The Exchanges

Q How are you thinking about funding the business back then?

A Well, I didn't really think that much about it. I thought two things. One, Ed Mathias knew people in the investment world, and he thought he could introduce me to people, and they basically give us some money, and ultimately, he did. We had four of us at the beginning. The person from Marriott, his name was Steve Norris, joined us. Then we went out, and he recruited, with my help, another guy from Marriott, Dan Daniello, and then we recruited Bill Conway, who was then the CFO of MCI. Those were the four of us, and And then we went out to raise money, and we raised all of five million dollars, and that was what we had to start.

AI assessment note: “Well, I didn't really think that much about it. I thought two things.”

Q How did you evolve to leading and managing this global team of professionals?

A Well, I wouldn't say it was perfect because we made some mistakes, but the way it worked is that Bill Conway, who I'd recruited from MCI, he was our chief investment officer. And so he was overseeing all the transactions and I was on the investment committees, but I was deferring to him on the deals more, more or less. Dan Daniello, the other partner, was doing a lot of the administrative and operational things, but also specializing in real estate and our energy businesses, and I was more or less doing fundraising, recruiting. I was more or less the face of the firm because I was willing to make speeches and, and those kind of things, and, and so I was more of the outside person, and the other guys were more the inside person, and they didn't resent my being better known, and I didn't resent their having to do all the drudgery work that, I thought you had to do on the inside. So it worked out reasonably well. We would meet probably once a week or so to kind of coordinate, but it was very loose and it was something that you couldn't have predicted necessarily would have worked.

AI assessment note: “the way it worked is that Bill Conway... Dan Daniello... and I was”

Q How about the challenges from an LP perspective of needing to serve a different constituency and shareholders as a public company that may not be the case as a private company?

A It's a big challenge for sure, because when you're focusing on LPs, limited partners in your funds, they want the highest rate of return that you can legally get them, and they focus on internal rates of return. And they focus on MOICs or multiples of invested capital. They don't focus on your fee-related earnings. It turns out when you go public, the people on Wall Street, the analysts, they care about more or less two things. One is predicting where you're going to be every quarter before you get there, and two, continuously growing that number every quarter. And so the best way to grow a number every quarter is to grow your assets under management And charge the fees you can and just keep growing assets under management. If the investment performance isn't spectacular, they tend not to be as focused on that. In the long term, your investment focus isn't good, or performance isn't good, you won't get more money. But if your performance is good enough to growing assets, you can make a lot of money off the fees. When Carlisle first went public, we were well known, but we weren't as highly valued as Blackstone because we had not focused on fees that much. None of us could come from Wall Street. We were not famous for The fee world. And so we tended to not be as good at that as some other people. And we tended to focus on the IRRs, which was our focus. So we probably struggled fo…

AI assessment note: “It's a big challenge for sure, because when you're focusing on LPs”

Q So I want to turn to some of your more recent activities. It seems to interviewing or writing your own family office that you may have taken a slight step back from your engagement in Carlisle, What was your thought process over the last couple of years?

A Well, a couple of things. I recruited Lou Gerson to be the chairman of Carlisle, and he was retiring at IBM at the normal retirement age. It was 60 years old. My father was a blue-collar worker, and the day you're allowed to retire as a blue-collar worker from the post office, he did. It was 55. Now, we have a president of the United States who's 78 years old, so the world has kind of changed. But I thought that when I turned 68 and Bill Conway is exactly the same age as me, almost the same birthday, practically. When we turned 68, we said we have some talented people who are ready to help run this company and really run it. If we stay here forever, maybe they'll leave and we won't have the benefit of their leadership. And so we decided to step back and make ourselves initially co-executive chairs, now co-chairs. And so we are gigantic shareholders and have enormous net worth tied up in the firm. Well, we decided to step back a bit, and we're still on the investment committees and do other things, but day to day, we're not running it, and it seems that worked out. Our stock price has done much better under this way than when Bill and I were running it, so I guess I'm happy about that, but I decided when you reach a certain age, you can pretend you're going to live forever, but realistically, humans don't live forever, and assessing my family's genes and, and all the other kind …

AI assessment note: “we have some talented people who are ready to help run this company”

Q How do you dedicate both as much time and resources to this wide swath of philanthropic organizations that you do? How do you think about that in almost like a portfolio context?

A I'm on a lot of boards, more than I probably should be, but I love everyone I'm on, and I've been the chair of many of these boards, and when you're the chair, you have certain responsibilities. So my standards, though, generally are these. One, I'd like to remind people that philanthropy Is derived from an ancient Greek word that means loving humanity. It doesn't mean rich people writing checks. And if you're going to love humanity and do something, it isn't just a matter of writing a check. Sitting and serving on the board, serving as a chair, I think is a very good way to enhance your philanthropic interest and so forth. My standards are these. Number one, can I start something that wouldn't otherwise get started? Can I finish something that wouldn't otherwise get finished? Can I likely live long enough to see the impact of what I'm doing? And also, can I, fourth, can I stay intellectually engaged with the subject so that I am willing to really be involved and not just show up at a meeting from time to time? And so the things I'm involved with, I do tend to get actively involved. So when I was the chair of the Duke University Board for four years, I found that would be spectacular, and I loved what I was doing. Duke had given me a scholarship when I was younger. I was the chair of the Smithsonian Board for three years, and the Smithsonian was something I went to as a young b…

AI assessment note: “My standards are these. Number one, can I start something that wouldn't otherwise get started?”

Q know you've talked quite a bit about your early career as a self-professed, mediocre lawyer, a passion for public service and getting booted out of the White House, and then finding your way by reading this article about Bill Simon and private equity. Why don't you take me back to how it is that you come to read about a successful deal and decide you're going to start a firm?

A Well, Bill Simon's deal was epic. There weren't that many buyouts at that time. He had bought something from RCA called Gibson greeting cards. He paid a couple hundred million dollars for it, I believe. And most of it was borrowed money. In those days, this is the early 19 eighties, leveraged buyouts were five percent equity or one percent equity. And very often the one percent equity deals, you would take a one percent fee. So you basically got your money back. There was very little money left in the deal, and those deals worked wonderfully until the economy went down in the late eight, 19 eighties, but until then, people made a lot of money. In his case, it got an enormous amount of attention because he, in 18 months, he put in roughly a million dollars. I'm not sure how much he had left in it after the fees and everything, but for his million dollars or a little bit less than a million dollars, he made roughly eighty million dollars. And I said, I don't know what that leverage buyout is, but it's better than practicing law. I had never been honestly interested in making money. I grew up in a modest family. Money wasn't a big thing. And I just had never focused on it. I was interested in public policy, but since we lost the election in 1980 to Ronald Reagan, I went back and practiced law. And then I realized practicing law is a business, not a profession, because every month …

AI assessment note: “I don't know what that leverage buyout is, but it's better than practicing law.”

Q So in the path to creating this Fidelity, somewhere along the way, I imagine you created products that didn't work as well. What did you learn from those experiences?

A Well, we did that many times. There were two types of products, products that investors didn't really want, And then products where we weren't really good at doing what we had raised the money for. So we were not tough enough at times to say, okay, it's not working. We would try to make it work and ultimately it would limp along. More recently, we've been better at saying this isn't working or it's subscale. I'll give you an example. We had somebody wanted to put up a lot of money for us to invest in, let's say Ireland, which is just one country. It's a small country. And we had a fair amount of money from a government-related source and some local institutions, so we, we had a fund in Ireland, and they performed spectacularly well, but it was so small, it couldn't move the needle, so we, ultimately, it's now independent and raising their, their own money as an independent fund. The same is true in a number of other areas. We had a Middle East fund, and finding deals in the Middle East was difficult. It was hard to raise money for a Middle East fund because people in the Middle East wanted to get their money out of the Middle East, And people outside of the Middle East didn't want to invest in the Middle East, at least in private equity. So it was probably profitable, but not so much so that you could really build a big business in it. In the end, if you look at the large firms…

AI assessment note: “More recently, we've been better at saying this isn't working or it's subscale.”

Q Okay. I want to turn to a couple of closing questions. Before that, though, I'm really curious about how you thought about Declaration Partners, your family office. You've been involved in the business for a long time, and you set up this investment office. How do you think about it alongside of your interest in Carlisle?

A Well, Carlisle is where the bulk of my net worth was, and probably still is, but people would always ask me, do you have a family office? And I ultimately got what I call family office envy. I didn't have family office, and I kind of felt like naked. I don't have a family office. Everybody else I know has a family office, so I gotta have a family office. But seriously, I decided I would do it for a couple of reasons. One, I can diversify. Carlisle doesn't invest in every area. Two, I could be more involved in some ways by taking bigger risk if it's my money. I don't have a fiduciary responsibility to outsiders. So I could take some risks that I probably didn't, wouldn't do at Carlisle. Three, I can probably be more engaged in the investment process to some extent, though I have some constraints on what I can do, but I just thought I would be different. Also, one of my children works there, and so it's a way to work with one of my children, and another child has a connection to it as well, so that's helpful, and a third may as well in the future. In addition, I like being with young people. I like recruiting young people. I like And I just thought I'm maybe better at building something than maybe running it so I could help build something. The person that you know, and I know as I recruited to run it, Brian Frank, done a terrific job. And so I'm in touch with what they're doing.…

AI assessment note: “One, I can diversify. Carlisle doesn't invest in every area. Two, I could be”

Q So in those early co-investors, who were the investors coming alongside you and investing that made up that hundred million?

A Well, when you start a firm, you basically have concentric circles of your friends, your friends, friends, people you wish were your friends, and things like that. Our first hundred million dollar fund were people who some of the partners in the firm knew. I think Westinghouse Credit was a large investor. Frank Carlucci was involved with Westinghouse, and so they were an investor. We had a few Japanese investors. We had one that was a Japanese bank. I had Been a lawyer doing some work for Sony, and Sony's bank was one that Mitsui bank that became an investor, and so we had a couple people we knew, but as I learned early on in the practice of law, and I also learned in the raising of money, When you were practicing law, at least in my experience, was all the people that I had done favors for legally, and I met when I was at the White House, none of them became my clients when I was practicing law. All the clients were new people. And the same was true when I was raising money. People I thought would give me money, I didn't get any money from them. The people I didn't really know, but somebody just introduced me to, I got money from them. And I realized in the course of this that the art of raising money was something that was not as easy as I had thought. And that my three partners at the time where people had investment experience, I didn't really have any. So to make myself fe…

AI assessment note: “Westinghouse Credit was a large investor... Mitsui bank that became an investor”

Q As you thought about that model, Fidelity, call it supermarket, different model for private equity and its related asset classes. How did you think about building the culture of the firm?

A Well, culture is essential to any business. Of course, you have a bad culture. You're not going to a great company or a good culture. It can be a very good company. We weren't in wall street. None of us had worked in wall street. So wall street has a, where I would say a cutthroat culture than we thought we had. It was a friendly environment. People made mistakes. We didn't fire them. It was an environment where we were trying to build something together that we thought was different and unusual. So I think it was a pretty friendly culture and one where the founders had an unusual kind of situation. There were initially four of us, and then after about seven years, one left, and so there were three of us, and for thirty-plus years, three of us basically ran the company, more or less, and it's unusual to have a partnership go on for thirty-some years where the three founders, three people are still in good shape with each other, but we did that because we divided up the responsibilities. One person oversaw one area, one person oversaw another, and we didn't get in each other's way, though we would meet frequently to make sure we were coordinated.

AI assessment note: “It was a friendly environment. People made mistakes. We didn't fire them.”

Q Where do those sort of friction get created over the years, particularly with people that join you maybe early on in their careers and stayed for a while? Did you have a stream of turnover or how'd that play out?

A Well, everybody doesn't work out in every organization. And so sometimes you've got to make changes. Bill and I, when it was our responsibility to tell somebody to go, we tended to promote them rather than have them go. So I think ultimately Dan Took over the job of segueing people out of the firm when they weren't working out, so we would always turn over that responsibility to him. When some people are good but not great, you tend not to get rid of them, and they kind of move forward at a slower pace. They might resent the fact you bring in somebody over them, but this happens in life all the time in businesses. I would say we had a pretty happy culture. Many people were in our firm for 20 years. Some people were in our firm for 25 years, 30 years. So it's a pretty happy culture. It wasn't a cutthroat. We could have made more money and been more profitable had we been more cutthroat in hindsight. We just tended to be a little more loose about things and we weren't trying to upset people unduly.

AI assessment note: “They might resent the fact you bring in somebody over them”

Q When did you start bringing in these operating professionals to help with the portfolio companies?

A We started doing that maybe 20 plus years ago or so, but other firms were doing that as well, and I think some had different models, and KKR's model was to have a separate company at one point that was providing the consulting services. Other firms were doing it differently. We call them different things, operating executives, senior executives, whatever it might be, and all of them had some value to add. Some were better at sourcing deals, some were better at overseeing deals, Some are better at helping educate a bit the CEOs who are operating under leverage and so forth for the first time. So I think it's a model that has worked. And the value added today is pretty considerable when you'd work with one of these firms. We also, all of us began to do things like help them with procurement. We'd help them with IT. We'd help them with ESG, all the kinds of things that they maybe hadn't focused on. We have teams of people that can now help them do that.

AI assessment note: “We started doing that maybe 20 plus years ago or so”

Q So you've probably talked to more senior leaders at your investors, the LPs, than just about anyone I know. And I'm curious, What advice you give a CIO today in a seat where you're looking out at the world of opportunities, whether you're sitting on an investment committee or just in a one-on-one conversation about how you've seen people successfully navigate one of these pools of capital?

A Well, I tell people the most important things investing is not to lose what you have. Secondly, take appropriate risks for the amount of money that you have. Three, try to realize what kind of rate of return you're looking for. If you're looking for a hundred percent IRR, it's different than looking for a 10% IRR. Next, make sure you know what your own internal cash needs are, so how much money you need to have coming back to run your life or your business or whatever it might be. And then always get as much information as you can and have as much communication as you can with the people that you invest with. And so private equity is an asset class that people make a lot of money in and investors are generally happy with it, but these are people that work hard at it. They do a lot of research. They do a lot of due diligence. They may make some mistakes, but generally I would say the industry of figuring out which funds to go in has become very large and very well defined. And generally the biggest mistakes are made by people who make investments in areas they don't know much about. Or where they are investing with some people that don't know much about what they're investing in. But as a general rule of thumb, if you do your own due diligence, You may not get the number one performing fund all the time, but you're not likely to get the 1000 performing either. The best performan…

AI assessment note: “I tell people the most important things investing is not to lose what you have.”

Q 30 year history in half, if you go back and look at that first half, 15 years in, you were significant, but call it 14, fifteen billion in assets, mostly known for leveraged buyouts, a lot of defense related things. And then in that back half, you take it from fourteen billion to Where we are today, quarter of a trillion or something like that. What was that inflection point?

A Well, there are several inflection points. As we were building the global business, a lot of our peers, people who have built bigger firms than us, but people who are well-known as well, hadn't yet done that. Blackstone, KKR, and Apollo really hadn't built international businesses, honestly, at that time, as we were beginning to do it. And people began to make fun of us saying we're just a franchise or We were just setting up franchises, which we didn't do because everybody was in a Carlisle employee. We weren't franchising anything, and we had to approve all the deals centrally and so forth. I'd say I wish we had done some things differently, gone in some areas more quickly, not gone in some areas, but on the whole, it was a business model of basically building a global private equity firm where you were taking advantage of the talents and skills of the people we had throughout the firm. Today, as the world has evolved, The large firms, we all have a cadre of former chief executives, CFOs, COOs, who are helping grow the value of these companies. In the early days of buyouts, as you may remember, it was more or less a leverage game. You were highly leveraging something and hoping you could make a few changes before the economy went against you, and then you would exit. And ESG was not a factor, and other kinds of things that today are important are not, were not even considered…

AI assessment note: “Well, there are several inflection points. As we were building the global business”

Q And were there any things that you picked up that were more subtle in all those different aspects you talk about, listening to people, following up, all the different things that people go through when they're trying to raise money?

A I haven't written any books about fundraising, but I'm tempted to do so because when you think about it, there are three types of fundraising. One is for philanthropic, one is for political campaigns, and one is for business. I'd say the easiest is probably political because in many ways it's a smaller amount of money, typically until they've changed the laws a bit, but it's not that much amount of money. Philanthropic is probably next hardest because you're giving people a sense that they're doing something useful with their money. But when you're Raising money for business, it's much harder because you have people that are very carefully looking at what the rate of return is, much more caution, and also you have a team of people. If you go to somebody for a philanthropic gift, they generally make the decision themselves. You go to somebody for an investment, they have a team of people, and they're fly-specking it, and it's much more complicated, and as maybe it should be. I learned in all these cases that the most important things are be humble, ask for money respectfully, Give them some information that they might find useful about Washington or whatever you're doing. Be convinced that what you're asking them to do is something you know a lot about, and you're investing your own money in it. And then also, whenever there's bad news that might arise, tell them that as soon as…

AI assessment note: “the most important things are be humble, ask for money respectfully”

Q this public company ownership question, and so it's a real subtle balance between the founders building something and wanting to derive the economic value of that, and then as they move on, this sort of next generation coming up, how does the Explicit monetization of that stake through stock impact the mindset of the people sort of below the level that had, say, a meaningful windfall when Carlyle went public?

A Well, there's no doubt that in any organization, if it's successful, the founders will tend to do better than the non-founders. That's true in all businesses. The founders of the private equity firms have all become major firms have become obviously wealthy, and they tend to like staying there. And most of the founders that have built these large firms are more or less still there, even though like me, they're in their seventies. Maybe they're not running it day to day, but they tend to still be involved because they have large stakes. And you have to ask yourself always, When can you actually sell these stakes? So if you own a large part of a Carlisle or Blackstone, when is it appropriate to sell without making people think you don't think the company's future is very good? It's not clear to me what that age is and so forth. So it's always a bit of a tension. But in the end, if you join a large private equity firm, And you work your way up. You realize what you're getting into, which is to say, you're not going to get the wealth, most likely, of the founders. Though, on the other hand, some people that have risen up in some of these firms, John Gray, now the president of Blackstone, based on public information, he's obviously done quite well, and he owns a fair bit of it. Of course, he created a great business, the real estate business. But there's a general rule of thumb. Peo…

AI assessment note: “You realize what you're getting into, which is to say, you're not going to get the wealth”