Once dubbed a “master fundraiser” by Forbes Magazine, David Rubenstein and his team at the asset management giant The Carlyle Group (CG) manages billions of assets for a wide range of U.S. and international institutional investors.
A billionaire with a simple lifestyle and a generous heart, Rubenstein has joined other successful entrepreneurs like Warren Buffett and Mark Zuckerberg who have pledged to donate more than half of their wealth as part of The Giving Pledge campaign. Here's an overview of how David Rubenstein made his billions and built one of the world’s largest private equity firms.
Early Life and Schooling
Rubenstein was an only child and lived in a small, low-income community in Baltimore, Maryland. His mother was a homemaker, while his father, who never made more than $7,000 a year, worked as a postman.
Rubenstein's mother wanted him to become a dentist, but he wanted to serve in public office after watching the inauguration of President John F. Kennedy when he was twelve-years-old. He's said that Kennedy's famous statement during the historic event—‘‘Ask not what your country can do for you, ask what you can do for your country’’—instantly struck a chord with him.
As a result of his family's small income, Rubenstein had to depend on scholarships to go to college. Tuition for a law degree at the time was around $2,000. He applied to a number of schools for financial assistance, intent on attending the one that gave him the largest scholarship. Rubenstein ended up at the University of Maryland Law School, where he received a full scholarship. He graduated in 1973.
Career Before Carlyle
With a law degree under his belt, Rubenstein immediately joined a prominent New York-based law firm called Paul Weiss. After two years there, he began to think about a new career path. He often jokes, ‘‘I said to [clients and the firm's partners] that I was thinking of going into politics and government, but no one said, 'Don't leave!' so I took it that I probably wasn't a good lawyer.’’
In 1976, Rubenstein managed to get a job with the Birch Bayh presidential campaign. However, Bayh dropped out of the race 30 days after Rubenstein joined the campaign. He subsequently got a position in the Jimmy Carter campaign. After Carter took office in 1977, Rubenstein was appointed deputy domestic policy advisor for the administration. His term abruptly came to end four years later when Carter lost reelection.
A New Leveraged Buyout Firm Was Born
Following the defeat in the elections, Rubenstein initially had trouble with finding a job. He was unemployed for six months but eventually returned to practicing law. Rubenstein, however, quickly became dissatisfied with his job. One day he came across an article in the newspaper about former U.S. Secretary of Treasury William Simon. After Simon's tenure with the government, he purchased Gibson Greeting Cards with $1 million of his own money and $79 million worth of debt in what is known as a leveraged buyout. Simon then made the company's operations more efficient and took it public for $290 million.
A light bulb went off in Rubenstein’s head when he read the story. It was the first time that he had heard about leverage buyouts. Originally, he had planned to recruit a team of finance professionals interested in starting a private equity firm who could employ him as a legal consultant, but he couldn't find anyone interested in forming a new firm.
So, in 1987, Rubenstein and four other partners went about launching a private equity firm of their own. The company was called The Carlyle Group, named after the Carlyle Hotel in New York City, where some of the initial company meetings were held. According to the company’s website, “The Founders hoped to create an institution that would transcend them.”
At that time, private equity firms were predominantly headquartered in New York, but Carlyle was formed in Washington D.C. Rubenstein thought that he could raise a lot more capital by telling investors that they were focusing on acquiring businesses heavily affected by the government – hence, their location. He and his team were able to raise $5 million to get Carlyle off of the ground. Of that figure, $3 million was allocated to actual investments, while the remainder was used for operating expenses. One investor that backed Carlyle was the well-established investment house, T. Rowe Price (TROW).
Until 1990, Carlyle raised money on a deal-by-deal basis. Their first buyout fund raised $100 million from investors. The funds were used to acquire a number of businesses. Since then Carlyle has raised billions of dollars from investors in the United States and abroad for more than 100 different funds.
Today only three of Carlyle's founding partners work at the company: Rubenstein, William E. Conway, Jr. and Daniel A. D'Aniello. Both Rubenstein and Conway share CEO duties, while D'Aniello serves as the chairman of the board. In 2012, Carlyle raised $671 million in an initial public offering and was listed on the NASDAQ stock market.
The Bottom Line
David Rubenstein made his fortune by collecting management fees from investors who gave him money to invest on their behalf. With a background in law and politics, Rubenstein co-founded The Carlyle Group, a private equity firm that invested in companies heavily affected by government.
Today, Carlyle is one of the largest and most diverse private equity firms in the world. The company is responsible for allocating capital in a number of sectors for institutional investors around the world.