Lunch with the FT

March 22, 2013 1:42 pm

Lunch with the FT: David Rubenstein

The co-founder of the Carlyle Group is worth an estimated $3bn. Over lobster bisque, he talks about his plans to give away the bulk of his fortune
Illustration by James Ferguson of David Rubenstein©James Ferguson

Very few people have seen David Rubenstein without a tie. Today is no exception. Though it is early on a Sunday and New York is still recovering from a snowstorm that has dumped about a foot of white stuff on the city, he is formally dressed in a blue suit with an elegant red Hermès tie. Rubenstein, co-founder of private equity firm Carlyle, does not do casual.

His approach to our meal appears similarly businesslike. “I regard food as fuel,” he tells me by way of greeting. “I am not a brunch person.”

Rubenstein, 63, has all the trappings of a billionaire; house in Colorado, house on Nantucket, $65m Gulfstream private jet, account at the Four Seasons restaurant in New York, favoured watering hole of the city’s private equity tycoons. But in other ways he stands out from the crowd. His scientific approach to fundraising transformed industry thinking and, while Carlyle wasn’t the first private equity firm to go public, it was Rubenstein, eight years ago, who was the first to muse about the benefits of doing so. He was also quick to embrace publicly the 2010 Bill Gates-Warren Buffett “Giving Pledge” that called on the US’s wealthiest to give away the bulk of their fortunes – “although I am a small fish compared to them”, he hastens to point out.

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Lunch with the FT

Rubenstein remains one of the most articulate defenders of private equity around. “People used to think that private equity was basically just a compensation scheme but it is much more about making companies more efficient,” he says rapidly, adding: “I talk much more quickly than you can ever write.” He pauses briefly as I scribble furiously. “It is about aligning management and owners and bringing value to shareholders. Our focus on making companies more valuable has benefited the whole US economy.”

Yet he seems oddly detached from the gilded lifestyle it has paid for. He manages to communicate that if he cares about his net worth, $3bn according to Forbes’ latest rich list, it’s not because he loves money but because he loves to give it away. At this point in his life, he says, money has become a means for him, not an end in itself. Describing himself as a “patriotic philanthropist”, he then instructs me “not to give Carlyle investors a sense that I am not working for them full time as well”.

At his suggestion, we are meeting at the Carlyle Hotel on Madison Avenue on the Upper East Side, where designer boutiques and art galleries line the street on which piles of neatly shovelled snow glitter in the sun. The Carlyle is also, of course, the namesake of the private equity firm Rubenstein helped to establish in 1987. He and his co-founders Dan D’Aniello and Bill Conway chose the name because it sounded British and opulent and everything they were not.

Twenty-five years later, the Carlyle Group has $150bn in assets under management and is among the most successful alternative investment firms, investing in real estate and hedge funds as well as taking companies private, improving them and then either selling them or taking them public, and making enormous money in the process – last year Rubenstein earned $135m. Carlyle’s share price hit its all-time peak recently, before falling when earnings weren’t as spectacular as analysts had expected. “I really wonder if we can keep it up,” he says.

According to a colleague who worked with him then, Rubenstein was painfully shy earlier in his career. “He used to keep his eyes focused only on his shoes during conversations but now he looks at your shoes. That’s progress.” Today, he shows no such awkwardness and is a polished performer. His tone is flat but his delivery is quick-fire and self-deprecating, a bit like Woody Allen but in a better suit.

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Lunch with the FT

As part of celebrations to mark the Financial Times’ 125th anniversary this year, Penguin is publishing Lunch with the FT: 52 Classic Interviews, which includes encounters with world figures from Angela Merkel to Zaha Hadid. The book is available as a hardback and ebook. For more on the anniversary, visit www.ft.com/12

After about 30 minutes, I am ravenous but Rubenstein appears indifferent as to whether he eats or not. Finally, we are handed menus with a flat charge of $65, much to his distress. “I would hate to have the most expensive lunch in the history of the FT,” he says.

Since neither of us drinks, I assure him this is not likely. He requests lobster bisque and a smoked salmon and trout appetiser as a main course, while I opt for the bisque and an omelette with vegetables. Neither of us eats meat and both of us refuse the champagne even though, as the captain points out, it is complimentary. Rubenstein turns down an offer to be brought a larger portion of the fish, and declines any offer of bread. The soup arrives almost instantly.

So when did he decide he would be not just a capitalist but a philanthropist? He explains that about a decade ago he saw an article that said the average white American male would live to be about 82, which meant that he had already lived two-thirds of his life. He concluded he didn’t have much time left. “I realised how rich I had become and I asked myself, ‘Do I really want to be the richest person in the cemetery?’” he recalls.

Behind his determination to give back is a realisation that he has been fortunate. He grew up the only child of a Baltimore postmaster who never made more than $7,000 or $8,000 a year. His grandfather had left Russia with his family and arrived in England, thinking he had bought a ticket to the US. For Rubenstein, roots are never far from his mind. Once, as his aircraft departed Moscow on a particularly grey day, he turned to a staffer and said, “My ancestors were right to leave this place.”

Neither of his parents went to college and his mother, who married his father when she was 17 after a single date, never finished high school. “I was born 18 months later,” Rubenstein says. For 65 years, he says, his parents never spent a single night apart – a big contrast to his own peripatetic life. By his reckoning, he uses his jet about 240 days a year.

. . .

He went first to Duke University, North Carolina, and then, despite his mother’s desire that he become a dentist, to law school at the University of Chicago. “She thought it brought almost as much prestige as a doctor but more civilised hours,” he says. His goal wasn’t to make a lot of money but to go into government. “When you are blue-collar, you think realistically.”

In 1973, he joined New York law firm Paul, Weiss, Rifkind, Wharton & Garrison, where he worked for two years before moving to Washington. There, after a short stint on the staff of the Senate Judiciary Committee, he ended up working first for Jimmy Carter’s 1976 presidential campaign and then in the White House, where he was responsible for getting raging inflation under control. “I got it down to 19 per cent,” he says drily.

Rubenstein says one of the things he learnt during his four years at the White House was that the best way to influence the president was to slip into his office after everyone had gone home (which meant 2am) and put his own memos on the top of the pile, so nobody had a chance to dilute them or sabotage his ideas.

After the Democrats lost the presidential election in 1980, he joined a Washington law firm but things changed again after he read a newspaper article about former US treasury secretary William Simon’s 1982 purchase of greetings card maker Gibson Greetings – a famous early deal in the history of buyouts, in which Simon’s original $1m investment produced a profit of $80m. Intrigued, Rubenstein called another former treasury secretary, Bill Miller, and suggested that he start a buyout firm based in Washington, for which Rubenstein could provide the legal advice. Demurring, Miller suggested Rubenstein himself take the initiative.

Carlyle, the firm that came out of that suggestion, was unusual not just for being based in DC. For one thing, the founding partners had an equal stake. And, at a time when the conventional wisdom was to have one big fund, Rubenstein started out building a diversified firm with multiple funds. At the time New York firms would refer slightingly to Carlyle as the McDonald’s of the buyout world – a franchise rather than a partnership. He is still touchy about this. “The guys in NY said, ‘We are the kings.’ In New York, everyone would laugh at us. Wall Street wouldn’t raise money for us. But in DC nobody laughed,” he says.

Washington is still a big part of the DNA of Carlyle, though the political face it once showed the world, with advisers including George Bush Sr, former secretary of state James Baker, former US defence secretary Frank Carlucci and former British prime minister John Major, is far less visible today than in the past. “I thought such figures diminished the perception of us as serious investors,” Rubenstein explains. “Somehow it made us seem tainted. I wanted to make it clear that we were cleaner than Caesar’s wife.”

Rubenstein was also the first private equity person to make fundraising a professional full-time pursuit. Other private equity firms had what he describes as a presidential campaign mindset, going to their investors every few years when the money ran out. Rubenstein made it a nonstop, integral part of Carlyle and took responsibility for it, wearing his French ties when meeting wealthy investors and more modest ones when dealing with public pension funds.

“We raised money all the time,” he recalls. “No other founder did that the way I did. I could always do cross-selling.” Now, 60 per cent of Carlyle investors are in six or more funds – and the New York firms that once laughed at Carlyle are emulating it.

Since 1987, Carlyle’s private equity funds have invested $87bn in equity and have earned 30 per cent a year over that period. Rubenstein has, he admits, always been a workaholic but he denies that the happiest day of his life was the one he found out he could send emails while airborne. While he often goes to Colorado at Christmas, he quickly gets bored there (he doesn’t ski, he explains) and returns to Washington after a day or two. Staff have become accustomed to receiving emails from their restless boss on Christmas day asking, “What are you hearing?” or, “What’s new?”

. . .

At this point, he attacks his fish appetiser, devouring the whole thing in about two minutes, as if suddenly remembering that he needs an intake of food if he is to make it to 82. Then he decides to have some mint tea, and we get down to his more recent obsession with philanthropy, which he defines not as giving but as “caring about humanity”, which he in turn defines as “having perspective on the craziness of life”.

This phase of his life began to make headlines in 2007, when he bought a copy of the Magna Carta at an auction in Sotheby’s in New York for $22m and donated it to the National Archives in Washington. He says he did not tell his wife Alice and their three children of his intention because “they would have just said that way there is much less for us”.

Since then he has purchased copies of the Declaration of Independence and the Emancipation Proclamation issued in 1863 by Abraham Lincoln ($2m). He often drops in on the National Archives to lecture on the documents to visiting students: “The money is only part of it,” he says. “It is also good to show you care.”

As a board member of the Smithsonian, he has recently become involved with the National Zoo, which the museum oversees. While on the board, he learnt China didn’t actually donate the two pandas that are among the zoo’s main attractions but rents them out for $1m a year, a charge Rubenstein has committed to cover for the next five years. He then gives a brief lecture on the difficulties of breeding pandas and how, in despair, the zoo commissioned a movie of pandas mating to show their own pandas – without success, he says. “Apparently, the panda don’t recognise panda pornography when they see it. They know what they are supposed to do but they can’t quite get their act together.”

Rubenstein declines dessert but I wish to draw out the meal and order a plate of raspberries, as he returns to the subject of his philanthropy.

Rubenstein’s theory is that those who are first generation wealthy tend to be more philanthropic than those who inherit money. “I don’t know whether that’s because of guilt or gratitude or a sense that they can do it again,” he says. “Those who inherit their money always wonder if they can make it again if they had to.”

Some of his fellow billionaires criticise his public giving, preferring to remain low-key. Rubenstein says he adopts a high profile with his philanthropy because he wants to inspire others. In the past few months alone he has given $10m to Mount Vernon, the home of America’s first president George Washington, $7.5m to repair the Washington Monument, $10m to the National Gallery of Art, $10m to the White House Historical Association, and $13m more to the National Archives. He estimates that he has already given away “a couple of hundred million dollars but I haven’t totalled it up and, in any event, I plan to give away much more. I have a long way to go.”

As we finish our mint tea, I ask whether he would give away his fortune if he could have 10 more years of life. He nods. Besides, he says, he thinks he could always make another billion if he wanted to.

As we walk out, Rubenstein turns to me. “Was the bill over $200?” he asks grimacing. Not even with the tip, I reassure him, and this despite the restaurant running separate lines for tips for the captain and the server.

“I hate that,” he says sprinting into a car where his family is waiting for him. “I hope you didn’t pay two tips.”

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Henny Sender is the FT’s chief correspondent for international finance

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The Carlyle Hotel Restaurant

35 East 76 Street, New York, NY 10021

Brunch prix fixe x2 $130.00

Lobster bisque x2

Smoked salmon and

smoked trout

Omelette

Mixed berries

Total (incl tax) $141.54

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