-Caveat Lector-
----- Original Message -----
Sent: 13 March 2002 12:02
Subject: [Awakened4JChrist] The Big Guys Work For the Carlyle
Group
CARLYLE GROUP
The Big Guys Work For the Carlyle Group
What exactly does it do? To find out, we peeked
down the rabbit hole.
FORTUNE
Monday,
March 18,
2002 By
Melanie Warner http://us.f97.mail.yahoo.com/ym/Compose?login=1&To=&.redir=ymmapi3 |
Are you the sort of person who believes in conspiracies--the Trilateral
Commission secretly runs the world, that sort of thing? Well, then, here's
a company for you. The Carlyle Group, a Washington, D.C., buyout firm, is
one of the nation's largest defense contractors. It has billions of
dollars at its disposal and employs a few important people. Maybe you've
heard of them: former Secretary of State Jim Baker, former Secretary of
Defense Frank Carlucci, and former White House budget director Dick
Darman. Wait, we're just getting warmed up. William Kennard, who recently
headed the FCC, and Arthur Levitt, who just left the SEC, also work for
Carlyle. As do former British Prime Minister John Major and former
Philippines President Fidel Ramos. Let's see, are we forgetting anyone?
Oh, right, former President George Herbert Walker Bush is on the payroll
too.
The firm also has about a dozen investors from Saudi Arabia, including,
until recently, the bin Laden family. Yes, those bin Ladens. Is it any
wonder that Internet sites with names like paranoiamagazine.com are rife
with stories about Carlyle's shadowy, corrupt global network? And it's not
just wackos. "Be careful," a tech entrepreneur in Silicon Valley wrote in
an e-mail when he learned I was doing a story on Carlyle. "The rabbit hole
runs really deep on this one.''
Leaving aside the conspiracies for a moment, what exactly does the
Carlyle Group do? Start with the basics: It's one of the world's largest
and most powerful private-equity investment firms, meaning it buys and
sells privately held companies and divisions of large public companies for
big profits. Founded in 1987 (and named after the favorite New York hotel
of the firm's first investors, the Mellon family), Carlyle has raised a
total of $14 billion from investors in just the past five years--more than
any other private-equity firm has attracted in the same period, except the
Blackstone Group and CSFB Private Equity. Profits, too, have been pretty
terrific. Not counting the standard 20% cut that goes to Carlyle's
partners and managing directors, the firm's average annual rate of return
has been 36%.
It's quite a success story, and to understand how Carlyle pulled it
off, FORTUNE spent a month and a half peeking down that rabbit hole. One
conclusion seems clear: While most of the conspiracy theories are
amusingly overblown, this is a firm that's been built on the backs of Bush
and other big shots who have lent Carlyle their names, their golden
networks of friends in high places, and their insights into how government
works. It wasn't until Carlucci joined, for instance, that Carlyle really
took off. Founded by David Rubenstein, a lawyer who worked as an aide in
the Carter White House, Bill Conway, a former CFO at MCI, and Dan
D'Aniello, a former finance executive for Marriott, Carlyle early on
invested in a motley assortment of deals--buying an airline-catering
business, a health-food chain, and a biotech firm, for example. In 1990,
Carlucci got the trio interested in the $150-billion-a-year U.S. defense
industry, making introductions to companies that would turn into some of
Carlyle's most lucrative investments. Rubenstein quickly realized the
wisdom of recruiting a former Secretary of Defense and followed it up with
a former Secretary of State, then a former White House budget director,
and on and on.
The revolving door has long been a fact of life in Washington, but
Carlyle has given it a new spin. Instead of toiling away for a trade
organization or consulting firm for a measly $250,000 a year, former
government officials can rake in serious cash by getting equity cuts on
corporate deals. Several of the onetime government officials who have
hooked up with Carlyle--Carlucci, Baker, and Darman, in particular--have
made millions. Carlyle isn't the only organization doing it: Metropolitan
West Financial in Los Angeles recently hired Al Gore to help with tech
deals and make introductions overseas, for example. But Carlyle, which
pioneered the idea, seems more adept at it than any other firm.
Unlike other private-equity groups, Carlyle concentrates on companies
funded by the government, such as defense contractors, or those affected
by government regulation, such as telecommunications firms, and then hires
people with relevant government experience. As the company once put it in
a brochure, "We invest in niche opportunities created in industries
heavily affected by changes in governmental policies." Doing so, of
course, raises the ultimate rabbit-hole question: Is Carlyle's approach
just a smart twist on good old business networking or a step over the line
into an ethical twilight zone in which the public trust is
broken?
|
Half a mile from the White House, inside nondescript offices sparsely
adorned with generic depictions of ships and ducks, co-founder Rubenstein
sits with his hands folded on a table so shiny you can see your
reflection. Next to him sits Chris Ullman, Carlyle's first-ever full-time
PR person. Habitually wary of media attention, Rubenstein and his partners
agreed to rare interviews with FORTUNE. That's because since Sept. 11 the
firm has been under unusual fire. First there was the bin Laden thing.
Shafig bin Laden, one of Osama's many brothers and a Carlyle investor, was
in attendance at a Carlyle conference at a Washington hotel on that
infamous day. As the media were quick to point out, this meant that George
H.W. Bush was working for a firm that was helping to make the bin Ladens
money. Even though the wealthy Saudi family has reportedly cut all ties to
Osama, the press lambasted Carlyle.
The firm has since given the bin Ladens back their money, some $2
million, but controversy lingers. Sept. 11 and its aftermath also created
the appearance of further conflicts of interest--namely, that while his
son is in the Oval Office directing the war effort and proposing the
largest increase in defense spending since Ronald Reagan, Bush is working
for a firm that, through various investments, has become the nation's
14th-largest defense contractor. "It destroys the office of the presidency
no less, in my view, than having sex with an intern," says Larry Klayman,
director of the watchdog group Judicial Watch. On top of all that, there's
the unfolding Enron saga and the likely passage of the
campaign-finance-reform bill, which suddenly make it look bad for
businesses to have too many friends in Washington.
It's no surprise, then, that Rubenstein is anxious to downplay the
roles of Carlyle's famous people and to dispel the aura of mystery
surrounding the firm. "The word I hate most is 'secretive,' " says
Rubenstein, whose wry countenance and shock of white hair suggest a less
rubbery version of Steve Martin. Rubenstein insists that all Bush does for
Carlyle is give speeches to investors and that it is silly to think of him
whispering in his son's ear about how to help Carlyle's companies.
On the whole, Rubenstein says, the big names at Carlyle do a lot less
than most people think. "We don't lobby the government," he says, echoing
a claim made by other partners interviewed by FORTUNE. He insists that if
Carlyle is at all remarkable, it's because of the firm's innovative
approach to private equity, its great returns, and its global
ambitions--not because it happens to employ a few famous people. "Out of
the 500 people at the firm, we have maybe eight or nine who served in
government. The rest are your typical Harvard, Stanford, or Wharton MBAs,
who do all the same things they do at other firms,'' says Rubenstein. (In
fact, the number of former government big shots is 12, but who's
counting?)
The conspiracy theorists like to imagine that Bush, Baker, and Major
are jetting around the world cutting deals and making money for companies
owned by Carlyle, but after nearly two dozen interviews with CEOs of
current and former Carlyle companies and people familiar with Carlyle's
business, it seems clear that this really isn't happening. What Bush &
Co. actually do is far less pernicious but clearly valuable to
Carlyle--they help raise money. Every year Rubenstein sets up scores of
lunches and dinners around the world intended to woo new investors and
gratify existing ones. As you might imagine, people like Bush, Baker, and
Major are a huge draw. "If you call and say you're doing a dinner with Jim
Baker or with George Bush, and could they please attend, chances are
people are going to show up," explains a former employee, who, like all
ex-Carlyle staffers I talked to, didn't want his name used. In the
mid-'90s, for instance, Baker introduced Rubenstein to members of the
royal family in Saudi Arabia and Kuwait; since he left Parliament last
year, Major has been opening doors to big money in Europe and Canada. The
allure of a former President is particularly irresistible. At Carlyle's
annual investor meetings, CEOs and money managers line up to have their
pictures taken with Bush.
For his camera mugging and speech giving, Bush is paid "in line with
market rates,'' says Rubenstein. That would mean about $100,000 per
speech, so if Bush makes five or six speeches a year, as Rubenstein
claims, then the former President is earning at least $500,000 annually
from Carlyle, not including the money he makes investing in deals.
Rubenstein declines to specify which companies Bush has put money into,
except to say that as a rule, they have nothing to do with the U.S.
government.
|
There's no doubt that without these stars Carlyle would not have been
able to raise as much money as it has. The firm's impressive returns and
Rubenstein's seemingly inexhaustible energy and willingness to spend 300
days a year traveling have certainly played a role, but it's the bigwigs
who draw crowds and really leave an impression. Their names on Carlyle
brochures and their faces at Carlyle events give the firm a patina of
power and credibility. "David's a brilliant fundraiser," says a source
formerly associated with Carlyle. "What he's done so masterfully is
traffic on the impression that the connections they have from these guys
can bring them many valuable deals."
In the case of Carlucci, that impression happens to be true. The deals
he's brought in total close to $2 billion in profits. There were Magnavox
and GDE, makers of top-secret electronics gear, and Vought, an
aircraft-parts manufacturer, all of which Carlyle bought and sold within
two years, netting $300 million, $109 million, and $140 million,
respectively.
Carlyle today is mostly associated with the defense industry, and one
of the things Rubenstein and his partners would like to get across is that
they invest in other things too. In fact, the firm owns stakes in
everything from European automotive-parts manufacturers to Silicon Valley
startups and Japanese DSL companies; roughly 25% of its profits last year
came from real estate. But if you follow the money, it leads straight back
to defense, which is where the greatest chunk of Carlyle's profits have
come from. Today defense accounts for about 10% of the firm's total
investments, but in the early days it was 60%.
The firm's biggest score to date also involved a military
contractor--United Defense, which went public in November, turning
Carlyle's $130 million investment into $900 million. But the story of
United Defense's latest coup also shows why Carlyle will probably never be
seen as just another shrewd investment firm.
Last spring, when United Defense was feverishly pitching the Crusader,
one of its new products, to the Department of Defense, Jacques Gansler,
then in charge of acquisitions at the Pentagon, got a call from across the
Potomac. It was Frank Carlucci, and according to Gansler, he wanted to
know how Gansler felt about the Crusader, a controversial self-propelled
artillery system that many inside the Pentagon felt was out of sync with
plans for a lighter, more mobile Army. "I think he [Carlucci] wanted to
make sure I was personally involved and that it wasn't going to be one of
these things that got pushed down the bowels of the system,'' says
Gansler, who has known Carlucci since the Reagan Administration and
occasionally sees him at D.C. social events. As it turned out, Gansler was
no fan of the Crusader and told Carlucci as much, ending that
conversation. But Gansler thinks that had he been a fan, Carlucci
"definitely would have wanted to make sure I was involved.'' It wasn't the
first time Carlucci had had a conversation with a member of the Pentagon
brass on behalf of a Carlyle company. In the early '90s, when Carlyle
owned GDE, Carlucci drove over to Bethesda, Md., and met with, among
others, Major General Raymund O'Mara, who was head of the Defense
Department's Defense Mapping Agency, then a big GDE customer.
Carlucci acknowledges both conversations but asserts that neither
constitutes lobbying. In O'Mara's case, he points out that GDE already had
business from the mapping agency; in the case of Gansler, Carlucci says
his call did nothing to advance the Crusader's cause. Nor, he says, did
any of his interactions with Secretary of Defense Donald Rumsfeld during
that time. The two men have known each other since their days on
Princeton's wrestling team. The Rumsfelds have been to the Carluccis' for
dinner and on several occasions have offered their ski house in Taos,
N.M., to Carlucci and his wife, Marsha. It certainly would be easy for
Carlucci to strike up a conversation over cocktails about the Crusader or
some other Carlyle-related matter, but Carlucci says he never does that.
"In light of our friendship, I'm particularly cautious about not
discussing Carlyle business with him. In fact, I have never mentioned the
word 'Crusader' in his presence," he says. All this may well be true. Yet
it certainly can't hurt if it's known throughout the Pentagon that you are
good friends with the Secretary of Defense. The Crusader, incidentally, is
on the 2003 defense budget, making it likely that the Pentagon will
ultimately buy 480 of the artillery systems for $5
billion.
|
There's no question that Carlyle does occasionally make calls to the
government on behalf of its companies. They may not be hard-sell lobbying
calls, but making introductions to influential people is often just as
effective. One company Carlyle funded recently through its venture fund
hopes to tap into the firm's government connections. Indigo Systems, a
maker of infrared-camera technology in Santa Barbara, has an interest in
seeing the laws restricting exports of U.S.-made infrared technology
lifted or amended. Indigo's technology goes into tiny cameras that
manufacturers are starting to place in cars. These cameras "see'' objects
out of the range of the headlights and display them on a digital monitor.
"The automotive industry is not centered on the U.S. today, and if our
product is going to become a standard item on cars, I've got to have
access to a global marketplace,'' says CEO Tim Fitzgibbons. During the
five months it took Indigo and Carlyle to put together a deal, the two
sides talked about ways Carlyle could help open doors within the
government. "If somebody at Carlyle says to whoever is chairing a
committee, 'We wish you would listen to these guys, we're invested in
them, and they've got a good point,' then that says a lot. As opposed to
me landing in D.C. and trying to get appointments, which is damn near
impossible,'' says Fitzgibbons. Indigo's camera technology also has lots
of security applications, and the company would like to get a slice of
next year's $38 billion federal budget allocated for homeland security.
"Carlyle certainly can't influence the outcome, but they can at least get
us an audience,'' says Fitzgibbons.
Besides opening doors, fundraising, and marketing, there is another
advantage to getting ex-government honchos to join your firm, and that's
investment insight. Carlucci didn't help companies like Magnavox, GDE, and
Vought win any defense business, but he brought these firms to Carlyle
because of connections he'd made with defense contractors while at the
Pentagon. And as a former Defense Secretary just a few years out of the
job, he knew how to evaluate the companies. It was the end of the Cold War
and Pentagon budgets were way down, but Carlucci knew big money was still
going to be spent on certain programs. He figured that highly classified
electronic equipment--such as the boxes for analyzing radar imagery and
the battlefield radios made by Magnavox, as well as the digital mapping
technology for cruise missiles made by GDE--was going to be very valuable
as the Pentagon tried to make the Armed Forces smarter. Later, when
Carlyle invested in Elgar Electronics in 1996, Carlucci looked favorably
on something that scared off other investors. Says Elgar CEO Ken
Kilpatrick: "Other people questioned what would happen if our business of
selling automatic testing equipment to the Navy would go away. But Carlyle
understood that the Navy was committed to this program and that it was
just in the middle of it." Carlyle sold Elgar in 1998 for a profit of $100
million.
Carlucci downplays the extent of his insight by saying that top
analysts like Loren Thompson at the Lexington Institute know just as much
as he does about defense spending, and maybe more. Certainly people like
Thompson are quite knowledgeable and have networks of contacts at the
Pentagon, but they don't belong to the same high-level coterie that a
former Secretary of Defense does. They don't, for instance, go to lunches
like the one Rumsfeld gave a little over a year ago where former Pentagon
heavyweights like Carlucci, William Cohen, Caspar Weinberger, William
Perry, and Dick Cheney all chatted and mingled. "Cabinet-level people are
a small fraternity who all stay in touch,'' says a former Carlyle staffer.
"Once they've reached that global 50,000-foot view, they tend to stay
there.''
Though defense has been Carlyle's most fruitful area to date, Carlucci
and the firm's current head of defense investing, Alan Holt, don't have
plans to do many deals this year. Wars are such an obvious bonanza for
defense contractors that prices get bid up, and Carlyle thinks they're too
high now. Fortunately, there are lots of other opportunities on the
horizon. Carlyle recently launched its first energy fund in partnership
with Riverstone Holdings; it is also in the process of putting together an
asset-management group, headed by the former treasurer of the World Bank,
that will invest in other private-equity funds. With the help of former
SEC chief Levitt, Rubenstein is setting up a financial services fund.
There's also telecom, which has the biggest team of people devoted to it
of any area at Carlyle. "There are dramatic restructurings in the telecom
and media business going on right now, and the one thing they have in
common is that they're all driven at some point by government action,''
says former FCC boss Kennard--who, like Levitt, is a Democrat, which shows
that Carlyle can be bipartisan.
Rubenstein started recruiting Kennard to be a managing director in
Carlyle's telecom group as soon as he left the commission last year, and
ultimately won out over lots of other bidders. He was quite a catch.
Kennard knows everyone who's anyone in telecom and has extensive contacts
at regulatory agencies around the world. Could telecom be Carlyle's new
defense? Rubenstein doesn't like to put in it those terms, but he's hoping
for big returns. Looking at what Carlyle and its star-studded team have
been able to do in the past, would you bet against him?
|
UFO NWO URL: http://www.geocities.com/mevlevi2000/
Do You Yahoo!? Try FREE Yahoo! Mail - the world's greatest
free email!
Yahoo! Groups
Sponsor |
ADVERTISEMENT
| |
| He
that is not with me is against me: and he that gathereth not with me scattereth.
Luke 11:23
http://groups.yahoo.com/group/Awakened4JChrist/
Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.
|
Stamp powered by
www.mailround.com
|