Freakonomics Radio - 322. Extra: David Rubenstein Full Interview

Episode Date: March 5, 2018

Stephen Dubner's conversation with the co-founder and longtime co-C.E.O. of the Carlyle Group, recorded for the Freakonomics Radio series “The Secret Life of a C.E.O.”

Hey, this is Stephen Dubner. You are about to hear a conversation with David Rubenstein, co-founder of the Carlyle Group, one of the most storied private equity firms in history. I spoke with Rubenstein in August for our six-part series, The Secret Life of a CEO. And now we are releasing, as special episodes like this one, our full lightly edited interviews. Since we spoke, Rubenstein stepped down as co-CEO of Carlyle, but he's still executive chairman. He is a pretty remarkable human. I hope you enjoy the conversation as much as I did. Stephen Dubner, is that David Rubenstein? It is.

How do you do? So nice to talk to you. Thanks. My pleasure. I have to say, I've been watching a bunch of your TV interviews. Yes. I'm so impressed. Thank you. I don't mean to sound surprised, but your questions are good and you don't have notes. Well, I can explain why I don't use notes, but I can do it another time.

Go ahead. I want to know. Well, if you have notes, you lose eye contact with the interviewee. And there's a human tendency, if you have notes in front of you, you will inevitably have your eye look at them for some point, even if you don't need to. And the second you do, you lose the eye contact with the person you're talking to, and you lose the intimacy of a conversation as opposed to an interview. You've just described the central conflict which led me to do radio instead of TV. It's not that hard, but I try to always intersperse some humor in it because I find that humor keeps people interested. And so I'm always looking every three or four questions for something that I can interject. Something might be somewhat humorous and that helps a bit. But okay. All right. First things first, are you a Steen or a Stein?

Ruben Stein, but I don't care either way. All right. So if we could begin, just literally say your name and what you do. David Ruben Stein. I am the co-founder and the co-CEO of the Carlaw Group, which is a global private equity firm. Very good. Let's start with a little bit of personal background. First, just tell us a little bit about growing up in Baltimore, your family, your schooling, etc., your aspirations, perhaps, etc. Okay. I am the only child of two parents who both dropped out of high school. My mother dropped out of high school to marry my father. My father dropped out of high school to go into the Marines. They were 20 and 17, respectively, when they married. I was born more than nine months later. And I grew up in a blue-collar environment. My father worked for his entire career in the post office, never making more than $7,000 a year. So it was a very blue-collar kind of environment, and it was a very segregated environment in terms of religion. In Baltimore, the Jews had to live in one narrow area of Baltimore, more or less. And so I really didn't know anybody who wasn't Jewish until I was about 13, because everybody who lived around me was Jewish. And then I went to public high school in Baltimore before I went away to college at Duke University.

You went to Duke on a scholarship of some sort, yes? I did. It was not a basketball scholarship, I can assure you. I was the only person in Duke's history who got cut from an intramural basketball team when only four other people were on the team. But I did go to Duke on a scholarship, and I was an equal opportunity employer to colleges. Whoever gave me the biggest scholarship, that's where I was going, and Duke gave me the biggest scholarship. Your mother, I understand, desperately wanted you to become a dentist. That was her dream for you, yeah?

Yes, my mother felt that the highest calling of mankind was to be called a doctor, and she thought that being a dentist was better than being a doctor. You can still be called a doctor because you didn't have weekend hours. And my mother was a big consumer of dental services, so she always thought it was a good thing. I always said, well, what happens if I get arthritis in my fingers? My career will be gone. So I talked her out of my having to go to dental school. Now, I'm just curious, growing up in Jewish Baltimore, when you watch some of those Barry that well. My family was not in country clubs. My family didn't have the access to the wealth. So it was okay.

And what you see in Barry Levinson's film is largely true. I think there was a lot of elements of truth to that. It was, you know, you didn't know any better at the time. But when I was growing up in Baltimore, Baltimore was the eighth largest city in the United States with a population of about 939,000. Now it's not even in the top 20 in terms of population sizes. So it's shrunk a lot relative to other cities, and it's had a lot of problems over the years. Today, it has a very high crime problem, very high illiteracy problem, very high STD problem. So there's got a lot of challenges

in Baltimore. I have been living outside of Baltimore for roughly 50 years, so I can't really claim to be a Baltimore expert anymore. When I grew up, like most people who grew up in an environment, you don't really know any better, you don't know any worse. You think this is what life is about. And so I accepted what was there. And like most children, I enjoyed my childhood. I just didn't realize until much later some of the things I didn't, you know, have. Right. After Duke, you went to law school at the University of Chicago, became a lawyer for a bit. You wound up working in the Jimmy Carter White House, which is where you met your future wife. So describe that briefly, what you were both doing.

Okay. I had worked, I had always wanted to work in the White House because I had been inspired by John Kennedy's inaugural address, giving back to the country. I was in the sixth grade when that speech was given. And so I always aspired to go back and give service to the country. I thought I could do it by working in the government, and the White House seemed very appealing. I worked for Ted Sorensen, who had written that great speech for John Kennedy. And after I practiced law for a few years in New York, he helped me get a job, which ultimately led me to the Carter campaign. And in 1976, I joined that campaign.

And Jimmy Carter was 33 points ahead of Gerald Ford when I joined. Carter won by one point. So Carter often said, well, what was your contribution? But as we have observed over many, many years, people who work in White House staffs get their jobs because of working in the campaign,

not because of the merit. So at 27, I was the Deputy domestic policy advisor to the president of the United States, a job I obviously wasn't qualified for. My wife worked at OMB, and her job was to stop the spending of money. As a domestic policy person, I was in favor of spending of money. So we kind of had our disputes at the time. Right. Now, I've read that you stayed late at your job to make sure that your memos were on top of the president's briefing pile until your future wife found out and got a Secret Service agent to put her memos on top. Is any of that actually true? It's, for better or worse, completely true. What happened was I did work late at night.

I wasn't married at the time. My life was just working work late at night. I wasn't married at the time. My life was just working in the White House. I couldn't imagine anything more pleasurable. So I just had an efficiency apartment near the White House. I would work around the clock. I loved it. It wasn't work. It was fun.

But late at night, I would bring in a second crew of secretaries to dictate memos or other things. And then at the end of the day, 10 o'clock, 11 o'clock, 12 o'clock, before I would go home, I would take into the president's private study my memos and bypass the staff system and put my memos on top. So when the president came in the morning, he would read my memos first because they were on top of the inbox. And that had the advantage of bypassing everybody else's comments on my memos, which was a way of beating the system. When my wife-to-be found out about it, she beat me one

time staying later than me. Her memo went on top. I was very upset and didn't talk to her for several months because she had beat me in my own game. Do you consider that sort of, I don't want to call it subterfuge quite, but strategic positioning, is that the kind of advice you would give to young people trying to get ahead in the world today? It wouldn't be something I would tell my three children would be a good way to get ahead. But I would say sometimes you do things in life that in hindsight with the wisdom and gray hair, you realize probably don't look so good. And everybody probably has some skeletons in their closet. I guess my skeleton is I went around the staff system at the White House. And for that, I probably won't get to heaven. But that's the

truth of what happened. So unlike most CEOs we've been interviewing who run companies like Facebook or PepsiCo or Microsoft, I dare say that most listeners haven't heard of the Carlisle Group, despite its 160-some billion dollars in assets. And additionally, that most listeners have no idea how a private equity firm like yours actually works. So can you explain it, please? The essence of it is this. Private equity is a phrase that is used to explain the investing of money typically in a company that is privately owned, i.e. it's not public. And you spend three to five years improving the company, incenting the managers to work harder, do more efficient things. And ultimately, after three or five years, you sell or otherwise liquefy the investment. And the appeal of this industry and reason it's grown to be several trillion dollars

under management now for around the world is that this is a business which produces very high rates of return. So to make it simple, if you put your money in the bank, you probably get 0.1% or 0.2% interest. If you put your money in a bond, you might get 1% or 2% interest. If you put your money in a stock market fund of some type, you might get 3% or 4% or 5% annual rate of return. Now, they've come down in recent years, but today, probably it's not unusual to think that people in my business can yield annualized net returns after fees of 15% or so per annum. So if you're getting 0.1% or 0.2% in a bank account and you're getting 15% from people like me, you're probably going to give us money. And so what we try to do is improve companies, make them more efficient, thereby making economies more efficient. It's now become a business that's done all over the world, though it's only about 40 years old. It also shed its earlier name, the leveraged buyout business, which was seen as more, I guess, piratical or barbaric. Was that a conscious rebranding?

Well, it was conscious, I think, in this sense. Initially, the business was called Bootstrap. You were bootstrapping yourself. They were called Bootstrap deals. Then that was seen as not very attractive name, so people then went to leveraged buyouts. Then the word leverage was probably seen as odious, so they went to the word management buyouts. Then the word buyouts was seen as odious, so they went to private equity. I suspect at some point people will go with another name. But whatever you call it, the essence of it is you get people who are highly motivated because people in this business tend to get 20% of the profits on other people's money. They are highly motivated to do a good job and get high rates of return for their investors, and they get 20% of the profits. So it's a business that has spawned large firms like Blackstone, Apollo, KKR, Carlyle, among others. And it's a business that I think is now operating all over the world. Bain Capital, yeah. So it was demonized and considered kind of odious during the presidential campaign when he was running against Barack Obama and private equity came equity will argue that you guys are the guardian angels of the economy, that you'll swoop in with real money to pay for firms that nobody else wants. So considering those are the two poles, how do you put it? Well, I hadn't heard before the guardian angel phrase, but now that I've heard it, I guess I like it. I probably should stop using any other phrase and start using that one. I would say like most things in life, it's

somewhere in between. In the early days of private equity, when Mitt Romney was doing what he did, and he was accused of, fairly or unfairly, it was a much different industry. People tended to focus on getting the highest rates of return. They didn't worry about environmental concerns. They didn't worry about ESG or social governance kinds of things. Today, the industry is one where environmental concerns, social governance concerns, tax concerns, all these kinds of things are much more important. So Mitt Romney was accused of things that I think were probably somewhat unfair. He didn't respond because at times his polling data showed that anytime he mentioned the phrase private equity, his polling went down, even if he had defended what he did. So he ultimately

ignored it, maybe to his detriment. Today, I think private equity people think that while we're not perhaps guardian angels, we are providing a social service. And the social service is making companies more efficient. But more importantly than that, perhaps, the bulk of our investors are public pension funds. So they are policemen, firemen, teachers, and so forth. They are the largest investors through the various CalPERSs of the world or New York Commons of the world. And so we think that we're doing good things not only by making companies more efficient, but the real beneficiaries, the people getting 80% of the profits, very often are public pension funds. How many companies does Carlisle own at the moment? We own roughly 200 companies around the world on behalf of investors.

So we own them on behalf of investors, about 110 or so of those in the United States and maybe about 90 of them outside the United States. And can you think of any category of good or service, whether it's clothing or restaurants or consulting or petrochemicals or software or weapons that Carlisle does not own? Yes. When I set up the firm with my partners, I said I didn't want to do certain things that I found antithetical to my own beliefs, perhaps. So I didn't want to invest in tobacco-related products. We've never done that.

I didn't want to invest in firearms, guns. We've never done that. I didn't want to invest in firearms, guns. We've never done that. And I may have softened on this in recent years, but we never have and never wanted to initially invest in anything that was alcohol related. I can understand that some people may disagree with that and view that wine or related other alcoholic products aren't as sinful as I may have thought at one point, but we haven't still done those. But those are three things we haven't done. What was your objection to alcohol?

I mean, one thing that comes to mind is you do do a lot of business in the Middle East where alcohol has a kind of checkered access history. Was it a business decision, personal? Well, I don't drink alcohol, so maybe that was the principal thing. I also felt that alcohol has so maybe that was the principal thing. I also felt that, you know, alcohol has its benefits, I suppose, but I felt that we might be criticized for investing in that area, and I didn't think that was something we needed to do. Probably my partners may have a different view on it, and we haven't really seen an attractive investment in that area,

so maybe we would do it in the future. We certainly wouldn't do anything in tobacco, and we wouldn't do anything in firearms, and there may be other areas that we probably wouldn't do. But, you know, I thought, for example, you know, one time we looked at a deal in industry that you would think would be okay, which is to do video into hotel rooms. You know, it's a nice business. But when you analyze it, it's about 98% pornographic, at least at the time we looked at this particular company. Maybe other things are different because it tends to be that a lot of things that are at least making money that are being broadcast into hotel rooms tend to have a, let's say, I believe, speaking to at Harvard Business School. You said you realize you compared private equity to sex. You said you realize there are certain things you shouldn't do, but the urge is there and you can't resist. Can you give me an example, not the sex example, thank you, but the private equity example of what you shouldn't do but can't resist?

Well, sometimes prices may get very high and you get in a competitive bidding situation. And if you've ever been in an auction, you may know that, you know, you think, well, I'll just pay another 1%, I'll pay another 2%, I'll pay another 3%. And eventually you find you're paying more than you really initially thought you would do. So sometimes people in private equity tend to, you know, maybe pay a little bit more than they originally intended to, to get the asset. And sometimes people in private equity tend to maybe pay a little bit more than they originally intended to, to get the asset. And sometimes it works out, sometimes it doesn't. So that's what I was trying to refer to in that comment at that Harvard Business School.

My view was that if you mentioned sex, sometimes the students who were probably falling asleep during my speech would wake up. And sure enough, many people paid attention to that. In fact, more people remembered that comment than anything else I said at that speech. So what you're talking about, especially with auctions, has been canonized in the economics literature as the winner's curse. And empirically, it turns out that it can be a pretty bad deal. I'm curious how, over the nearly 30 years you and your partners have been doing this. I'm curious how your thinking has evolved in how you bid, how much you'll pay, and what kind of things you've learned from past mistakes. Well, we've made plenty of mistakes, as everybody in this business has.

And anybody that tells you they haven't made a mistake probably really isn't in the business or isn't being honest. I think generally paying over more than you want to pay by 5%, even 10%, isn't generally the biggest sin. It's maybe paying more than 50% than what you should have paid. But generally, the most important factor is getting a good business, which can be improved by the good CEO. So if you buy a terrible business that can't be turned around, no CEO could turn around, that's probably CEO. So if you buy a terrible business that can't be turned around, no CEO could turn around, that's probably a mistake. If you buy a really great business that already has a great CEO, there's probably not much value to add. So what you're looking for is a business that's okay, but can be improved, and you've got a very good CEO who can improve it. And then if you do that and work through the system for five years or so, you'll probably get a reasonably good rate of return. So, as I understand it, you don't sleep very much, four or five hours a night.

You don't play golf. As you've said, you don't drink alcohol. You don't smoke. Is that sort of singular, almost, well, it's not quite fair to call it a monastic or slavish devotion, I guess, but it sounds like it to the outside, from the outside. Is that kind of devotion necessary to run a company in the modern era, or is that just your set of personal preferences? I hardly think it's necessary, and many people who are wine aficionados are great running their companies, and they do a much better job than probably I'm doing. And many people who play golf do very well in running companies so each to his own and you know the world is made up of many

different people in terms of their tastes in my own case i just never wanted to drink alcohol i concluded that with respect to golf i took it up when i was nine i quit when i was 10 i realized that it was too frustrating and too humiliating and as an adult i've concluded the same because I have the view that if I have a business meeting with somebody and they think that I'm competent and intelligent, if I were to go on the golf course, I would destroy the illusion of competence and intelligence. So rather than destroy that illusion, I just say that I might play putt-putt with them, but nothing else. Yeah. I'm curious about the alcohol. In my experience, many people, maybe not most, but many people who don't drink at all have had some kind of experience or history in their family, a bad experience or history. Is that the case in your case? I wouldn't say that.

I would say that my parents were not alcoholic consumers of any amount, but I did notice that on New Year's Eve, you know, my father might come back a little higher than I'd seen him before. But I think it was really a matter of discipline. I was in a youth group, and the youth group, kind of head of the youth group was a local judge in Baltimore. He was a big believer in not drinking alcohol. And I guess I just, you know, adopted that as a way to either please him or to please my parents. And so I just never was a consumer. Maybe I've missed many things in life by not consuming alcohol.

I don't know. Yeah. And you have that in common with our current president, Donald Trump. Yes, not a consumer of alcohol. Well, I hadn't thought about that comparison, but I guess you're correct. I think he doesn't drink alcohol either, but there are many other people other than President Trump and other than myself who have done things in life that it might be worth talking about that haven't tasted alcohol. So we're not the only two, I think. Right, right. All right. So let's get back to private equity generally for a minute. How's business overall, both for your firm and firms

like yours? A lot of people are saying the private equity industry, at least for the old school firms like yours, has peaked. Agree? No? I don't think it has peaked, but it is very, very popular right now because we are pretty good in our industry in getting rates of return of, let's say, mid-net teen returns, let's say 15% net or something like that on average. And the top quartile funds might be doing 20% net or even higher. And so while we've been able to do this through good and bad times over 30 and 40 years, people have now concluded that we are probably a pretty good custodian of money. And so we are being given lots of money by investors from all over the world, sovereign

wealth funds, high net worth individuals, family offices, public pension funds, and so forth. So it's a pretty good time to raise money. It's expensive to invest it in terms of prices are not cheap right now. But at some point, prices will probably come down a bit. And if you have a fair amount of money to invest, you can invest at lower prices, you'll probably be doing reasonably well. So I would say the industry hasn't peaked.

But I would also say that for the last 20 years, people have been saying the industry's peaked and it hasn't really peaked. So you just don't know. When I started Carlaw with my partners, there were 250 private equity firms in the entire world. Today, there are 6,555. So it's obviously been a growth business. Right. And you've pointed out that America leads the way in private equity, whereas we've lost the leadership in some other industries.s. And they started in the United States. And because there were public pension funds here, which had been the biggest source of capital, it probably became an industry that took off the United States and there was so much local money for it. Today, 83% of all private equity dollars invested in the world every year are still invested in basically Western Europe and the United States. So it's still a business

dominated by Western Europe and United States. Now, it's still a business dominated by Western Europe and the United States. Now, 55% or so of the global economy, depending on how you measure GDP or purchase price parity, but let's say 55% as measured by purchase price parity of the world's GDP is in the emerging markets, so-called. So if only 17% of the dollars invested in private equity are now going into the part of the economy. It's 55 percent. That will probably catch up at some point. So the emerging markets will get more and more money from private equity firms in the future. But today, the United States still dominates the business. And I'd say of the 10 greatest known venture firms in the world and the 10 largest private equity firms in the world, they're all based in the United States.

Right. Correct me if I'm wrong, but as I understand it, private equity generally acquires established firms that need more money or better management while VC firms generally fund startups. If given the chance to start again, would you be more likely to opt for getting in on the startup game just because of the dynamism and excitement or knowing that it's turned out pretty well for you on the PE route, would you choose that one? I don't think I have the skill set in venture capital. I passed on Facebook when Mark Zuckerberg was in college and my now son-in-law told me about this opportunity to invest in his classmates' company. And I had a

chance to be an early owner of Amazon and effectively turn it down. So I would say I probably didn't have the skill set to monitor these good technologies that were going to take off. So on the whole, I think I probably made the right decision because it's worked out reasonably well for the investors at Carlyle and for me and my partners. But sure, it's always tempting to think that venture capital is going to be producing more Facebooks and Googles and companies like that. But it's a tough, tough business. In private equity, on average, obviously, there's some exceptions, probably 90% of buyouts will make money, something like that. And in venture capital, probably 90% of the deals will not make money. So it's a tougher business in many ways.

Talk for just a minute about running a company and the difference, especially with a startup like a Facebook. And as it becomes successful, maybe Uber is a more interesting company to talk about now since they're going through a lot of leadership upheaval. It's always struck me, and I've always heard from people who start businesses, that the kind of energy and dynamism and maybe attitude that it takes to start a firm is very different from the energy and dynamism and attitude of what it takes to run an established firm. Can you talk about that for a minute? Sure. 99.9% of companies started in the United States fail. So it's very few companies that actually get to be anywhere after one or two years. Most companies don't make it. Now, you read about the Silicon

Valley successes, but you hear about the Ubers and the companies like that, but there's so many that don't make it. So to make those companies work, you need a CEO who's driven or founding partners who are driven, who are maniacal, who don't want to do anything but eat and sleep and work in the company. And you therefore have to have a mindset of walking through walls. And people will tell you when you're starting Uber or Google or Microsoft or Facebook, this can't be done. Well, if you accept that, then you're going to fail. You have to be able to ignore what people tell you and ignore conventional wisdom. And then if you're fortunate, you might get to the very top, but very few get to the top. Running companies is different than getting them off the ground. I think it's much harder to get them off the ground. Running is not

easy, but when you run a company that's more mature, you have more people who are willing to support you, more people willing to work with you, more people willing to give you money. Getting that company off the ground the first two or three years is extremely difficult. What about when the startup CEO wants to stay and plainly isn't the right person for the job? You're obviously in a position where you deal with that all the time. How do you handle that? Well, there's no easy prescription. If you have a CEO who started the company and he or she doesn't want to go, but he or she may not have the skill set to take it to the next level. So it can be a very complicated conversation.

Typically, outside investors might have the majority voting stake or the majority of the board by years three or four, and they might have the ability to vote out the CEO, but it's not pleasant. So sometimes you give the CEO different responsibilities. In some cases, obviously, the CEO leaves, and sometimes they still own a big stake in the company, even though they're not there. But generally, the companies that are going to make it, with some exceptions, are the companies that have a CEO founder who has driven the company for the first couple years and really driven it to success. And then maybe after three years, three, four, or five,

you bring in a CEO who's better at managing a more mature company than somebody who's getting it off the ground. Some of the greatest managers of companies in the world are not great entrepreneurs, and some great entrepreneurs are not really good at managing companies. So it's a rare person like Bill Gates, who was an entrepreneur and also was a very effective CEO for many, many years. That's relatively rare. Do you think, however, that the high-profile nature of those relatively few excellent founder CEOs, you mentioned Bill Gates, you know, you could say Mark Zuckerberg at this point, you could say Jeff Bezos at this point, you could say Steve Jobs while he was alive. Because they're so prominent, do you think they give a kind of skewed anomalous view of what the CEO should be?

In other words, it should be the founder, or at least it would be best if it were the founder? Well, clearly, they get all the attention, and therefore, they are role models for people. So it does give people something to aspire to. But probably most companies five years into the formation of the company are not being run by the person who conceived of the company and might have started it. It's just because it's a different skill set and very few people have the skill set that Jeff Bezos exhibited or Bill Gates exhibited to both be the entrepreneur, the driving force at the beginning, and the person who can run the company when it's relatively mature. It just usually doesn't happen. Give me a little more detail on your passing on Facebook investment.

Sure. My oldest daughter went to Harvard College. She met a young man there. She's now married to him. They're very happily married. I think they're now six or seven years married. And at the time, when they were dating for the first year or so, this son-in-law-to-be knew who I was and I was in the investment world. And he told me that a classmate of his at Phillips Exeter and a classmate of his at Harvard College was dropping out of Harvard to start a new company. And it was going to do something relating to bringing people together. It was called Facebook. And he showed me some materials about it and how it was working. And it was essentially at the time, I thought, more or less a dating service for kids in college. And as it was described to me, I said, look, I don't really think this is going to get anywhere. I've seen

college kind of companies before, and I'm pretty experienced at looking at them. This is not going anywhere. So he was trying to raise $10 million. Today, that $10 million is probably worth about $30 billion. I had a similar experience with Jeff Bezos. When Jeff Bezos was starting his company, he didn't really have very much money. He was going to sell books over the internet. He needed a bibliography of books that were printed on the internet. One of our companies, Baker & Taylor, had the biggest bibliography that was of books in print. And he came to the company and said that he would like to rent that bibliography. And he didn't have much cash, but he would give one-third of his company for the use of the bibliography.

Our salesman turned it down and said, no, we want cash. At one point, I realized that probably wasn't a good idea. I went out to see Jeff Bezos and said, you know, I think your company is going to go public. And you, Jeff, one day are going to be worth $200 or $300 million. He said, I'll never be worth that much. And I don't really want to give you one third of the company more because I don't need you as much. But you were helpful to me in the beginning. So we'll give you one percent of the company now, not a third. And we sold it at

the IPO. Today, it's probably worth about four and a half billion dollars. Wow. Do you regret or how much do you regret those decisions or are you not a regretful type? I am a regretful type. One of my partners never looks back. I always look back. So I regret it because I just realized how stupid I was. I could have maybe been an investor in Facebook, and I could have owned a lot of stock in Amazon. So here, I look back. Just like fishermen, I like to talk about the ones that get away.

I guess I like to talk about the ones that get away. I guess I like to talk about the deals that got away. But on the other hand, obviously counterfactuals are always hard to imagine or at least measure. And I'm guessing there are a lot of times when you did say no, where it turned out to be an incredibly valuable no, yeah? I mean, do you entertain those in your regret model as well? Sometimes we have not done deals that we wanted to do. We lost out other people, and it turned out those deals did not work out, yes. And sometimes we have done deals that we thought were going to be great, and they didn't work out as great as we thought. You know, that's the deals world, and, you know, you live with your deals. Generally, those people who do reasonably well are people that probably make money seven, eight, nine times out of 10. And generally, we've had a pretty good

average in doing that. So that's why we've been successful. The latest figures I've seen put Carlyle Global employees at a little over 1,500. Is that about right? We have about 1,500 employees in the core company, but the companies we own, the 210 companies or so, or 200 companies or so we own, about 110 in the United States, they probably employ close to a million people. Very good. And then I've read a recent estimate that Carlyle Group assets, all in companies it owns or invested in, are about $162 billion. Is that up to date and or accurate?

It's about $170 billion right now, something like that. So we're managing assets of about $170 billion. Yes. Gotcha. So if you were a country and that were your GDP, that would put you around the top 60 globally, behind Qatar but ahead of Kuwait. So I'm curious, what kind of opportunities and challenges come with being so big? Well, clearly when you're big, you can make enemies. And for a while, people did parody us. And for a while, when we had some political people associated with us, years ago, former President Bush 41 or Jim Baker, we were seen as being politically powerful and people attributed various things to us that we didn't

have in terms of political power and so forth. Clearly, when you get to be wealthy and you get to be big, you do make some people nervous that maybe you're going to do something they wouldn't like. So it's very rare to have wealthy companies be loved by everybody. It's very rare to have wealthy people be loved by everybody. Now, clearly some wealthy people today are very involved in philanthropy and they're, you know, more popular than they used to be. But, you know, for a while, wealth has historically made the average person nervous. You personally have been an innovator and I guess maybe a world leader at recruiting rainmakers, or at least partners, who have recently left public office, former

cabinet secretaries, the occasional president, and so on. Talk about, and we know that comes from having worked in the White House and in D.C. And from what I understand, you're the first private equity firm to have kind of married the concept of private equity with the D.C. status abilities and power. When we were very young, we were modest in size, 1989, I think it was. Frank Carlucci was leaving as Secretary of Defense under President Reagan. We recruited him to be a partner in our firm. When George Herbert Walker Bush lost his election in 1992 to Bill Clinton, Jim Baker joined us. He was departing then as Secretary of State. And then subsequently as an advisor to us, George Herbert Walker Bush joined us. And at one point, John Major was an advisor to us. We were then very unknown. By

having those people, people got to know us. Nobody would give us money if we didn't know what we were doing, but there's no doubt that they probably would go to a dinner where Jim Baker was going to speak rather than a dinner where David Rubenstein was going to speak. Today, as we've become very well known, our track record is pretty robust after 30 years. We don't really recruit people like that anymore. Not that those aren't good people and not that they didn't do very good things for us, but we don't really need to do that to open doors anymore or to have people pay attention to us. Our track record really speaks for itself. So we did pioneer that. And now I find, interestingly, that other firms are doing it when we don't do it anymore. So we did pioneer that. And now I find, interestingly, that other firms are

doing it when we don't do it anymore. So some other firms with whom we compete do bring in very senior government people, but we just have not done that so much anymore. So when's the last time you hired someone who someone like me, I might consider, you know, politically connected? It's been decades because we kind of got out of that business. We were heavily criticized for it in part because, for example, when George Herbert Walker Bush was part of our firm, partisan advisor, I should say, his son was president of the United States. And people thought that was complicated and people thought we were part of the Bush administration and we weren't and so forth. So, you know, we have brought in people from government, but they aren't people who have brand, you know, household names. So maybe four years ago or so, we brought in Julius Janikowski, who was chairman of the FCC, to help in our communication investment business. But nobody

would really think that he's a political force so much as a telecommunication knowledgeable person. And how was it that you as a lifelong Dem happened to bring in all these Republicans? Well, I'm in business and I don't think that I judge people whether Democrat or Republican. I actually did work in the White House for President Carter, but I have stayed out of politics since then. I don't give money to politicians. I give away a lot of money, but not to political campaigns. I completely divorced myself from that. And I'm not involved in anybody's campaigns. I don't support any candidates, so forth. So I kind of view myself as apolitical. And because of the non-Karlisle related things I'm involved with, I'm the chairman of the Kennedy Center, chairman of the Smithsonian,

I think it's best to be apolitical. So I stay out of politics. But I would be willing to recruit people who are either Democratic or Republican. I'm strikes me that because of your business and your philanthropy and your personality, that you, David Rubenstein, may personally know more prominent people, at least in business and maybe in politics, than just about anyone else in the world. How right or wrong am I on that? There are many people whose names are much better known than mine, and they can get anybody on the phone. If Bill Gates calls anybody, he's going to get that person on the phone. Jeff Bezos is going to call anybody, they're going to get that person on the phone. Barack Obama calls anybody, he's going to get that person on the

phone. I'm not anywhere near that level. I do serve on a lot of nonprofit boards. I have been doing what I'm doing for 30 years, and I've been running around the world meeting investors for some 30 years. I chair a number of boards. I have my own TV talk show a bit, and so people see that. And I get involved with a lot of causes that I think are important to the country. But I would say there are certainly many, many people who are better connected than I am. But I do know many people that I am proud to say are friends of mine or people that I respect. I've read that your net worth is a little north of $2.5 billion. Is that accurate if you care to confirm or not? I've never calculated it. I see what Forbes says. It's not up to me to say

what it is. It's more than I ever dreamed I would have. I have signed the giving pledge. I was one of the first 40 people to sign it, the only person initially in private equity. And I'm committed to giving away not half of the money as the giving pledge suggested people do, but to giving it all away. So whatever it is, I will give it away. You've recently joined the Harvard Corporation. Congratulations on that. Thank you. It's an extraordinarily historic and influential governing body. I want to ask you a few questions about it and Harvard.

First of all, the Harvard Management Company, which runs the endowment, has famously underperformed in recent years and underwent a pretty big shakeup. First of all, I'm just curious, is that part of your purview as a corporation member? Is that part of the reason you were brought in? Well, let me know. Let me answer it this way. First, I'm a graduate of Duke and the University of Chicago Law School. I didn't go to Harvard. And for the last 12 years, I've been on the Duke University board and I've chaired the board for the last 12 years, I've been on the Duke University board, and I've chaired the board for the last four years. My term was up, and as my term was up, there was a vacancy on the Harvard Corporation board. I did know Drew Faust. I'd done a number of things at Harvard, and she asked, I guess, with the consent of the others on the board, if I would join the board. So I've only been to one meeting so far, but I don't think I was brought on because of financial considerations, because the Harvard Management Company is run separately. It does report to the Harvard Corporation, but it wasn't something that

I'm going to serve on the board of the Harvard Management Company. So I think they probably brought me on perhaps because I have some experience in higher education at Duke, and I've also served on the board of Johns Hopkins, and I currently serve on the board of University of Chicago as well. And I've been pretty involved at Harvard in a number of areas, the Kennedy School in particular. So maybe those are the reasons. I chair the Harvard Global Advisory Council. So that's probably the reason they put me on, not so much because of my financial skills, I think. I don't mean to disparage at all your education board bona fides. But if I were Harvard,

and if I were looking at the performance of my endowment investment, and I would think, well, what kind of person would I most like to have sit on the Harvard Corporation Board who could at least help us get a sense of, you know, what we should be trying to accomplish here? We're the most famous and the biggest endowment and university in the world. And, you know, there's been a period of a couple of years here where the reputation of Harvard itself took a big hit because of the endowment performance. So I'm not asking you to ascribe motivations to them per se, but I would just think that that would make you a valuable addition beyond, you know, the educational involvement? Well, maybe so. I'm not sure exactly why they asked me to serve on it, but I am not on the Harvard Management Company board. There are, you know, people from Harvard Corporation board who do serve or have served on that board. I'm just not one of them. I obviously have some investment background. But

again, the Harvard Management Company is spending most of its money not in the area that I know most about. In other words, most of the money invested by Harvard Management Company is probably in fixed income or public equities. And while a fair percentage is in private equity, that's not the bulk of it. So if you really wanted to get somebody who was an investment expert, you probably would get somebody that knows much more about non-private equity areas. I know you've known Larry Summers, I gather, quite well for quite a while. When he was removed as president of Harvard a little over 10 years ago now, that was, I believe, the Harvard Corporation board that actually makes that call. Tell us, with some retrospect, Noah, and considering that Professor Summers is still at Harvard, tell us what you know about that situation, why he was let go, the reasons that were publicly stated at the time, and perhaps other reasons that in retrospect were influential. obviously watched it from afar, as many people did. It seemed as if the faculty had lost confidence in Larry. And fairly or not, I think he felt that that time it was probably best to go. But he

did a lot at Harvard during that period of time, I think is valuable. And he remains a university professor at Harvard and still teaches at the Kennedy School, among other things that he does at Harvard. And so while it was a tumultuous time, I School, among other things that he does at Harvard. And so while it was a tumultuous time, I think there were some things that he did that benefited Harvard. And so I do think that in hindsight, Larry contributed a fair bit to Harvard. And obviously he upset some people there, but I think his successor has solved many of the problems that Larry identified, and she's done a spectacular job. Drew Faust has been president for about 10-plus years, and during that period of time, she's really spectacularly improved many things at Harvard. And now she, of course, has announced that she'll be stepping down in about a year, I guess.

She'll be stepping down at the end of this year, academic year. If it had been up to you, would you have kept Larry Summers in the post? I can't. I wasn't on the board. I didn't have all the facts. I just, I can't possibly comment on that in an intelligent way. Coming up after the break, what being a CEO teaches you about life? What you have to do as a CEO is persuade other people to do what you want.

And that's what life is all about, persuading other people to do what you want. Back to our conversation now with David Rubenstein, co-founder and longtime co-CEO of the Carlyle Group. business is essentially making sure that the firms you acquire have good CEOs, which means that you must know a boatload about what makes someone a good CEO or a bad one. So I'd like you to tell us everything you know with specifics, please. I think a good CEO is somebody that knows how to be a leader rather than a follower, somebody that has convictions about what he or she wants to do, somebody who's reasonably intelligent. You don't need to be a genius, but reasonably intelligent, somebody that's very hardworking, somebody that recognizes that they are there to make the company more valuable, somebody knows how to motivate people, somebody that knows how to deal with customers as well as employees. There's some people that have skill sets that enable them to be good CEOs, and some people don't.

Sometimes the smartest person in the room is not going to be a good CEO. Sometimes a person who may not be the smartest in the room may have the skill set to be a good CEO. And I won't say it's like Potter Stewart's definition of pornography. You know it when you see it. But when you meet somebody and you talk to them for a while, you can tell whether he or she is likely to be a good CEO. I would say most cases, you know, we get that right.

Sometimes we get that wrong. If there's one characteristic that's relatively rare in the general population but fairly common among CEOs, what would it be? Persistence. To get something done anywhere You have to be persistent People are always going to tell you no And if you take no for an answer You might be a very nice person

People might like you But you won't be probably that successful Persistence, persistence, persistence That's so much of the game of being a CEO I'd say hard work is another major factor And the ability to lead The ability to get people inspired To get people to want to walk through walls for you and with you. That's what you really need.

Talk a little bit more about that ability to lead. I think we've all heard a ton of leadership scholarship. And I put quotes around scholarship because a lot of it is not very empirical. A lot of it is kind of, to me, it seems kind of woo-woo talk because for every example it's offered about if you just do this, you'll be a good leader. There's a counterexample of if you just do that, you'll be a good leader. So what does that mean? Give me some examples of what ability to lead actually looks like and how it can be measured.

Well, the way I like to talk about it is this. There was a man named Richard Neustadt, a professor at Harvard, who once wrote a book called The Presidential Power. And it was about the presidency of the United States. And he was pointing out that the president doesn't really have all those powers that you might think that the president has to do is persuade people. And that's the essence of the president's leadership. And that, to some extent, is the true of CEOs. While they might have some more authority than a president of the United States, the president of the United States can't fire people as readily as he or she might think. CEOs maybe can do so. But what you have to do as

a CEO is persuade other people to do what you want. And of course, that's what life is all about, persuading other people to do what you want. And I like to say there are three ways of doing it. One is you persuade people by your oral communications learning how to speak Learning how to say things that persuade people to do what you want Second is learning how to write writing a memo or letters or other kind of written communications persuading people what you want to do And the third and the most effective is leading by example and the example I like to cite not in a ceo context is George washington at valley forge. He didn't have to stay with his troops at Valley Forge during that winter, that cold winter, but he stayed with his

troops and he led them by showing by example that he was willing to put up with the cold and the terrible times just like they were, even though he didn't need to. And I think that's kind of inspired his troops. And I think what CEOs have to do to be effective is lead by example. If you say you want people to work hard, work hard example. If you say you want people to work hard, work hard yourself. If you say you want people to cut expenses, cut expenses yourself. If you want people to think of new ideas, come up with new ideas yourself. That's what you have to do. On those three points you just made, let's put aside for a moment the leading by example.

On the writing and the persuasion, talk about yourself and as a CEO, how you've learned to do those two things well, what kind of either guides you've had, mentors, et cetera. Okay. Talking about talking, I would say that while I did debating in high school and college, I wouldn't say I was an experienced speaker. When I worked in the White House, I did some speaking on behalf of the president, but nobody was probably inspired by my discussions, and therefore Carter did not get reelected. But I found when I went into the business world that I had to make presentations to investors, and one of my jobs at Carlyle was to raise money. So I would spend a large part of my time running around the world trying to persuade people, and often one of the ways of doing that was making speeches at conferences or other kinds of things. And as people began to listen to me, they liked what I said.

I get more and more invitations. And so gradually I became a relatively accomplished speaker. I'm not exactly the most accomplished, but I do make several hundred speeches a year. And as a result of that, I probably am more experienced at doing that than other people are. And that's probably been a skill set that I've developed. In terms of writing, I love writing, though I haven't published any books or anything, but I love to write, I guess,

and by using the memo form or internal communications, I like to put my thoughts out in a relatively clear way. And I would say that that's a very good skill to have if you can. I think writing in tweets and writing in email messages doesn't really give you the ability to write that well. So I don't do tweeting and I try not to communicate in such a short manner that you really can't convey a serious detailed thought. I often wonder where the English language would be today if William Shakespeare lived in a time of tweeting, would he abandon writing in the format that he did and invent the words that he did if he had to listen to the 140-syllable tweet format?

I don't know. Most of the time, we'll tell. I understand you're a speed reader and read five or six books a week and 10 newspapers a day. Is that true? I try to read two books a week, and I try to read 100 books a year. And now, it's easy to say, well, that's a lot to do, and how do you do that? But the truth is, I'm often reading books in subjects that I know something about, so it's not that complicated. If I had to read physics textbooks or neurosurgery textbooks, I wouldn't be reading two of them a

week. But I tend to read biographies, books about politics and books about business. And to make me want to read the books and maybe to force me to read it because I maybe need a prod, I have arranged a number of programs where I have to read a book in order to be able to do what I want to do. So for example, I wanted to educate members of Congress more about history. So I started a program at the Library of Congress where only members of Congress can attend. I underwrite a dinner and a cocktail party where members of Congress from both parties come, and I interview a great American historian. So Doris Kearns Goodwin, David McCullough, people like that. And members of Congress really love to learn about history. So I do the interview there,

but I have to read the book. I also am the principal underwriter and I guess the co-chairman of something called the National Book Festival, which the Library of Congress runs every year. We're having it in Labor Day every year. In Labor Day, we typically have 200,000 people coming for free. And we have about 125 authors. At the most recent one that's coming up, but by the time this is broadcast, it will have occurred, I will interview four authors in one day. So I had to read four books, and so I read those four books, and I'm now prepared to interview them. But I use these devices as a way of forcing me to read books maybe, just because if I know I have to read the book to interview the author, I will do it.

If I didn't have these devices, maybe I wouldn't be able to read two books a week, or I wouldn't read two books a week. Let me ask you just one more thing about these bipartisan dinner salons that you run at the Library of Congress. Right? It's the Library of Congress, you said? It is.

The Library of Congress is where we hold it. Amazing. Yeah. Amazing facility. So it's for senators and congresspeople, yes? Correct. And it's for senators and congresspeople, yes? Correct. And it's bipartisan. I'm just curious, obviously and famously, the last 15 years or so have been very partisan in D.C. I'm curious if you can point to any actual bipartisan comedy, having comedy, C-O-M-I-T-Y, not E-D-Y, coming out of your salon and whether it's produced any benefits?

I can point to a lot of bipartisan comedy, C-O-M-E-D-Y, but I don't know about C-O-M-I-T-Y. But to answer your question, no, I cannot. We've had the dinners now for about three years and probably have had about 30 or so or more of these dinners. Members of Congress tell me they enjoy it because they get to sit with people from the opposite party in the opposite house. There's no press. Nobody can see what they say or do. And therefore, they don't have the kind of scrutiny that maybe they would have if the press was there and they were forced to ask certain questions or forced to handle things a certain way. So I can't tell you that anybody's called me up and said, we wouldn't have passed this legislation without these dinners. But I can tell you that members of Congress are

quite pleased with it. And I've received a letter from maybe 200 or so members of the House of Representatives thanking me for doing this. And so I think, who knows whether you really make a contribution in anything you do in life. But I think that maybe bringing these members together to learn about history, even if they don't eliminate their bipartisan concerns, is a useful thing. Right. Let's talk about Donald Trump for a minute. First of all, how much interaction have you had with him over time and since he's become president? I would say modest, relatively speaking. I have, in years when my parents were alive, when we would have a birthday party or a celebration for them, because they lived in West Palm Beach area, sometimes we would do it at Mar-a-Lago. Somebody who was a member would let me use the facilities, and so I did it a couple times.

And so sometimes he was there, and I would shake his hand, but I was never in business with him. As the president of the Economic Club of Washington, before I knew he was going to run for president, I invited him to come down and let me interview him. He came down. He liked the interview a great deal. He told me in the green room he was going to run for president. I told him, look, I know a lot about politics. I've been around the city. You have no chance of being elected president. So fortunately, from his point of view, he didn't listen. Since he became president, I did go to see him during the transition and said that I thought one of the things he should try to do is touch 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 Magna Carta, go visit the Supreme Court, go visit some of the most important museums that he hadn't in his previous life had that much time to really spend doing. And I did, as the chairman of the Smithsonian, with the secretary of the Smithsonian, David Skorton, and with Lonnie Bunch, who built the museum, I gave him a tour of the African American History and Culture Museum, which the Smithsonian has been responsible for. And I did do that with him. And I've seen him on a couple other occasions, but I wouldn't say that I'm an intimate with his and of his, and I wouldn't say that I have that much influence, if any influence with him. And it sounds like he didn't take your advice too much on visiting all those national monuments, including, we should say, the Magna Carta is one that you bought. It's the copy

that you bought and loaned to the National Archives. Yes. Well, he'll get to it, I think. Okay. So how, I'll ask you the Passover question, how is this White House different from all other White Houses in your estimation thus far? Well, this is a different White House in many respects. I think that many of the people in the White House did not really know the president that well or weren't political supporters of his. That's a bit different. Some people just really met him during the transition. Secondly, I would say that by this time, many administrations have gotten some of their initial sea legs, I'd say, more stabilized. I think this administration still has some challenges that it

needs to deal with. But every administration, the Carter administration that I served in, others all have problems in the first year or so getting things organized the way they want to get them organized. But clearly, this administration has some challenges in front of it. And as an American, I hope that they can meet these challenges. Imagine for a moment that some years ago, the Carlyle Group had acquired the Trump Organization. Would you have kept him on as CEO? But I would say that he's obviously been a reasonably successful businessman, and I'm sure he wouldn't have wanted to be bought by anybody else. He likes his independence and his freedom, so I don't think that was a realistic chance of that ever happening. Let me ask you a question that you asked PepsiCo CEO Indra Noy on your TV show. Is it harder to be a CEO now than it was 10 years ago? And if so, why? Oh, I think it's much harder today because today you have much more scrutiny of what you're doing.

It used to be the case that activist investors were not taken that seriously by boards. Now an activist can, with 1% or 2% of the stock, really change who the CEO might be or change the direction of the company. I think the scrutiny in terms of everybody on social media watching what every company is doing all the time is much greater than it used to be. The rewards can be greater, but the penalties can be greater. So I think it's much tougher. In the 1950s, CEOs, basically, they got the job and they could stay until they were ready to retire. And the challenge to them just didn't exist. Activist investors didn't really exist. Hedge funds didn't really exist.

So it was a much easier environment then for the CEO. I'd like to get your take on what's called the glass cliff phenomenon. I don't know if you've heard or read anything about that. It's the notion that females are often appointed as CEOs when, for only when, or especially when a firm is in trouble and they're the ones that get pushed off the cliff or shoved off. I'm curious on your take, for your take on women in leadership generally, CEOs, and kind of where we stand now and where we're moving. Well, if you take the Fortune 500 companies, relatively few of those companies are run by women, certainly not anywhere close to proportion of the population. So I'd say of the Fortune 500 probably today, less than 20 probably have female CEOs,

something like that, maybe 25, but probably less than that. So proportion of the population, there should be more. I don't know if it's just that and the women that get those jobs are not probably getting them in maybe the best of times, as you suggest, but very often they might be getting them in the worst of times. But there are some women CEOs who've done spectacular jobs in the organizations that they have run. So Phoebe Novakovic, for example, has done a terrific job at General Dynamics. Marilyn Houston has done a spectacular job at Lockheed. I think Meg Whitman's done a very good job at Hewlett Packard. I would say that they are some that come to mind that have done really spectacular jobs. And of course, Indra Nooyi has done a great job at Pepsi. I've known

her for quite a while, and I think she's done a spectacular job there. So the women that have been given chances, I think, have done good jobs. Women, when they don't do a good job, probably get more attention than when men don't do a good job. And there are many men who don't do wonderful jobs. I'm curious if you or Carlisle have had any interactions or history with Uber, other than perhaps using the service? I wish I had more interaction with it. I remember a friend of mine, David Bonderman, who's from Texas Pacific Group, told me that he was investing in the company. I think TPG invested in it, and I think that David personally invested when the company had about

a $3 billion market cap. And I said, David, you know, are you sure that company is really viable? And he said, well, to me, he said, it's growing at 40% a month. It's going to do pretty well. So I wish I had the foresight. I'm detecting a pattern here, I have to say, with you and ground floor investment opportunities. I wish I was better at these things. I'm not that good at it. I think that Uber today, its last round was at $70 billion.

Maybe it's worth $70 billion, maybe a little bit less now. I don't know for sure. But clearly, it's the most valuable privately owned company right now in terms of a startup company. And someday, I'm sure that value will be liquefied. But I can't say that I'm intimate with the company. We've looked at sometimes investing in some of its foreign affiliates, but we chose not to do so. Right. So talk for a minute about its CEO trouble. Recently, it finally settled on a pick

to replace its founder CEO, Travis Kalanick. It was a public and rather stormy search. It was a public and rather stormy last several months of Travis's tenure. If Uber were your company to some degree, I'm curious how you would have thought about replacing him as CEO. I assume you would have replaced him as CEO. Just talk to me about that for a second. Well, I wasn't on the board, so I don't know all the

dynamics of what happened, but he did step down. So once he stepped down, the question is who's going to be the best person to replace him? And as it now has become public, there were three candidates in the end, Jeff Immelt, who's retiring as CEO of GE, Meg Whitman, who is currently the CEO of HPE or formerly Hewlett Packard, and then the person who did get the job, who is the current CEO of Expedia. In the end, they all seem to be very attractive candidates. I didn't have the insights about who might be the best for that particular set of circumstances, but I think the board has an enormous amount of money at stake because the people on the board are often the largest investors. And a company with a $70 billion market capitalization has got a big responsibility to investors. So I think they weighed the choices very carefully. I suspect that they've made a good decision, but I'm not

on the inside. I really can't say. Let's talk about carried interest for a moment. For those who don't know much about it, let me ask you to offer maybe a quick primer on what it is, how it works, and why you have defended it. And then we'll talk about efforts to change the deduction. Okay. Let me explain what it is. Right now, when people invest in the private equity world or invest in the venture capital world, the general partner, the Carlyle or Blackstone or Kleiner Perkins, is basically getting to invest your money. They give you your money back and they give you 80% of your profits back and 20% of the profits earned after you've gotten your money back and your fees back typically, and you've gotten 80% of the profits back. 20% stays with the general partner, and it's called a carried interest.

Where did the phrase come from? Well, in the Middle Ages, Venetian ship owners would send their ships to Asia, and the people working on the ships, the workers, would carry back the spices, carry back the silks. And for carrying back these products back to Venice, they would have an interest in the profits, and that carried interest, as it turns out fortuitously, was 20%. So this carried interest is 20%, and it's earned after the investors get a fairly good amount of money back already. So the question that has arisen is, what is the appropriate way to tax that 20%?

Is it to be taxed at ordinary income tax rates, or is it to be taxed at capital gains rates? And there's a difference in our country between ordinary and capital gains. The IRS has determined from the very beginning of this issue that with respect to energy, real estate, venture capital, and private equity, the general partner is taking a risk in making this investment on behalf of investors and putting a lot of time and energy into it. And it's not really a compensation in the traditional salary sense. It's really a risk type of capital and undertaking. And for that reason, it's to be taxed at capital gains rates.

Many people in Congress and many people around the country who cared to comment on this have said that, well, it really is more like a fee that you're getting and not really a type of risk capital, and therefore it should be taxed at ordinary rates. Congress is considering, presumably, whether to address this issue or not in the tax reform bill that will be considered. It's been considered for some 10 years now, and Congress has concluded to date that the risk being taken by the general partners is really more analogous to an investment that bears a capital gain type of tax rate than an ordinary type of tax rate. And so that's the issue.

Now, Carlyle and other private equity firms have banded together to fight against a change in this tax law, which I understand it's in your self-interest to do so. You can understand plainly, however, the other side, yes, including the argument that there's a lot of tax money for the government being left on the table. You'd said in 2013 at a Credit Suisse forum, carried interest is really what the business, our business, has historically been about, producing distributions for your investors from good sales and IPOs and getting 20% of the profits for yourself. That's how we've really grown our business. So it's obviously an essential component of what you do, but play devil's advocate against yourself for a moment and make the argument for why it might be good to, especially at a time when tax revenues are not as high as they might ought to be, especially with entitlements and so on, what they are being due, why it might not be a bad idea to consider changing that rule?

Well, it's hard for me to make that argument because if the argument is relating to revenue, there's not that much revenue involved. So in the grand scheme of things, while the numbers vary a bit, if you were to change the capital gains rule with respect to carried interest over a 10-year period of time, you might pick up for the Treasury of the United States maybe something like $6 to $10 billion over 10 years. So these are the numbers of the people that want to change carried interest. So in the grand scheme of something, when you're talking about trillions of dollars, it doesn't pick up that much revenue. The risk you have is this.

Private equity, as I've mentioned, is headquartered really in the United States. It's been a wonderful thing for the pension funds in the United States, been a wonderful thing for the investors in these funds. Venture capital is headquartered in the United States. It's been a wonderful thing for the investors in these companies and these companies. So why would you want to change a formula that seems to be working to pick up a relatively modest amount of revenue that isn't going to change anybody's real income or really going to make the government have enormous amount of money. Now, if you were going to pick up a trillion dollars, that's one thing, but you're going to pick up maybe eight

to $10 billion, and it's a relatively small amount. I'm talking about the money you'd pick up if you were to change it with respect to private equity and venture capital. Right. And I should point out that the bulk of the money that is collected or that would be collected in terms of this really is the real estate industry. Probably 50 to 60% of carried interest taxation really relates to the real estate industry, not the private equity and venture capital industry. But even if you were to take them all together, I don't think it's probably worth hurting these industries, which are so important to our economy. So that's what the argument I would actually make for not making a change in it. I think I understand the other argument. And I would say that, you know, everybody can debate how they want to debate it,

and Congress will consider it in the course of the tax reform bill. I guess in your case, particularly, one could argue that with all the money you've spent philanthropically on national monuments and museums and historic documents that you are kind of repatriating your earnings from the carried interest loophole right back into the federal budget, especially when you buy a document and put it on public display, and then you get the added tax break for the philanthropic donation. No, I don't. No, no, no, no. No, wait a second. I've never taken a tax deduction for anything like that.

Is that right? How come? Not for displaying documents, because when I give documents, I'm just putting them on display, and I still own them. So I don't take a tax deduction for that. But if I put up money to repair the Washington Monument. The Washington Monument, let's say. Yes, I can get a tax deduction for that. And yes, I guess you could say that I give away more money than

I can take tax deductions for. You can deduct about 50% of your income on charitable deductions, and I give away far more than 50% every year. So I don't get the benefit every year of the money that I give away. So I'm not giving it away for the tax purpose. I'm giving it away because I think I owe something to the country, and that's what I'm trying to do with my money. I understand. And I don't mean to be particularly peevish here, but I'm just looking at this, the circle of these dollars that are earned and taken home with the carried interest rate. And you could look at it as a sort of, this is going to sound much worse than I mean it, but a kind of highbrow money laundering where you're getting extra money because of the tax code and then donating a lot of it back to

actual, you know, not the federal budget quite, but to national monuments. So there's a kind of nice circle. You could say that about any, for example, everybody in the United States has a deduction that relates to the health insurance. Your employer, for example, gives you health insurance, I presume, and you do not take that cost into your income. If you really wanted to pick up money, you would say, let's eliminate that, what I could call a loophole, and make sure everybody who gets health insurance, they get to pay income tax on the benefit being given to them. That would pick up $1.3 trillion over 10 years. So you could argue that everybody who gives away money is in effect doing the same thing. They're just taking a deduction and as a result are not paying tax on something that they're getting a benefit from, and they're kind of making a charitable deduction later for the

money that they're saving. So everybody who gets some deduction is getting that benefit, home mortgage interest deduction or other kinds of deductions. So you can play that kind of view for virtually every deduction. And I think it's unfair to pick out the private equity people who've actually done a very good job for the United States in building this business from scratch. You could go over many other industries, which I think have run less good things for the United States. But anyway, that's my point of view. Well, it's also the case, as you mentioned earlier, that being wealthy and successful, especially as an investor, generally doesn't win you many fans among the public. That's just the

way it is. Historically. Generally, wealthy people throughout the course of the last 1,000 or 2,000 years have not been generally the most popular people in any society. And so it's only in recent, you know, 100 years or so that philanthropy has become something of significance and people have been able to change the image. I think many people who are very wealthy were unpopular, John D. Rockefeller being the classic person, then he started giving away money and he and his family, which became very large philanthropists, changed the image of the Rockefeller family. And I think there's no doubt that there's some image benefit, I guess, by giving away money.

People who give away dramatically large amounts of money are probably interested in more than image because at some point your image can't get much better than it might already be. You really do something good for the country. So you can always attack people's motives, and nobody's's perfect and nobody is subject to not being criticized. But I would say on the main point that you made, I would say in my case, I am giving back money to my country because I came from very modest circumstances. My parents didn't have any money. They didn't have any education. I rose up with a last name like Rubenstein to be able to do what I did. And I do feel that I owe this country because I don't think I could have done this in other countries.

And so I'm giving it back in this way and to education and medical research. And if you can say that's money I wouldn't have had if the tax rules were different. But I think that really is an unfair way to look at it. I could actually say I'm not going to give back any money. And, you know, that's just not the way I look at it. The dynamic you just described with your opportunity as an American, it makes me wonder if I think you've mentioned this before, but I know it's a fact that America itself and Americans are kind of freakishly philanthropic, much more than any other people in history and even currently world leaders. Do you think that is why it's kind of a standard or a given that Americans tend to give is the notion that there is the opportunity to make it?

When our country was first started, there was no money here. And so libraries, universities, hospitals had to be funded by the private sector because there wasn't a rich government putting up this money. Europe, by contrast, many of these services were paid by the government. So Europe didn't really get a tradition of people giving money out of their own pocket to support these kind of public causes. America has always had this tradition. In fact, when de Tocqueville came here and wrote his famous book on America, he pointed out that there were so many volunteer associations, everybody was part of them because people were giving back. So we've had this tradition in our country, which is extraordinary. In fact, today, of the people who signed the Giving Pledge, about 170 people around the world have signed it. I would say about 85% of them are from the United States. And that reflects the greater philanthropy that Americans are used to. In many countries, if you go to countries, very well-known countries, and say, would you give away 50% of your net worth philanthropy, they look at you like you're crazy. And so there has been modest success in that effort. So Americans, I think, have a more philanthropic bent than many other people. And to some extent, the people who are the biggest

donors are not the people of inherited wealth, though they give away a fair amount of money, but it's the people who made it on their own who realize how lucky they were, as I feel I am, and how indebted they are to this country for making it possible. And so that's why I give away my money, because I want to thank the country for my good fortune. Excellent. Okay, I'm going to ask you a series of sort of lightning round questions that require only short answers, and we'll do them until we run out of time. Does that sound okay? Fine. In roughly 60 seconds, David, describe what you actually do in a given day. On a given day, I try to meet with investors. I try to make a couple of speeches about either

investing or history or philanthropy. I might do an interview for one of the projects I have. I will try to meet with one or more of my colleagues in my firm. I will try to talk to my children. I will try to look at new philanthropic projects. I'll probably be in some investment committee meetings. I'll be in some philanthropic presentations. And I might chair a board meeting of one of the organizations I'm involved with. I'm exhausted listening to you. That's impressive. Name a couple things about being CEO that you had no idea about until you became a CEO. Well, I didn't realize probably how much time I had to spend dealing with the unit holders or shareholders, we call them unit holders, in our firm. And that's a very important factor. But I had been used to spending time with investors in our funds, but I now realize I have a whole new constituency of people that buy our stocks.

So that's been something that's taken a fair amount of time. And how much regulatory and compliance matters are now involved. So it used to be the case that if you went public, you know, you file with the SEC. But today we have a large compliance operation in our firm, as everybody does. You have a large Sarbanes-Oxley kind of compliance operation as well. So you have so many different things you have to comply with in order to make certain that you're following all the rules and laws of the United States. So being a public company is not for people that are the faint-hearted. You really have to put a lot of time into dealing with compliance, regulatory matters, and public shareholder-related issues.

I think a lot of people from the outside look at a company CEO and imagine all the perks, but tell me, is it lonely at the top on some dimension? I wouldn't say lonely because the people always want to get a piece of you, so it's not lonely because people always come to you for something. It's the other way around. It's hard to get away from everything. It's hard to get to be lonely because it's hard to get away from people who want to call you and so forth.

In the old days, I would say the 1950s or 60s, when no emails existed, when there were no tweets, when you didn't have as much opportunity to communicate with people, it might have been a lot easier to be the CEO. Today, it's very hard to get away and to escape because you're emailing people all the time. And I know I find sometimes when I decide that I'm busy in something, I'm not going to respond to emails for two or three hours. I get emails a second time saying, well, what's wrong? You don't like me anymore? How come you're not responding? It's been an hour before I responded, perhaps.

People want immediate responses and so forth. And I get myself upset sometimes if I send an email to somebody and I don't get a response for four or five hours, I think maybe they don't love me anymore. So there's no doubt that you can't really be alone anymore. You're so connected. And I just wonder that when my time comes and I am put underground, six feet under, whether I will still be getting emails and whether how I'm going to respond to them. I don't know how long people will wait before they realize I'm not really alive to respond anymore. Maybe I should have somebody to keep responding and say, well, this is what he would have said if he's still alive. I can see an app for that, actually, which you could probably

be involved in the creation of, but I don't know if that's worth your time. All right. Let me ask you this question not about yourself as CEO, but as CEOs of other firms. How much does the CEO really matter to the firm, and how can you tell? I believe a CEO matters a lot more than I probably thought before. Because in all the companies Carlisle's invested in, I think the CEO has made the most amount of difference. I think the price we paid is probably the second most, and the quality of the company we invested in was probably the third

most. CEOs can make a dramatic amount of difference. Now, I wouldn't say I'm the greatest CEO in the Western world, so I wouldn't say that I've made that much of a difference. I have a co-CEO at Carlisle, and I think he's done a spectacular job and probably done a much better job than I have done. But I think CEOs can make a difference. And I think, you know, if you told me you had a reasonably good company, a terrible CEO, I wouldn't invest in it. If you told me you had a reasonably good company and a great CEO, I certainly would invest in it. What for you has been the best way to learn about the way the world actually works? Is it reading?

Is it talking to people? Is it reading? Is it talking to people? Is it thinking big thoughts on a mountaintop? My greatest interest in life is in keeping my brain active. And so I love reading. I love reading newspapers. I'm an apostle in that regard. I love going to bookstores and buying the books and reading them by holding the books. I love actually talking to people and interviewing people so I can learn. I want to keep my gray matter as active as possible. I have a theory that if you retire, you're downhill quickly. And I have a theory that if you relax too much, your immune system relaxes. Germs come in and they see a relaxing immune

system. They attack and all of a sudden you're in trouble. So I don't ever like to slow down. I don't want to relax too much because I'm afraid that bad things will happen. So I just love what I'm doing. My biggest concern is I'm now 68 years old, and actuarial tables being what they are, it's unlikely that I'll live another 68 years and maybe not even another 38 years, and who knows how many more years I'll live. So I wish I had all the resources I have, the access, the willingness to do the kind of things I can do and the ability to do the kind of things I do when I was 37. I

would give away all the money I have today, every penny, if I could be five years younger. Just five years, really? That's quite an arbitrage. Well, I asked Bill Gates that. I said, would you give away all your money if you could be five years younger? And he said, well, geez, I don't know. Maybe could I do 10 years? So he was negotiating a bit. But clearly, why would anybody not give away all their money to be able to live five years longer? Life is so pleasurable.

Even if you're not wealthy, money doesn't necessarily make you happy. Some of the saddest people I know are the wealthiest people I know. And some of the poorest people I know are some of the happiest people I know. Thomas Jefferson said, life is about the pursuit of happiness, but he didn't tell us how to actually get happiness. And it's the most elusive thing in life is personal happiness. Very few people achieve it. I think I'm personally happy, but, you know, I think I was happy before I was wealthy. So, you know, I don't know that the wealth has made me happier. Related to the time question, if you had a time machine,

when would you travel to and why? What would you do there? Well, if I could go anywhere, I'm back in time. I, of course, would like to go back to the Revolutionary War period of time and meet the founding fathers and see what they were really like. Maybe they would be disappointing when I got to know them. Obviously, going back to the beginning of several millennium and being at the time that Jesus Christ was born and living through that period of time, and that would be quite interesting as well. Going to the future, you know,

clearly I'd love to see what life would be like 100 years from now or 200 years from now or 1,000 years from now. I can't possibly imagine what it would be like, but that would be worth a great deal of pleasure to me. Do you think much about the future and the future of labor? That's a big conversation, obviously, with automation and AI and the future of whether people will need to work and how we pay for things. It clearly will be different. Nobody could have anticipated 100 years ago the kind of things we have today, even 10 years ago.

People couldn't have anticipated the kind of things we now have. So, sure, in the future, work will be much different. Maybe people will get compensated differently. Maybe people will not have to work 40 hours a week if that's a traditional measurement of how much work you put in. But clearly, I think humans have a desire to do things and not just sit around and lounge around. So I suspect work will change and how people work will be viewed differently. But, you know, I wish I could be around 100 years or 200 years from now to see it. What do you collect and why?

I have not historically been a collector because I didn't think I had the time to really do it and maybe the patience and maybe the exacting nature of personality to kind of do it. But when I bought the Magna Carta, I then realized that that was an unusual thing to own. And then other historic documents like the Emancipation Proclamation or rare copies of Declaration of Independence or the 13th Amendment came to me and so I would buy them. Or I bought the first book ever printed in the United States, or I bought the first map ever printed in the United States. Things that relate to Americana, I bought that. I do have a collection of historic American books, and I own a large number of very important historic books that I ultimately will give to a major library. And I do have some other things that I collect in the art world a little bit. But basically, my main collection are historic documents, American

historic documents. What was the first book ever printed in the United States? It's called the Bay Psalms book, printed in 1640. The first printing press was brought here in 1638. This was the first book printed. There are about seven copies. One was auctioned off a couple years ago, and I won it, and I paid the highest price ever paid for a book. I'm not sure I'm happy to brag about that. But it's now on display. I think it's about to be put on display at the Smithsonian. It's been on display at the Library of Congress and at Rare Book Library at Duke University, and it will be on display at other places as well. Wow. Where do you get your haircut, and how much do you spend?

I get my haircut, which requires me to do so less than I did when I was younger, because I have less hair than I did when I was younger. But I get it at a neighborhood barbershop, and I think the price is $15 and a $5 tip, so $20 know, it's relatively inexpensive. It seems like they're undervaluing their services, but, you know, I can't tell them to charge more. All right. You've been very generous with your time and I've already kept you along. So I'll ask you one and a half more questions. Here's the one real one. What's something, David Rubenstein, that you believed for a long time to be true until you found out that you were wrong? Well, I thought early on that I was extremely handsome, and then I found that I was wrong. I thought I was a great athlete, and I realized I was not very good at that. I thought that women

were extremely attracted to me, and then I realized that was not the case. I thought I was a great parent, and then I probably realized I wasn't as great as I thought I was. So many things I aspired to be, and I turned out not to be as great as I would have wanted to be. On the whole, though, I'm pretty happy with where I turned out to be. I'm not that handsome, not as smart as I want to be, not as great a parent probably as I'd like to be. But on balance, given where I started, I'm reasonably happy with where I am today. I just wish I was younger and, you know, able to be on your show more times than just once. And you're probably, you know, you may have downgraded yourself in all those categories, but you're humbler, obviously, than it might have turned out, right?

If you really thought you were a singer. Humility is an important virtue. I am not a person that likes arrogance. I think humility gets you a lot further than arrogance. But in my case, it's not false humility because I actually realize I'm not that handsome, not that smart, not that great an athlete. The only good thing about my athletic skills is this. When I was younger, a lot of my friends were very good athletes. And they became All-American athletes, particularly in lacrosse.

I'm from Baltimore, and lacrosse is a big sport. Now they have artificial knees. They have artificial hips. I didn't wear my body out. And so now when I play tennis against these former All-Americans, I can run them off the court because my body is still intact. So that's one of the great pleasures of my athletic life. Excellent. And lastly, I just want to ask if there's anything we left out of the conversation that you'd really like to say, anything you would have liked to have been asked or anything you'd like to add?

Well, I would say that my favorite book of the last 20 years is Freakonomics. Now, I don't know who wrote that book, but it's a great book. And if you ever meet the author of that book, I'd like to meet that person. I'll let them know. All right. It was just a pleasure. I learned a lot, and I know our audience will love it, too. So thank you so much. Thank you. My pleasure. In next week's special episode, you'll hear my full conversation with Satya Nadella, CEO of Microsoft. He's an engineer by training, and learning how to manage people didn't come naturally.

At whatever, 25, when I was interviewing and somebody says, what would you do if you see a baby on the street crying? And after having fallen down, I answered with, you know, thinking this is some trip question. Maybe there's some algorithm that I'm missing and said, I'll call 911 only to have that manager, you know, get up and walk me out of the room saying, you know, that's the absolute bullshit answer. And if you see a baby falling down, you pick them up and hug them. And I was devastated because I remember thinking about it and I said, how could I not get that? Also, please keep your ears out for our regular Freakonomics Radio episodes, which hit your podcast stream promptly at 11 p.m. Eastern Time on Wednesdays.

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