by Jason Kelly
The firm’s roots in Washington and its founders’ disparate backgrounds inform how it evolved, and despite its large Manhattan presence, Carlyle is distinctly Washington-conservative in its demeanor. The nerve center remains a nondescript warren of halls on the second floor of a building on Pennsylvania Avenue. There’s no on-site kitchen beyond a break room with Dunkin’ Donuts coffee. Showing up in anything other than a suit and tie is frowned upon. “There’s an initial premise that all of our competitors are smarter than us,” Carlye’s chief operating officer Glenn Youngkin said. “Maybe it’s because we grew up in DC and not New York.”
Location also proved useful in pursuing deals that no one else was interested in, in a town where finance is far from the most important line of work. “If we’d been in New York, we’d have been slogging it out with everyone else,” said Allan Holt, the co-head of U.S. buyouts who joined the firm in 1992. “Washington is a company town, but it’s politics, not finance. I still go to social functions and people hear Carlyle and say, ‘Now what is it exactly that you guys do?’”
The interplay among the founders is by most accounts, including their own, integral to what Carlyle has become. Each founder claims they’ve never raised their voices to each other, and yet there are checks and balances inherent in the triumvirate. People internally and externally are well aware of the breakdown.
Rubenstein is the front man and fund-raiser, Conway is the dealmaker and de facto chief investment officer, and D’Aniello is charged with much of the firm’s administration, personnel matters, and firm-wide initiatives like the One Carlyle effort meant to keep everyone across the firm’s 33 offices in sync; he also has responsibility for the real estate investments. For years, the three men, who rarely socialize outside of work, met each weekend for breakfast or coffee at the Hilton in McLean, Virginia to, hash out whatever company matters needed their collective attention.
The division of labor was in part a product of circumstance and background. Both Conway and D’Aniello had business backgrounds and therefore could evaluate potential deals and figure out the firm. Rubenstein, the lawyer, was left to raise the money. “It was clear to me the other guys knew finance,” Rubenstein said. “I figured I would add value by raising the money.”
During a wide-ranging conversation at Carlyle’s office on a Sunday afternoon, he laid out his philosophy for fund-raising, noting at the start that of all the courses of study in business curricula, from marketing to finance to operations, there isn’t one on how to raise money. “And yet it’s very unlikely that someone could live a week without asking for, or being asked for money,” he said. On this particular nonofficial work day, he wore what passes for casual Rubenstein, a blazer and slacks, with a tie firmly tied.
He started his fund-raising self-education by asking his family and friends, then went to people in the area, then the rest of the country, and so on. There was virtually nowhere he wouldn’t go in person. His ferocious curiosity overwhelmed his discomfort so he enjoyed meeting and talking to people. Rubenstein found he had two built-in advantages. First, people like hearing about working in the White House, even in an administration short on public admiration. He also realized being a founder of the firm, even a tiny one, gave his visit a patina of credibility in the eyes of those he was meeting.
His secret seemed to be his willingness to show up, again and again, even though he rarely verbalized “the ask,” especially in the later years, figuring they knew why he was there. “I almost never actually ask people for money,” he said.
Rubenstein envisioned the scope that Carlyle could achieve early on. Pete Clare, now the co-head of Carlyle’s U.S. buyout business, was relatively new to the firm in 1994 and working on a deal to buy Fresh Fields, a regional chain of organically oriented grocery stores based in Maryland. The deal was small by modern standards; the total equity check was about $36 million. But days ahead of the closing, Carlyle was short by about $3 million.
Clare was in the office the Saturday before the Wednesday closing, nailing the final details, and sweating the multimillion-dollar shortfall. Finally, he walked down the hall to talk to Rubenstein. He found his boss hunched over a yellow legal pad, sketching out a fantastical vision of the future Carlyle. Lines emanated from a circle in the center, denoting Carlyle Europe and Carlyle Asia. Rubenstein pushed the pad toward Clare and walked him through it in detail. Clare listened as patiently as he could before finally blurting out, “David, that’s great, but I really need $3 million right now!” Rubenstein waved him off. That part was easy. Seventy-two hours later, Rubenstein had filled the gap for the Fresh Fields deal.
Rubenstein told me that while he didn’t recall the exact incident, it sounded right. “Clearly it made more of an impression on Pete than it did me,” he said, but he admitted to plotting a global empire nearly from the beginning.
The wealth generated by realizing that vision has turned Rubenstein into one of the more prominent philanthropists during the past decade. He’s a signee of the Giving Pledge, the movement founded in 2010 to get wealthy people to commit to giving away at least half their money. Created by billionaires led by Warren Buffett and Bill Gates, the Pledge has drawn the support of families and individuals including investors Carl Icahn, Julian Robertson, and Ronald Perelman. Peter G. Peterson, the co-founder of Blackstone, is the only other founder of a big private-equity firm to sign the pledge.
Rubenstein wrote a 1,400-word letter explaining his decision. In describing his path to philanthropy, Rubenstein wrote about realizing at age 54 that the average white male lived to be 81, meaning he was, statistically speaking, two-thirds through his life. “I did not want to live the other third, get to my deathbed, and then ask someone to give away my accumulated resources as they saw fit,” Rubenstein wrote. He noted that he hoped to fulfill the pledge, that is give away more than half his wealth, while he was still alive.
Rubenstein has brought the ubiquity approach honed in his fund-raising and Carlyle lives to non-profit boards; he serves on more than two dozen, a number he is winnowing down in order to focus on what he calls transformative gifts. In early 2012, he donated half the cost to repair the Washington Monument after it was damaged in a 2011 earthquake.
(By way of personal disclosure, Rubenstein is a Regent of the Smithsonian Institution, one of only a handful of private citizens in that position. His donations to the Smithsonian included a 2011 gift to the National Zoological Association, where my father serves as the director).
He’s also the chairman of the Kennedy Center for the Performing Arts, one of the most prestigious philanthropic posts. Much to Rubenstein’s private chagrin, Schwarzman managed to wrangle the job first and served an eight-year term, but now that he has it, Rubenstein is reveling in the role. The gig has helped raise his profile, and brings him into contact with high-octane celebrities. In the fall of 2011, his duties paired him with comedian Will Ferrell, the recipient of the Mark Twain Prize for American Humor. As part of the ceremony, Rubenstein presented Ferrell with the actual award and, in a well-rehearsed bit, handed the “priceless” prize to Ferrell only to have him drop and shatter it.
That made-for-YouTube moment followed a private visit by Rubenstein and Ferrell to the White House, where they met with President Obama. It was there, unscripted, that Ferrell actually left the prize in the Oval Office, prompting the leader of the free world to chase him down through the halls of the White House.
Conway and Rubenstein are the pair most likely to be at odds, with Conway counseling patience and Rubenstein pushing for more expansion, more funds, more lines of business. One former executive says it this way: “David has his foot on the gas, Bill has his on the brake.”
Conway pressed his foot hard on the brake in 2007. Even as other firms were continuing to do deals, he sent out a strongly worded letter to Carlyle’s employees imploring them not to get swept up in the euphoria of the deal heat surrounding them. He warned his colleagues that cheap debt was driving Carlyle’s peers to do bigger and bigger deals. To dri
ve his point home, he hit the all-caps button: “OUR STRATEGY SHOULD EVOLVE TO TAKE LOWER RISK DEALS AND EARN LOWER RETURNS, RATHER THAN HIGHER RISK DEALS AT ONLY SMALL INCREMENTALLY HIGHER RETURNS.”4
Looking back at the time, he said he simply put in to words what was plainly happening. “It was like the emperor’s new clothes,” he told me. “Everybody knew we were in a market that was radically overheating. I just said, ‘It just looks to me that this party is near the end.’”
Carlyle called on its companies to draw down their revolving lines of credit in anticipation of tough times ahead.
The data show the extent to which Conway, who knows each of Carlyle’s deals in excruciating detail, got cautious that year in terms of new transactions. In 2006, Carlyle announced about $75 billion worth of takeovers, including three deals worth $10 billion or more. In 2007, the total dropped about 40 percent, to $44 billion. The largest deal was the $8.5 billion purchase of HD Supply, the contractor-oriented arm of Home Depot, according to data compiled by Bloomberg. Perhaps to underscore Conway’s own point, that deal turned into one of the more troubled of the boom era, struggling mightily in the teeth of the U.S. housing crisis.
Conway is, at his core, a deal guy, and widely regarded as one of the smartest investors in private equity. He is affable and physically imposing, and while charming and self-effacing, he is arguably the most feared person inside the firm. A practicing Catholic who attends Mass most days, he grew up in New Hampshire and earned his undergraduate degree at Dartmouth. He went on to earn an MBA from the University of Chicago at night while working for a bank there. After joining MCI, one of his clients, he rose to become chief financial officer. Working at one of the area’s biggest companies made him known to most everyone in finance around Washington.
“Bill is the moral compass of the firm,” said Youngkin, noting that as the consulting firm McKinsey & Co. grew, people there tested ideas by asking what its founder, Marvin Bower, would do in a particular situation. “The question everyone at Carlyle should ask is ‘What would Bill do?’” Every new employee gets a framed list of those rules when they join the firm. “We want to have Bill be in the room with everybody,” Youngkin said.
With Rubenstein gathering the money and giving speeches and Conway garnering a dealmaker’s rep, D’Aniello is the least publicly known of the founding trio. He hails from western Pennsylvania from modest means. He graduated from Syracuse University and among the small number of mementos in his office is a signed basketball commemorating the 2003 Syracuse national championship men’s basketball team.
He’s a formal person, almost never removing his suit jacket through the entire work day. His manner is calm, his voice almost soothing. He and Conway, he conceded, gladly eschewed the spotlight, letting Rubenstein be the front man. Conway was totally focused on deals, Rubenstein on raising money, and raising Carlyle’s profile. D’Aniello was happy to be left to running the firm and figuring out how to build a lasting culture. Ed Mathias jokingly summed it up this way: “Bill has been totally focused on investments. If I called him and said the third floor of the building was on fire, his first response would be, ‘Call Dan.’”
Among D’Aniello’s key efforts is One Carlyle, which he was careful to point out was not just a culture, but a business strategy. These sorts of projects are often well-intentioned, but a skeptical outsider just as often views them as something fluffy and easily dismissed, just a bunch of business school mumbo jumbo. Yet there are actual financial systems in place to “encourage” cooperation. Funds are encouraged to invest in other funds’ deals. That means a team in Brazil can enlist New York colleagues specializing in consumer products on a specific deal and if everyone works together, some of the carry goes to New York, and the U.S. buyout fund has a chance to co-invest.
“This is about taking the Rubik’s cube of industry expertise, product, and geography and turning it so its face best projects our strengths against an opportunity,” D’Aniello said. “Winning in this business is a game of inches. This collaborative approach empowers our firm’s business model, and our strong One Carlyle culture lubricates its successful execution.”
As Carlyle prepared for the public markets, where institutional investors also care deeply about the future management of companies whose shares they own, a more-than lingering question was how the founders, now all in their 60s, would hand off the firm to the next generation. As a public company, Rubenstein and Conway are co-chief executive officers, with D’Aniello as the chairman of the firm.
The founders in 2009 created an eight-person operating committee that’s responsible for the day-to-day operations of Carlyle and the seeds of succession are sprouting there. Through the process of pitching the IPO, Youngkin was the most consistently present executive other than the founders and chief financial officer Adena Friedman. The public offering was effectively Youngkin’s deal to run. At Carlyle since 1995 (he worked at McKinsey and CS First Boston before that), he ran Carlyle’s operations in the United Kingdom for five years before running Carlyle’s industrial investments group in Washington. He also served as the interim finance chief for a five-month period at the end of 2010 and the beginning of 2011.
People who know the firm said Youngkin has internalized the culture of Carlyle as well as anyone, and his appeal to the founders comes from his ability to represent each of their perspectives, a key attribute if carrying on DBD’s legacy is important, which it appears to be. One person familiar with Carlyle’s personnel told me that if the three founders had a baby, it would be Glenn Youngkin.
Youngkin rose to be first among equals because of those qualities, a personal evolution that reflects his long tenure at the firm relative to his peers on the operating committee. For many of the functions that weren’t deal-related, Carlyle looked to its extended family and sometimes beyond. David Marchick, responsible for all of the firm’s external and governmental affairs, was an outside lawyer working for Carlyle and member of the Clinton administration; he joined in 2007. Friedman arrived at Carlyle from Nasdaq in 2011, as the firm was preparing its public filing. Mitch Petrick, responsible for the trading businesses, got to the firm in 2010 after a 21-year career at Morgan Stanley.
Youngkin also serves on the much smaller management committee, whose membership is limited to him, the founders, and Friedman. That group is charged with making the strategic, firm-wide decisions DBD used to make at their weekend breakfasts.
His baptism by fire came in 2008, when the founders asked him to step out of day-to-day deal-making and think about existential issues related to the firm. What started as a real-world business school exercise of re-imagining the firm organizationally quickly became an exercise in preparing the firm to survive a global financial crisis. “We ran the ‘world falls apart’ scenario,” Youngkin said. “We went through an exercise of deconstructing the firm.”
The recommendation to the founders, which they took, was to get liquid, in part because the firm needed to be able to meet capital calls if limited partners defaulted. Conway, D’Aniello, and Rubenstein took no bonuses for the year. Every partner pitched in to buy $200 million worth of assets off the firm’s balance sheet and the firm took out $100 million in costs to get Carlyle to a more comfortable position in terms of cash flow. Looking around the world at what was either too new, or too fragile, to withstand the coming storm, the firm shuttered its Eastern Europe office and gave responsibility for deals there to other European outposts. It similarly disbanded a South American real estate group, moving responsibility to the U.S. Asian credit was abandoned altogether for the time being. By that September, when Lehman Brothers’ bankruptcy and other events brought the world to the brink of financial Armageddon, Carlyle had battened down the hatches.
But within roughly six months, Conway’s pessimism had been transformed. Poring over data gleaned from its roughly 200 portfolio companies, Conway zeroed in on the financial results that showed container shipments were heading upward month after month. “Things were better on the s
hop floor,” Youngkin said. “We decided to lean forward on the investment side. Bill’s the one who waves the flag.”
Life resumed some semblance of normalcy by mid-2009 and Youngkin and the founders revisited his original assignment of thinking about Carlyle as an organization. That process, which involved Youngkin polling executives inside and outside of the firm, ultimately led to the formation of the operating committee that oversees all the non-deal activities of the firm.
A key player in professionalizing Carlyle was Daniel Akerson, who left the firm in 2011 to become the CEO of General Motors. His departure was felt deeply throughout the top ranks of the firm, largely because he was Conway’s closest confidant and a key barometer for measuring how something would play with the chief dealmaker. That closeness and Akerson’s background running General Instrument among other executive positions gave him a stature almost no one else had in the firm. He could tell the founders what they should do, without hesitation. Louis Gerstner, who had run IBM before becoming Carlyle’s chairman, held similar sway.
“They could go to them and say, ‘It’s not a small firm anymore, it’s an institution,’” Marchick said. “They convinced the founders they had to foster the next generation.”
The operating committee is meant to formalize the transition of some responsibilities of the founders into new hands. Marchick and Michael Arpey, who leads the investor services group, act as mini-Rubensteins. Youngkin and Friedman have taken on much of the administrative burden once shouldered by D’Aniello. Clare and Holt, who co-head the U.S. buyout efforts, are Conway’s chief lieutenants.
Ironically, that shift makes the founders even less likely to leave because each man has been able to keep only the parts of the job he really likes. As for how long the founders will stay, they haven’t said. One person familiar with their thinking said the conventional wisdom has Rubenstein staying as long as humanly possible. Through his extraordinary stamina, he’s found a way to satisfy his philanthropic desires while working full-time, so why would he leave?