David Rubenstein, Part 3
Co-founder and Co-Chairman of the Board of Carlyle
If you're going to invest in societies, and in American society, you have to understand that society.
Summary
This week on “Leadership Matters,” Alan is once again joined David Rubenstein — author, philanthropist, and investor who helped create one of the largest and most successful private equity firms in the world. Co-Founder and Co-Chairman of the Carlyle Group, David is an extremely active philanthropist who has helped to preserve key pieces of American heritage and support cultural institutions in the Washington area and beyond.
A prolific author and interviewer, David’s third appearance on “Leadership Matters” focuses on his latest book, a New York Times bestseller titled How to Invest: Masters on the Craft. In it, Dave walks his readers through interviews with some of the nation’s most successful investors, distilling down their wisdom to help professional and lay investors alike navigate our turbulent, constantly changing investment landscape. Over the course of their conversation, David and Alan discuss a variety of topics in and surrounding the book, including David’s thoughts on the role of investors in society, the importance of driving diversity in the industry, and how non-professional investors can apply some of David’s insights.
Mentions & Resources in this Episode
Guest Bio
Mr. Rubenstein is a co-founder and non-executive Co-Chairman of the Board of Carlyle. Previously, Mr. Rubenstein served as Co-Chief Executive Officer of Carlyle.
Prior to forming Carlyle in 1987, Mr. Rubenstein practiced law in Washington, D.C. with Shaw, Pittman, Potts & Trowbridge LLP (now Pillsbury Winthrop Shaw Pittman LLP). From 1977 to 1981, Mr. Rubenstein was Deputy Assistant to the President for Domestic Policy. From 1975 to 1976, he served as Chief Counsel to the U.S. Senate Judiciary Committee’s Subcommittee on Constitutional Amendments. From 1973 to 1975, Mr. Rubenstein practiced law in New York with Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Among other philanthropic endeavors, Mr. Rubenstein is Chairman of the Boards of the John F. Kennedy Center for the Performing Arts, the Council on Foreign Relations, and the Economic Club of Washington and serves on the Board of Directors or Trustees of the National Gallery of Art, the University of Chicago, Memorial Sloan-Kettering Cancer Center, Johns Hopkins Medicine, the Institute for Advanced Study, the National Constitution Center, the Brookings Institution, the Lincoln Center for the Performing Arts, the American Academy of Arts and Sciences, and the World Economic Forum.
Learn more, follow, or read David’s writing at DavidRubenstein.com.
Clips from this Episode
Episode Transcription
Alan Fleischmann
Today on “Leadership Matters,” it is my pleasure to welcome back to our show an amazing investor, philanthropist, public servant, and author who has done so much to champion our country and preserve our shared history.
David Rubenstein is co-founder and co-chairman of the Carlyle Group, one of the world's largest and most successful private equity firms with more than $369 billion in assets under management. A public servant, who served in the Carter Administration, he's an extremely active philanthropist who has helped preserve key pieces of American heritage and supported cultural institutions in the Washington, DC area and beyond.
David is a true Renaissance man. In addition to his fabulous career in the public and private sectors, he has written a variety of excellent books over the past few years, on subjects ranging from the history of the United States to traits of some of our nation's greatest leaders. He also is the host of an extraordinary show on Bloomberg.
For his third appearance on “Leadership Matters,” David and I are going to discuss his latest book, a New York Times bestseller titled How to Invest: Masters on the Craft. In it, David walks us through his interviews with some of the nation's most successful investors, distilling down their wisdom to help his readers navigate a turbulent, constantly changing investment landscape.
It's rare that an investor of David's stature is willing to give up trade secrets. And I'm thrilled to have him back on the show today to discuss his remarkable book, and his own journey and leadership.
David, welcome back to “Leadership Matters.”
David Rubenstein
Thank you very much for having me back. It's a pleasure to be here.
Alan Fleischmann
I love having you on here, and I love your books. What I love is that your books capture the imagination of all ages. My daughters, who are 15 and 18, have read your latest books, and they love your books. In fact, The American Experiment, which I have right behind me, is actually a book that's worn out. I treated it like it was gold and carried around even in a Ziploc bag as I read it. Then I gave it to my oldest daughter, who's now a freshman in college, and she started to yellow mark everything inside and carry it around. So when my younger daughter inherited it, it already had a lot of yellow highlights in it. And then she made it even more cozy and comfortable.
So it's been used in the family. We’ve bought a lot of your books, it wasn't cheap.
David Rubenstein
Thank you very much, I appreciate it.
Alan Fleischmann
Well, let me ask you a question. While longtime listeners will have heard this before, I'd love to start with your own foray into the world of investing. Tell us a little bit about the founding of Carlyle and how you got started as an investor.
David Rubenstein
I was not interested in investing growing up. I was not from a wealthy family, I didn't know much about money. My goal was to be a lawyer and probably go into government. So I did go to law school, not business school. I did go into government, I worked in the White House for President Carter. But after we lost the election in 1980, I had to go back and practice law, and I didn't really think about doing anything else because I didn't know anything else.
But I realized, as I was practicing law in the early 1980s, that I wasn't enjoying it and I wasn't good at it. Therefore, that's not a prescription for success. So I decided to start the first private equity firm in Washington, DC, in 1987. I recruited a couple other people who knew more about investing than I did, which was… I knew nothing, practically. I raised $5 million from four investors, we started, and we built what is now one of the larger private equity firms in the world.
And over the years, I have to be honest, I was not the investor-qua-investor at the firm, we hired some really good people to do the investing. I served on the investment committees, and I've served on several thousand investment committees at Carlyle over 35 years. But I always would depend on my partners, who are really the investment professionals, to make the final decisions. My role was really to create, I would say, the concept of the firm, which was to have multiple funds and then to be global. And then I ran it went out and raised the money for that, recruited the people, and then I kind of helped oversee the public aspects of it — including having some very prominent people, like Jim Baker and George Herbert Walker Bush, in our firm.
So when I write a book on investing, it's not because I'm saying I'm such a great investor. What I'm saying is, I've observed some great investors and I've interviewed some great investors. But I wouldn't put myself in that category myself, honestly.
Alan Fleischmann
That's great. I also think, maybe because you started in Washington and you had the kind of special advisers that you brought in, like former presidents and secretaries of state… What did you guys do differently? Because your approach was definitely different. It wasn't just because you were founded in Washington, though that certainly made a mark. What was it that was different about Carlyle?
David Rubenstein
Well, we're well known for having prominent former government people, but we tended to be very cautious investors. We were not investors that were doing high-flying tech investments or venture capital. We tend to be a fairly bread-and-butter, very straightforward buyout firm that was pretty conservative. So we have averaged, in our private equity investments, 26% return over 35 years in private equity. That's been pretty good, and that's attracted a fair amount of capital.
But we also wanted to be a place that wasn't seen as a cutthroat, Wall Street, stab-him-in-the-back kind of mindset. So it's a very collaborative organization, and what we wanted to do is to have people come there, spend their career there, and enjoy it. And actually, hopefully, when they make some money, they would be involved in some philanthropic effort as well. But we want it to be collaborative and enjoyable, and not focus only on making money.
Alan Fleischmann
I think you probably are proud of the fact that you've got many people that have been with you the whole journey there at Carlyle, their whole careers.
I heard the other day from a friend of mine that was an ex-Carlyle person, and she went to Carlyle reunion. And when she saw the caliber of people and what they've now done with their careers, having had a big part of their career at Carlyle, I think one of them actually called you to tell you, “This should make you proud.”
David Rubenstein
Yes, that's true. We've had some great people — I didn't discover them, really, but Glenn Younkin I recruited early on, and he's now the governor of Virginia. Jay Powell had a good career before, of course, but he with us for seven or eight years and now he's the chairman of the Federal Reserve Board. Then we had a lot of people going out and creating very good private equity firms themselves. My biggest mistake was not holding on to some of these people, because they were so good. I wish I held on to them, that I did a better job of holding on to them.
Alan Fleischmann
Let's dive into the book a little bit, How to Invest. What was the inspiration for the book? Tell our listeners a little bit about the book and the journey of getting this book written.
David Rubenstein
The model that I've used to write books is to take interviews that I've done — or I do just for the book — then summarize them, and then give my overall view on the subject matter, American history or investments. It's, I guess, a way of writing books that doesn't require you to be sitting in a library for three years before you have the book come out. So I can do other things. It's also kind of thing where people can read the interview and skip from an interview in the beginning to an interview on the back, they don't have to read it straight through. People seem to like reading these kinds of things.
As you and I've talked about before, the concept of the interview, which you're doing now, is a relatively new concept. There are no interviews of people like George Washington, Abraham Lincoln, Julius Caesar, or Cleopatra. It wasn't a concept, and therefore, we don't have transcripts of what they would say. It's a relatively new concept in the grand scheme of history.
In this particular case, there was a book called Money Masters written by John Train many, many years ago about the great investors of his era. I'd say, the 1950s, ’60s, and ’70s or so. I thought, maybe something like that, where I would take the best investors — many of whom I know pretty well from my investment background — interview them, and try to figure out how they became investors, why they enjoy it, and what made them successful. That's the essence of the book.
Alan Fleischmann
And how did you get through the selection, I guess; to decide who you wanted interviews? That must have been hard, actually.
David Rubenstein
Well, it's not easy, because I have a lot of people I think should be in the book. And a lot of people have reminded me that they should have been in the book. But I picked people that I knew reasonably well, that I thought would open up in the interviews, and are people that I might have interviewed before, so I knew reasonably well.
I should also say what I wanted to do in the book — it's really designed for three audiences. It's designed for young people who might consider a career in investing, telling them how to prepare for it. It's also designed for the average person, who's not a professional investor but who wants to be an investor a bit on the side, buying stocks, buying bonds, or buying real estate. The third type is the person who recognizes that they have another job. They don't want to be doing stock picking themselves or bond picking themselves, but they want to find good money managers who can manage their money for them.
I tell people, you're not going to read this book and become Warren Buffett. That's unrealistic. But it does give people some ideas about how they can manage their money very well. People very often make a lot of money and they think they’re geniuses in Area A, but then they put their money to work as investors and they don't do very well. It's not as easy to be a genius in Area A and then be a genius in investing. You have to devote your whole life to it, really. I also tried to make sure people recognize the principles are things like, don't put all your eggs in one basket, which I obviously didn't invent; make sure you understand the fees, the costs, the risks, and the tax consequences of what you're doing; and read everything you can to make sure you're informed about where your money is going.
Final point I wanted to convey here is this: I don't think investing should be seen as a greedy profession, where you just have a bunch of people trying to make a lot of money and make themselves multi-billionaires. I see investing as a profession where you're trying to allocate capital in ways that will make money. But if you allocate capital well, he can help your country. For example, there were a number of venture capital investors who backed a small company in Boston that, for 10 years, never had a product. Many of them were saying, maybe they should give up, and many of them said, “No, we'll stay with it.” That company was Moderna. And when Moderna came up with the concept of messenger RNA for the vaccine for COVID-19, they really helped our health and the health of so many people around the world. So I think if you're really good at investing, you can allocate capital in a way that creates good jobs and good companies, or preserves good jobs and good companies, and therefore, you're doing something useful for society.
Alan Fleischmann
I love that.
In the in the introduction of the book, you list traits that all great Investors you’ve interviewed had. What were these traits, but also, were there any unexpected ones in there?
David Rubenstein
Well, on the traits, the traits that I think the great investors all had in common were: they tended to come from blue-collar or lower-middle-class families, not extremely wealthy families. They tended to have been pretty good students, they're not college dropouts. They tend to have pretty good education, tend to be pretty good in math. They tend to love to read; even if it's not directly related to their subject matter, they’re voracious readers and absorbers are information. They're willing to share the credit, they're willing to take the blame, and when they make a mistake, they get out of it as quickly as they can and just go on to the next thing, they don't linger on it. They tend to be people who are contrarians, they go against the conventional wisdom. They tend to be people who enjoy the game of outwitting other people when they're investing — it's not so much about making money, they just like to show how smart they think they are in predicting the future. All of investing is predicting the future, and they think that they are pretty good at predicting the future. They also tend to be people that don't need the money at some point. They continue to do it because they enjoy it, but also, they want to give away money and they tend to be fairly philanthropic.
Alan Fleischmann
That's really big, actually.
From Larry Fink to Marc Andreessen, your interviews include some pretty incredible investors with different styles. In your view, does investing in different categories require different skills? Or is there a set of skills that fits all?
David Rubenstein
Well, I tried to divide the book into three categories: mainstream investing, which is stocks and bonds, which is the traditional way people invest; then I called another category ‘alternatives,’ which are higher return to higher risk things, like private equity buyouts, venture capital, growth capital, distressed debt, opportunistic real estate; and then a third category is what I've called ‘the cutting edge,’ which are things that are really risky, may with great upside, but also maybe great downside. They include things like SPACs or cryptocurrencies, ESG investing, things like that.
I'd say that, if you're good in one area, that doesn't mean you're going to be good in another area. If you're a great athlete in baseball, that doesn't mean you’re a great athlete in football. If you're great as an athlete and in fixed income investment, you may not be very good in venture capital. So these people tend to stick to their knitting, generally.
Alan Fleischmann
Any interesting stories you'd want to share from some of them, perhaps about an unexpected investor?
David Rubenstein
Well, I'll take one, Jim Simons. Jim Simons is maybe not that well known to the public. He is a brilliant, gifted mathematician, one of the best mathematicians of his generation — he's now in his early 80s. He was a math professor and did many really creative things in the math area. But he kind of abandoned that at one time and started an investment firm that was dependent on developing mathematical algorithms to spot market inefficiencies. That really led to the whole world of quantitative investing, which is to say, you have a lot of smart people — typically math PhDs — program computers to look for market inefficiencies. They go in there and buy those inefficiencies before the market realizes that the inefficiency existed.
Jim has averaged about 40% a year for 30 years on his internal medallion fund — 40% a year for 30 years. He's an idiosyncratic person; he smokes two packs of cigarettes a day, every day. So, you know, how many really brilliant people — he's an MIT graduate and PhD from Berkeley — are smoking two packs of cigarettes a day? But he insists on doing it and brings his ashtray with him. He also has a view, like Albert Einstein, that you don't need to wear socks everywhere, so he never wear socks. I've seen him in black tie dinners — I've interviewed him in a black tie dinner — where he was being honored with an Albert Einstein award and he didn't wear any socks. So he's different, you know? But people who are really wealthy sometimes have their eccentricities and you just kind of accept them.
Alan Fleischmann
Are any of these people you discovered, that you didn't know before? Their journey… I mean, some of them have overcome extraordinary obstacles to get to where they are.
David Rubenstein
First: I wanted to say and show people that you don't have to be an old white man, like me or Jim Simons, to be a great investor. So I worked very hard to find people that were of African-American backgrounds, who are women, who had different kinds of traits. I did, I'll just mention one or two of them.
One of them is a woman named Paula Volent, who was an art historian, an art conservator. She happened to start an art conservation business, but she didn't know anything about business, so she went to Yale School of Management. There she met David Swensen, who was running the Yale endowment. She became close to him, in the sense that she helped him write his book on portfolio management — which is a legendary book — and then she ultimately decided to manage endowments herself. She managed the Bowdoin endowment for 20 years and dramatically improved it. In the last 10 years she was managing the Bowdoin endowment — for Bowdoin College in Maine — she outperformed the performance of every single Ivy League money manager, including her former boss, David Swensen. So she's a very talented person.
Another person I mentioned is Kim Lew. Kim Lew’s mother was Chinese, her father was African American. They met when they were 17, they got married, and families were not thrilled. She went to Wharton and Harvard Business School and found that difficult for a while to get a great job in the money management area, but ultimately, persisted and is now running the Columbia University endowment.
One last one I'll mention is John Rogers, who is a former captain of the Princeton basketball team. He came back to Chicago, where he's from, and ultimately started, just two years out of college, a firm that is today the largest African-American-owned money management firm, Ariel Investments. He's a brilliant person.
Alan Fleischmann
Each one of those people are really involved in community life as well, it's interesting. They're all people who give back, as you said, which is amazing.
I love what you're saying when you look at private equity, specifically — which is where you have an iconic reputation. You talk about in a way that actually allows people to see the long-term-ism that you often don't get in the public markets — obviously, you're in the public markets too. But I'm a little curious about what value you think it brings into our greater economy. What are those trades that you think are important?
David Rubenstein
Well, in the public markets, people are obsessed every hour, on the hour, with how the stock is doing. So it's harder when you're running a publicly traded company, or when you're in a public company, to not focus on quarterly earnings and so forth. What the private equity market really was built around was the concept that, you take a company and make sure it stays private for a while. You don't have to worry about quarterly numbers so much; you can fix a company, improve a company, without the scrutiny of the public markets. That's really done well for investors over the last 40 years or so. Private equity has outperformed public equities almost every year for the last 40 years or so.
So private equity is a business that’s going to be around for a while, and many people put private equity and other kinds of private investments in their portfolio now. It used to be the case that people were afraid to put these in because they were thought to be too risky. But now, most endowments or large portfolios probably have 20% to 30% of their money allocated to alternatives, which include private equity, venture capital, growth capital, and things like that.
Alan Fleischmann
I love that you're very bullish and proud to talk about private equity when some people get shy from it, because they know that it becomes a target. You've been very out there speaking to the value and the values that come from being in private equity, and you've been one of the original pioneers in the industry.
David Rubenstein
Well, it's interesting phenomenon. Private equity’s largest investors over the last 20 years or so have been public pension funds. They represent teachers, firemen, policemen, people like that, and they have been the biggest beneficiaries. Yes, some wealthy people invest as well and they make money, but often the biggest pension funds are the biggest investors in private equity.
Alan Fleischmann
I enjoyed the bit about the cutting-edge investors working in ESG and infrastructure building in that third section of your book. Tell us a little bit about that, because that'll be important, and then I'd love to see what you think will be the future of those cutting-edge industries as well.
David Rubenstein
Well, let me talk about the one that's been in the news lately, which is cryptocurrencies. As we talk, Sam Bankman-Fried is in jail in Bahamas — my family office actually looked at his company and we passed on an investment in it, fortunately. But I don't think that crypto is going away, despite the black eye that it’s received recently. There are an enormous, enormous number of people around the world who seem to love cryptocurrencies. They tend to be younger. And young people start trends: social trends, political trends, economic trends, financial trends. A lot of younger people seem to be enamored with it.
Secondly, I think all companies in the industry are not fraudulent, obviously. Many of them are extremely well run, and while they're not yet regulated the way they will be regulated, I do think that this industry is going to be around for a while.
But many people think it's valueless. John Paulson, who's in the book and is a very famous investor, thinks it's all going to zero. Jamie Dimon has not been a big fan of it. Warren Buffett has not been a big fan of it. But that doesn't mean that they're necessarily right; I think it's going to be around for a while.
Another one I would mention is ESG. Historically, investors only cared about the highest rate of return they could legally get for their money. How do I maximize profits? It was thought that you only invest to maximize profits. Now, people say we should worry about the environment and the social governance of an investment. So you shouldn't just worry about how much money you can make, but whether you're doing something good for society as well. That ESG movement has become very prominent now in the investment world. There's some backlash against it, but generally, there's movement forward, where people are obsessed with making certain that they're not doing things to damage the environment when they make good investments. They worry about diversity, equity, and inclusion in the companies they're investing in, and so forth. So I think that trend is going to be here for a while.
Alan Fleischmann
I wonder: what other ones are you looking at as nascent trends that we haven't really focused on too much?
David Rubenstein
Well, one that has fallen by the wayside I would mention is SPACs. SPACs were very hot two years ago or so; now, I think 95% of SPACs are trading below their IPO price, so that will probably not come back for a while. Another new investment that is very popular now is called Infrastructure investing. It used to be the case that bridges, airports, toll roads were built by governments and operated by governments. Now, as a result of a bank in Australia, Macquarie Bank, beginning this trend, enormous amounts of money in the United States and Europe are now being devoted to the building of toll roads, or airports, or other kinds of facilities that traditionally were operated by government and built by government. But now, they're being built and operated by the private sector, to a large extent, and the rates of return are pretty predictable and pretty good. So I think that's a very high-growing area that's going to be important in our society for quite some time.
Alan Fleischmann
What advice does your book have to offer to retail investors who want to apply their knowledge — or your knowledge, I would say — but do not invest professionally?
David Rubenstein
Retail investors should recognize they're not going to be Warren Buffett. If they pick a stock and it goes up, all of a sudden, they might think they're Warren Buffett. But to be realistic, you're not going to beat the markets: that has been proven over and over again.
So for retail investors, I recommend that, on average what they should do is find a good index fund that will mirror the public markets, in either fixed income or in public equities. Make sure they understand the fees associated with it. Make sure they understand the tax consequences. Make sure they understand whether it's a good or bad particular fund they are in, learn about the fund, and pay attention to the fund manager. Generally, I think the non-professional investors should probably have professional investors manage their money. They're probably going to do much better that way.
Alan Fleischmann
How do you invest your money? How do you do it? I'm curious. Are you all in with Carlyle? Well, obviously you have your family office, as you mentioned.
David Rubenstein
all of my money for 30 plus years was put in the Carlyle deals, everything I had put in the Carlyle deals. And because it was diversified. Yes, it was in alternatives. But it was diversified around the world. And in various different funds, we had so many different funds. And of course, I you know, as the CO CEO of the company, I had pretty good knowledge about what was going on. When I set up a family office called declaration about five years ago, I did put some of my money into my family office, and they do things that Carla doesn't do. So that's where my money is, I don't have really a lot of money outside those two organizations.
Alan Fleischmann
Let's get back to that in a little bit.
Early the book, you raise an interesting question about if we'd be better off if the world's many talented investors instead used their skills as teachers, scientists, diplomats. In your view, what role do investors have to play in society? What's the answer that question?
David Rubenstein
Well, if Warren Buffett says that he's not good at doing anything else… He's really good at what he does. He says if he went in to the government or he did something else, he wouldn't be that good. That may not be true; generally, I think people that are really good investors tend to be pretty smart, tend to be hardworking, tend to be responsible individuals. So probably, some of them would do well in the government world.
But the government world, as we all know, is more challenging in some ways. It's complicated. You have to deal with so many different types of people. It's not just sitting behind a trading desk and saying, “I'm gonna buy this stock or buy that stock.” So I think some people would do well in other areas, some people probably would not. Just as some people were very good in government, but they don't turn out to be superstars in the private sector.
So I’d say that many of the people who are I wrote about or interviewed in the book are very talented and could do well elsewhere. But once they become so successful in the investment world, it's a little bit easier to stay in that world. They tend not to go into government, and going into government, as you probably know, is difficult. These days, you have to go to Senate confirmation. If you made a lot of money, you probably aren't going to easily get confirmed. You have all kinds of conflict of interest rules. It's much more challenging than it was 40, 50, 60 years ago to go into government if you've done well in the private sector.
Alan Fleischmann
We'll get to philanthropy in a couple of minutes, but you know, so many of the investors that you’ve interviewed and are in your ecosystem have been, as you said, financially so successful, and they end up being great philanthropists.
To your point about how hard it is to get through Senate confirmation hearings: are there roles that you see in society that you would want to encourage — the next phase of life, a different form of public service — that you would want encourage people to do?
David Rubenstein
Well, when I was growing up, if you wantеd to do public service that meant going into the government. Today, we have so many NGOs, non-governmental organizations, that are doing really good things, and so many foundations and philanthropic organizations that are doing good things.
I would just encourage the very wealthy investors, who may say they want to do something different… Going into government is okay, but I think they may find it frustrating because of the different nature of the way the government works. You can never get anything done so easily. Going into the philanthropic sector, or devoting your time to some philanthropy, I think would probably be a good thing for them to do.
Alan Fleischmann
That's great.
I want to get into some of the traits with investors. You noted in the book that great investors turn out almost always to have been voracious readers. Tell us a little bit about that. And then, I obviously want to get a sense of what sort of books you read, the publications you enjoy, and what your reading list looks like.
David Rubenstein
Reading, I think, is indispensable to being a successful professional in whatever area you are. To keep up with your profession, you have to read. But I think it's important to read things outside of your area of comfort as well, so you can expand your brain. I think the people that I interviewed in the book and the people that I know who are successful investors tend to be voracious readers. Not just about their area of expertise — they never know when something they read about will come back to help them in some investment area.
So I think reading is essential. Sadly, a recent survey showed that almost half of Americans are functionally illiterate, which means they really can't read past the sixth-grade level. That's a very sad situation. A lot of people don't read books, for example. I think books focus your brain more than just reading a newspaper article would. Right now, I think something like half of Americans haven't been in a bookstore or bought a book in the last five years. So a lot of people just don't read. I think it's essential to be a reader to really be successful in professional life.
In my own case, I try to read about 100 books a year. That's obviously a lot, but it's not that difficult, because I tend not to read books I don't know much about. I tend to read biographies, business, political books, history books. I did an interview with somebody just the other day who's written a science book. He’s a brilliant scientist and doctor, his name is Sidd Mukherjee. He wrote the famous book called The Emperor of All Maladies about cancer. He wrote a new book called The Song of the Cell, it's about the what cells are, how they make up our lives, and so forth. It's a great book, I just read that. I am about to read a new book by Walter Russell Mead on Israel. He's written a really good book about Israel, and I'll interview him in a few weeks.
So my force-feeding method to read a lot of books is that I interview a lot of authors. Just like you, when you interview an author, you want to read the book. Since I know I'm going to interview the author, I feel I actually have to read the book. And I do try to do that.
Alan Fleischmann
Do you carry the book with you? Do you get the hardback copy? Do you do a Kindle? And also, what time of day do you read? How do you do it?
David Rubenstein
Well, I'm older, I'm 73 years old, so I don't read online. I like to buy the books at a bookstore, caress the books, carry them around, mark them up, fold the pages. So I'm old fashioned, but that doesn't mean I'm right, that’s just the way I do it.
What I try to do is find an hour or two during the day, when I might have nothing else I have to do that's pressing, and try to read the book. I don't think it's possible to read a book all the way through in one sitting, typically, so I try to allocate hours. Being on airplanes is a wonderful way to do it. Late at night, getting ready to go to sleep, that’s a great way to be quiet and read something.
So I try to do it whenever I can find the time. But again, I really enjoy it, so it's not work for me to read a book. I love reading.
Alan Fleischmann
I love that, that's so great. What must be hardest for you is figuring out which book to read.
David Rubenstein
Well, I often have programs where I'm interviewing the author, so that kind of helps a bit. But typically, I read things in areas I know reasonably well. If I had to read science books all year, I would probably not be able to read 100 books — I’d probably get through about two or three.
Alan Fleischmann
I get it.
You also note in the book that the way people are investing is changing dramatically. It gets into where they should invest. When you think about the big challenges of our time, a lot of our solutions are going to come from investors — those who are going to put capital behind big ideas. I’m curious a little bit about the ESG, I guess you could call it. But also, beyond that, how do you make investment management decisions to prioritize what to invest? And can you look at a purposeful investment strategy that actually raises a profit?
David Rubenstein
Well, you have to assess your situation. If you are basically living paycheck to paycheck, you probably shouldn't be investing in things that are a little risky. If you are a well-known investor and you've got a fair amount of money behind you, you can afford to make very long-term investments in new areas and see whether they ultimately pay off — some will and some won't.
I'll give you an example. Many investors today think that something called quantum computing will turn out to revolutionize the way we live and work. But it's going to take five years or ten years to see the fruition of that. Another area is computational biology, which is going to take a long time to see the fruits. CRISPR technology, which is where you can slice cells and change how humans are born, really, and what kind of traits they have, that will also probably be an area of great growth as well. Artificial intelligence, data science, these are areas that are going to be very profitable down the road, most likely. But you know, it's gonna take five to ten years before you see the profits.
Alan Fleischmann
Will private credit be what private equity has been in the last years, in terms of returns?
David Rubenstein
Private credit is a wonderful business compared to private equity, because you need fewer people to manage the same amount of dollars. In other words, private equity is very staff intensive. You're doing the deals, you're overseeing the deals. In private credit, you're providing the debt. It could be senior debt or subordinated debt, but you're not really running the company, so you can manage a lot of money with fewer people.
Right now, it's very attractive to a lot of people to be in that business, because it has high margins and people have made a fair amount of profits. So I think private credit will be a very good area for private firms to be involved with and for people to invest in.
Alan Fleischmann
Increasing diversity is a big part of your book. You mentioned it a little bit when you were talking about Kim and others, and their incredible journeys to get to the successful places where they are. But in regards to diversity in general, how important of a goal is it for leaders across the investment industry? How should firms of all sizes go about attracting the best young, diverse talent into their ranks?
David Rubenstein
Well, when you have a diverse society, as ours is in the United States, if you don't reflect the society in your investments and your investment team, you're not really going to understand society and you're probably not going to really understand the products and services that that diverse society really wants. So I think, increasingly, the investment world is becoming more diverse. And I think that's good.
But there’s no doubt it's more still more difficult for women, African Americans, and Latinos to rise up in some of these firms. And you know, there are some really good people who have risen up. But it takes a while, and we still have a way to go. But I do think if you're going to invest in societies, and in American society, you have to understand this society. And one of the best ways to understand it is to have people doing the investing who also reflect that society.
Alan Fleischmann
Who are the leaders, past or present, that you believe we can learn something from? You’ve said that you to write about the ones that are dead. Who were the ones you believe we can learn the most from in order to adapt to this time, these uncertain times that we're finding ourselves in?
David Rubenstein
Well, Warren Buffett is the person whom I partially dedicate the book. You can learn a lot from him because he really is smart, and he's averaged 20% returns for 60 years. So, a very good rate of return.
I think a lot of people have been around for a while and have pretty good insights in the market. Stan Druckenmiller, somebody I interviewed in the book, is a very, very talented person, Seth Klarman is a very talented person who's built Baupost into a really successful hedge fund, Michael Moritz, who ran Sequoia for a long time, built it into one of the best venture firms in the world. There are many people who, if you follow them, get to know them, and follow what they're doing, you can learn a lot from.
Alan Fleischmann
Your listening to “Leadership Matters” on SiriusXM and at leadershipmattersshow.com. I'm your host, Alan Fleischmann. I'm here with David Rubenstein — author, co-chairman and co-founder of the Carlyle Group, and we're discussing his latest book, which is a New York Times bestseller titled How to Invest: Masters on the Craft. We're talking about all the extraordinary insights that he's able to bring to us through this incredible book, which I know will be interesting to all of our listeners.
When you think about those folks, is there anyone in your book that has overcome great adversity? In other words, they went on a journey that probably was the negative side of capitalism, but they figured out the right way. And also, are you a great defender of capitalism? I imagine the answer is yes. How do you see us kind of make capitalism that works? Because you can't have good democracy without a good capitalism — I think that works both ways.
David Rubenstein
As Winston Churchill said about democracy, it's the worst form of government except every other one. Capitalism is not a perfect system, it's just better than every other one. Capitalism has created more wealth for people than any other system in the world, economically. China has gotten out of poverty because it's really used capitalist methods over the last 30 or 40 years or so. So I am a big defender of capitalism.
But I have to be honest and say, very few people are willing to use the word capitalist anymore. Very few people are willing to say, “I'm a capitalist,” because it has a connotation that you're greedy. You're somehow, politically, very, very to the right or something like that. So I think it's unfortunate. Certain words take on bad connotations. For example, people who are in the left side of the political spectrum, they will never use the word liberal anymore; they will say they are progressive. When you want something out of Congress that's a bridge or a toll road, it used to be called pork barrel. But now nobody calls bridges or toll roads pork barrel, they call it infrastructure. So words have a meaning. Right now, the word capitalist is seen by people as kind of right wing; greedy business people who will just do anything to make a buck. I think it's unfortunate.
So I proudly call myself a capitalist, I am an investor. And I think capitalism is a great system that does leave people behind. It has lots of flaws, I know all about those. But I'm not embarrassed to say I'm a capitalist.
In terms of people overcoming great barriers, many of the people in the book overcame some barriers. Kim Lou, who just mentioned, had one parent who is Chinese and one parent who is African American. Her parents were both 17 when they got married, and she was born a year or two later. So it's a complicated situation. Many people have overcome, I would say, prejudices against them — because they were Jewish, they were African American, they were female. We still have prejudice in our society, as you obviously know.
Alan Fleischmann
Kim Lew is, by the way, someone I know well, and I think she's one of the most extraordinary leaders. She leads with confidence and humility, and she brings a great deal of joy to her brilliance. She’s a great person that you highlight. I like a lot of the people that you highlighted in the book, because they do have that combination of confidence and humility, and they've mastered their trade.
Is there anyone in history that you believe we can draw from right now? You said Warren Buffett, but anyone in history, or a book to read, that would be a bit of a blueprint to deal with the times we're in right now? Or are we really dealing with things that are so unprecedented that looking back isn’t an option?
David Rubenstein
Well, I think Warren Buffett, as I mentioned, is a really good investment and role model in many ways. He's really built an incredible reputation, and deservedly so. Seth Klarman is another person who's written a book about his investment views that are quite impressive.
I also like to look at people that are not professional investors and see them as role models. Take Abraham Lincoln, for example. He kept the country together when I don't think anybody else could have, and after he won the Civil War, he didn't go around saying, “I won the Civil War. Aren't I great?” He wasn't bragging about himself. You can't imagine Abraham Lincoln saying, “Aren't I great? Shouldn't I be on the $5 bill?” He was just a humble person, tragically taken away at the age of 56. I think there are many people who are role models for Americans. Not all in politics, not all in business, but there are many great role models.
Alan Fleischmann
What position that you may have had long held — something you have always believed — have you changed your mind about in the last year or so?
David Rubenstein
Well, I used to think I was a great athlete, and then I realized I wasn't. That was my first change when I was younger. I used to think that I could, you know, get back in shape when I got some free time, and now I realize it's harder to get into shape when you're out of shape for a while. So I'm still working on that.
But in terms of more serious things, I would say I've learned that I have my limitations in what I can do, on what I'm good at and what I'm not good at. Really, life is all about figuring out how you can use the strengths you have and overcome the weaknesses you have to produce a happy life for yourself. What is life about, other than producing happiness for yourself and without hurting other people?
The pursuit of happiness is what Thomas Jefferson wrote about, but he didn't say how you become happy. We all know that being happy is very elusive — probably the hardest thing to do in life is to be happy. We all know many people who are wealthy, successful, and famous, but they're not happy. Many people who are poor and not that well educated, they often turn out to be happier. So why is it that sometimes, the most successful people don't seem to be as happy as they should be?
I am myself a pretty happy person, and I am very fortunate that I got lucky in life in many ways. But I really hope that people find a way to produce happiness for themselves, because life will be more enjoyable. I think one of the ways to do it, is to be good at something, and master it, and then feel you've done something useful with your time on the face of the earth. Try to do something to make your children, your partner, your spouse, your grandchildren, and your parents proud of what you've done.
Alan Fleischmann
Are there things that you do to continue to make yourself happy? Because it's not always easy, as you know, to maintain a certain level of happiness. Are there certain rituals that you have in your life?
David Rubenstein
Well, I try myself happy by… I give a speech and people like it. I give an interview and people like it. If I write a book and people like it. If I make an investment, it does well, and then I feel happy.
But you know, happiness is fleeting. You can be happy one minute, and then 10 minutes later, something bad can happen.
Alan Fleischmann
Well, I've heard you talk about your parents and you're growing up in Baltimore. You’ve worked hard, obviously, all your life. But one of the things, I think, that makes people happy and helps to maintain happiness — which you seem to talk a lot about, I’m hearing it just now — is gratitude. There's a certain level of appreciation for what you have and what you’ve built. You're grateful for it, and you show that gratitude through your philanthropy.
Tell us a little bit about your philanthropy. One of the things about you, David, that just blows me away — and you added now a new level to it when you mentioned you read 100 books a year — is that you manage to be everywhere. As a representative of your firm, you are the chairman, not just a board member, of some of the most significant organizations in our country, I'd love you to tell us a little bit about some of them. From the Kennedy Center to others, you give time, thought, and leadership. It's not like you're just there to put your name on there, you're really devoted.
David Rubenstein
Well, growing up there were many people smarter than me — and obviously, better athletes than me. But I realized that I could do okay if I worked hard. So I kind of have a gene of working hard and trying to give back. My parents were not philanthropists, they didn't have any money. But they always thought that trying to do something useful for society was a beneficial thing. So when Carlyle became successful, I started getting involved in philanthropy.
I like to remind people that philanthropy is derived from an ancient Greek word, that means loving humanity. You don't have to just write checks and be a wealthy person to be a philanthropist. Yyou can give your time, and time is the most valuable thing you have — you can't make more time, you can make more money. So I encourage people who are not fabulously wealthy, or modestly wealthy, to give their time, give their energy, give their ideas, and you can make society better that way.
In my own case, I only do things I'm really interested in. I have a lot of different, eclectic interests; I'm not really good at focusing on just one thing. So currently, I do chair the Kennedy Center, as you mentioned, the Performing Arts Center. I've done that for 13 years now, and it's a living memorial to President Kennedy, who I very much admired. I did chair the Smithsonian for a number of years, termed off of that. I do chair the National Gallery of Art now and chair the Library of Congress support board. I chair the Council on Foreign Relations. I chair the University of Chicago Board, where I went to law school. I did share the Duke University Board, where I went to college. So I think by giving my time in that way, I've tried to give back and try to give some money as well. But I enjoy it. And I feel that if you give back to society, it makes you happier, and makes you feel good.
One point I should make in concluding is, I always ask people in my interview show, “Did your parents live to see your success?” Because what do parents really want to do? They want to produce children are happy, healthy, and successful. So in my own case, my parents passed away a few years ago, they lived to 85 and 86. But they were proud of what I achieved — as their only child, maybe they were always going to be proud. But I do think that if you can do something useful and make your parents proud, it's useful, and helpful, and makes you feel good.
In terms of gratitude, the two easiest words in the world to use that people don't use as much as they should are ‘thank you.’ When I when I give a commencement speech, I always remind the students to thank the people that made it possible for them to get there that day. And not do it just on that day, but do it for many, many years into the future. So the words ‘thank you’ are not probably used as much as they should be. But everybody got where they are with the help of somebody else. Nobody did something all by themselves and got there to be successful only by their own efforts.
Alan Fleischmann
Do you think about the people that have been great navigators or mentors in your life? In addition to your parents, obviously.
David Rubenstein
I had some role models when I was growing up in Baltimore, and people who were older than me that I've looked up to. I have worked for a number of people that I've really admired. I admire Ted Sorensen, a former speechwriter for John Kennedy. I brought Jim Baker into my firm, I really admire him and still admire him. George Herbert Walker Bush came into our firm, I really admire him and the things he did.
I met a lot of people who are closer to my age at the time I was growing up or building my firm that I admired. There's a lot of people. I think it's very important to have role models. It's also important to be a mentor to other, younger people, so you can do for younger people what other people may have done for you.
Alan Fleischmann
That's awesome.
When you think of Mount Rushmore, is there another face that we should put on that mountain? Are there other people that are deserving of that? You mentioned John Kennedy; I think of Robert Kennedy. These are people who I grew up with… Obviously, they’re imperfect souls, everybody is. Like, as you mentioned, Abraham Lincoln. But these are people that were my heroes, even though they were before my time. I just grew up thinking how courageous and insightful they were. They didn't talk down to people, they talked us up. I always think about the people whose legacy lives on. But are there people in history who aren’t on Mount Rushmore that should be?
David Rubenstein
Well, to remind people for that haven't seen Mount Rushmore, there are four presidents there. They are George Washington, Abraham Lincoln, Thomas Jefferson, and Teddy Roosevelt. If we had a new Mount Rushmore, who would the Presidents be? Let's use presidents example. Well, I think FDR would probably be there. I think John Kennedy, in my view, should be there. I think Ronald Reagan, many people would say, should probably be there. And it's too early to say, but I think Barack Obama was a real role model. The fact that an African American got elected president of the United States is quite amazing when you think about it. So there are many different people that I look up to, and I think those would be good role models as well.
Alan Fleischmann
I’m going back and forth with a bunch of stuff here, but I want to be sure I'm asking about these. When you're looking at your philanthropy — I'm gonna go back to investing before we close — and thinking of your time and your money, as you said, how do you identify the causes? How do you figure out which ones you want to focus on?
David Rubenstein
I mean, I get $50 million of requests a week. Obviously, I can't do all that — I'm not as rich as Bill Gates. I have four standards. One is, I want to start something that otherwise wouldn't get started. Secondly, I want to finish something that otherwise wouldn't get finished. Third, I want to have an intellectual interest, so I'll stay involved in it in some way and not just write a check. And fourth, I'd like to see progress in my lifetime.
So I’ve picked different areas. One is something I've called patriotic philanthropy, reminding people the history and heritage of our country. So for that, I bought historic documents that I’ve given to the US government, like the Magna Carta. Or fixed buildings, like the Lincoln Memorial, the Jefferson Memorial, the Washington Monument, and so forth. But I've also been involved in medical research, and I'm very interested in doing more there. I'm particularly interested in certain types of cancer. I've created a pancreatic cancer center at Sloan Kettering.
But the most satisfying thing I've done, probably, is scholarships. I had scholarship to go to college and law school, and I couldn't have gone to those schools without those. I tried to give scholarships to the all the schools I've been involved with, and to the best students in the DC public schools as well. So I think scholarships are something I'm very happy to have done. And ultimately, hopefully, those people that get those scholarships will be able to give scholarships when they're older, to younger people as well.
Alan Fleischmann
And you've been involved in universities that you do not have a history with, which has also been surprising to me.
David Rubenstein
Yeah. I was put on the Harvard Corporation Board, which runs Harvard, I didn't go to Harvard, my two daughters did go to Harvard. And it was announced, I think, yesterday, that I'm hoping to build a new conference center there. But I've been involved with scholarships there and a lot of other things at the Kennedy School, which I've been particularly involved with.
My view is that the great universities in this country are our national assets. They are the envy of the world. And to the extent that we can give money to these great universities or support them with the time or energy we have, we're helping our country. That's how I look at it. Now. I don't have enough time, energy, and money to give to every university, so I picked a few that I've either been affiliated with, my children have been affiliated with, or I've been involved with. Johns Hopkins as well, because I grew up in Baltimore. I think people should do more with universities, public and private, because they are really one of the great national assets we have.
Alan Fleischmann
What do you think it's a reasonable expectation for a rate of return for a good stock market investor over the next five years?
David Rubenstein
Over the last 100 years or so, the S&P 500 has averaged, more or less, about 6% a year. I'd say fixed income has averaged 2% to 3% over the last 100 years or so. So I'm not counting inflation, because inflation is a little bit high now. But I would say if you're looking for public equities, you should probably see a 6% or 7% annual rate of return. Fixed income, 2% to 4%. Alternatives, probably somewhere in the mid- to high-teens. Some of the riskier things, like venture capital or some things like that, maybe 20% rate of return. But generally, I think if people can get, 6% to 8% percent rate of return on their money, consistently, time in, time out, that's pretty good.
Alan Fleischmann
That's great.
A couple questions on culture — before the show, actually, I asked a lot of people for questions for you. Because everyone has a… When they think of you, David, they think of you as a philanthropist. They think of you as a writer. They think of you as a talk show host now, an interviewer. Even in Washington, they know of you being the chair of the Economic Club. I brought a lot of legendary people to Washington to have conversations. So I get a lot of questions for you about all aspects of your life, and it's quite well-rounded.
One of the things I got was a question about corporate values, building a culture. How you've managed to build a culture at Carlyle, but also, in general. How does culture evolve when you're the founder of something? What direction do you see it heading, and how important is it?
David Rubenstein
Well, all businesses that succeed have a culture that is healthy, and the hardest thing to do is to transfer it to the next generation. I wouldn't say we've done it perfectly, but I would say that we've had a culture of collaboration: of keeping one's ego in check, of trying to help other people, and trying to do things that are socially responsible in terms of our investments. It's a culture that we built, maybe, because we're not in Wall Street. We didn't start from Wall Street, we weren't investment bankers, who often have a more cutthroat culture. We started in Washington, and maybe our culture is different for that reason, though we obviously have a big presence in New York now.
I think corporate culture is very important. You should have a corporate culture which does this: A corporation, historically, was seen as having an obligation only to its shareholders. Now, I think it's widely recognized — and I subscribe to the view — that you have an obligation not to your shareholders only, but also to your employees, your customers, your suppliers, your community. You should do things for them as well, and not only for your, your shareholders. Because in the end, if you help these other people, these other constituents, you will help your shareholders in the end.
Alan Fleischmann
That's great.
In this time of economic uncertainty, is there anything that you're seeing in the markets… I'm sure the answer is yes, so I guess we'll say it more positively. What are the things that you're seeing in the market that gives you hope?
David Rubenstein
Well, I'm hopeful that inflation has peaked and it’s now on its way down. The latest inflation numbers are positive, obviously — the Fed has increased in in December the Fed discount rate, and probably will do some more next year. But I think the worst of inflation is probably behind us for a while, and that's encouraging.
I think the U.S.-China relationship is not great, but I think it's getting somewhat better. I'm hopeful that the Ukraine war will not drag on forever. I don't know when it will end, but it will be a real relief for people in Europe and around the world when that finally does and and we can go back to some type of normalcy. And I also have some hope that our U.S. government can work more efficiently than it has. It's obviously been one where the Democrats and Republicans don't get along. I'm hopeful that we can get more progress and have things be less bitter between the two parties, and make sure our democracy works well and better.
Alan Fleischmann
Here's a question for you which I think will be really interesting for the listeners here as well, because a lot of them are CEOs who hire other people or are aspiring CEOs. You're obviously in a search right now for a CEO for your own firm. But you also have been an interviewer with your portfolio for many CEOs for many, many years. What are the traits you look for? I'd love you to even share some of the questions you ask when you interview people.
David Rubenstein
Well, when I interview people — not just necessarily CEOs — I'm always looking for people who are intelligent. People that have an inquiring mind, people that are reasonably hard-working. I don't look to hire geniuses — they're hard to manage, honestly. I look for people that have some balance in their life. You don't want people that just obsess over working and do nothing else. I'm looking for people that know how to share the credit and take the blame when appropriate, I look for people that know how to communicate, how to persuade other people, because they're a good writer, good talker, or they lead by example, I looking for people that are focused on doing a good job, not just on how much money they're gonna make. And I'm looking for people that want to do something for society with the money that they do make, and give back to society. Those are the kind of things I'm looking for.
Alan Fleischmann
And are there certain questions that you ask that you're willing to share, that kind of unlock the interview?
David Rubenstein
I ask people: Why do you want to work here? What is it about this business that makes you excited? What values did your parents instill in you that you think are really important? What did you really get out of college or graduate school that is important to you? What do you want to do with your life? What would you regard as a successful life? Things like that.
I think it's a mistake. Sometimes when I'm interviewing people and ask them, “Do you have any questions?” And they say, “No.” If you're going for a job interview and somebody asks you for questions, make up some questions. Have some ready to go. Or if somebody asked me, “What's the compensation?” That's the last thing you should ask when you're doing a job interview. The compensation will be whatever it is, but you shouldn't focus on that when you're trying to impress an interviewer.
Alan Fleischmann
Obviously, you host a show and you interview a lot for your books. You've interviewed leaders and aspiring leaders, and obviously, I'm interviewing you now. If you were interviewing yourself… Because I always say to people, “When I interview David Rubenstein, I prepare, because he prepares so much.” I see how much you prepare for every interview that you do, for your books and for your show, but also for the Economic Club. What question would you ask yourself, that you think unlocks something unique about you? And what would be your answer?
David Rubenstein
“How did you get so lucky, and do you have to pinch yourself when you realize what you've done. You are so unqualified for some of the things you’ve accomplished.” So I guess that's what I would ask myself.
Alan Fleischmann
What would be the answer?
David Rubenstein
I got lucky because I worked reasonably hard. I had the unconditional love of my parents and lot of luck along the way, I guess. Things like that.
Alan Fleischmann
I think the other thing you can say as part of the answer, which has been a theme in your life, is that you have been willing to raise your hand even when you didn't have the answer. Or you're willing to say, “I'm going to create something,” even though, as you said about the way you created Carlyle, that you were not an investor. You knew there was an opportunity to fill a gap.
David Rubenstein
Well, I guess you're right. But in the end, I'm just always pinching myself, saying, “How did I get here?” How did I get to this position? I realized there's a lot of luck along the way.
Alan Fleischmann
Well, we're lucky to have you on the show, I love having you on. I keep wanting you to keep writing books so you can keep coming back on. You're an amazing friend, you’re an amazing role model, and you're an amazing leader in so many parts of our lives. On behalf of leadership matters and SiriusXM, we've been thrilled to have you, David Rubenstein. We're already looking forward to the next time.
David Rubenstein
Thanks very much, I appreciate it. Have a good holiday.
Alan Fleischmann
You too, have a great holiday. Talk to you soon.