David Rubenstein

In Fortune (April 2010) there was an excellent interview of David Rubenstein, the co-founder, CEO and President of Carlyle Group, one of the World's premier private equity firms. Carlyle Group has an astonishing track record with it's investments: since its launch in 1987 it has average return of 30 % a year. Carlyles business model demands hard work because it makes a lot of small deals instead of few big ones. At the moment the Company owns 231 companies around the World - either controlling stakes or partial stakes.

Here are some points of his interview:

• Investments in the U.S. vs abroad: Carlyle is investing at the moment as much in the U.S. as other countries. According to Rubenstein "China, India and Brazil are unrivaled opportunities for private equity. But the U.S. is still a place where you have the greatest rule of law, the greatest transparency, the greatest governance, the greatest chief executives to run these companies. So it' a terrific place to invest. But you have to remember that growth won't be very good, and therefore you should be adjust your pricing to reflect that".
• China: Rubenstein regards China as the single most attractive place in the world to invest at the moment. "For 15 of the last 18 centuries, China was the biggest economy in the world. It went down in the 1700s as Europe came up, and the U.S. has been the biggest economy sinice 1870. Probably in 2035 China will pass the U.S again. It will be the biggest economy in the world and it will go way past the U.S. and India. Given the growth, the size, the opportunities, I don't think there's any other place in the world that can match it. For example, about 30 % of the Chines economy is focused on consumer spending. In U.S. economy it's about 70 %. China will build its domestic consumer spending, and that will produce a lot of opportunities to produce products for these consumers.
• Managing portfolio companies: "Private equity didn't have a very good reputation for managing its portfolio companies in the early years. It was thought that we just leveraged companies up and let a manager depend on GDP growth to exit and make a good return. Now private equity firms are spending enormous time bringing people like former IBM CEO Lou Gerstner or former GE CEO Jach Welch. People who have a lot of management skills are increasingly bringing a lot of more value-added operational skills to these companies. We recognize that we have to make these companies more efficient, and we're doing so."
• Difference in private equity ownership: "The concept behind private equity, a very novel idea, is that you buy a company and then make the manager an owner. Many of these people were just division managers with modest salaries. Now they're owners, and all of a sudden they think of way to make efficiencies that they didn't think of before. Also, by operating in a private setting, not worrying about public quarterly returns, you can get people to think about a longer-term investment in a company and do things you wouldn't if you were a public company. But the most important thing we add is a sense that there are ways to make companies more efficient, and get management and employees to focus together by making them all owners. In fact employees typically own a fair amount of the companies that we invest in."
• About CEO compensation compared to public companies: "People can make more money in private equity if they perform. If you don't perform, you can lose money".
• Career tips: "I don't think you can plan your career... Doing what you love is really important... Getting along with people is essential. You can't make other people do things. You've got to persuade them. You' re really persuading people through writing and oral communications. So learning how to communicate, is very important. And I think people should recognize that intelligence is helpful, but if you're too smart, you might outwit yourself. I don't think geniuses necessarily do as well in business as people who are reasonably intelligent."

I quess still the most famous quotation from Rubenstein is of his speech at Harvard Business School while speaking about the buyout bubble:

"I analogize private equity to sex... You realize there were certain things you shouldn't do, but the urge is there and you can't resist"