In September 2003, PEI arranged to be the fly on the wall at a very interesting meeting.

It took place at the New York offices of The Carlyle Group. Up from Washington DC that day was David Rubenstein, Carlyle's co-founder and the de facto pitchman for post-boutique private equity. Several days earlier, one of Rubenstein's colleagues revealed to PEI that Rubenstein had only just become a fan of email. And there he was on a sunny Friday afternoon, hunched over a computer in a sparse, borrowed office, hammering out messages to his growing network and preparing for his firm's annual investor meeting, his communications presumably infused with the zeal of a newly converted internet user.

Stephen Schwarzman, co-founder of The Blackstone Group, walked through the glass doors of the lobby. The two greeted each other warmly, and gamely posed for a round of photographs, complete with the Chrysler Building gl eaming in the background.

Rubenstein deadpanned that the shooting must be in preparation for an episode of US television show “Queer Eye for the Straight Guy”.

Unprompted, the talk turned to dealmaking.

Blackstone had just clinched a deal to acquire water and chemical processing company Ondeco Nalco from French-Belgian conglomerate Suez for $4.2 billion. At the time it was the third-largest leveraged buyout in history, behind RJR Nabisco and TRW.

Rubenstein asked Schwarzman how it was that, having beat out rival bidders Goldman Sachs and Apollo Advisors, Blackstone invited both into a consortium to own what was renamed Nalco.

“Diversification is a good thing,” Schwarzman said. “You can have a huge winner” on a concentrated investment, “but if it goes wrong on you, you really destroy the ongoing nature of your business. It's imprudent for us to put out too much capital in one transaction, given the size of our fund.”

The Nalco consortium shared a $1.1 billion equity cheque. Two months later they paid themselves a $450 million dividend. The company was taken public a year later, raising $800 million.

Blackstone now lists the investment on its website as “realised”.

Commenting on the fact that private equity firms were beginning to increasingly invest alongside each other, Rubenstein said: “I don't see the animus between large private equity firms that you might see in the industrial world.

Everybody realises that we're going to live to play another day and it's best to stay on good terms with people. The way this industry has evolved, you can be sitting in a conference room with somebody from Blackstone and talking about working on a deal together, and then on another part of the same floor somebody can be talking about how to beat Blackstone in another deal.”

The two men sat down at the end of a large conference table and continued their conversation. They professed amazement at the profile private equity was developing within corporate America. Both had recently had dinner with General Electric chief executive Jeff Immelt, along with several other buyout leaders, ostensibly to discuss ways GE might partner with private equity firms.

Schwarzman said of the evening: “The underlying perception was that we aren't just financial institutions, but relatively giant industrial complexes. The evolution of the private equity business over the past 20 years has been enormous. To be sitting in a room with the chairman of General Electric Company talking what we did, and on such a large scale, is actually sort of astonishing.”

Rubenstein mentioned two former GE heads and added: “I doubt that either Jack Welsh or [Reginald] Jones ever called the heads of private equity firms together, because they were too small a potential source of revenue for GE.”

In fact, the following year Carlyle would end up purchasing Garrett Aviation Services from GE.

Blackstone, too, has interacted with GE on a number of levels in the subsequent years, including a considered bid with Chinese appliance maker Haier for GE's appliance unit.

THEN AND NOWHow Carlyle and Blackstone looked in 2003 vs. 2008

The Carlyle Group 2003 2008
Total AUM $16.4bn $89.3bn
Most recent PE fund Fund III ($3.9bn, 2000) US Fund IV ($7.8bn, 2005) Europe Fund III
(€5.4bn, 2006)
Other strategies Energy, venture, real estate, high-yield Energy, growth capital, real estate, high-
debt, turnaround yield debt, infrastructure, distressed, mez-
Offices US (6 offices), Bangalore, Barcelona, US (8 offices), Barcelona, Beijing, Beirut,
Frankfurt, Hong Kong, London, Cairo, Dubai, Frankfurt, Hong Kong,
Luxembourg, Milan, Munich, Paris, Istanbul, London, Luxembourg, Madrid,
Seoul, Singapore, Tokyo Mexico City, Milan, Mumbai, Munich, Paris,
Sao Paulo, Seoul (2 offices), Shanghai,
Singapore, Stockholm, Sydney, Tokyo,
Employees Roughly 500 “More than 500 investment professionals”
External shareholders CalPERS bought 5.5% stake in 2001 Mudabala bought 7.5% stake in 2007
The Blackstone Group
Total AUM $25bn $119.4bn
Most recent PE fund Fund IV ($6.45bn, 2002) Fund V ($21.7bn, 2007)
Other strategies Mezzanine debt, real estate, Mezzanine debt, real estate, collateralized
collateralized loans, funds of hedge loans, funds of hedge funds, financial advi-
funds, financial advisory sory, placement agent, Indian mutual funds,
infrastructure, Cleantech, hedge funds
Offices New York, London, Hamburg US (9 offices); Beijing; London; Paris;
Mumbai; Hong Kong; Tokyo
Employees Roughly 500 1,250
External shareholders AIG bought a 7 percent stake in 1998 China Investment Corp. bought a 9.4%
stake in 2007; Blackstone is now listed on
the NYSE