Carlyle Group Founder Visits HBS: Reflects on Career that Began in White House

While the Carlyle Group’s rapid ascent to the upper echelons of the private equity world implies a recent track record of successful acquisitions, founding partner David Rubenstein is no stranger to effectively spending money. By his own admission, Rubenstein was so “good at it” during his days as a tireless 27-year old domestic policy aide in the Carter White House that the Office of Management and Budget came after him.

Rubenstein let HBS students in on his secret during a visit to campus last month: pulling long hours at the White House can have its advantages. To ensure that his boss, then-President Jimmy Carter, would take note of his pro-spending stance, he would put his memos on top of the President’s pile of documents before leaving at night. His counterpart at the OMB eventually caught on to his surreptitious ways and one-upped him by arranging for a secret service agent to place her agency’s memo on top of Rubenstein’s after he left. While Rubenstein claims he didn’t speak to the OMB staffer for three months as a result, he apparently forgave her: she is now married to him.

Meeting his wife was not the only milestone for Rubenstein during his government tenure. He jokingly credits himself with reducing Carter’s 33-point advantage over Gerald Ford in the 1976 Presidential contest to a cliffhanger victory reminiscent of more recent elections, as well as with causing the inflation rate to rise to 19 percent. And, what is more, he chalks at least part of this track record up to his inability to understand his former boss’s southern accent.

Following Carter’s unsuccessful reelection bid in 1980, Rubenstein’s career fortunes changed as professional suitors who had previously courted him with enticing offers turned a deaf ear. “They still haven’t returned my calls,” he quips.

Luckily Rubenstein wasted little time waiting for the calls that never came, deciding instead to launch a foray into private equity along with William Conway and Daniel D’Aniello. “We made a lot of mistakes early on,” says Rubenstein of his Carlyle Group experience, recounting a jumbled conversation with “the man who printed money in those days called Michael Milken” and an early investment in CaterAir that soured following the first Gulf War and an ensuing downturn in the airline industry.
Exacerbating a difficult situation at CaterAir, later dubbed CraterAir because of its troubles, were dynamics related to a necessary board reshuffling. “The person I had to take off the board was a man named George W. Bush,” recalls Rubenstein. “He said he was going into politics. Apparently it worked for him,” he says sheepishly.

But for all of his self-effacing humor, which some attribute in part to Rubenstein’s lawyerly roots (he earned a JD from the University of Chicago), he draws only accolades from former colleagues in the public sector and his feats at the Carlyle Group have made believers out of many skeptics. “He devoted probably more hours to his work in the White House than anyone on my staff so far as I ever knew,” Carter told The Washington Post in 2003, “He was very modest and never claimed credit for successes when they did materialize… And he never betrayed me.”

As for the Carlyle Group, taken to task in a 1991 issue of Forbes magazine for an “uninspiring record of deals,” the numbers speak for themselves: the firm, which has $18.9 billion in assets and 26 funds under management (not to mention 53 Harvard MBAs in its employment), boasts over a 28 percent gross annual internal rate of return on investments to date.

Perhaps most importantly, Rubenstein has managed to tread a delicate tightrope between business and government – showing that it is possible to, as he puts it, “have your cake and eat it too.” Walking the walk, he says, has required calculated steps on his part – such as aggressively depoliticizing the Carlyle Group by bringing in former IBM chief Lou Gerstner as Chairman – and by limiting his own involvement in government to “activities from the outside,” most of them philanthropic in nature.

Rubenstein’s path, however, represents just one of three models he suggests to HBS students for successfully combining a career in business and government. The other two options consist of starting in government very early on and then making a fairly quick transition to business, or accumulating money in business first and then transitioning to government when the timing is right.

Rubenstein suggests that young professionals weigh the pros and cons of private equity and government in the context of their ultimate goals – and consider the barriers to entry in each case – before making a decision of which model to follow.

One of the main attractions of working in private equity, he notes, is that “you are highly compensated if you are reasonably successful. In fact, he adds, “Even if you’re not that good you’ll probably still make a fair amount of money, and with money comes freedom.” He also cites being a principal or decision-maker, as opposed to a service-provider, high mobility and the real chance to make a difference as other good reasons to consider private equity.

While the pitch for private equity as a viable career path appears to resonate well with MBA students if campus sentiment is any indication, according to Rubenstein would-be merchant bankers should consider key challenges that loom large for the industry over the next decade: satisfying investor appetite and return expectations amid increased competition; recognizing the risks associated with globalization; embracing institutionalization without compromising entrepreneurial spirit; handling succession issues; and determining positioning relative to hedge funds in the asset management community.

In addition, says Rubenstein, private equity job-seekers may be interested in taking note of characteristics shared by successful candidates: a reasonable degree of intelligence; strong work ethic; ability to get along with others; desire to build something important and ability to keep one’s ego in check. Experience in consulting, and, to a greater degree, in investment banking, also helps.

While private equity presents a chance to make a difference, Rubenstein suggests that working in government generally offers an even greater, more direct opportunity to have an impact on the lives of others. “I had way too much of an impact at age 27,” he jokes.

Unlike in private equity, where increased capital has effectively created investors with little tolerance for error, government jobs can be more forgiving. “No one in government is apparently ever accountable for anything,” quips Rubenstein. Visibility, itself another benefit of government work, also gives way to making contacts “you will be able to use the rest of your life.”

Interestingly enough, according to Rubenstein, lower compensation does not make government jobs easier to land than their private equity counterparts: short lead times, the absence of a well-defined interview process, and the networking-driven nature of Capitol Hill create a less predictable landscape that requires patience and persistence. Still, he suggests, the relative scarcity of MBAs in government could lend relatively more weight to the HBS degree in the industry. “People will give you more credence than you maybe deserve,” he notes.

Rubenstein also offers a recruiting tip that transcends industry-specific idiosyncrasies: “Combing your hair every now and again is a good thing,” he advises.

March 28, 2005
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