I would be interested in your source for the 550%. Carlyle has 21 funds; some have done well, others not so well. I found it interesting to discover that Calpers is their biggest investor with $250 million invested in their various funds. According to the following article, Calpers also owns a 5.5% stake in Carlyle.
The Man Behind the Curtain at Carlyle Group
Despite All the Powerful Names, Little-Known David Rubenstein Drives Its Fund-Raising Success
By Henry Sender
Wall Street Journal
August 25, 2003
Many people identify Carlyle Group, one of the world’s larges private-equity funds, with its array of ex-politico advisers, such as former President George Bush and former Treasury Secretary James Baker. But behind its roster of powerful faces, Carlyle is driven by a little-known figure who has managed to raise gobs of money from investors, sometimes for funds that may have nothing to do with Carlyle’s core competence.
Messrs. Bush and Baker, along with other Carlyle adviser such as former British Prime Minister John Major and former Securities and Exchange Commission chief Arthur Levitt, certainly help open doors from Saudi Arabia to Singapore. But David Rubenstein, a somewhat awkward, self-effacing junior player in the Jimmy Carter White House, is the man who gets investors to pony up the cash – lots of it. Carlyle, which began 16 years ago, has amassed $16 billion from institutional investors and wealthy families from around the globe. While Carlyle’s holdings are huge, private-equity rivals Blackstone Group and Kohlberg Kravis Roberts & Co. have raised about $25 billion each since their inceptions.
Carlyle’s fund-raising success stems from Mr. Rubenstein’s ability to navigate a world that includes modestly paid civil servants controlling government assets and fabulously rich families in the Middle East and Europe. In the U.S., Mr. Rubenstein has attracted money from several state pension funds, including those of Florida, Michigan and California. Overseas, he has won funds from rich governments, including Singapore and the Abu Dhabi Investment Authority.
At most private-equity firms, fund raising comes second to the business of investing. Money is usually raised sporadically, and many private-equity firms outsource the money-raising business to outside agents. But Carlyle has 11 staff members focused full-time on bringing in money – a sort of perpetual-motion fund-raising machine. And, unlike firms that maintain a few flagship funds, Carlyle continues to roll out specialized funds. It has 21 such investment vehicles – with more to come. The firm is raising money for a European real-estate fund, a second European buyout funds, a second energy fund and a Japanese buyout fund. Last year, it closed a second Asian venture fund even though its firm Asian venture fund is still sitting on a large chuck of cash.
Carlyle has many funds that are cash-rich but investment-thin. The third of Carlyle’s flagship U.S. buyout funds, Carlyle Partners 3, for example, was launched in 2000 with $3.9 billion. Today, it is 60% invested. “It is a five-year investment fund; we are thus investing it at a higher or faster pace than was initially projected,” Rubenstein says. “We are on pace to invest our funds in the period in which they are to be invested.”
Carlyle Ventures 2, a domestic venture-capital fund that was established in 2002, has less than 25% if its $600 million invested. Carlyle’s four-year-old European venture fund, Venture Partners, is 50% invested. Carlyle’s third real-estate fund, which was set up in 1999, has almost none of its $570 million invested. Carlyle’s $750 million 1999 Asian buyout fund is 40% invested.
Mr. Rubenstein defends the sometimes heavy cash levels, noting the firm tries to carefully time its investments. “The opposite argument is the one that those in our industry have been accused of – investing too quickly, without appropriate due diligence,” he said.
Even with large amounts of cash on hand, Mr. Rubenstein’s drive for more money is relentless. He is on the road 300 days a year, he says, referring to his constant travel as “the Bataan Death March.” At 53 years old, he shows few signs of slowing down. He says he can’t spend more than two days in his Beaver Creek, Colo., gateway without going stir crazy.
When Mr. Rubenstein started raising money for Carlyle in 1987, few imagined he would turn into such a money-drawing success. “In those days, nobody realized he would be the fund-raiser par excellence,” says Arthur Miltonberger, who invested $5 million from the Mellon family of Pittsburgh into Carlyle at the beginning of the firm’s existence. “It isn’t what you expect when you meet him. You’d have to stop short of saying that he actually enjoyed asking people for money.”
The concept behind Mr. Rubenstein’s fund-raising machine is almost absurdly simple. Mr. Rubenstein dispatches his roster of high-profile senior advisers to address wealthy families and institutions around the world and then Mr. Rubenstein, one of the firm’s founding partners, follows up by asking attendees to invest in Carlyle’s funds.
When the board of the Illinois State Teachers Fund held its annual retreat in April, Carlyle sent Mr. Leavitt to address the gathering. “It was the highlight of the event for my trustees,” says Jon Bauman, executive director of the fund that has $225 million invested with Carlyle.
When Carlyle was wooing Japan Development Bank, top executives were whisked to the Okura Hotel in Tokyo for a brief chat and photograph session with Mr. Bush. Now JDB is among Carlyle’s largest investors.
Before he amassed his global network, Mr. Rubenstein hunted for money wherever he could find it. His neighbor in Bethesda, Md., Ed Mathias, an executive for T. Rowe Price, became one of his earliest investors. Now, the single largest investor is the California Public Employees’ Retirement System. Calpers has $250 million invested in Carlyle and a 5.5% stake in the firm that is valued at $175 million.
Critics at competing firms say Carlyle’s constant drive to raise funds may be driven by the desire to collect fees, a charge that the firm dismisses, pointing out that its fee structure is no different than its rivals’. Carlyle’s fees include an average management fee of 1.5%, and the firm guarantees investors a return of between 7% and 9%, taking its 20% performance fee only after investors have gotten their guaranteed return.
“All of these management fess have to be repaid before we can collect – we do that on all funds,” Mr. Rubenstein says.
Ultimately, Mr. Rubenstein says, even the most prestigious names cannot work their magic unless their track record holds up to investor scrutiny. Since its inception, Carlyle has distributed $5.2 billion in realized gains on corporate investments to investors, giving investors $2.70 for every dollar they invested with Carlyle, according to a spokesman.
Most private-equity firms discuss returns only in vague terms, but the Calpers Web site posts its returns from its private-equity investments and presents a mixed performance from Carlyle. CP2 – the second of Carlyle’s flagship U.S. buyout funds – brought Calpers a net annual interest rate of return of more than 27%. The European real-estate fund had an annual return of nearly 15%. But other, much smaller funds where the company had strayed from its core competencies, including Asian Venture and Japan were disasters: down 77% and 11%, respectively. One U.S. real-estate fund was down 19%. When the funds underperform, Mr. Rubenstein will waive fees and make other concessions in an effort to keep his investors happy.
Today, Mr. Rubenstein is trying to orchestrate a less political image for his firm. When former Secretary of Defense Frank Carlucci retired as chairman in November, he was replaced by a businessman, retired International Business Machines Corp. chief Lewis Gerstner. (John Major, former prime minister of the United Kingdom, still serves as chairman of Carlyle’s European operations).
Mr. Rubenstein has come far from his roots as the son of a Baltimore postman. He has none of the presence associated with a great rainmaker, despite the fact he went from the public schools of Baltimore to Duke University and then to the University of Chicago Law School as a scholarship student. His style plays well with the civil servants whose power over billions of dollars contrasts dramatically with their own remuneration, which may be only $50,000 or $60,000 a year. For example, Michigan has only one or two civil servants deciding which private-equity funds to give a portion of the $20 billion for which they are responsible.
Mr. Rubenstein is modest despite his achievements at Carlyle. He regards several of his competitors with something akin to awe. For example, he has endless respect for David Bonderman, founder of Texas Pacific Group, a private-equity house whose bold investment style is almost directly antithetical to that of Carlyle. “It is almost as if he looks at Bonderman and thinks, could I have been the guy like that?” an associate says.
Perhaps it is his admiration of competitors that keeps Mr. Rubenstein driving ahead. Always moving, he rarely spends more than two consecutive days with his family. On a recent trip to Russia to woo wealthy tycoons, he updated his wife on his success from his cellphone while walking through Red Square in Moscow.
Such is the life on the Carlyle money trail. |
