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FEATURES/Cross Border | Oct 29, 2012 | 10794 views

The Kings of Private Equity

Private equity is the most politicised, scrutinised, vilified industry in America. Yet David Rubenstein and the Carlyle Group, once poster children for creepy Beltway connections, have managed to both avoid the criticism— and rake in billions
The Kings of Private Equity
Image: Tim Pannell for Forbes

H

ere’s a typical David Rubenstein Wednesday. Waking in Philadelphia, he joins Chinese businessmen to attend a Wharton programme set up jointly by the Chinese government and the Carlyle Group, the massive Washington, DC-based private equity firm he helps run. Then he hops on a Carlyle investment committee call to discuss imminent deals. By midday, he’s back in the capital, lunching at the White House with an old friend, National Security Advisor Thomas Donilon, before returning to the office to prepare with some of his dealmakers for Carlyle’s upcoming investors conference.

In the evening, he’ll give a speech to the mutual fund industry’s lobbying group. And the rest of the week continues apace, from talking with an investment group in Michigan to interviewing prospective hires and dining with Jamie Dimon in New York. Come Saturday, Rubenstein has a down day: Teaching a Princeton class and hosting a dinner featuring an expert on how pandas reproduce (he pledged $4.5 million to the National Zoo in 2011 to promote panda procreation).

At 63, Rubenstein uses his plush Gulfstream G550 250 days a year. He says he enjoys the busy lifestyle, but behind almost every Rubenstein dinner, speech and self-effacing comment is something more: The prospect of a sale. This is not the kind of thing they teach at Harvard Business School, though Rubenstein, the 250th-richest person in the US, with an estimated net worth of $1.9 billion, believes it ought to be. “I am on some 30 nonprofit boards, which I love and to which I give a lot of money, but the networking is helpful to my firm,” Rubenstein explains. “I can help build the firm because of the contacts I make.”

With $156 billion under management, Carlyle has more private equity funds, investors and assets than any other firm, including Blackstone Group, which manages $190 billion but has large real estate and fund of funds operations to complement its private equity group. Carlyle owns 209 companies, more than any other buyout shop, ranging from Hertz to Mrs Fields cookies, and it has distributed $52 billion to its private equity investors since inception. Rubenstein and his two long-time partners, William Conway Jr and Daniel D’Aniello, all rank near the top of Forbes’ inaugural statistical ranking of the top private equity dealmakers, which places a big emphasis on profitable investment exits and fundraising.

“David is the most prolific fund- raiser maybe the planet has ever seen in any field—and Bill Conway is one of the greatest investors I have ever met,” says Jimmy Lee, the JPMorgan Chase banker who has played a key role in the proliferation of the leveraged-buyout industry. “Those are the two businesses of private equity: Raising money, because if you don’t raise money there is no business, and investing the money wisely, because if you don’t invest wisely, you can’t raise the money.”

And while the three Carlyle co- founders have been at the buyout game together for 25 years, they’re not slowing down. Carlyle has been buying companies at a frenzied pace, striking $16 billion in deals in 2012, more than any other private equity firm. With a string of recent big announcements, like a $3.3 billion deal for Getty Images and a $4.9 billion purchase of DuPont’s car paint business, Carlyle is leading the private equity business in the biggest barrage of dealmaking seen since before the 2008 economic meltdown. More fundamentally, in May, their firm conducted an IPO, part of Rubenstein’s plan to extend Carlyle into products like funds of funds and credit investment management—and create a more diversified financial institution that can survive without him, Conway and D’Aniello.

And as all this has happened, this firm, which not too long ago was demonised by filmmaker Michael Moore and has been the subject of elaborate conspiracy theories, largely escaped the controversies currently dogging the industry as a whole. Firms like KKR and TPG have reportedly been subpoenaed by New York’s attorney general as part of an investigation into the con- version of private equity management fees into more lightly taxed carried interest—a practice Carlyle has never employed. Private equity titans like Steve Schwarzman and Leon Black still carry the stigmas of their million-dollar birthday parties, while the former became an even bigger lightning rod after he compared efforts to raise taxes on private equity firms with Hitler’s invasion of Poland. And, of course, President Obama has bashed the industry in the course of vilifying Bain Capital, the firm started by his opponent, Mitt Romney.

By contrast, Rubenstein is pretty sure Obama likes him. It was Carlyle that worked with the White House to buy a Philadelphia oil refinery in September, saving 850 union jobs and averting a fuel-price increase in the Northeast. When an earthquake cracked the Washington Monument last year, Rubenstein donated $7.5 million to help fix it. Rubenstein was the first private equity executive to sign the Giving Pledge, promising to contribute half his wealth to philanthropy. Unlike other publicly traded firms like Blackstone and Apollo Global Management, Carlyle’s stock sells above its IPO price.

Because of all this, Rubenstein is both the industry’s friendliest face—and its best defender. He thinks Romney’s big mistake was trying to argue that his private equity work created jobs, instead of just focusing on what private equity was made to do: Manufacture investment returns. “People generally don’t love investors and people who have made great wealth,” says Rubenstein. “In the past, no investor ever asked me how many jobs I created; they never cared. But they did say, ‘Give me my rate of return.’ ” Rubenstein adds: “We have made a lot of money for our investors, and most of them, not all, are big public pension funds who seem to like the returns.”

This article appeared in the Forbes India magazine issue of 09 November, 2012
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