Privately Speaking: David Rubenstein of The Carlyle Group

David Rubenstein is known, among other things, for being a skilled interviewer. In fact, the week we meet in the The Carlyle Group’s New York offices, he is announced as the host of a new series on Bloomberg Television in which he will interview big names from the business community on a peer-to-peer basis. His first interviewee: the world’s richest man, Bill Gates.

PEI is not exempt from this treatment: our interview begins with Rubenstein quizzing me on the development of the magazine since we first sat down with him for our inaugural ‘Privately Speaking’ interview. Conscious that our time is limited, I turn the tables as swiftly as possible, wanting to get a sense from him how – in those 15 years – he believes the industry has changed for the better.

“At that point, private equity was a little child with his nose pressed up against the door of the candy store,” Rubenstein says. He then steams into a rapid-fire history of private equity’s development since the early 2000s: its accession into the “money management establishment” and its realisation that with financial power comes responsibility. A discussion ensues about the integration of environmental, social and governance issues into institutional private equity investment.

Rubenstein is not starry-eyed about the benefits of applying ESG principles to private equity investing. In fact, he seems not to fully subscribe to the now-fashionable view that good ESG practices inevitably lead to better returns.

“There are some people who believe that good ESG practices lead to a better rate of return; we won’t resolve that issue in this interview, but good ESG practices can – not always, but they can – lead to better returns in time.

“In the early days some firms maximised returns at the expense of ESG issues. Investors wanted the highest rate of return and didn’t put any pressure on the firms in terms of environmental issues, jobs offshoring… Maybe they should have, but they didn’t.”

If Rubenstein is not fully convinced the application of ESG principles drives higher returns, he is adamant it is necessary from a moral standpoint and to ensure the longevity of the firm.

The benefits of operating in an environmentally and socially responsible way should not, he says, be measured in terms of IRR. Instead it should be apparent in whether investors continue to entrust you with their capital, company boards will deal with you as buyers and talented individuals want to join your firm.


In terms of raising private equity capital, Carlyle remains a powerhouse. It ranked fifth in this year’s PEI 300, which was published in May, with a five-year fundraising total of almost $26 billion. A rough calculation suggests if the numbers were re-run now, Carlyle would leapfrog Advent International and Warburg Pincus to sit in third, behind its listed peers, KKR and Blackstone. Across its four business lines, which include real assets, credit and fund investing, Carlyle now has just shy of $180 billion in assets under management. This puts it between Blackstone ($356 billion) and KKR ($131 billion).

Given the progress the firm has made, does Rubenstein regret anything? “I’m like the fisherman who likes to talk about the fish and the deals that got away,” he says. “When Mark Andreessen was building what became Netscape, he came to us for early investment – before we even knew what the internet was – we turned him down.” Netscape was ultimately sold to AOL for $10 billion in 1999. “We also helped Jeff Bezos in the early days of Amazon and got some stock, which we sold at the IPO [in 1997]. Today it would be worth $3 billion or $4 billion.”

Beyond individual deals, Rubenstein suggests he and the other two founders of Carlyle – Bill Conway and Daniel D’Aniello – “probably should have tried fewer things and focused only on those businesses where we had clear expertise and could scale quickly”.

Rubenstein ranks Carlyle’s corporate private equity business as being “as good as anybody’s in the world”. Alongside that, however, Carlyle’s credit business has not yet scaled as he would have liked.

The firm has credit assets of around $25 billion, which in Rubenstein’s words are “in relatively narrow niches” and mainly in the US. “It is still undersized compared with where it could be; I’d like it to be more global and we are working to make that happen.”

“I don’t play golf. I don’t drink. I don’t gamble. This is what I do. I would probably drop dead of a heart attack if I ever took up relaxation. This is my hobby.”
David Rubenstein, speaking to PEI in 2001

Despite his fishing analogy, Rubenstein does not seem to allocate much time to regret. “There are now 6,555 private equity firms; how many have brand names that are recognised all over the world? Probably about a dozen. We started a firm with a modest capital base of $5 million in a city not known for being a good one for business building, DC, with three people without any investment banking experience and we built a very good company. We have made mistakes along the way and will make more in the future, but generally I am reasonably happy with where we are.”

Another business line with room to grow is the ‘investment solutions’ unit, which provides fund investment and portfolio construction in private equity and real estate. This part of the business is being built around fund of funds business AlpInvest, which Carlyle acquired in 2011. In 2013 it added Metropolitan Real Estate Equity Management, a real estate fund investor with $2.6 billion under management.

Until its acquisition by Carlyle, AlpInvest had invested capital on behalf of just two clients, Dutch pension funds APG and PGGM.

The challenge of making the integration work, says Rubenstein, was instilling a fundraising culture into a business that had previously raised money from two institutions both based in the same city. “A fundraising culture is more than just hiring someone who knows how to raise funds; it is more than sticking your performance numbers on the wall and saying, ‘Look how good I am.’ You actually have to convince investors to give you additional capital.”

If anyone is qualified to introduce a fund-raising culture, it is Rubenstein. Of the three co-founders of Carlyle, it was he who took primary responsibility for marketing the firm’s capabilities to investors.

“In my opinion, one of the key reasons that Carlyle has been as successful as it has been is David’s personal enthusiasm for hitting the road and personally meeting with potential investors,” says Kevin Albert, who led the pioneering fund placement team at Merrill Lynch and now heads global business development for fund investor Pantheon.

“It is not only extremely flattering to potential investors to have someone of his stature travel to see them, but it allows David to hear first-hand what they are thinking about and how to help them accomplish their objectives.”

Rubenstein also hired some of the “best salespeople” from Albert’s team at Merrill Lynch, he recalls.

Rubenstein carlyle 411 b

How has AlpInvest adapted to the fund-raising life? Rubenstein declines to give specifics: “I think that has worked reasonably well, but it’s an ongoing thing.”

Hard numbers around the unit’s fundraising progress are not available. As of June this year, the solutions business reported a total AUM of $46 billion, including $14 billion of “dry powder”.

Progress seems to be being made. AlpInvest is understood to have started raising its latest secondaries fund, with a hard-cap of $6.5 billion. It is also building a team to enter the niche area of investing in private equity general partners, buying minority stakes in established mid-sized GPs. It has not yet started to raise a fund, according to sources, but this is in the pipeline.

The Rubenstein who spoke to PEI 15 years ago split his time between raising money, recruiting people and “to some extent being the face of the firm”. Today the firm has a large fundraising team; nearly 40 at the last count. So, as Rubenstein puts it, he is “not as indispensable”.

In the week before our meeting, however, the 67-year-old has had face-to-face appointments with investors in South Korea, Ohio, Los Angeles, Boston and New York.

And since May 2012, Rubenstein has had another set of investors to keep happy: holders of Carlyle’s publicly traded stock. Carlyle listed in May 2012 at $22 per share. In October 2016, it was trading around $15. Does Rubenstein regret listing the business? “No,” he says. “But I do regret that I have been unable to convince people that our shares are worth a lot more than they value them at.”

Rubenstein equates the performance of Carlyle’s shares to those of its close peers, Blackstone and KKR. Blackstone, for example, listed in New York in 2007 at $33 per share, and in late October it was trading at around $24. KKR has a slightly more complex public markets story, having shifted entities from Amsterdam’s Euronext to the New York Stock Exchange in 2010. “We produce a lot of dividends for investors in our funds and for investors in our stock. We are all raising an enormous amount of money, all much bigger than we were when we listed and virtually every fund we raise is oversubscribed, but we still haven’t yet convinced people it’s a good buy.”


Rubenstein also has a long list of philanthropic and non-profit commitments. Notably, he is among the 156 signatories to The Giving Pledge, the initiative founded by Gates and Warren Buffett to inspire the world’s wealthy to dedicate the majority of their net worth to philanthropic causes.

This sort of action is an “important contribution that anyone can make to society”, he says, “but it is not antithetical to what I do at Carlyle”.

Certainly it is worth the while of anyone who runs a giant asset management business to rub shoulders with individuals who control a lot of capital. Gates and Buffett have not yet invested in any of Carlyle’s funds, but other contacts subsequently have, he says, without identifying them. Similarly, being the face of Carlyle – and having a TV show – is not just an amusing distraction. It has been an important door opener. “I don’t find it difficult to get a meeting with anyone, but 15 years ago, people would have said, ‘Who’s he?’”

“We have identified some very good people likely to be successors, but we have not yet put in formal plans”
David Rubenstein 

Before the interview, I approached a number of contacts to see what they would ask Rubenstein. Two themes recur, the first of which is returns; will they continue to be good? “That depends on your definition of good,” responds Rubenstein, who frames the performance of the asset class in relation to what else is on offer to institutional investors. “The most important number has always been the gap between the median net IRR and the S&P 500. As long as there continues to be a gap of at least 500 basis points, people will keep coming to private equity.”

We are seven-and-a-half years into a growth cycle, which means we are due some sort of slowdown likely to be in the next couple of years, says Rubenstein. So what is Carlyle doing in anticipation of this? Raising money to invest when prices do come down. Sure enough, the week of our interview, the firm announces it has raised $3.6 billion for its first “long-dated” private equity fund.

The second theme was succession. In another timely move, UK magazine The Economist publishes an article entitled ‘The Barbarian Establishment’ just after our meeting, which highlights the seniority of those running the world’s largest firms, including Rubenstein, D’Aniello and Conway, as well as those at KKR, Blackstone and Apollo.

The issue of transition is “something we spend a lot of time thinking about”, says Rubenstein. “But we don’t have anything specific to say on it. We have identified some very good people likely to be successors, but we have not yet put in formal plans.”

Likely candidates for leadership, say sources, include Kewsong Lee and Peter Clare, both deputy chief investment officers for corporate private equity, and Glenn Youngkin, the firm’s president and chief operating officer, all in their early 50s.

The challenge in any company built by an entrepreneur is to find someone with a similarly creative mindset, says Rubenstein.

As Rubenstein reaches the age when most people retire, he seems to have added more to his plate. He expresses admiration for his Giving Pledge peer Buffett, who is still working at the age of 86. He also has a theory that as soon as one retires and slows down, one’s immune system slows down, making illness more likely.

Does this mean we can interview him in another 15 years’ time? “Sure,” he says.