ADVERTISEMENT

Billionaire Rubenstein: DC needs to stop bickering

  • Article by: KEN SWEET
  • Associated Press
  • October 28, 2013 - 1:45 PM

NEW YORK — David Rubenstein gave millions to repair the Washington Monument after a 2011 earthquake left cracks in the stone obelisk.

He hopes a fractured Congress can fix itself after nearly collapsing the economy.

Rubenstein, co-founder of the Washington, D.C-based private equity firm Carlyle Group, says he was disappointed, saddened and embarrassed by the partial government shutdown and near-breach of the nation's borrowing limit.

Rubenstein may not be a household name, but in the world of philanthropy and finance, he is a celebrity.

Rubenstein, 64, and two partners co-founded Carlyle in 1987 with $5 million in capital. After starting off investing primarily in the defense industry, Carlyle quickly expanded. The firm has gone on to invest in companies like Dunkin' Donuts, Nielsen, and Hertz.

The bread and butter business for private equity is the leveraged buyout, where a firm uses debt to buy a company in hopes of turning it around for a profit. Private equity has expanded into other products, however, including ones aimed at average investors.

Carlyle is now the second-largest private equity firm after Texas-based TPG. Rubenstein is worth roughly $2.6 billion, the 206th richest person in the U.S., according to Forbes magazine.

Like Bill Gates and Warren Buffett, Rubenstein has pledged to give away the bulk of his fortune. He gave $7.5 million to help repair the Washington Monument. The panda enclosure at Washington's National Zoo is named after Rubenstein. He's made numerous other donations to the arts and humanities throughout the country as well.

Rubenstein sat down with The Associated Press recently to discuss the government shutdown and his outlook for the economy. Rubenstein also spoke about a future in which private equity, an investment traditionally reserved for pension funds or rich families, will be accessible to all.

The interview is edited for length and clarity:

Q: What is your outlook for the economy?

A: The U.S. economy is not in a recession, technically, but maybe this period should be called a recession in the future. The economy is struggling to come back and it's growing at a slower pace than we would like.

The recession reduced a lot of people's willingness to invest, to buy homes, to build homes, a whole variety of things. We've accumulated so much debt on our government's balance sheet that it's slowing the growth of the economy.

We have growing economic inequality. It's getting much worse as a result of the recession and we have to do something about that.

We have a dysfunctional government that's unable to give direction to business people and workers on where the country is going. You add all those factors up; it does make people a little bit nervous spending money, borrowing money, taking some risk. We are slowly fixing those problems. However, it's going to be a slow recovery and I don't think we will see 4 percent growth any time soon.

Q: What was your reaction to the 16-day government shutdown and the near breach of the nation's debt ceiling?

A: I am relieved that the shutdown and debt ceiling crisis are behind us. Hopefully something like this will not occur again. But I am disappointed, saddened and embarrassed for our country that our democracy did not work as the founding fathers had hoped.

Q: What should Congress tackle first — now that the debt ceiling and shutdown is resolved?

A: They should try to reassure the country — and the world — that the last few weeks were an aberration and not likely to be repeated early next year. Once that re-assurance occurs, focus on how to spur economic growth — while reducing economic disparity — (which) would be a great plus for everyone.

Q: What is the state of the private equity industry?

A: Deal volume is less than half of what it was in 2007 and fundraising is now 46 percent of what it was. One bright spot is that distributions (to investors) have just about fully returned to their pre-recession peak.

As a result, the private equity firms have also re-tooled themselves. There is much more hands-on work with the companies than there ever was before, and far less financial engineering.

A number of the firms have gone public as well. While they're not household names, they are now publicly traded and operate in a different model than they ever did before. You also see much more emphasis on investing outside the U.S.

Q: If private equity is about turning around companies, why have you focused on the emerging markets rather than the U.S., particularly with what companies went through in the recession?

A: The first rule of investing is to diversify. In the U.S. and developed markets, you have aging populations, large government debt, large government entitlement programs and very slow growth. Compare that to emerging markets where you have modest debt levels, much younger populations, larger GDP growth and fewer government entitlement programs.

If you're going to participate in the global marketplace, you should invest in these markets. Take China. China is the second-largest economy in the world and we still call it an "emerging market." To me, anyone who wants to have a diversified investment program should invest outside of the U.S. and take advantage of those factors.

Q: Your industry has been expanding into other products aimed at a broader array of investors. Do you see a time when the average American will have a segment of their retirement invested in private equity, just like they do with bonds or stocks?

A: Anybody who has an investment portfolio should include the usual assets like fixed income and stocks but also should include alternatives. For individuals, alternative investments should be 5 percent to 15 percent, which would include private equity, buyouts, growth capital, and real estate.

We think investors would be interested in our brand name, our quality of investing. In the long run, it would strengthen our company as well to have that type of diversification

© 2014 Star Tribune