If you are in private equity, this is a name you already know.  Rubenstein is the co-founder, and co-chairman, of the Carlyle Group which invests $200+ billion on behalf of their limited partners. He sits on dozens of boards, and is the chairman of the Kennedy Center of Performing Arts, and the chairman of the Smithsonian Institution. Oh, he is also a philanthropist who plans to give away all his money (approximately $3 billion) during his lifetime. Oh, and he reads 100 books a year.

Completely recommend listening to this 1+ hour interview of Rubenstein at Freakonomics. Smart, witty, humble, accomplished, funny, and inspiring.

Listened to this podcast 3 times. Rubenstein’s words in blue italics.  The entire transcript is here.

What is private equity?

And you spend three to five years improving the company, incenting the managers to work harder, do more efficient things, and ultimately, after three or five years, you sell or otherwise liquefy the investment. . . Now they’ve come down in recent years, but today probably it’s not unusual to think that people in my business can yield annualized net returns after fees of 15 percent or so per annum. . . And so while we’ve been able to do this through good and bad times over 30 and 40 years, people have now concluded that we are probably a pretty good custodian of money

Today, I think private equity people think that, while we’re not perhaps guardian angels, we are providing a social service, and that social service is making companies more efficient, but more importantly than that, perhaps, the bulk of our investors are public pension funds.

What’s (not) new in private equity?

So it’s a pretty good time to raise money. It’s expensive to invest it, in terms of prices are not cheap right now. But at some point prices, will probably come down a bit, and that you have a fair amount of money to invest. You can buy it at lower prices, you’ll probably be doing reasonably well. . . When I started Carlyle with my partners, there were 250 private equity firms in the entire world. Today, there are 6,555. So it’s obviously been a growth business

Today 83 percent of all private equity dollars invested in the world every year are still invested in basically Western Europe and the United States. . . And I’d say of the 10 greatest known venture firms in the world, and the 10 largest private equity firms in the world, they’re all based in the United States.

What is the Carlyle Group?

We have about 1,500 employees in the core company, but the companies we own, the 100 to 200 companies or so, we own about 110 in the United States, they probably employ close to a million people. 

Great at private equity, not so good at venture capital

I don’t think I have the skill set in venture capital. I passed on Facebook when Mark Zuckerberg was in college, and my now son-in-law told me about this opportunity to invest in his classmate’s company. And I had a chance to be an early owner of Amazon and effectively turned it down. So I would say I probably didn’t have the skill set to monitor these good technologies that are going to take off.

 I said, “Look I don’t really think this is going to get anywhere. I’ve seen college kind of companies before, and I’m pretty experienced at looking at them. This is not going anywhere.” So he was trying to raise $10 million today, that 10 million is probably worth about $30 billion.

In private equity, on average, obviously there’s some exceptions, probably 90 percent of buyouts will make money, something like that. And in venture capital, probably 90 percent of the deals will not make money. So it’s a tougher business in many ways.

1) Great CEO 2) Great price 3) Good business

But, generally the most important factor is getting a good business which can be improved by the good C.E.O. So if you buy a terrible business that can’t be turned around, no C.E.O. could turn around, that’s probably a mistake. If you buy a really great business, it already has a great C.E.O., there’s probably not much value to add.

So what you’re looking for is a business that’s okay, but can be improved, and you’ve got a very good C.E.O. who can improve it. And then if you do that and work through the system for five years or so, you’ll probably get a reasonably good rate of return.

I believe a C.E.O. matters a lot more than I probably thought before, because in all the companies Carlyle’s invested in, I think the C.E.O. has made the most amount of difference. I think the price we paid is probably the second most, and the quality of the company we invested in was probably the third most. C.E.O.’s can make a dramatic amount of difference. 

If you told me you had a reasonably good company, a terrible C.E.O., I wouldn’t invest in it. If you told me you had a reasonably good company and a great C.E.O. I certainly would invest in it.

What makes a good CEO?

So to make those companies work, you need a C.E.O. who’s driven or founding partners who are driven, who are maniacal, who don’t want to do anything but eat and sleep and work in the company. And you therefore have to have a mindset of walking through walls. And people will tell you when you’re starting Uber, or Google, or Microsoft, or Facebook, “This can’t be done.” Well if you accept that, then you’re going to fail. You have to be able to ignore what people tell you and ignore conventional wisdom, and then if you’re fortunate, you might get to the very top. But very few get to the top.

Persistence. To get something done anywhere you, have to be persistent. People are always going to tell you no. And if you take no for an answer, you might be a very nice person. People might like you, but you won’t be probably that successful. Persistence, persistence, persistence, that’s so much of the game of being a C.E.O. I’d say hard work is another major factor; and the ability to lead, the ability to get people inspired, to get people to want to walk through walls for you and with you. That’s what you really need.

Difference between starting and running a company

Running companies is different than getting them off the ground. I think it’s much harder to get them off the ground. Running is not easy. But when you run a company that’s more mature, you have more people who are willing to support you, more people are willing to work with you, more people willing to give you money. Getting that company off the ground, the first two or three years, is extremely difficult. . . 99.9 percent of companies started in the United States fail. So it’s very few companies that actually get to be anywhere after one or two years. Most companies don’t make it.

Yes, it’s harder to be CEO nowadays

Well I think it’s much harder today, because today you have much more scrutiny of what you’re doing. It used to be the case that activist investors were not taken that seriously by boards. Now an activist can, with 1 percent or 2 percent of the stock, really change who the C.E.O. might be or change the direction of the company. I think the scrutiny, in terms of everybody in social media watching what every company is doing all the time, is much greater than it used to be. The rewards can be greater, but the penalties can be greater. So I think it’s much tougher. You know in the 1950’s, C.E.O.’s, basically they got the job and they could stay until they were ready to retire.

What motivates your philanthropy?

I am giving back money to my country, because I came from very modest circumstances. My parents didn’t have any money. They didn’t have any education. I rose up with a last name like Rubenstein to be able to do what I did, and I do feel that I owe this country, because I don’t think I could have done this in other countries. 

So Americans, I think, have a more philanthropic bent than many other people, and to some extent the people who are the biggest donors are not the people of inherited wealth, or they give away a fair amount of money, but it’s the people who made it on their own who realize how lucky they were, as I feel I am, and how indebted they are to this country for making it possible. So that’s why I give away my money, because I want to thank the country for my good fortune.

What motivates you?

You know, I want to keep my gray matter as active as possible. I have a theory that if you retire, you go downhill quickly, and I have a theory that if you relax too much, your immune system relaxes, germs come in, and see a relaxing immune system, they attack, and all of a sudden you’re in trouble. So I don’t ever like to slow down. I don’t want to relax too much, because I’m afraid that bad things will happen

So I wish I had all the the resources I have, the access, the willingness to get to do the kind of things I can do, and the ability to the kind of things I could do when I was 37. I would give away all the money I have today, every penny, if I could be five years younger.

 Life is so pleasurable, even if you’re not wealthy, you know, money doesn’t necessarily make you happy. Some of the saddest people I know are the wealthiest people I know. And some of the poorest people I know are some of the happiest people I know. You know Thomas Jefferson said, “Life is about the pursuit of happiness.” But he didn’t tell us how to actually get happiness. And it’s the most elusive thing in life, is personal happiness. Very few people achieve it. I think I’m personally happy. But you know I think I was happy before I was wealthy, so you know, I don’t know that the wealth has made me happier.

Rubenstein still gets his haircut at the neighborhood barber for $15 + $5 tip. He paid for the restoration of the Washington Monument. He bought a copy of the Magna Carta from 1297 and put it on display at the National Archives. Owns 1 of the 26 remaining copies of the US Constitution.  If that’s not enough, he interviews heavy hitters in business on Bloomberg here:

• Masayoshi Son (Softbank)
• Bill Gates (Gates Foundation)
• Coach K (Duke basketball)
• Warren Buffet (Berkshire Hathaway)
• Lloyd Blankfein (Goldman Sachs)
• Jamie Dimon (JP Morgan)
• Marilyn Hewson (Lockheed Martin)
• Abigail Johnson (Fidelity Investment)
• Tim Cook (Apple)
• Phil Knight (Nike)
• Yo-Yo Ma (Musician)
• Ginni Rometty (IBM)
• Brian Roberts (Comcast)
• Colin Powell (US Secretary of State)
• Mary Barra (GM)
• Khaldoon Al Mubarak (Mubadala Investment)