages, when
you don’t have maybe as many responsibilities, you can
focus on ESG-related concerns or environmental
concerns, and there’s nothing wrong with that. We worry about that, as well. I don’t think that
people necessarily have to go make money to be happy. There’s no evidence that the
happiest people in the world are the wealthiest people. It’s maybe the
opposite, that some of the most miserable
people in the world are the wealthiest
people I know. Doesn’t necessarily
buy you well. But I do think that
if you make money, you can do things
with it that can make the world a slightly better
place through philanthropy and so forth. But there’s no evidence that
people that don’t have money aren’t able to also have a
favorable impact on the world. Many people have done great
things with having no money. Ralph Nader has done a lot
of things having no money. A lot of people can
be social activists or do great things
without money. I’m not telling people that this
is the only thing they should do, but it does
have the advantage that you can be
well-compensated, as you can in being a tech startup
that’s successful. And then you have the
freedom to do what you want. And freedom is a wonderful
thing if you can not have to worry about money every day. AUDIENCE: Thank you so much
for being here, Mr. Rubenstein. Thank you for
everything you’re doing for Duke and for the world. I was hoping to learn
more about Declaration Capital and the strategy
you mentioned– venture, you mentioned growth. I’m also very curious
about especially this idea of taking capital
from outside sources, and how limited
partners of Carlyle might view such efforts. DAVID RUBENSTEIN: Who asked
you to ask that question? No, I’m just kidding. [LAUGHTER] That’s a tricky,
complicated situation. Let me explain. I didn’t have a family office. Many of my peers who
started private equity firms made a lot of money,
and ultimately, they decided that they
wanted to diversify– not put all their money
in their Carlyle fund, in their Apollo
funds, or KKR funds, or Blackstone funds,
whatever it might be. I didn’t do that. But then eventually, people
kept saying, how come you you don’t have a family office? So I got what I call
family office envy. Everybody had a
family office but me. So I said, I’m going to start
a family office so people won’t be able to ask me if I have
a family office any more, and I say no. So I started one. And I’m looking at things– this is my money. I committed a large
amount of my money to it. And it’s deals that
Carlyle wouldn’t do. Every deal has to be
approved by Carlyle– it’s not a conflict
and so forth. But Carlyle’s not going
through some venture deals, or some seed capital deals,
or some growth capital deals in certain industries. So I’ve been putting
money into it. If I went out and raised money
to supplement what I have, I’d have to get it
approved by Carlyle, and it presumably
would have to be investors that are
not Carlyle investors or something like that. But there are a lot
of families that don’t want to invest
in large private equity firms that will invest
alongside another family office. So I haven’t had to
address that directly, but the limited partners
who invest in Carlyle– they don’t have a problem with
my investing some money outside of Carlyle, because everybody
understands the diversification principle. So people who
invest with Carlyle, they’re not going
to be upset that I’m investing somebody in things
that Carlyle doesn’t do. That hasn’t been a big issue. It may be a bigger
issue if I go out and raise money for
my family office and I have to really
be careful that I’m not competing with Carlyle
for deals or for investors. AUDIENCE: Hey. Thanks a lot, David, for
sharing your experience with us. I had two quick questions. One is, I wanted to get
your thoughts on how do you see technology impacting
the private equity industry and the broader
investment industry in general? And the second question is,
given your unique perspective across business and
political backgrounds, what’s your take on the China-US
relationship going forward for the next decade or two? DAVID RUBENSTEIN: The
China-USA relationship? AUDIENCE: Relationship, yeah. Sorry. DAVID RUBENSTEIN: On technology,
historically in the buyout world people,
laughed at the idea that you could do a technology
buyout because people say technology changes so quickly. So if you’re holding
something for five years, the technology could
be obsolete and so you’re stuck with
an obsolete company. So for many years,
the general wisdom, conventional wisdom was
technology buyouts don’t work. Then a firm named
Silver Lake got started, and they did a couple technology
deals that did extremely well. And people said, well,
maybe that’s not so true. Maybe you can, if you
know what you’re doing, do some technology buyouts. And they can work, if you
know what you’re doing. And then other people began to
notice and say, well, if Silver Lake can do it, we can do it. And so now you see an enormous
number of buyout deals being done in technology. In fact, Carlyle probably has– one year, I think maybe last
year– maybe 50% of our deals were technology-related
kind of buyouts. And so I think buyouts
are increasingly done in the technology industry. And there are three
aspects of technology. One is, can technology help
you analyze a deal better than another deal? Artificial
intelligence hasn’t yet come full circle so
that it can really help people analyze
whether a company’s going to be a good deal to buy
or not, but at some point, it probably will. Secondly, the companies we buy– increasingly, we make
them more efficient by giving them better
technology and better access to better technology. And then the companies
we buy may themselves be technology companies. So technology is
increasingly important. And as one of my
partners said recently, every deal today is a
technology deal– every deal. In terms of the
US-China relationship, it’s the most important
bilateral relationship in the world. Carlyle is a gigantic
investor in China. I go there four or
five, six times a year. We’ve got a large
percentage of our workforce doing deals in China. It’s the best place in
the world to invest, other than the United
States, in my view. The US-China relationship has– as all of you probably
know, Graham Allison has written a book,
called Thucydides’s Trap, where he basically says that
rising powers like China ultimately go to war with,
in most cases, the presiding power. I don’t think that will
happen in this case. But there’s no doubt that
China and the United States have the same
relationship the two most important
economic powers have for every generation,
which is they’re going to clash with each other. President Trump has
brought this to the head by trying to negotiate
a deal on trade, and tariffs, and other
technology-related things. I think he will get a deal done. It’s not going to
solve all the problems. The enforcement’s going
to be complicated. But I do think the US-China
relationship will always be complicated as long
as you have the two most powerful economies in the
world, because they’re all competing for customers
and other advantages. I think that the
trade deal with China will get announced sometime
soon, would be my guess, as the president has said. And I suspect it
will be reasonably well received by the markets,
but it won’t be perfect. HEATHER LEE: I want to be
mindful of Mr. Rubenstein’s schedule, so we have time
for one last question. DAVID RUBENSTEIN:
One more question. OK. AUDIENCE: Yeah, thank
you Mr. Quick question. So for the lawyers
in the room, what is your advice as
to how we should approach our legal
careers in the law firms? And especially,
what skills should we cultivate in the law firms to
become helpful and effective PE fund advisors. DAVID RUBENSTEIN:
Well, people call me all the time who
are lawyers and say, how do I get out
of the legal world and go into the
private equity world? [LAUGHTER] If you love the legal
world and you like it, and you like what lawyers
do and you’re good at it, I don’t think there’s anything
wrong with being a lawyer. I think it’s a very
good profession. There’s no doubt, unless
you’re a plaintiff’s lawyer and you’re one of the
most successful plaintiff lawyers in the
country, you’re not going to make the
kind of money you can if you’re a very successful
private equity person. But money doesn’t mean
everything– is not necessarily a sign of success. I think people want to
get out of the legal world and get in the
private equity world– I tell them, practice
law for a few years. Corporate law probably
helps more than litigation. Practice for a while. Use your law degree. My son is a JD/MBA
candidate at Stanford, and he doesn’t intend
to practice law. He wants to go into an
different area of business. But I think a law degree
is very helpful to him, as I told him for a long time. I think if you
practice law, you’ll inevitably make
contacts that will lead to maybe somebody making
you an offer to go work in a private equity firm. Jumping– the
transition’s not easy, but it’s more easily
done when you’re younger. The skills that are useful? The same skills that
I think are useful all throughout
professional life. Number one, hard work. Number two, perseverance–
not taking no for an answer. Number three, learning
how to write well. Learning how to
communicate orally well. Learning how to lead by example
or being an effective leader. Being ethical. Learning how to get along with
people and share the credit. Learning how to be humble and
have some humility and not arrogance. And also, I guess, learning how
to use the money that you’re going to make, and have
a reasonable purpose for the money you’re
going to make, and do something useful with it. And have reasonably good outside
interests and a balanced life. But I think as a young
lawyer, I would just say, learn the skill set
and learn how to write well. Learn how to get
along with people. Learn how to share the credit. And ultimately, something
probably good will happen. HEATHER LEE: Well, with
that, thank you so much– DAVID RUBENSTEIN:
Thank you very much. HEATHER LEE: –Mr. Rubenstein. This has been extraordinary. [APPLAUSE] DAVID RUBENSTEIN: Thank you. Thank you all.


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