- [Narrator] This is Duke University. - Good evening and welcome to
another exciting edition of the Fuqua Distinguished Speaker Series. Today I have the privilege to
introduce David Rubenstein, founder and co-CEO of The Carlyle Group. Mr. Rubenstein is a native of Baltimore. He graduated in 1970 from
Duke University and in 1973, from the University of Chicago Law School. Before co-founding The Carlyle Group, Mr. Rubenstein practiced law
in New York and Washington, and served as Chief Counsel to the US Senate Judiciary Committee. During the Carter administration
he was Deputy Assistant to the President for Domestic Policy. In 1987, Mr. Rubenstein
co-founded The Carlyle Group, since then it has grown
to 200 billion dollar in assets under management, and
40 offices around the world. Mr. Rubenstein was one of
the earliest individuals to embrace Bill Gates and Warren
Buffet's giving pledge, he has made large donations
to national park services, museums and universities, including several generous
contributions to Duke. Mr. Rubenstein recently launched
The David Rubenstein Show in collaboration with
Bloomberg Television, where he conducts peer
to peer conversations on leadership with the most
influential people in business. We're very honored to have
Mr. Rubenstein on such an important day, please join me in giving him a warm Fuqua welcome. (long applause) - Thank you. Thank you very much. Thank you. - So David, welcome back to
Fuqua. It's great to have you here on election day, there's probably no one
better placed at the intersection of business and politics. So, great to have you. - My pleasure to be here, and how many people here
think Donald Trump is going to win the election,
I'm just curious. Okay, one. How many people
think Hillary's going to win? How many think we should have
different candidates, anybody? (audience laugh) - Okay, so let's start- (audience laugh) - How many people think somebody in private
equity should be running? (audience laugh) - There we go, okay, which actually brings me
to my first question here, so I want to talk about
the collision between politics and business, and instead of starting
with this election, let's go back four years, because four years ago
when Romney was running, he took a lot of heat for his
private equity involvement, and I realize that private
equity is one of the most beloved institutions in the world, probably only behind
Motherhood and apple pie. - It's beloved in my family. - Yes, indeed, so if you had been in a position to advise Romney back then, how would you have told him to respond to those attacks on private equity? - Well first, when private
equity first started, and by private equity I mean
buyouts, not venture capital, and other things, when
private equity first started in the late 60s, early 70s, mid 70s, the idea was to get the highest
rate of return you could, so if shipping jobs offshore
was what would help you get a high rate of return people did it, you weren't worried about
environmental concerns, you weren't worried
about ESG kind of issues, and you weren't worried about the kind of things that today you're sensitized to. So many of the things that
Mitt Romney's firm did in the early days don't look
wonderful 30 years later, Mitt Romney did not respond
to the charges and he was carpet bombed over the summer. For two reasons, he didn't respond: one, the campaign in the summer of
that year was out of money, and they went to Mitt Romney, the staff, and said look, we don't have any money, we won't get the money until
the general election funds show up, so you have to fund it yourself, and Mitt Romney had put
in an enormous amount of money when he ran for president before, he had resolved in that campaign not to put in an enormous amount of
his own personal money again, so he didn't do that. He didn't want to put
in the money himself, that was one issue. Secondly, his polling data showed that every time he mentioned the phrase "private equity," his polls went down. In other words, if he said how great private equity is, his polls still went down. So they concluded that
if you say anything about private equity it just goes down. It's like Hillary Clinton
in the last couple of days didn't want to say well the FBI director said I'm cleared, because her polling data
shows that any time she mentions it, it doesn't help her. So the same thing was true, I think, and Bain itself did not want to defend what had happened, because they concluded that if they got involved in defending it, it would seem as if they were supporting a Republican, and they
didn't want to be seen as Democratic or Republican. So it was kind of a free time for President Obama and his team
to attack private equity. I think it's unfortunate, at the time I actually went on television defending private equity, and, some people in the
administration came to me and said we're glad you're not running, because you defend private
equity much better than some of the people who are running. - Thus the desire to have a
P.E. person run for President. - Well anyway, I think the
reason he didn't defend it was mostly because he didn't
think it was going to help him, and the mentioning of
private equity didn't help, and he didn't have money to do it. - So let's fast forward to this election, and I'm going to read you a quote from the editor of Fortune, talking
about the current election, which is, "It has been unmatched
in post-World War Two history for anti-trade,
anti-globalization, anti-business, and
anti-capitalist rhetoric." And that's coming from all sides, so how dd we get here,
is it just rhetoric, or is there real teeth behind that? - Well there's no doubt that rich people, and people who make a
lot of money, are not generally loved by the
average population of any country at any given time. But it is interesting, wealthy people are not
reviled if they made it in some way that you like the product. So, nobody hated Steve Jobs,
he made a lot of money. Nobody hates Bill Gates,
nobody hates Mark Zuckerberg, these guys are fabulously wealthy. Nobody hates Jeff Bezos. Why is it that people who
are in private equity are not seen as adding value
to society when people who create far greater
fortunes are not reviled? I suspect it's because
people generally think that people in private equity are doing what Mitt Romney was accused of doing, shipping job offshore,
not paying your taxes, and they are seen as
moving paper around and reshuffling things and not
really creating something. So I think that's one of
the reasons why private equity hasn't been that beloved. I also think that generally
the business community in any given era is not generally loved, but after the Great
Recession is was fair game to attack the business
community, particularly the banks and people in the
financial community, and we haven't gotten out of that. Now in this particular case, Hillary Clinton probably wasn't
going to be attacking the business community as much
as she wound up doing, because she was driven to
the left by Bernie Sanders. Had Sanders not run, I
think she would have run a more centrist campaign
and not had some of the positions that he wanted her to have, and some of which she adopted. Same with Donald Trump, he was anti-everything as well, even though he was a business person, he was able to say I'm
against some of these things the business community has done. I feel that generally what
we are really seeing here is the frustration of white males, generally not college educated, they see that the world
is passing them by a bit, many of the things that
have happened in our society have been things
that frustrated them, they don't think they're
as wealthy as before, and as a result, it's been fairly easy to pick
on the business community, I think it's reflecting the angst of white middle class Americans, below middle class, at the fact that the world is moving this way, and they don't seem to be going anywhere, but straight and maybe slightly down. - It won't surprise you that as the Dean of a business school, that I believe that business
can be a real force for good in the world, and has
done much to improve lives. How do we restore a sense
of positivity around business as a positive force in the world? - It's a very good question, the Calvin Coolidge old saying that "the business of the
United states is business," probably isn't adequate any more. There are many people in the world, and in the United States who don't think that business is a good social device, they think that jobs
kind of come out of the sky somehow and that the
business community doesn't really do anything but
destroy the environment, not pay its fair share of taxes, lay people off and move
jobs offshore, whatever. It's unfortunate that there
are very few people in the business community now that
are seen as role models. So we have Warren Buffet,
he's 86 years old, and he's very talented, but he won't be around probably forever, and therefore you have to wonder, maybe he will be, he might
outlast me, who knows, but we don't seem to have
business people who are role models so much any more. The entrepreneurs are entrepreneurs, because they're, and role models, because they're entrepreneurs but not as business people so much, and the people who run large companies are often faceless, and they're
there only a few years, and it's very difficult to
find somebody who's run a major company for 10, 15, 20 years, and they get the kind of publicity and attention that somebody gets. So Jack Welch had it, and
maybe Jamie Dimon has it, he's been doing it for a while, but most CEOs of Fortune 100 companies are not there that long. The people that are the
biggest stars in the business world today are the people that create new technology companies, so Mark Zuckerberg and people like that, and they aren't, for one reason, they don't seem to be part
of the business community as much as part of a social revolution, and therefore they don't get criticized as much for being business people as much as somebody who runs a, let's
say, a major utility might. But how do we change it? It takes a long time, it
didn't happen overnight. I think we need to have
more business people be seen as socially aware, more business people be
publicly involved and not just worry about their
profit and their bottom line, but be more involved in discussions about policy in Washington, and also try to explain
better than they do maybe now what they actually do for society in creating jobs and so forth. - So I think that it was mentioned in your introduction that you have
this new TV show where you interview people, and I
think, not on this TV show, but I believe you have interviewed
both Clinton and Trump, so any special insights into those? - Well let me tell you
how this came about. I became, Vernon Jordan who was a prominent business person in Washington, he was the head of the Economic Club of Washington, and one
day he called me up and said I want you to be my successor as Economic Club of Washington president, I said what is it, I don't
even know what it is. He said it's a tiny little club, all you do is get four business people a year to come in, you give
them the opportunity to make a speech, then you ask for
questions from the audience, you get cards, you read the cards, three or four questions and you're done. Said, okay. So I started doing that, and I realized that
most business people are very boring speakers, and
people are falling asleep, they're looking at their
emails or whatever, then the questions would come in, and they were worse than the speeches, the questions were terrible. So I would pretend I was reading the question, when I was making it up. Because I was trying to
make up humorous questions, people would sort of
laugh at the questions. I said I tell you what, I'm going to scrap the format, I'm just going to do interviews. And so the interviews now
they're pretty well publicized, and I had Donald Trump. I
invited him before he was going to run for President,
and he said to me in the green room, ask me two questions,
anything else is fine, but two questions, one, ask me if I'm going to run for President, I said well why would
you want me to ask that, because you're not going
to run for President. He said yes I am, I said Donald you have no chance. He said No, no, no I'm going to, and secondly ask me if my hair is real. I said why would I, and you can feel my hair too. Anyway. So we went out and we
had the interview and it was very good, and the next
day he called me and he said, David it was a great interview, and it was the highest rated
show in the history of C-SPAN. The highest rated show. I said wow, it was covered live, I didn't realize it was the highest rated. So I called C-SPAN and
said what were the ratings, and they said well we don't
have ratings, nobody would know. (audience laughter) And I've interviewed
Bill Clinton and others, and he's a very smart person, very good at interviewing,
Hillary Clinton, many people, Warren Buffet, I do my show. Bloomberg came along and
said would you do this for some business people,
talk about leadership, so I've done Warren Buffet,
Bill Gates, Lloyd Blankfein. Yesterday I did Indra Nooyi, and I think tomorrow night
Ken Chenault will be on. So it's a day job, there's no carried
interest in interviewing, I'm not going to be doing it as a career. - So the Bloomberg people obviously got wind of your high ratings, - That must be it. - And asked you to do this gig. And so switching gears a little bit, by any definition you're a patriot, you believe in service to your country, you did serve your country with a stint in the Carter administration, you appear to have
invented a new category of philanthropy, patriotic philanthropy. Where does the sense of patriotism and obligation to serve come from? - Well a couple things, one, I came from very modest circumstances, my parents were not college
educated and they did not graduate from high school either, and so I didn't think I was
making money was a big thing, I just wanted to get a
job and do better than my father had done, he worked in the post
office his whole life. When I was in sixth grade, John Kennedy gave his
famous inaugural address, talking about giving back to your country, so I just said okay, I want
to give back to my country, I'll serve, I'll be a lawyer, and so forth. So I went
to work for the man who wrote that speech for President
Kennedy, Ted Sorensen, and I ultimately got a job
working in the White house, and I thought I was going
to serve my country. Unfortunately I got
inflation to 19 percent, which is not a good thing to do, and we lost the election to
Ronald Reagan when he was, I thought we couldn't lose
to Ronald Reagan because he was 69 years old, that's
when I thought 69 was like 99. Now that I'm 67, 69 seems like a teenager to me, but at the time I thought he was too old, he couldn't win, so I
had to go out and more or less start my life all
over again practicing law, and I wasn't that good a lawyer. You know, if you're really good at something, you won't have time to think
about doing something else, I wasn't that good a lawyer,
to be honest. I really wasn't, so I started a private
equity firm in 1987, and then Forbes outed me
about what my net worth was when I was in my 50s
and I decided I couldn't possibly spend this much
money sensibly, and giving a large sum of money to your
children isn't a great thing, nobody's ever won a
Nobel prize inheriting, after they inherited 500
million or a billion dollars, usually you inherit a billion
dollars you don't really go win a Nobel prize for something. So I figured I didn't
want to ruin my children's life by giving them too much money. So I decided I would give it away, and the only thing you can do, you can only do two things
with money: you give it away, or you spend it. If you spend it, you know, how many things do you need, and if you, you all will laugh at this, but let's suppose you have
Bill Gates's problem and Melinda Gates's problem, I said to you today, here's
a hundred billion dollars, it's yours, you can do
anything you want with it. A hundred billion dollars. Well I assume you'll go
out and buy a couple of cars and planes and cars and houses, then you got 99.9 billion left. What are you going to do with it? Well, you can give it away, you can give it away two ways, you can give it away while you're alive, or you can give it away after you're gone. Now I have a theory that
it's not as pleasurable to see what happens after you're
gone, and you might not be in a place where you're going to know, or be able to watch it, so I think it's better
to give it away while you're alive. Basically, I'm giving away all my money, The Giving Pledge says you
give away half your money, but I'm giving away all my money, and I hope I live long
enough to see it given away, but most of my money
honestly goes to education, medical research, as
Chairman of the Board at Duke University I've
given a lot of money here, and I'll no doubt give more. But I kind of invented something, or coined a phrase,
patriotic philanthropy, which is giving money back
to remind people of the heritage of our country,
the history and so forth, and in that regard, it's not
the largest sum of money, but it gets a lot of attention, because if I give a 100 million dollars to medical research, that's no novel thing in
this country any more. If I put up seven million
dollars to repair the Washington Monument, it
gets a lot of attention. But I enjoy history, and thinking people should
know more about our heritage, the good and the bad side. Bought these historic documents, and given to the country,
things like the Magna Carta, the Declaration of Independence, the Emancipation Proclamation, or fix the Lincoln Memorial,
the Washington Monument. And I just feel I have an obligation to give back to the country, because I came from modest circumstances, I have a last name that's very ethnic, and normally if I grew
up with that name with no family wealth in many other countries, I would probably be driving an Uber car, not that that's a terrible thing, but I probably wouldn't
be what I'm doing now. So I feel lucky that I got where I am, and I'm going to give back
and thank the country that made it possible, there's nothing more
complicated about it than that. - You were inspired, all
these great things happened, because you were inspired
at a very early age by JFK. You asked at the very
beginning of this conversation, how many people want different candidates, and I think I saw a fair number of hands. Are you worried that we might
have a lost generation that have not been inspired by our leaders? - Well it's possible. Look, in 1776 when this county was formed, we had three million people. We had 500,000 slaves who were not allowed to be in government. We had one and a quarter
million who were women, who were not allowed to be in government. So we had a one and a
quarter million white males, white Christian males largely, they were the governing force. And out of that one and
a quarter million, we had George Washington, Thomas Jefferson, James Madison, John Adams, Alexander Hamilton among others. Benjamin Franklin as well. Now out of 330 million
Americans we have... less. And you kind of say, now
where are the great leaders? Well my theory is they're
in private equity, or they're deans of business schools, things like that. (audience laughter and applause) But today, to be very
serious, the Founding Fathers, it wasn't a full time job for them, aside from James Madison, most of them had other
jobs during their career, and they did other things.
Today to be a politician is a full time preoccupation, and to do it, the compensation is really terrible, 170,000 dollars a year
for a member of Congress, has no salary increase for ten years. They have to spend all their time more or less raising money, and it's debilitating. And you attract the best and the brightest doing that kind of stuff, so I have to wonder today,
whether the Founding Fathers, if they saw the system, would say, yes, I want to go in and serve. And I often wonder if we were to create a new
Constitutional Convention, there were 57 people at our Constitutional Convention
in Philadelphia, in 1789. Today, if you were to take
57 Americans and pick the best and the brightest to be
drafting a new constitution, how many of that 57 would be people who are already in Congress? Well not that many probably, you would take the best
people in the country, and the best people in the country might not necessarily be the people who are actually
public servants today. But the public servants today, they don't get paid very well, they have to say things they
don't really believe in. It's a sad situation. One of
the things I've tried to do, and I have a very modest,
modest role in any of this, is I've tried to get members
of Congress to learn more about American history. So I started a program where I interview a great scholar about a President, so Doris Kearns Goodwin
about, let's say, Lincoln. And I sponsor a dinner at
the Library of Congress, where I have historic
documents shown about, let's say, whoever the President is. I invite only members of Congress and they come and I interview the person, and then members of Congress
ask questions as well, and I kind of have the members
of Congress have dinner, sit with people of the opposite party. They tell me they're not
allowed to do that any more, because it's not a very good
thing to do for their career. But there's no press there nobody sees them, and they're
actually learning about American history and they get
to mingle with people from the opposite party, of the opposite house. And members of Congress tell
me, sadly, that this is the highlight of their time in Congress, is coming to these dinners. They bring their wives,
they call it a date night, because they can actually learn something. They don't have to be under
social pressure not to talk to someone in the opposite party. It's unfortunate that today in Congress, Republicans and Democrats generally don't talk to each other. And my biggest concern about the election, the results of which will be
known in a couple of hours, is that, assuming Hillary Clinton wins, which I believe is likely to be the case, I think her ability to
govern will be very modest, because I think the Republicans will say, Well, wait a second, you ran against a very weak
opponent. Had you run against John Kasich or Paul Ryan, you
wouldn't have been elected. So you don't have a big mandate. And therefore, why should we
support anything you want? So I thinks it's going
to be trench warfare, and the election for 2020 starts tomorrow, and the election for 2018, the midterm starts tomorrow. And I think it's going to
be a brutal period of time, and I'm afraid we'll look
back on the Obama era and say those were the good old days, and that's not going to be good, because the good old days
weren't so wonderful, the government has been
dysfunctioning in some ways, not Obama's fault, but the government didn't
work the way it should have. And I'm afraid that
Hillary is going to have a pent up reservoir of people
who don't really like her, and have a blood feud
against her and her husband, and I think it's going to be real combat, hand to hand combat for a long
time. That's going to be sad. - So it's interesting that
you have this event at the Library of Congress that
allows people to talk to each other and sit with
each other across the aisle, that now we live in a world where the Senate lunch room is closed, where when you sit and talk to each other, you get to know each other. Do you think we can have
other private events that will allow people to get to know
each other as humans beings, and therefore maybe connect
more effectively on a policy? - It used to be the case when
I worked in the Senate in 1975/6 for Senator Bayh, Birch Bayh, the father of Evan Bayh, that a good legislator
is one who cut deals. Now a good legislator is one
who is seen as somebody who can keep something from passing. So we don't pass legislation any more, and members of Congress
don't do that much, and as a result, Congress's popularity and its approval ratings are down
to, like, 13 percent. There are very few people you
can criticize anymore that you can make fun of, you can make jokes about
and not have to worry that you are politically incorrect, so you can make jokes
about members of Congress, nobody seems to like them, you
can make jokes about lawyers, because nobody seems to like them, and you can make jokes about
private equity people and hedge fund people, but other than that you
can't make jokes about people any more. And members of Congress have such a low approval rating you would
think they would try to do something about it, but they're caught in this system where they have to raise enormous amounts of money, you raise the money to keep
your opponents from attacking, from running against you, the more money you have in the bank, the less likely you're
going to have an opponent. Why they want these jobs
you have to wonder because most members of Congress
that I talk to hate the jobs, and they just kind of
run for re-election because they don't know what else to do. Those that actually leave seem to be very happy when they leave, and maybe, when the Constitutional
Convention was put together, they did seriously consider term limits, and it was actually in most of the drafts, there were term limits, at
the end they took them out, but maybe it wouldn't be a
bad idea to have term limits, because you'd get fresh blood, and you wouldn't have people
who have these jobs who are, putting a system together that
doesn't really work any more. It's sad, and the social media pressures, the fund raising pressure, like for example members
of Congress now hear daily, hourly from their constituents
on social media and other things about what they're doing, every single vote and
every sub-committee is taken so seriously that members
of Congress are afraid to do anything that they really
believe in, because they're afraid they're going to be criticized, it's not a happy situation. - So switching to
another passion of yours, it's the engagement and
support of higher education. What explains your passion in this area, and what worries you, given
that higher education is also under attack in many ways? - Well what is it that makes, I'm giving my perspective, humans, started in this, Homo sapiens started on the
earth roughly 200,000 years ago. And it wasn't apparent when
Homo sapiens started in caves that we would dominate the world, but it became apparent
that we ultimately would, and interestingly when
Homo sapiens first came out of these caves, life
expectancy was only 20, and now it's roughly 80
in developed markets. So we've figured out by
use of our brain how to expand our life by four times. We've also figured out
how to do things like create great works of art,
Picasso or Shakespeare, or Beethoven. The enormous
amounts of things you can do with your brain are just spectacular. The human brain is
unlike anything else that exists on the face of the earth, and it's what has enabled us
to conquer the earth and we run the world for better or worse, so I think that if humans
can use their brain in good ways it can make, human life better, so what could be better
than higher education, getting people to learn how
to think, how to do things, how to help society? So my
theory has been that the great private schools
in the United States, they are the envy of he world, when I go anywhere in
the world, many of you are not from the United States, and you will appreciate what I'm saying, when I go anywhere in the world,
China, or the Middle East, people say can you help me get my kid into Duke or Harvard or Stanford or some place, they all aspire to degrees from
these places for their kids. Why is that? Because
they realize this is the gold standard. American private universities
are the gold standard. And my theory has been that
if you can improve these elite institutions by
giving them money and supporting their programs, other schools will try to catch up, and schools around the
world will try to catch up, and eventually you will make a better higher education system
all over the world, so people who don't have the access now to great higher education
might aspire to get it, and ultimately when they
go to these universities, they might turn out to create
great things afterwards. You know, you never know
in a university what's going to inspire somebody
to create a new company, or a new NGO, or some
foundation or something. So I just think that
universities are one of the wonderful things that society has created. They're imperfect in many ways, there are lots of problems with them, but generally they're places
where people can learn, can think and ultimately create
a great life for themselves, so that's why I enjoy it and that's why I think they're so valuable. - Okay, so a great thing
that you created based on your education was Carlyle, and I've often heard you
tell current students that if you want to create
real value, real wealth, you need to be an entrepreneur. And so you were an entrepreneur,
you weren't the classic, which is a myth, which is the young kid, I think you were 37 or 38
when you formed Carlyle, so what was it that you
saw that made you think, I can create a great private equity company? - Well first I didn't aspire to, I didn't think I would get very rich, and I didn't think I would
build a global company, and to be honest, if you go back and talk to
Bill Gates, and Steve Jobs, and Mark Zuckerberg and Jeff
Bezos and all these guys, they basically thought they would start a small company and it would be small. None of them aspired to
the things that happened, so I think anybody that
says they're going to conquer the world when
they start a company, probably isn't going to conquer the world. You have to be realistic abut it, and then it builds on itself. In my own case, I wasn't a great lawyer, I didn't enjoy it, and if
you don't enjoy something you can't do anything great. Nobody ever won a Nobel
prize for something in an area they hate, and nobody ever built a great company in doing something they hate, so you have to find something you like, and what's nice to please
your parents and do something your parents might want, my parents were happy for me to be a, they actually wanted me to be a dentist, but they were happy for me to be a lawyer, and they thought that was great, when I told my mother I was going to leave to start a business, she thought I would go bankrupt, because and so she still, I'm
still a member of the DC bar, because she's afraid I need to have something to fall back on in case Carlyle doesn't work out. So I fill out the form every year, so I'm still a member of the DC bar. But I've gotten lucky, everybody that starts
a company has an idea, and entrepreneurs will push that idea when everybody tells them it can't be done. People told me you can't start a private equity firm in Washington, there's no skill set there and so forth, so I was compelled to show I could do it, but persistence is very
important and not taking no for an answer is very important, but anybody that builds
a company has to do something that nobody else
did before, so in my case, I created a way for private
equity to be different. Private equity had been
a mom and pop business, you were only allowed to have
one partnership at a time, a venture partnership,
a buyout partnership, and the funds were all
mom and pop, very small. I came up with an idea that doesn't seem brilliant today of creating
a family of funds for private equity firms the way
they'd done in mutual funds. So Fidelity had 300 funds,
T. Rowe Price had 300 funds, offering different kind of
areas to people depending on what their interests are, I
created a private equity firm, where after I raised
our first buyout fund, I said to my partners,
you manage this fund, I'm going to go build a
venture fund, a growth fund, a real estate fund, and all under the Carlyle umbrella, and
we'll control all of the investments but we'll
have a global business, and making it global and making it more institutional is what I did, and there are other firms
that have done that now. Now, when I started Carlyle
there were only about 250 private equity firms in the world. Today there's 6,555 private equity firms, but there are only about
ten that are trying to do what we're doing, which is
global, multi-discipline, and build an institution
that probably will survive hopefully the founders. - So before the financial crisis hit, you were worried that the Golden Age of private equity might come to an end, but post financial crisis, you've talked about the
Platinum Age of private equity, so are we in the Platinum Age now? - Well it depends on your definition of platinum, as some people would say. I think the opportunity
to get rich by building a great private equity
firm is less today than it was years ago. There's so many private equity firms, so to think that you can
today start de novo and build a big firm from
scratch I think is harder, so it's a different age. It's also an age where it's
much harder to get 25 and 30 percent gross internal rates of return. When I started Carlyle,
everybody in the business was trying to to a deal where you'd do a gross internal rate of
return of 25 percent, you'd say that was your
base case, 25 percent, and hopefully you'd do better, but a base case of 25 percent gross, and a net internal rate return of 20 percent. Today everybody is looking
at deals where gross internal rates return at 19-20 percent, net internal rates return at
14-15. Why are we doing that? Well there's more competition,
so prices get bid up, but investors are willing to accept it, because in an era of low interest rates, and low inflation and low returns for public market stocks and
for public fixed income, if you can get 15 percent net internal rates of return,
people are thrilled. So as long as there's
a gap of I'd say 500 to 700 basis points between
public market indexes and private equity average indexes, the industry will do pretty well. So people are flooding in to
put money into firms like ours, because we are able to
get these still mid-teen rates of return net, and that's pretty good
in this environment. Maybe if inflation comes back, if I get back into government
and get inflation up, and inflation comes in, maybe we'll have to get
higher rates of return, but I think it's a different era, I wouldn't say it's a gold era, now I'd say it's a different
era where there are some platinum firms, and
of the platinum firms, Carlyle, Blackstone,
KKR, Apollo, probably the four biggest private equity
firms that are publicly traded, five and ten years from now,
we will be still around, and probably we will do more things than non-private equity. We
will probably branch out because there will be a blurring of private equity and non-private equity. The alternative will
kind of blur with the non alternative and you'll
see these large money management firms that started
as private equity firms, I suspect will blend
into doing something more than private equity. - So despite all of your
remarkable accomplishments, you are extremely humble. - Despite my telling you some of the things I've just done, yeah. (audience laugh) Humility is a virtue. - Yes, so as you have met
so many accomplished people, you've come to the
conclusion that there's a very strong association
between humility and actual accomplishment, can
you say more about that? - Well, my observation
without addressing any presidential candidates or anything, is that when you are arrogant, I think you're really
masking an insecurity, and I think you probably
don't have as much to be arrogant about as you
maybe think you should. Warren Buffet is a pretty humble guy, he's created a great
fortune out of whole cloth, he didn't inherit any money
or anything like that, and pretty humble. And if you talk to Jeff Bezos,
I was with him recently, and did an interview
with him at his house, in Beverly Hills before
the business council, you know, he's not an arrogant guy, he's probably worth 50
or 60 billion dollars, not arrogant. I think many of he most
accomplished people really are humble in some ways, and some people who are
not as accomplished are more arrogant, and I tell
people the skills that it takes to be successful
are mostly the same in business and non-business, reasonable intelligence,
but not being a genius, geniuses don't always
work out always well. So reasonable intelligence, perseverance, ability to get along with other people, ability to communicate well
by written or oral means, or by leadership of some
type, and some humility about things, I think a sense
of humor helps too, but I think humility is probably
a very important virtue. - So how have you managed to get the Carlyle culture to embody
those kinds of values? - Well you know when you're
leader of an organization, there's three ways you can lead, you can lead by example,
so George Washington, at Valley Forge, staying with the troops, leading by example. He didn't have to stay at
Valley Forge, but he did. Leading by writing, you can
not just Twitter tweets, but learning how to
write and communicate by written means is very helpful, and also learning how
to communicate orally. And so in Carlyle's case
like any organization, we have the leaders try
to be role models for what we do and try to
philanthropically be role models, but also given our time, and put dedication into the business, but trying not to be arrogant either. Hopefully the culture spreads
throughout the organization. If you have an arrogant
culture at the top, you'll probably have an
arrogant culture at the bottom, and I think the key to a really good business is one that can, the skill set of the founders
can be transferred to the next generation. So a lot
of businesses are great, when the founder goes,
the business falls apart. A person who's built a great
business is one who can see the business actually do
better when he or she leaves, so we've seen this
happen, Steve Jobs who's a complicated person, but he
built a culture of perfection, and the company is still
in very good shape, much more valuable
today than when he died. Bill Gates is not the CEO, company has actually
higher market capital than when he was there, so he built a very good
culture that survived him. And many other examples exist of that. I hope that when the founders
step back from Carlyle, the people who succeed us
will be able to take our culture that we've given
and make some improvements, but go on and build a better company. - So one of the classic challenges
that an entrepreneur has is that the skills that
allowed them to bring a new idea into existence, aren't the same kind of skills that allow them to grow and sustain that. So what have you found
that you had to change in order to continue to be successful
in your role at Carlyle? - Well there's no doubt,
when you're an entrepreneur, you're starting things,
you're trying things, you're willing to fail and so
forth. As you get an infrastructure around you which is designed to make you not fail, more and more people will
say, well you can't do that, you can't do that. So the difficulty for founders
of companies as they get bigger is to break
through that membrane that has now surrounded you and say, I'm going to do this even
though you tell me it can't be done. And one of the
dangers you have as a founder is getting caught
up in the bureaucracy that you might have, in effect, created, and when you're handing off
the mantle to somebody else, you have to say to yourself, alright, I've been an entrepreneur,
I built this company. Can somebody who worked
for me for 25 years, can he or she be entrepreneurial enough to really lead this company into the future? Because if they were so entrepreneurial, they wouldn't be working
for me for 25 years. Obviously there are ways
to deal with that, and good companies are often led by people who were not entrepreneurs, and they built upon what the
entrepreneur did. In my case, I always try to change
what we're trying to do, and try to be ahead of what
the competition is doing, but I meet resistance, because now I've got a
huge infrastructure of compliance people, the fastest growth part of our business is compliance, and everybody is worried that we're going to get something
wrong, so it's different. In the old days I'd try
to do something quickly and get it done and nobody
paid attention if it didn't work or worked,
and would ultimately be good for the company. But today, you can't
afford to make a mistake, you're a publicly traded company, you've got thousands of employees and millions of people work in the company, it's more complicated. - So I'm going to ask one more question, and then turn it over to
the audience for questions. So you referenced your
stint as I think it was Deputy Domestic Policy Advisor
to President Carter, and you noted that the rate of inflation was a real accomplishment. In fact to let's, let's give you credit, which
is there was a record set, the highest prime rate
ever in the history of the country of 21.5 percent, so congratulations, that record is still intact, - And will be intact for a long time, - So here's my question, as a patriot, as someone who really believes
in service to the country, if called to serve would
you jump back into the game? - Well it's unrealistic
today to think that anybody that has my net
worth can probably be confirmed by the Senate of the
United States for one thing. Secondly, today I think business
people are not beloved by the Senate of the United States, and if you made a great fortune, somebody will come out of the
woodwork and say, well you there's one company that
you took bankrupt out of the 500 companies you did, and we're going to go interview the
employees of that company. You can always find something
wrong. And so therefore, if you're well respected one day, if you go off for a Senate confirmation, you could be unrespected, and your reputation could be in tatters, secondly I think I now chair a lot of non-profit organizations in Washington, I can probably contribute more by being chairman of the Kennedy Center, chairman of the Smithsonian, than going back into government, there's many other talented people. I don't think anybody
is going to be calling a private equity person to go back into government any time soon. I think it's unfortunate
today that if you do go into government you have net worth, you have to sell all your assets, and so there's a bit of a
penalty. You're selling things on a forced sale, so there's
no blind trust any more, so you basically have to sell everything, and while there's some
tax deferral aspects to it, you're going to have to sell things and take enormous
amounts of financial loss, and maybe that's appropriate. But I'd say I'm now 67, there are probably a lot
of better younger people, so if the President of the
United States called me and said, would you serve,
I would serve my country, but no President is going to call me, because nobody is going to want any private equity founder
to do anything right now, as far as I could see unfortunately. - Okay, alright, questions
from the audience. - How many people want
to be private equity? Anybody? - So, go ahead with the microphone. - [Male student] Thank you
so much for coming today, my question is, as you
said you alluded to this, that the role of PE is
changing over the next ten, 15 years perhaps, how
do you see ESG metrics, sustainability, and impact investing, shaping the PE and VC landscape? - Well for those who aren't
that familiar with it, private equity basically used to be a rate of return driven business, so the rate of return is the
only thing you worry about, and assuming you didn't break the laws, you get the highest rate of
return you could, more or less. There has been two new phenomenon, you have alluded to both of them, one is impact investing, which is to say, I want to do something
that's socially good, I'll take a lower rate of
return in order to achieve that, that goal. So I want to let's say, I'll have a job, a program to build housing in
the South Bronx of New York, and the housing return
might be four percent, and maybe if I built it somewhere else I could get eight percent. I'll
take the lower rate of return, because I'm going to have an impact and I'm doing something useful. I think that there is a small sliver of people still doing that,
maybe it'll increase, but generally while people talk about it, most large public pension funds
and sovereign wealth funds, they don't really put up
that much money for that kind of thing, so they really
are driven by rate of return, they do have some small slivers of their funds dedicated to it, it may
grow and hopefully it will. Sustainability is something
that's across the board now, where in every investment
you make, you have to take into account sustainability features. If you don't then you're
probably going to lose a lot of investors, and
you probably won't be doing the right thing, so we look at sustainability
factors in everything we do today, and I think
that is a good thing. I think impact investing
will probably take a while before it becomes anything of great size and significance. A lot of the philanthropists
I know are very focused on impact investing with
their personal money, so it's not pension funds
so much, but high net worth people who can invest anywhere and don't have fiduciary responsibilities, they just have responsibilities
for themselves, they are doing more and
more impact investing. - [Male student] As a member of The Trilateral Commission,
after tonight what do you foresee about the
relationship between the US, Japan and Europe? - The relationship between? - [Male student] The
relationship between the US, Europe and Japan. - What's the relationship now? - [Male student] No, I was wondering after tonight what do you
think is going to change? - After the election? Well, one of my jobs for
Carlyle was to raise money, so I spent more or less 30 years
running around the world, and I typically go to 70
countries a year or so, and so I have a pretty good feel for what people think about us around the world. And I would say of all the time I've been doing this for 30 years, nobody has, I've never seen
a time when people were so concerned about who the
next President of the United States would be. The revulsion against the
idea that Donald Trump would be President was
virtually universal in my view, everywhere, and so there
would be great relief I think around the world if Donald Trump is not elected President
of the United States. I just think they just
felt generally that he didn't understand the
issues and didn't have a historical sense of what
the relationships had been with the United States
on a whole variety of things, so I think if Hillary
Clinton is elected, as I expect will be the case, I think that generally they'll go on
to the next issue which is, what is she really going to do in terms of international policy? You know, we haven't had
a President who has been Secretary of State for quite some time, she has a pretty good
feeling for foreign policy. I think her biggest challenges
will be not in Europe and not in Japan, but it'll be
in Syria and North Korea. Those are the two most
immediate things she'll have to deal with: what are we going to do in Syria? Are we going to change
our policy, or are we going to stay with
whatever the policy is now? And then North Korea is
of increasing concern to US intelligence and military officials. I think next to that,
she'd have to focus on Russia and Ukraine, and our
relationship with China. In terms of Western Europe, I don't think our issues
there are compellingly complicated compared to
where they are with the other countries I just mentioned. She'll have to deal with new leaders, I suspect Merkel won't
be there that long, and Hollande probably won't get re-elected, and there's a new Prime
Minister just getting off the ground in Great Britain. So I think that's not her immediate probably biggest problem. I think Brexit is not going
to be something she'll have to worry about that
much. With respect to Japan, the biggest issue in Japan is the demographic issue which
can overwhelm the country. It is the oldest country in the world, the average age in the
United States is 36, the average age in Europe is 41, the average age in Japan is 45, 23 percent of the
population is 65 or older, highest percentage of people
in the world over 100 in Japan. So at current demographic
rates and birth rates in Japan, you will have a Japan
that in 30 years or so will have not 120 million
people, but 90 million people. For a population to reproduce
itself and stay even, a woman of childbearing
age in a population has to have 2.1 children. In the US we have 2.1
children per woman of childbearing age, but the population is growing
because of immigration. In Japan that number is 1.4,
and there is no immigration, so the population is going to go this way. It's a serious demographic problem. Japan's biggest problem is how do you get some economic growth,
and they don't have it. How do you get some
inflation, they don't have it. But they've got big problems, nothing the US can really do
in the short term about it. I think Hillary Clinton's
biggest focus overseas will be Syria number one, generally terrorism number two, number three, North Korea, number four, improve relations and deal with the Ukraine and
Russia issues, and then China. - [Female student] Thank you, my question is how are
you evolving your business model to stay competitive with your peers, and then from that what do you see as the biggest opportunity for Carlyle in the alternative asset management space? - Okay, how are we evolving
our business model? Well, we probably created, the
business model that many of them have adopted
is one that we created, but others have done
it maybe better than we have in some cases. Blackstone is much bigger
than we are at this point. I think the issue private
equity firms like ours face is, do you stay in the private equity world, the alternative world, or do you say we're going to go into
the non-alternative world? Private equity firms that
are publicly traded are not beloved by people that buy stocks. The private equity world
is one where you're supposed to make your money
on the carried interest, so the way the business model evolved, you get a management
fee that's supposed to cover your rent and costs, but not supposed to make
a lot of money on it. You make your money on the
20 percent carried interest, and that's how the
business model evolved and that was always thought to be
satisfactory for investors. Investors would be happy
if you got a big profit, because they're going
to get 80 percent of it. When you go public, the
people that buy your shares, they don't care about
the carried interest, because they think it's episodic and it occurs very spasmodically, and you can't predict
when it's going to occur. They want to see
predictable fee streams and earnings, and the best way to do that is have dedicated fee income, so the management fee and things. So you get rewarded by
your investors in your funds by not having a lot of fees, because they think you're
overcharging them for fees, and rewarded if you get a
lot of carried interest, because that means you're
doing well for them. The people that buy your
stocks are the exact opposite, so the question in all the
private equity firms that are publicly traded have to
figure out is, how can we create a business model that is
more acceptable to the people that buy stocks. Right
now it's not that acceptable, and we're publicly traded
as partnerships and that has tax issues too so, all of us are facing how we
can deal with this model. We have a high dividend, we pay out 75 percent of our earnings to dividends. KKR now pays out virtually nothing, and their stock hasn't moved since they went from our model to their model. It's not clear what model is
really going to be appealing to people that buy publicly traded stocks, all of us are trying to
assess how we can make our companies more appealing. Generally, alternative
investment business is still a growth business, I don't know that it can grow at the exponential rate that it has, but generally I think the
business model will grow, and the greatest growth
areas are probably in the emerging markets. For example, today, of all the dollars
invested in private equity, 83 percent is still invested
in the developed markets, which is mostly Western
Europe and the United States, only 17 percent in the emerging markets. Well about 45 to 55 percent
of the worlds GDP is in the emerging markets,
depending on how you measure GDP, but only 17 percent of the emerging market private equity dollars, so you'll see a gigantic increase there. You'll see more money
and funds develop for non-accredited investors. Right now to go into private equity, by and large, you have to be an accredited investor, which means $250,000 of income, million dollars of net worth. The irony is, let's suppose
you go to a very good college and you major in economics and finance, but you go to work for
Teach for America and you have an income of
$40,000 a year, you're not going to be qualified to
be an accredited investor, but if you're an idiot, and you inherited ten million dollars, and you know nothing about business, you can take all that
money and put it into private equity and nobody cares. So it's kind of ass backwards
from what it should be. I think that people who, the highest rate of
return kind of instruments should ultimately be
available to people who have managing their own 401k and IRAs, so I think eventually, in
the next couple of years, you'll see the private equity
firms expanding in this area, with the help and support
of the government of the US so that you can have smaller investors who manage the IRAs and 401ks, able to go into a higher returning kind of instruments - private equity,
alternative investments - that'll be the greatest growth
area as we go into that area, that plus the emerging markets. - [Male student] Hi David,
thank you for coming, you've already talked about
patriotic philanthropy, and I was wondering it
seems from afar that your approach has been non-partisan, and have you found that to
be more difficult lately, particularly with the political climate? And where do you see
your philanthropy going, especially that any
kind of philanthropy at this stage seems to be
politically affiliated? - Well what you're referring
to I believe is this, I did work in the White
House for Jimmy Carter, so I guess you could say I was
part of the Democratic world. When I left the government,
I resolved not to get involved in politics any more. I don't want my life
being dependent on who got elected President
of the United States. And so I give no money
to politicians, zero, and as a result finally people
stopped asking me for money. And I think it's, it used to
be the case there were limits, you gave a thousand
dollars to a candidate, and then maybe two
thousand or four thousand, but then it got to a
point where there's no limit to how much you give. And therefore I just think it's not something I'm comfortable with, the unlimited amounts of money, and I wish the law was different. But I just decided to remove
myself from politics by giving no money to politicians, and not going to any fund raisers, and not endorsing anybody, and
I think it's actually better. As the chairman of the Kennedy Center, I'm the chairman of the
Library of Congress Board, and I'm chairman of the Smithsonian, or I will be as of January, by not being political I
think it makes it easier for me to deal with
Republicans and Democrats, and I think when I do something
it's not seen as trying to help one party or the other. So I'm not saying my
approach is the ideal one, and a lot of people don't
support my approach, but it works well for me, and so I try to stay out of politics, and I don't think I'm
missing that much myself. - [Male student] I have a
question about your life, I read an article a while ago, and I could be wrong, it said you were very
academic as a young student, now my question is at this
point of time in your career, you are a very good public speaker, you are probably one of
the most networked men in corporate America, what
did you do over the course of your career
to transform yourself? - What did I do, what? - [Male student] So
what did you do over the course of your career to
transform yourself into a great public speaker, and some would even say
connects with people. - Someone who was an academic,
not that that was an insult. (audience laugh) - You said what? - He said you transformed
from an academic to a good public speaker. - Alright, okay, when I was at Duke, I had no money. I got a
scholarship to come here, and my view was that the
only way I was going to get anywhere in the world was get good grades, and get a good law school
and get a scholarship. And I did get good grades, but I basically did nothing at Duke, I mean I did virtually no activities, and I wasn't an athlete. I was like to say the only
person in Duke's history who got cut from an intramural
basketball team with only four other people on the team. So I wasn't great. If you were
to say in my class in 1970, the least likely to wind
up as chairman of the Board of Trustees would probably be me. And I had so little money
when I applied to law school, I got into all the law
schools I applied to, but one of them showed up
with a full scholarship, it was the University of Chicago, they gave me a full scholarship. And so they said, send
in the 50 dollars to reserve your position, and then send in 50 dollars
if you want housing. Well I didn't have an extra 50 dollars, 50 dollars was like maybe 500 dollars is today or a thousand. So I
said, alright, I'm going to send in 50 dollars to
the housing department, because they will surely tell
the law school I'm showing up, so why do I need to waste
the extra 50 dollars? So I showed up on the first day, and I said, here I am, David
Rubenstein, full scholarship student, I'm ready for my scholarship, and they said, well, you
didn't send your 50 dollars, that money went somewhere else. So blood is draining out,
my legal career is going, I'm going to cry, what am I going to do, I have no legal career, they didn't, I said, wait a second, why would
I have needed this house in the law school dorms if I wasn't coming? They said, that's a different
department of the university, we don't know anything abut it. So finally they felt sorry for me, because I was crying and making
a big scene I don't know, so they gave me the scholarship. And I have since given
them 30 million dollars in scholarship money to make up for it. (laughter, applause) But I was a relatively introverted person, not relatively, relatively is being polite. I was an introverted
person, and I wasn't a very accomplished speaker, and no one would have
ever thought in me of being debate champion or public person. But gradually, what happened,
was when I went to Carlyle, you have to, in any organization, you have to figure you what
is your best skill set, and make yourself indispensable. And I tell anybody, when
you join any organization, even if it's one you
created, you have to do something to make yourself
indispensable to the organization. So find
something, that narrow niche, make it your own, and so
when people need somebody who knows that expertise,
they'll come to you, and if they think you're
good at that they'll come back and they'll say to
you, well you did this well, can you do this well, and you
basically expand your reach. So when I started Carlyle, I brought in three other people
who had finance backgrounds, and they knew something about
investing which I didn't, so I said, well, how can I
make myself indispensable? Well, none of them wanted to
go on the road and raise money, they just said, you go raise the money. And I said, okay, I'll do it. So I made myself into a fund raiser, though I had always associated
fund raisers with beers, drinking, alcohol, drinking, golf playing, suspender
snapping kind of people, that wasn't me. So I just
invented a different way of being a fund raiser, trying
to be very cerebral about it, but actually talking, giving stories, and ultimately if you do enough
fund raising presentations in a day, you know nine a day, ten a day, ultimately people will
ask you to make speeches, so I took every speaking opportunity I could get for 30 years, any time any private equity conference was happening with ten people
or more I would speak at it, and hopefully making
myself known about what my firm could do. So I
developed an ability to speak more than I had before,
and so I just practiced, practiced, practiced. So I think if you want to be
a more accomplished speaker than you are today, then just learn how to
accept speaking engagements, go out, speak to small crowds,
speak to larger crowds, if you perfect the skillset you'll, eventually people
will want to hear from you. I'm not the most accomplished
speaker in the world, but I'm better than I was 30
years ago I think, I hope. - Indeed. Okay we have time for one last question. - [Male student] Thank you for coming, so I just wanted to ask,
you talked a lot about the importance of higher education
in America especially, and I was wondering what
you thought about the viability of free education
for all Americans who want. - The viability of? - Free education. - Higher education? - Yes, college. - Well, who could be against
free education for everybody? Who's against that? I think the viability is just
not realistic to do this. Now, Hillary Clinton, because
she was driven to the left by Bernie Sanders, did ultimately
support, in the campaign, a bill that would presumably
make it possible for anybody to go to a junior
college and get it free, or maybe for two years
or something like that, some aspect of free education. Though how that's going
to be paid for is not a hundred percent clear, and I doubt that it will
pass the Congress of the US. I think it's very
difficult to think that we can make public education, or private education, or
higher education for free. There's no doubt though
that at good universities, there is financial aid available, and there are about I'd say
25 need-blind universities in the US, Duke is one of them,
certainly for undergraduates, and I think for business schools, you can get enough financial aid, maybe it's a lot more
loans that maybe you want, but presumably you're
at a business school, you're going to make some money soon, you can pay the loans back
hopefully not too long from now. I'd say it is unrealistic, there is a model in other
countries to have free education for people in higher education, I just don't think that model
is realistic in this country, given the fact that we
have budget deficits that are so high already, our budget deficit this
year is going to be over 500 billion, we
got 20 trillion of debt, 60 trillion of unfunded
pension fund liabilities, it's just not realistic in our
current economic construct, we're growing at relatively
low rates, we're not really adding to national
wealth very much, so I don't think it's realistic. It's nice but I don't
think it's realistic. - Thank you so much for
your wonderful insights, and here's a little token
of our appreciation. (audience applaud) - I appreciate everybody coming here this evening to listen to the
Dean and me. I want to thank the Dean for doing
a spectacular job as the Dean of Fuqua, the Board of Trustees has enormous confidence in the
Dean and what he has been able to do in his six
years as the Dean, and I think all of you are privileged
to be at this school, who are students here. A
degree from Fuqua is very valuable. I hope all of
you will get your degrees, if you're degree students, and I hope all of you will think,
what can you do to make the world a slightly better
place by using your degree, so I hope you will do something in the business world, or something that takes advantage of your business skills, but ultimately if you
have the wealth or the time or the energy, do something
to give back to society. Because you don't want
to get to my age and say jeez what did I do with my life, I wanted to give back to society, but I didn't do anything in
my 20s, 30s, 40s, and 50s. So you can always make
some time, give some money, find a cause, do something
so that you will feel that when your time does come and
you are on your death bed, you'll say yes, I did something useful, and I'm really proud of what I did, and I was on the face
of this earth and I did something that would make my
parents proud of what I did, and make my children proud of what I did, and make myself proud
of doing something that justified my existence
on the face of the earth. Thank you very much. (audience applaud)
