What Is Your Exit Strategy? David Rubenstein on Sprinting to the Finish

52 minutes · May 31, 2018

David Rubenstein, Co-Executive Chairman of The Carlyle Group, served in the Carter Administration before cofounding Carlyle. He joins the podcast to share his plan to sprint to the finish, his thoughts on social mobility, and where he will disperse his wealth. A proponent of Patriotic Philanthropy, Rubenstein is heavily invested in the preservation of the country's history as Chairman of the Smithsonian and through his personal charitable efforts.

Josh King (00:08):

From the Library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, your Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.

Josh King (00:51):

What is your exit strategy? It's important to have one for your investments, career and business, but what about your legacy? Our guest today, David Rubenstein and his business partners founded The Carlyle Group, a private equity firm that has investments in 225 companies across the globe and since 1987, has exited nearly three times that number. Just this year, the company had two success exits on the New York Stock Exchange with the IPOs of OneSmart Education and Liberty Oilfield Services. To most of us, that will be more than a lifetime's worth of effort, but it's just David's day job. Our conversation with David Rubenstein right after this.

Speaker 2 (01:37):

Inside the ICE House is presented this week by ICE Futures Europe and the ICE Brent Crude Oil complex. Have you ever rolled up to the pump or heard a news report on rapid changes to the price of a barrel of oil and wondered why the price is different than yesterday? Most of the world's oil is price relative. The ICE Brent complex and ICE is where a large percentage of the world's crude oil derivatives are traded.

Josh King (01:57):

David Rubenstein, co-executive chairman of the Carlyle Group practiced here in New York before serving in the Carter Administration as deputy assistant to the president for domestic policy. He later co-founded the Carlyle Group and now serves on the boards of numerous organizations, including as chairman of the Kennedy Center, the Smithsonian, the Council on Foreign Relations and the Harvard Global Advisory Council, just to name a few. In his free time, he reads at least 100 books a year, hosts a television program on Bloomberg, gives speeches on various topics from investing to history to philanthropy. And today, we're honored to have him here in the New York Stock Exchange Inside the ICE House. Welcome, David.

David Rubenstein (02:37):

My pleasure to be here.

Josh King (02:39):

What brings you to New York today?

David Rubenstein (02:40):

Well, aside from this interview, I had a couple meetings and meet with some investors, few talks, an interview, things like that.

Josh King (02:46):

So we're inside the library of the New York Stock Exchange, it might contain maybe a couple years worth of your diet of regular reading. What's in your nightstand now.

David Rubenstein (02:55):

Well, I have a program where in front of members of Congress, I interview great historians. I try to bring Democrats and Republicans together about once a month to give them a sense of American history and have a dinner, and then I do the interview and then they ask questions. And so I've always reading books for that. And the next one I'm scheduled to do is with John Mitchum, I'm going to do it on his new book on George Herbert Walker Bush. He has another book subsequent to that, but this is going to be on George Herbert Walker Bush. So I've been reading that book.

Josh King (03:22):

I love the Bush book. Where are you now in it?

David Rubenstein (03:24):

Well, I've just finished it and I know George Herbert Walker Bush quite well because he was an advisor to our firm for many years. And I would say he's not only the nicest former president I've met but the nicest person I've ever met, just an incredible gentleman, one of the nicest people I've ever traveled the world with, really saddened by the loss of his wife recently. And as you know, as we talk, he's hospitalized, hopefully he'll be out of the hospital by the time this airs.

Josh King (03:47):

He sent a nice note to the people of Kennebunkport expressing his regret over having to miss the Memorial Day parade.

David Rubenstein (03:52):

That's the type of person he is, for sure.

Josh King (03:54):

We were talking earlier, I had a chance to read some of Stuart Eizenstat's book, President Carter, Stuart Eizenstat, your old boss. Reviews have said that in the 1,024 pages, it makes a convincing argument that Carter was and is likely to go down as the most successful one term president in American history. You agree?

David Rubenstein (04:13):

There's no doubt that Jimmy Carter was not that well regarded when he left office, he lost in landslide defeat to Ronald Reagan. Over the last 37 years or so since he's left the presidency, he's done an incredible job of being a great ex president, but Stuart's argument is forget the ex presidency, it's what he did during those four years. And it was an incredible number of things that he tried to do, many of them occurred but because the hostages occurred, there were gas lines, inflation was high, a number of things like that, the great things that Jimmy Carter did were not remembered by the American people at that time and even today, people forget what he did.

Josh King (04:47):

I was riveted, David, by the end of the book, his final days, Stuart, Hamilton Jordan, Jack Watson, yourself, the ambitious agenda of the final few months from the defeat to Ronald Reagan until he had to pass the presidency to President Reagan. I want to play a clip from his farewell address that was shot in the Oval Office on January 14th, 1981.

Jimmy Carter (05:12):

Did not invent human rights. In a very real sense, it's the other way around. Human rights invented America. Ours was the first nation in the history of the world to be founded explicitly on such an idea. Our social and political progress has been based on one fundamental principle, the value and importance of the individual. The fundamental force that unites us is not kinship or place of origin or religious preference, the love of liberty is a common blood that flows in our American veins.

Josh King (05:54):

Bring back memories?

David Rubenstein (05:55):

Certainly does. I was remembering when I worked at the White House, I started when I was 27. At 31, I said, "Well, I hope we can run against an old man, Ronald Reagan." He was then 69. I said, "How can anybody so old run for president of the United States and get elected?" I'm now 68. So it doesn't seem as old as it used to. There's no doubt that Jimmy Carter invented the idea of being traditionally unqualified. In other words, he had only been governor of Georgia for four years, that was thought to be not enough to be president the United States.

David Rubenstein (06:23):

Today, many people with less qualifications have been elected president of the United States. Barack Obama, a very talented person, obviously had not been a statewide official until he was elected Senate and he only served for four years before he was elected president of the United States really two years before he started running. Obviously Donald Trump doesn't have those government background credentials. Now you see people saying, well, if I go to Iowa, as Carter did, and I do well in Iowa, I can go off to New Hampshire and I can get my whole campaign going by doing well in Iowa. And Carter, more or less invented that idea, going to Iowa. He didn't actually win the Iowa caucus, he just came in second undecided, but he was ahead of everybody else. So he propelled into New Hampshire and then to the nomination.

Josh King (07:01):

Bring me back to those final months, David, because as Stu writes, Carter brought you and him in very quickly after the loss, had you write up what you could do effectively with those final few months. He promised to veto any bill to reduce taxes that would increase the deficit, he passed the Alaska Lands Act, and he even magnanimously made Stephen Breyer an appeals court judge, which propelled Breyer eventually to Supreme Court.

David Rubenstein (07:27):

During that period of time, Jimmy Carter did not say well, I guess I'm just going to pack up my books and get ready to leave office on January 20th, he was determined to get as much done as possible. Now if you remember, the hostages were still in Iran, so he was working on that every single day and he actually hoped that he could get them released before he left office. Carter's last couple months in office were extremely productive. And today, many of the things that he did in those last couple months are still with us, and many of the very good things.

Josh King (07:52):

We miss so many things, David. One of them is Ted Koppel's Nightline, the way he would bring the crew in and get the minute by minute of what was going on that very day. He had this special that he did the morning of the transition, January 20th, 1981, 6:47 a.m., Carter makes a call to the Secretary of the Treasury, funds being transferred are unfrozen back to Iran. Let's hear a little bit of that show and have you tell us what you were doing that day.

Speaker 5 (08:19):

Vigil continues. Carter breaks to grace with the inauguration. There is still no inkling of the irony that lies ahead. For Jimmy Carter who had himself become a captive of the hostage crisis, there is still hope that the hostages will be freed while he is still in office, 11:00 a.m. The president and the president elect leave the White House together on route to the inauguration ceremony. Carter is receiving updates by telephone in the presidential limousine and still no hostage release. The incredible manipulation of this day in history is becoming clearer. Shortly after 11:00 a.m., Peter Jennings reports from Frankfurt.

Peter Jennings (09:02):

Now, an official of Pars, the official Iranian news agency has just said that the departure of the hostage is imminent.

Josh King (09:11):

The way Stu writes, Hamilton, Rafshoon are watching as the Reagans come in the North Portico, the inauguration happens, the Carters are flying back to planes. Hamilton calls, the signal switchboard gets through to the situation room saying, can you confirm the hostages are free? The sit room says, I can't confirm that, Jimmy Carter's no longer president.

David Rubenstein (09:37):

Well, there's no doubt that when you're out of power, you're out of power. In that particular case, I don't think that people at the White House, including President Carter realized the view of the hostage takers that they didn't want to release the hostages while Carter was president. In our view, Carter was an easier person to deal with than Ronald Reagan. We thought Ronald Reagan was a person who was going to be much tougher on them than Carter had been, so why would they want to give Reagan the honor of having those hostage released shortly after he was sworn in? We didn't quite understand it. Obviously their view was that Reagan was a fresh face and they would try to deal with him differently. So we didn't really know that and had we known that at the time, we probably wouldn't have done some of the things we did. Carter was informed actually that the hostages had broken through in an airspace I think right after Reagan was inaugurated.

Josh King (10:24):

How did you spend that day yourself?

David Rubenstein (10:26):

Well, I went to the White House early on that day and to clean out my offices and so forth and then many of us did not go to the swearing in, but we went to Andrew's air force base to give a farewell to Carter when Carter was leaving from Andrew's air force base as the former president, we wanted to say goodbye him. So many of us were there.

Josh King (10:43):

For you as so many of your colleagues, a stunning life change, four years of 1977 to 1981, your work on the campaign as well in '76, I think you could tell me how many hours a day you worked, but let's call it 16 hours a day, then suddenly you're done.

David Rubenstein (11:03):

I didn't quite realize how much done I was, but I really was done in this sense. I had worked four years virtually not taking a day off for four years. I loved it, working at White House was a young man's ambition and that was mine and I fulfilled it. The day we left office, I didn't have a job. I had thought that many law firms would say, let's have this great White House aide join us, but many of them said, "We don't want a Carter White House aide to tell us how the Carter White House operates when Reagan's president." So although I had practiced law in New York and I had a good job at the White House, there weren't exactly a lot of law firms begging for my services. So I basically spent time talking to law firms, it took many months before a law firm would hire me and I started at the bottom.

David Rubenstein (11:44):

I realized once again when I did practice law, that I wasn't a very good lawyer because I didn't really enjoy it. You can't be good at something if you don't enjoy it. Nobody won a Nobel Prize hating what they do. And so I looked around for other things to do and took me a couple years to figure out that I would start an investment firm in Washington, D.C., the first private equity firm of its type in Washington, that was 1987. But that was about six years or so after I left the White House. So I was in the wilderness for a few years trying to figure out what to really do with myself.

Josh King (12:11):

You started it with a $5 million stake. Is that right?

David Rubenstein (12:14):

Started with no stake, actually I recruited three people and I said we had some money and we were going to get started. And I meant to say, when they showed up, we were going to get the money. We didn't really have the money but we did get four investors after about four months or so, who gave us 5 million to start and we built the firm from that, yes.

Josh King (12:31):

Why was it called Carlyle Group?

David Rubenstein (12:33):

One of my partners then aspired to live in the Carlyle. He had read a auto biography of Andre Meyer who was the head of Lazard Freres at the time. And Lazard Freres I guess either paid for, or he paid for himself an apartment at the Carlyle. And he had a lifestyle that this partner aspired to, living in a hotel and having a very nice single man's life, this is what my partner thought was a good lifestyle. And Carlyle itself was a too syllable, easily pronounced name, it implied British upper class sounds, and therefore it sounded better than saying new Washington, D.C. firm or something like that. So it conveyed that we've been around for a while.

Josh King (13:12):

Where does the next 5 million come from?

David Rubenstein (13:15):

We didn't really have a fund. To these days, when you start a private equity firm, you go out and raise a fund. We didn't have a fund, we didn't have a credibility to have a fund. So we would raise money, deal by deal. So we would come up with a deal and then we'd go to investors and say, would you back this deal? And it was not that easy but we did a couple deals that way and they generally worked out. So we ultimately got a fund, a few years later, our first fund was $100 million.

Josh King (13:39):

You've said that part of the reason why you set up shop in Washington was because certainly, you and your partner's expertise was in working with the federal government. As you think about the span of administrations that you've worked with beginning with Reagan, Bush, Clinton, Bush, Obama and Trump, which administration has been particularly easy to deal with or the best to deal with?

David Rubenstein (14:02):

Well, I said that because you take advantage of the situation you find yourself in. As you may have heard me say, I like to quote Everett Dirksen, the former Senate minority leader who said, "When you're getting kicked out of town, get out in front and pretend you're leading a parade." So we were pretending we were leading a parade. We didn't really have the financial expertise of the people in New York, but we said we understood companies heavily affected by government maybe better than the guys in New York did. And maybe we did, maybe we didn't. We did a few deals in the early years where they were government related aspects to defense companies and maybe we did understand them better.

David Rubenstein (14:33):

I would say of the presidents, we didn't really spend time lobbying administrations, we were really an investment firm, but people in Washington had a hard time understanding that because they thought if we brought in a former government official, as we did, we brought in Frank Carlucci or Jim Baker, they thought you must be lobbying governments. But the truth is we were really meeting with investors and we were trying to find deals, but our government expertise was probably better than people in New York, but we didn't really use it in traditional lobbying sense. We got more publicity for these deals than maybe we deserved because nobody else was doing these deals. So if you do one or two aerospace events deals, you've seen as doing 10 or 20 of these because there weren't that many other people doing them. Ultimately other people from Wall Street began to buy these kind of companies as well.

Josh King (15:14):

Skipping to the present day, David, literally what's worse? The Duke yesterday missed winning its fourth NCAA Division I Men's Lacrosse title in nine years, or that they lost to Yale, arch rival to Harvard where you've just joined the corporation.

David Rubenstein (15:29):

Well, I was on the sidelines yesterday at the game and the Duke athletic director, Kevin White has occasionally invited me to come to some of the national championship games that Dukes played in Lacrosse and generally when I'm on the sidelines, they lose. So I said to him in advance, "Are you sure you want me?" They said, "Oh, no, no, no, it's not you that's the problem." So I was there and we didn't do as well as we should have. I was surprised, I think Yale deserves the credit.

Josh King (15:51):

Hats off to them, right?

David Rubenstein (15:52):

I don't think they'd won an NCAA Lacrosse Championship since 1890.

Josh King (15:55):

Right, since their new program started 47 years ago, they haven't won it. Or I think been in many NCAA tournaments.

David Rubenstein (16:02):

It was a surprise that we lost, but they were the better team yesterday and we never were ahead the game at any one point.

Josh King (16:09):

That opening three goals was soul crushing.

David Rubenstein (16:11):

It was difficult but standing there on the sidelines, I just kept saying, is it me? Should I go up in the stands or do I stay on the sidelines?

Josh King (16:19):

I mentioned that the arch rival Harvard want to focus in a little bit on what's going on up in Cambridge right now. You've just chosen a new president at Harvard University, Lawrence Bacow.

David Rubenstein (16:29):

Larry Bacow was a person who had been the president of Tufts for 10 years. Previously, he'd served as chancellor, which is the number two position at MIT. Did his undergraduate work at MIT and graduate work at Harvard. He is on the Harvard Corporation, which I've now joined about a year ago, and that's the ruling body of Harvard, though there's also the Board of Overseers. At the time, we were beginning to search for new president when Drew Faust said she was going to step down, Larry Bacow and I were on the search committee, a faculty advisory committee said, "Why don't you consider Larry Bacow and also Shirley Tilghman, a previous president of Princeton also on the board?" Shirley Tilghman said, "No, I don't really want to do this again." Larry said, "I'll think about it."

David Rubenstein (17:04):

I talked to his wife, he came back and said, "Yes, I'll do it." He turned out to be particularly attractive to everybody because he'd been on the board for six or seven years. He'd been president of university, he was willing to do it, he knew Harvard inside out. So I think he'll be a spectacular president of Harvard as Drew Faust has been.

Josh King (17:20):

I want to hear a little bit of President Faust's valedictory that was given maybe a week ago or so at commencement.

Drew Faust (17:26):

Almost 11 years ago, I stood on this platform to deliver my inaugural address as Harvard's 28th president. Today's remarks represent something of a bookend, a kind of valedictory. Valedictory, literally farewell words. When I spoke in 2007, I observed that inaugural speeches are by definition, pronouncements by individuals who don't yet know what they're talking about. By now, I can no longer invoke that excuse.

Josh King (18:08):

A good long run for 11 years for President Faust.

David Rubenstein (18:11):

Yes. When she was picked, she was a bit of a surprise because Harvard had never had a female service president, but also she had not been a major figure at Harvard. She'd run the Radcliffe Institute, which is not a large part of Harvard but it's a significant organization. And she did a spectacular job. I got to know her quite well, I did a number of things at Harvard, I didn't go to Harvard but my children did, and I got deeply impressed with her capability. She managed to calm the waters after the previous president had upset some people rightly or wrongly, and she managed to please alumni, students, donors, faculty, all at the same time, which is very difficult to do. And she just completed a record capital campaign, Harvard just completed a capital campaign of 9.1 billion, largest in American history.

Josh King (18:57):

The author, before she took office of this Republic of suffering, you and she must have had a commonality in terms of love of history, study of some of its darker periods.

David Rubenstein (19:07):

Yes. I interviewed her about that book a few times and interviewed her many times about other things. She is a historian and she can't wait to go back into the stacks of the Widener Library I suspect, and do some history research. I did talk to her one time about Duke University, she'd done her research for her PhD thesis I think at Duke when she was doing some work there. And I asked her to do something for me at Duke, and she reminded me of that. And I enjoyed getting to know her over the years, she's an incredible person.

Josh King (19:34):

With your involvement in Harvard but also at Duke, Johns Hopkins, University of Chicago, you know a little bit now about the challenges of running some of the highest of America's higher education institutions. You mentioned that President Faust just finished the capital campaign. Are these tough times or the golden age or somewhere in between for these institutions?

David Rubenstein (19:55):

Well, there's no doubt that the endowments are larger than they've ever been, costs are high as well though. There's no doubt demand is spectacular. Harvard this year just admitted its new class with a 4.6% admissions rate, and most of the Ivy League Schools, I think virtually all of the Ivy League Schools have admission rates of under 10%, which means that less than one to 10 people who apply get in, which is hard to believe when you consider, when I was applying to schools, it was not quite as in great demand. There's no doubt that people in Washington, D.C. look or scan at some of the Ivy League Schools and some of the other private schools. I think the endowments are too big, as you know, there's an endowment tax [crosstalk 00:20:30] some of these schools endowments. I think that's unfortunate because it really is just going to have the effect of increasing tuitions probably at some point or reducing financial scholarships for people who need them.

David Rubenstein (20:41):

But in any event, there's no doubt that many people don't love the large private universities as much as I think they should. To me, they're a great national treasure. When I go around the world, what people really want more than anything else is not American know how or American moral leadership or American views on how to run their economy, it's really, how can I get my child into one of the schools? How can I get one of my children to get one of the education benefits that these schools provide? Because we do have the most impressive university system in the world.

Josh King (21:09):

One of the companies that Carlyle invested in, just had its IPO here at the New York Stock Exchange a few months ago is in that same vein, David, OneSmart Education providing afterschool K12 learning in what it calls the third classroom. You've talked extensively about the upbringing you got from your parents, a postal worker and a homemaker in Baltimore. For American kids to compete today with some of those kids that people talk to you about when you travel overseas, do we need more of this third classroom here in the United States?

David Rubenstein (21:40):

There's no doubt that we have the greatest university system in the world, but our K to 12 system leaves a lot to be desired. A lot of money has been put in by private foundations, by private companies, public companies, and also by the U.S. government to try to make the K to 12 system better. It's clearly lacking in some areas. There's no doubt that if you come from a very wealthy family and you go to a public school or a private school and your parents are encouraging you to go to college and so forth, you're probably going to be a pretty good college student and probably have some advantages.

David Rubenstein (22:10):

If you come from a single parent household or no parent household, if you are living in a homeless shelter, your chances of doing very well in school are diminished. So we have to work very hard to make sure the underclass does not remain the permanent underclass. Today in this country, we do have a gigantic income inequality problem and it's getting worse, but we also have a social mobility problem which is to say the people at the bottom don't feel any longer they can get to the top. When I was growing up, I wasn't in a situation like a homeless shelter or anything like... my parents were an intact two-parent family, they didn't have a lot of money but they gave me unconditional love, they gave me support and I thought I could get to the top because they encouraged me to do so. Today, many people at the bottom don't feel they can get to the top. They don't either have two parents or they may have economic situation that is really very unfortunate.

Josh King (22:59):

We talked about the difficulty in getting into Harvard based on its applicant rate and its admission rate. If you think about social mobility and how particular companies like Carlyle are in terms of its hiring, are there any things that you do to say, let's look at candidates with a different kind of background that might come from the grooming of these top institutions?

David Rubenstein (23:22):

There's no doubt that firms like mine tend to look at people with certain academic pedigrees. So if you went to certain school, your certain background, you're more likely to get hired. I think increasingly, we should in all firms look for people that might be not in that mold. And clearly, we've hired people before in our firm and we will again, who don't have the traditional mold and they turn out to be spectacular, defining them, it's not as easy as you might like. There's no doubt if you go to the best schools, you're likely to get some pretty good people coming there, but we don't tend to go to some of the schools that are not as well known and try to find rising stars, but I think we should do more of that.

Josh King (23:57):

So how are things going at Carlyle generally?

David Rubenstein (23:59):

Carlyle is in pretty good shape, the firm is now raising a fair amount of money. It's been relatively easier to raise money than it has been in recent years. In fact, I've never seen it as good as it has been in the last couple years for raising new money. We've investing the money in pretty good pattern and we're getting good returns for our investors. There's always challenges because of a lot of competition out there, but I think the firm is in pretty good shape.

Josh King (24:20):

Let's hear a little clip from Bloomberg daybreak from just a few weeks ago, talking about that very point.

James Gorman (24:24):

[inaudible 00:24:24] not having trouble raising money is Carlyle, that's our third story. So David Rubenstein, the same conference... actually James Gorman speaking, came out yesterday and said, "It's easier to raise money than any time I've been in the business over the past 30 years or so." So my question is, is this good news or bad news?

Speaker 9 (24:39):

Well, it's great news if you're David Rubenstein.

James Gorman (24:41):

But if he can raise money, why can't a lot of other people raise money? Does that mean there's more money chasing the same assets which drives up the prices that he has to pay?

Speaker 9 (24:49):

True, that is one way to look at it. The other way to look at it is-

James Gorman (24:53):

I'm always at half empty glass.

Speaker 9 (24:56):

... from a half full perspective for the private equity business, they are having a lot of people come to them. And this sort of market clearly is favoring the incumbents in a lot of ways.

Josh King (25:07):

You're one of the biggest incumbents, a goal to raise $100 billion by the end of 2019.

David Rubenstein (25:12):

Yes, I think we're well on our path to doing that because the track record is pretty good. It's not because we were an incumbent, you have to have a good track record. So if we were around for 30 years and we had a terrible track record, we wouldn't raise any money. But I do think that you can raise money even if you don't have a track record right now, the market is pretty strong and there's a view that emerging managers or people that have new clever ideas are likely to be worth giving a chance to. So when I started Carlyle, it was very difficult to raise money. Today, for new entrepreneurs, I think it's relatively easy.

Josh King (25:41):

You've talked in the past about some of your missed opportunities. If you've got $100 billion between now and 2019, where are you thinking about putting it?

David Rubenstein (25:48):

Well, we invest all over the world, we do different types of transactions. We do private credit, private equity, we do emerging growth company deals, we also do buyout in the United States and outside the United States. So I can't say there's any one area, but I do think there are new technologies that are going to attract a lot of capital. They are in things like quantum computing, virtual reality, artificial intelligence, big data. A lot of these things are going to attract a fair amount of money. I've been looking at one recently in an area called e-sports, which I hadn't been that familiar with, but it turns out that it's gigantic and booming right now where so many people around the world are playing e-sports or are following other people who do it.

Josh King (26:26):

Help our listeners understand how, when you say you're looking at an e-sports deal, exactly how does that work, from identifying the company through returning it to the public markets? How do you hone that ability and get better at it over time?

David Rubenstein (26:38):

Clearly when you're looking at young growth companies, you're looking at the capability of the management to take it to a better stage, you're looking at the ability of the product to really withstand the competition or at least competition for a while. And again, these things are somewhat difficult to know in advance, not every deal that looks great turns out to be great and sometimes deals that look they're not going to make it turn out to be great. If it was easy to do, everybody would be doing it. So we have a lot of experience in doing this and therefore that probably helps us in assessing these kinds of transactions. We have about 750 investment professionals in the firm around the world and with a lot of experience, we can generally make better decisions than before we have this kind of experience. Therefore, there's a real value in this and I think investors reflect that when they give us money.

Josh King (27:22):

Talk about new management, David, big news this week, Stacey Cunningham named the first female president at the New York Stock Exchange in its 226 years history. She joins Adena Friedman, the CEO of Nasdaq in New York, former chief financial officer leading the world's largest exchanges. Is this the beginning of the glass ceiling breaking in financial services? Are you seeing changing trends in the gender makeup of these management teams you're looking at for your investments?

David Rubenstein (27:46):

There's no doubt that 30 years ago, when I started Carlyle, you didn't see as many women coming out of the business schools or getting management positions. We've made progress but today, only less than a dozen women are probably running a fortune 500 company. So it's not as if it's actually a breakthrough that is one here, that you can be comfortable stay and it's going to get to the point where 50% of the CEOs in five years or so are going to be female, I think that's not going to happen. But I do think there's been progress. Adena used to work at Carlyle, she was our chief financial officer, done a spectacular job at company, probably don't like to mention, but I do think that at some point, we'll need to have affirmative action in these exchanges because there's no men running these things. Isn't that terrible? We only have women now.

Josh King (28:27):

One of your moonlighting jobs, David, is you hosted David Rubenstein's show on Bloomberg. You have pretty good affirmative action in terms of the guests that you have in terms of the high ranking female CEOs, Ginni Rometty from IBM, Abby Johnson from Fidelity, and most recently, I think Marillyn Hewson from Lockheed Martin, many of those companies listed here in the New York Stock Exchange. I want to hear a clip of your conversation with Marillyn Hewson and ask you a question about it on the other side.

David Rubenstein (28:52):

You were recently voted the 22nd most powerful woman in the entire world, not just business but everything. When you saw that, did you say I should be higher? Or did you say that's pretty high? And how does it feel to be the 22nd most powerful female in the entire planet of 3.6 billion women?

Marillyn Hewson (29:12):

I don't focus on it that much, David. I got a note for my brother that said, well, why was Oprah higher than you or something like that? But that's not something I'm focused, there's lots of lists. It really comes down to having the privilege of leading a national asset and a company that's doing some of the most important and interesting work in the world.

Josh King (29:33):

You like doing the show?

David Rubenstein (29:35):

I do. I enjoy it a great deal, hope that comes through. I started this really when I became the president of Economic Club of Washington, I was supposed to just bring business people in to speak and it turns out that they were relatively boring. So I eliminated that. And 10 years ago, I just interviewed them and it's worked out pretty well. And so therefore the Bloomberg people saw and said, why don't you do this on TV? And I enjoy it, this week, I'm going to do Richard Branson, and I'm looking forward to... just been reading his books and looking forward to that one.

Josh King (30:03):

Hewson sounds like one tough boss, really stood toe-to-toe to President Trump, she's going to deliver him a 27 copies of Marine One, but also working pretty hard with him to make the F-35 Joint Strike Fighter a more affordable unit for the United States government.

David Rubenstein (30:19):

Well, she has done a spectacular job, her stock is dramatically up. The revenues are up, the market cap is up, so I think we should look at the fact that maybe women are better at running these aerospace defense companies than men, because look at the job she's done, look at the job that Phebe Novakovic has done at General Dynamics. So they've done quite impressive jobs.

Josh King (30:36):

So stock exchanges, check defense companies, check what's the next industry to be changed with women CEOs. If you think about private equity for example, over the past year, an interesting trend, Carlyle announces its next generation new CEOs, both men, KKR another man, where are the women in private equity? And they're also having trouble in Silicon Valley.

David Rubenstein (30:59):

There's no doubt that in private equity, women have not risen to the top as much as might be desired. At Carlyle, we do have very many senior women running many different parts of our business but they're not the co-CEOs going forward. In the future, I suspect there will be females running large private equity firms just as they are running other kinds of firms and I think you'll see more females starting their own private equity firms and getting funded, but we still have a long way to go.

Josh King (31:25):

Kewsong Lee and Glenn Youngkin, the two people that you did select, what makes you and your partners think that they're the right leaders for Carlyle's next generation?

David Rubenstein (31:32):

Well, Kewsong Lee had been at Warburg for 22 years, a very distinguished investor that came to Carlyle about four or five years ago and did a terrific job helping our investment process. Glenn Youngkin's been at Carlyle 22 or 23 years, been in our European business. He's been involved with many of our different businesses. They get along well, they have different complimentary skills. So we thought that they would work together well and so far, it's worked out as we thought.

Josh King (31:55):

How are you yourself, beginning to unwind? How would people see Rubenstein different in the Carlyle office than he was a year and a half ago before he announced Glenn and Kewsong to step up?

David Rubenstein (32:05):

I'm not sure I'm unwinding because I have a theory that if I were to slow down, my immune system will relax and if an immune system relaxes, the germs will come and attack a sleeping immune system. So I don't really want to slow down, I'm trying to do what I call sprinting to the finish line, which is to say, get as many things done as I can. I'm now 68 years old, my expected actuarial life might be another 15, 16, 17 years if I'm lucky, and therefore I want to get many things done because when you realize you've only got 15 or 16 years to get these things done and at some point during those 15 or 16 years, the brain or the body may not work as well. So I'm trying to get things done. So if you come to my office today, you may not notice a lot of difference. On the other hand, I'm not day to day running the firm the way I did for many, many years.

Josh King (32:46):

After the break, we're going to talk about those next 15 and 16 years as we continue our conversation with David Rubenstein, we'll turn in our attention to his exit strategy of giving away most of his assets and his patriotic philanthropy philosophy, right after this.

Speaker 2 (33:01):

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Josh King (33:29):

We're continuing our conversation with David Rubenstein, co-executive chairman of the Carlyle Group. David, I want to play a clip as we begin our second half of the program with Berkshire Hathaway chairman, Warren Buffett speaking in 2010 about what has come to be known as the Giving Pledge.

Warren Buffett (33:47):

With my Berkshire share. So every share is going to go to charity. And the truth is I've had everything in life, everything in life I've ever wanted. I have never given away any money that's caused me to give up a movie or a dinner or a trip to Disney world or anything of the sort. So it's cost me nothing. So I have these little pieces of paper in a safe deposit box, which I bought about 40 or 45 years ago and they've grown in value enormously. And what they are is their claim checks on something in the future. I don't have anything I need in the future, all kinds of other people have all kinds of needs. And it's a way of cashing those claim checks in a way where people's lives are changed for the better. Mine's already changed for the better, it couldn't get any better. And if those little pieces of paper can translate, whether it's into children avoiding diseases, becoming better educated, whether people are having a better life in their old age, whatever it may be, it's terrific. And I think a lot of people feel the same way.

Josh King (34:40):

Do you feel the same way, David?

David Rubenstein (34:42):

Well, I do. Warren Buffett is an incredible business person, I've gotten to know him over recent years and his commitment to philanthropy along with Bill and Melinda Gates is what really drove the Giving Pledge. I was one of the first 40 people to sign it, I think at the first person in private equity to sign it and I'm going to their annual meeting again this week. So I do think it's a very good cause, the Giving Pledge, but I have to put it in context. There are about 185 people who've signed it so far but there are seven half billion people in the face of the earth. So it's a small percentage of people, and what I really hope it does is it gives people sense that they should do something to give back to society even if they're not as wealthy as Warren Buffett or Bill Gates.

David Rubenstein (35:22):

And so the real purpose of it is to show that philanthropy is important not just for the wealthiest people, but for everybody. And as I like to remind people, philanthropy is an ancient Greek word that means loving humanity, doesn't mean just rich people writing checks. So you can love humanity by giving your time, your energy, ideas and your money. The most valuable is probably your time because you can't get back your time. You can make more money, you can't make more time. So there are many different ways that people can be involved in giving back to society. I think the Giving Pledge is just the tip of the iceberg of one way to do it.

Josh King (35:51):

You didn't agree to give away half of your fortune, you agreed to give all of it away.

David Rubenstein (35:55):

Yes. The pledge is to say you'll give away half upon your death or during your lifetime. And I just felt that I'd be better off to give it all away, which I'm doing. My children are well educated and I think they'd be better off not to inherit these large sums of money.

Josh King (36:09):

So what have you decided to do with that?

David Rubenstein (36:11):

Well, I'm in the process of giving away money every year. I'm giving away much more than I ever thought I'd be able to do and much more than I can take any of the tax deduction for. So I just give it away because I think it's a good thing to do. I'm involved in about 30 non-profit organizations and I've served on the board of many of these organizations quite actively as chair or co-chair or something like that. So those are organizations that I have a passion for and those are organizations to which I give money, but there are many things I have no board connection, but I give away money to one of those things as something I've called patriotic philanthropy, where you're trying to remind people of the history and heritage of our country, the good and the bad, and try to get people to visit some of the sites that are historic to learn more about our history or to visit some of the documents that are historic and learn more about these documents.

Josh King (36:56):

One of the historic places in our country has had as tragic weekend, as you could imagine really, right near your hometown Ellicott City, Maryland, had been put back together beautifully after a flash flood and now will have to rebuild again.

David Rubenstein (37:08):

If something has been fixed up better and there is a natural disaster, which is rare in these kind of places, you can always fix it up again. I think the purpose is to get people to visit these sites and to learn more about American history. We know so little about our history because we don't teach civics very much anymore, we don't teach American history very much anymore in schools and high schools, and I hope that people will learn much more about our history, the good and the bad on the theory that if you avoid learning the worst things about the past, you might prevent yourself from doing these things again.

Josh King (37:38):

George B post was the architect of this building, James Hoban was the architect of the White House first inhabited by our second president, John Adams in 1800, two buildings exceptionally well cared for at this point in their illustrious lives, the latter very much due to your generosity. You travel constantly, David, around the world. You've seen examples of treasured architecture. What would you say is on the endangered species list, the things that need to be rescued most quickly?

David Rubenstein (38:06):

Clearly in the Middle East, there are a lot of sites now that are deteriorating and because of some of the violence that's gone on there and some of the efforts by some terrorist groups to destroy these monuments, they are in real danger. I am chairman of the Smithsonian, the Smithsonian does have a program to help keep these things from being destroyed, but there's a lot of work to be done. In the United States, we do have a lot of historic sites that are not as well recognized as they should be, and we need some money to fix them up and make them better.

Josh King (38:35):

One of the ways beyond the sites that you've put your money to work is the acquisition of seminal documents of U.S. and world history, and we talked before we went on the air that just upstairs from here is the Buttonwood Agreement, a document signed in 1792 that could fit well with your collection that famously includes Magna Carta. What is the holy grail document that you would like to help locate or purchase that you haven't put your hands on yet?

David Rubenstein (38:57):

I'm not sure there's a holy grail document. I guess the way I look at it is the documents that I've been fortunate enough to buy are things like the Magna Carta, the Emancipation Proclamation, Declaration of Independence, the Constitution, the Bill of Rights. And I care less about owning more documents than I do about people seeing them. So I have none of these in my home, they're all in places like the Smithsonian, the Library Congress, the National Archives, Mount Vernon, other places like that. I hope that people will go there. And when you go there, you might be inspired to learn more about history. You can look at all these things on a computer slide but if you do that, you tend not to really spend that much time on it, you just go on to the next thing. If you take the trouble to go visit these documents and you spend time researching them when you get there, or thinking about them, you might become more informed as an American. So that's why I do this and I hopefully it's having some impact I don't know yet.

Josh King (39:45):

I want to hear dramatic reading of the author of one of those documents that you acquired, about a minute of it, and then ask you a question about it on the other side.

Lincoln (39:52):

On the first day of January in the year of our Lord, 1863, all persons held as slaves within any state or designated part of a state, the people whereof shall then be in rebellion against the United state shall be then thence forward and forever free. And the executive government of the United States, including the military and Naval authority thereof will recognize and maintain the freedom of such persons and will do no act or acts to repress such persons or any of them in any efforts they may make for their actual freedom.

Josh King (40:39):

Lincoln on the Emancipation Proclamation, a military maneuver as much as a freedom of slavery.

David Rubenstein (40:44):

Yes, that was January one, 1863. It does not have a soaring rhetoric of the Gettysburg address. In fact, one famous historian called it something like has the appeal of a bill of lading because he said it was very boring in the way it read. The reason it doesn't have soaring rhetoric is that Lincoln was afraid that the Supreme Court would overturn the Emancipation Proclamation. So he didn't want to have any reasoning in there about why he was doing this and nothing that would maybe give somebody a pause at the Supreme Court about how to overturn it. So he also was doing something that was a military action. He thought that he had military powers as commander in chief to do things with enemy combatants, which is to say the Southern states that we were in war with. He didn't free the slaves in the border states because we weren't at war with them.

David Rubenstein (41:28):

So the Emancipation Proclamation may have freed 20,000, 50,000 slaves, it's not clear how many it actually freed. If you were a Southern plantation owner and a slave owner, just because Lincoln said the slaves are freed, you didn't necessarily agree with that, so you didn't let your slaves go away. Now, many of them did walk away or run away. When the war was over or was about to be over, Lincoln recognized that he needed to do something for the slaves who had left, whether they were now enemy combatants or not, the slaves who were in the border states were to be freed or not. And so he tried to get the 13th amendment approved by Congress. It was, as you may have seen in the movie, Lincoln ultimately approved by Congress and subsequently ratified but he had died before it was ratified, but the 13th amendment made it possible that slaves would be free, the emancipation proclamation really didn't do that permanently.

David Rubenstein (42:13):

Lincoln signed the original, it's now in the archives, it's shown January one of every year briefly because it's very fragile. Lincoln did sign 47 souvenir copies of which there may be 15 or so left, and I bought a few of them and I've given one on permanent loan to the African American History and Culture Museum.

Josh King (42:29):

Some of your other efforts of preservation, David Rubenstein, are not in just a form of paper or parchment, but they are massive physical edifices. I want to go back a nice day in Washington, D.C. and suddenly the ground begins to tremble.

Speaker 14 (42:44):

At the cracks in the Washington Monument, crack in the Washington Monument is at the very top of the monument where everyone is familiar with where the stones narrow and go to the tip of the very top of the Washington Monument, the crack which is about four inches in length is on one of the sides of that area which narrows.

Josh King (43:05):

What was happening for you that day? Were you sitting in your office watching CNN and suddenly there's an earthquake in town?

David Rubenstein (43:09):

Actually I was out of town. I came back and as the chair of the Kennedy Center on the board as an ex officio is the head of the park service, John Jarvis at the time, I said, "How long's it going to take you to fix it?" He said, "It's going to take a while." "Do you have the money for it?" He says, "Well, I think I'll get it eventually." So I said, "Look, I'll put up the money, fix it as quickly as you can." Subsequently, Congress said they wanted to put up half the money, so we did that and he did get it fixed. It's now not open because there's been some other problems at the Washington Monument. There's been elevator problem for which I've now put up money to help fix the elevator, but they need to have a security entrance and that's now in the process of getting done. The Washington Monument is a symbol of our country in many ways, and more people can visit it because it's now going to be safe when it opens again.

Josh King (43:50):

Repair work also just kicked off at the Lincoln Memorial, thanks to a gift you made also to the National Park service in the absence of a natural disaster. How do you keep on top of which national monuments to help next? And are you working on any other projects currently?

David Rubenstein (44:04):

Well, I live in Washington and there are plenty of monuments and memorials there, so I'm not lacking for them. I do get a lot of proposals from other parts of the country as well and I can't do everything. I wish I had unlimited funds, I am working on another effort to help restore something like the Lincoln Memorial. The Lincoln Memorial has had some rundown problems, it's not as good shape as it should be, but one of the things we're trying to do is build an underground education center there so that people when they go to the Lincoln Memorial, they can go underground and be educated about Lincoln more than they can today, and that's something that I think is helpful.

Josh King (44:34):

I was with President Clinton when we went to many national parks, including Yellowstone. I admired George W. Bush and the many parks that he went to, I thought that one of the best presidential trips ever taken was when President Obama went to Alaska and went off with bear grills to the glacier, understood what is going on with global warming and the preservation of Denali. Earlier, maybe last year was opened the Museum of African-American history, I think you urged President Trump to make a visit there. I watched that visit as well as his visit to Andrew Jackson's Hermitage. Is this a president who is internalizing history enough?

David Rubenstein (45:15):

Well, I did in the transition say that he should do a good job of touching the symbols of our country. Go visit the Tomb of the Unknown Soldier, go visit Arlington, go visit the Declaration of Independence, go visit the Constitution, go visit some of the museums in Washington, because he hadn't been in government or politics before. He didn't really have that sense of history that I thought he should get. And so it was one of the things that he did do. He did take a tour of the African-American History and Culture Museum with Lonnie Bunch, who was the director of it, David Skorton, who's the secretary of the Smithsonian and myself, and it was about an hour plus tour. And so I think he did appreciate what had been put together there and I do think it was worth us doing.

Josh King (45:51):

Have you talked to him more about other stops that he can and should take? He's beginning to travel more, he can take some side trips, some OTRs.

David Rubenstein (45:59):

There's no doubt that when you're president of the United States, you see a lot of things that you wouldn't get to see otherwise because people want to show them to you. I don't know his day-to-day schedule and what things he's seeing, but there's no doubt, many things in Washington, D.C. that would benefit from his actually visiting them.

Josh King (46:13):

You've spoken many times in the past about your concerns with U.S. debt and unfunded liabilities. As we begin to wrap up our conversation here in the ICE House, it would be remiss if we didn't touch on Alexander Hamilton whose 1790 report on the public credit created the federal debt and indirectly the founding of the New York Stock Exchange. Hamilton warned us that progressive accumulation of debt which must ultimately endanger all government, and hear also, Jimmy Carter from February 2nd, 1977, one of his fireside chats upon taking office.

Jimmy Carter (46:46):

... a couple of weeks ago in the middle of the worst economic slowdown of the last 40 years, more than seven and a half million people who want to work can not find it according to the latest statistics. Because of high unemployment and idle factories, the average American family like yours has been losing $1,800 a year in income and many billions of dollars have been added to the federal deficit.

Josh King (47:12):

David, that $80 million debt that Hamilton set up now stands at about 21.2 trillion. What needs to be done?

David Rubenstein (47:19):

Remember, the country came together in part because of the need to pay down the debt. Hamilton, Jefferson and Madison met in the Wall Street area and had a dinner and that dinner, it was agreed the capital of the United States would move from New York to a Southern location in return for the Southern states agreeing to pay off the then debt of about $38 million. And that was done and we've obviously moved the capital to Washington, D.C. We've had debt as part of our balance sheet of the U.S. government for most of our history. Though, when Bill Clinton was president, we were paying down debt so rapidly, there was a concern that actually there might not be any federal treasury bills against which to measure corporate bonds. That is not a problem anymore, we have plenty of federal debt as you pointed out. We have $21 trillion of debt, 16 showing up it is owed to outsiders and about five is internal debt. It's accounting matter between the social security fund owes money and so forth.

David Rubenstein (48:13):

But the 21 trillion is a problem because now we are likely to add a lot more debt. The tax bill that came through while it has some pluses to it, will probably add between 1.5 and 2.3 trillion over the next 10 years. The spending caps that were increased while there's some need to increase the spending caps, perhaps that will probably add 1.5 trillion as well over the next 10 years. And again, if we don't have economic growth at 2.3% which is what is projected, we will add more debt because we're assuming growth that would produce certain amount of revenues that we grow below 2.3, we won't get the kind of revenue that we need.

David Rubenstein (48:47):

So we could look at a situation, we have $30 trillion of debt or more in the next five, six, seven, eight years. So we're running annual deficits now in excess, or we will next year have over a trillion dollars a year. So it's a problem we have to address and there's only three ways to do it. You have to increase revenues by higher growth, you increase revenues by taxes or you cut spending, and none of those are easy to do.

Josh King (49:10):

None of those are easy to do and yet the American dream lives on. I want to end on that, something you've lived to the fullest. You grew up in Baltimore and the middle-class family, is it possible to replicate your success through hard work, education and certainly some luck or have things changed today?

David Rubenstein (49:28):

There's no doubt that the American dream is what I believed in and there's no doubt that people today around the country still believe in it. Some people have disadvantages that are far greater than any disadvantage I had, and so I think their chance to get to the top is much more reduced than my chance. But there are many people who have modest circumstances who do believe in American dream, work hard and can get to the top. And if you take a look at the people who are building great technology companies for example, many of them came from modest backgrounds relatively speaking. So there's no doubt there's a possibility in the United States of rising at the top but it takes off a lot of hard work and a lot of belief that you can do something with your brains and your talent if you really apply yourself.

Josh King (50:09):

David Rubenstein from building and growing Carlyle Group to preserving America's enduring treasures, thanks so much for sharing part of your exit strategy with us here, Inside the ICE House.

David Rubenstein (50:18):

My pleasure, thank you.

Josh King (50:20):

That's our conversation for this week. Our guest was David Rubenstein, executive chairman of the Carlyle Group. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @NYSCE. Our show is produced by Pete Ash and Ian Wolff with production assistance from Ken Abel and Stephen Portner. I'm Josh King, your host, signing off from the Library of the New York Stock Exchange. Thanks for listening, talk to you next week.

Speaker 2 (50:59):

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of this information. And do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.