[infowar.de] etwas off topic/trotzdem spannend: Fortune 18.3.2002, They All Work For The Carlyle Group

[Olivier Minkwitz <minkwitz -! - hsfk - de>]

Infowar.de, http://userpage.fu-berlin.de/~bendrath/liste.html
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Carlyle Group->Eines der wichtigeren (politisch-militärischen)
Unternehmen in den USA.....
-omz


Fortune
March 18, 2002
Pg. 104

What Do George Bush, Arthur Levitt, Jim Baker, Dick Darman, And
John Major Have In Common? (They All Work For The Carlyle Group.)

What exactly does it do? To find out, we peeked down the rabbit hole.

By Melanie Warner

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?





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