Lessons In Leadership | Iconoclast Summit 2024 - video Dailymotion

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Harvey Schwartz and David Rubenstein join the Forbes Iconoclast Summit 2024 in New York.   Panel: Lessons in Leadership: A Peer-To-Peer Conversation, with David Rubenstein, Cofounder & Co-Chairman of the Board, Carlyle and Harvey Schwartz, CEO, Carlyle  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00For the next conversation, Lessons in Leadership, a peer-to-peer conversation,

00:05please welcome interviewer David Rubenstein, co-founder and co-chairman of the board,

00:10Carlisle, and Harvey Schwartz, CEO, Carlisle.

00:15Okay. Wow. How many people here are in the financial service industry?

00:24Okay. How many are private equity investors?

00:28How many want to be private equity investors? Okay.

00:31And how many people here really don't know what they're doing here,

00:34they're just for a free breakfast or something? Okay.

00:37Okay. So, Harvey Schwartz is the CEO of Carlisle, and as some of you may know,

00:43he previously served as president of Goldman Sachs.

00:46He left Goldman Sachs and was recruited to be president of,

00:49CEO of Carlisle about 15 months ago or so.

00:53So, Harvey, when you left Goldman Sachs, you could relax.

00:58You already went to the top of Wall Street. You're president of Goldman Sachs.

01:01Why would you want to give up sitting on the beach, being in New Jersey shore,

01:06sitting on nonprofit boards to come back into the fray

01:10and be the CEO of a private equity firm? Why would you want to do that?

01:14Well, first of all, it's great to be here, everybody, and thanks to Forbes for having us.

01:18This is not a body that really should be on the beach.

01:22It's not a great visual for anyone, and I realized that pretty quickly after leaving Goldman.

01:29You know, at Goldman I had the privilege of committing a lot of capital to all the alternative firms,

01:36including Carlisle, so I knew the industry, I knew the firm, I knew the founders,

01:41I knew the iconic history of it, and I knew where the industry was headed

01:47in terms of capital flows, the role of private markets,

01:51and it was such a unique opportunity, I thought I would spare everybody the tan lines and I made the leap.

01:56Okay. So when you were at Goldman, you rose up to be, you know,

02:01I think Goldman had how many employees when you were there?

02:0335, 36,000.

02:05All right. So you rose up to be the co-president with David Solomon and the CFO earlier and all that.

02:13Generally, my image of Goldman was that the people that rise up or they went to Harvard

02:18or they went to Yale or they're Rhodes Scholars or something like that.

02:22Did you have that kind of background?

02:25Definitively not.

02:27I was, by any standards, a poor performing high school student.

02:34I kind of barely got out of high school and threw a bunch of favors and friends,

02:39managed to get into Rutgers. Any people from New Jersey here?

02:44Go Jersey.

02:46Did you ever apply to college right out of high school?

02:49No. I mean, I don't want the whole group.

02:54How many are here? Like a thousand people. I want the whole thousand people to go to like group therapy.

02:57But I, you know, everybody's got their own complexities in their background.

03:02I grew up in a family where, quite sadly, both my parents suffered severe mental illness.

03:07My father suffered from schizophrenia and my mother suffered what you would now call bipolar disorder.

03:13It was a tough environment.

03:14She passed away when I was young and I kind of went off the rails.

03:17I didn't apply to any colleges.

03:19And then someone, I guess you could refer to as a mentor, but really is more like an angel,

03:23intervened, encouraged me to apply to Rutgers.

03:26Was a Rutgers alumni, but not prestigious like you.

03:29Not an influential. And I didn't get in.

03:32You didn't get in. It's hard to get in at Rutgers, right?

03:34It's harder now and it was easier then and I still couldn't do it.

03:37So it was quite an achievement.

03:40But she intervened and she called the university.

03:42Her name is Linda. We're still good friends.

03:44I owe her a lot, an incredible debt of gratitude as Rutgers.

03:47She called Rutgers and she said, you got to let this kid in.

03:50And they said, have him write a couple page essay about why he did so poorly in high school.

03:54We'll interview him and they changed their mind. Amazing story.

03:57You got into Rutgers, you graduated from Rutgers and you went to Harvard Business School?

04:01Immediately. No.

04:03I didn't know Harvard Business School really existed.

04:08First time I tried to get a job after Rutgers,

04:10I had an interview here on Wall Street and I showed up and I walked down Wall Street.

04:13I thought, wow, it's so small. I pictured it being much bigger.

04:17I didn't know Goldman Sachs existed.

04:20I know we have a lot of people here in the wealth side of the business.

04:23I'm just curious, show of hands, how many of you are either old enough

04:26or have had the joy of cold calling for a living? Just show of hands.

04:30Yeah, so when I graduated college in 87, cold calling wasn't illegal or restricted.

04:37So I took a job, most of you won't even know what this means,

04:40but you got paid $1,000 a month on a draw, which really meant it was a $1,000 loan.

04:44And I cold called and my first day in the business actually was October 19, 1987.

04:52I cold called 500 people that day. Nobody wanted to talk to me.

04:55If I was smart enough then, I would have known that was a sign.

04:58But eventually, through a lot of luck and a bit of hard work,

05:02I managed to find my way to Citibank and then eventually to Goldman Sachs.

05:05I'm now sitting here with you.

05:06Okay, so now tell me, why should anybody want to invest in private equity today?

05:11Private credit gets a reasonably good return.

05:14Private equity, you tie up your money for 10 years or so.

05:18Returns are presumably coming down because interest rates are high.

05:21It's harder to buy things.

05:23Why should anybody want to invest in a private equity fund anymore?

05:27So obviously, someone with my background,

05:31I've had an extraordinary fortunate career in finance.

05:34But it's also a very interesting time frame to have been in finance.

05:38So I was born in 1964. I just turned 60.

05:41Kind of an amazing time, A, to be alive.

05:46And over that time period, David, as we all know,

05:49interest rates came down, regulation loosened, inflation came down.

05:55Geopolitically, the world got more cooperative.

05:57The Berlin Wall came down.

05:59This all created what I would refer to as a very frictionless

06:02or increasingly frictionless economic environment.

06:05And then you had the whole distortion of interest rates

06:07with monetary policy post-2008.

06:12And that added, that took away even more friction.

06:15I think this point you're making about interest rates coming up now

06:20is really just the normalization of the cost of capital,

06:23which we haven't seen in many, many years.

06:26And that adjustment is such that as that cost of capital shifts up,

06:31it actually impacts every asset class, not just private equity.

06:34It impacts credit, all parts of private markets,

06:36venture capital, mortgages, homeownership.

06:40Everything around the world is adjusting to this very sudden 5% rise in interest rates.

06:45And I think all it means is risk-adjusted returns for every asset class have to shift.

06:52And so private equity at this particular point in time

06:55may not actually yield over the next 3, 5, 10 years increased returns.

07:00But I think on a risk-adjusted basis, they'll be better.

07:03There'll be more carve-outs. There'll be less leverage.

07:06There'll be more opportunities,

07:08just like you'll see across the whole private market spectrum.

07:11All right. Private equity firms have transformed themselves recently

07:15into private credit firms to some extent.

07:18All the large private equity firms, including Carlyle,

07:20have large private credit businesses.

07:22The people in large commercial banks say that's not fair

07:26because the private credit businesses aren't regulated

07:29the way that banks' lending operations are regulated.

07:32Is that a fair argument?

07:34And do you worry that there's going to be a big collapse of the private credit deals

07:38that all the private equity firms have been doing in financing?

07:41So I think, again, if you look at this in sort of like a moment in time,

07:46you can get distracted by that versus the evolution of private markets.

07:50If we were sitting here in 2000, when you launched the firm in 87,

07:54there would really be two aspects to private markets.

07:57There would be buyouts, which you and the co-founders were very pioneering in,

08:03and then there would be venture capital.

08:05So it was like the beginning of an enterprise

08:07and then part of a company going private.

08:10This trend for private capital has been in place for well over 20 years.

08:14If you went back to 2000, I think the stat is something like the average,

08:18the company that took private capital, venture capital,

08:21went public within three years. Now it's 11 years.

08:24And all that's happened is over that period of time,

08:26systematically private capital providers have demonstrated the ability

08:32to be the marginally more effective capital provider.

08:36Now as it relates to the bank discussion,

08:38when you look at the liability structures of firms like Carlyle,

08:43our liability structures just suit this process better than the banks,

08:47and I think it's just a natural evolution of the ecosystem of finance.

08:51So we're $425 billion of assets.

08:54The largest portion of the platform is in credit across CLOs,

08:58private credit, opportunistic credit,

09:01and that capital is the most efficient capital that can be provided.

09:05Otherwise, the receivers of those capital would obviously go to the banks,

09:09and I think that dynamic is healthier because more sources of capital

09:13is just better for the capital ecosystem.

09:15Okay, so private equity firms have investment committees.

09:19They have memos that come in.

09:21They're 500-page memos about why a deal is great or so forth.

09:24These memos were prepared by very young people

09:27that went to very good business schools or good colleges.

09:30But do we need all these people?

09:32Like Rutgers.

09:33Like Rutgers. Do we need all these people anymore?

09:35Because why can't with artificial intelligence we just say,

09:38go to the artificial intelligence software and tell us whether it's a good deal or not?

09:42Is that going to happen where we just replace all our people with AI algorithms?

09:48So, you know, let me get to the end of the question later.

09:52I'm going to start at the beginning in terms of how we think about it at Carlyle.

09:56So from my perspective as the CEO, I'm obsessed with use cases.

10:01So we think about AI and the application of AI or large language models through three lenses.

10:07The first lens is how can we actually improve the performance of our portfolio companies?

10:12So around the globe, we have 1.3 million employees in all of these companies.

10:16How can we help those companies be more competitive and have some competitive advantage?

10:21The second way is how can we actually make the investing decision smarter, better, faster, more effective?

10:29That's what you're asking about.

10:30And the third way is just how can we run Carlyle better?

10:33And I say use cases because, you know, we could have a long discussion about is there too much hype in AI?

10:44And how much of it is hype?

10:45How much is reality?

10:46I don't think these are mutually exclusive discussions, by the way.

10:48You can have lots of hype and lots of future reality.

10:52As an aside, by the way, a friend of mine, sorry to digress for a second,

10:56a friend of mine said to me this has to be too much hype because in his business,

10:59they added two new partners and they went to do a photograph for the new team.

11:03And the photographer said, OK, everybody, on three, NVIDIA.

11:07And so he said, OK, that's it.

11:09That's the signal for him.

11:11But there's no doubt you will have a change in how work is accomplished.

11:18I'm personally, again, showing my age.

11:20I think it's pretty good when 23, 24, and 25-year-olds actually do the work, write their own memos.

11:26But we are seeing very specific ways to free up people's ability to think more.

11:36But I don't see in Carlisle, which is 2,200 people,

11:40I don't see a vision where in several years we're going to be 500 people and AI is doing all the work.

11:46Now, people today always want to say or think they want to change the world,

11:50make the world a better place, and they want to do something that is uplifting

11:54and makes them feel that their time on the face of the earth has been useful.

11:58How is investing wealthy people's money and making a higher rate of return for them

12:04a useful use of one's time on the face of the earth?

12:07How do you justify what you do and what your firms do and all the firms like yours?

12:12Why is just making more money for relatively wealthy people a good thing to be doing?

12:17Well, again, when I was referencing before the 30 years that I've really been in the business,

12:23you know, capitalism, economic growth, economic development,

12:29I mean, over that time period, billions of people came out of poverty.

12:33And a lot of that is about globalization.

12:35It's about the efficient allocation of labor.

12:37It's about economic growth.

12:39And I don't think you can – no one argues against growth.

12:43You have to want growth. You have to want efficient growth.

12:46You have to want fair growth.

12:47And I think for all the people in the room here that are helping wealthy people be wealthier,

12:52deploy their capital more efficiently, or those not so wealthy actually accumulate wealth,

12:56buy homes, do all those things, I think that that is the argument.

13:00Now, you can't have everybody doing that.

13:02You have to be out there actually doing even more important things like coming up with cures for cancer.

13:07And, of course, there's a lot of capital that goes into that space of the market also.

13:12But I think the deployment of capital done in a way that adds to economic growth is easy to defend.

13:21So as the CEO of Carlyle, you spend time in New York, Washington, all over the world.

13:26The time you spend in Washington, you've met with government officials from time to time.

13:29When you meet with members of Congress, do you find that an uplifting experience?

13:33Yes. Yeah. I really struggled with being here because I had a chance to be on the Hill,

13:39and then I decided marginally this would be a better use of time.

13:42Now, when you were growing up in New Jersey, your last name is Schwartz.

13:47So probably your ethnic identification was probably well known to many people, I assume.

13:53But now you spend time with me sometimes going to the Middle East and talking to people in the Gulf.

13:59Did you ever think when you were growing up you were going to spend a lot of time in Abu Dhabi, Dubai, Saudi Arabia, places like that?

14:06No. I spent most of my time thinking, wow, if I could not be the guy cutting the lawn and I could own the landscape company, that would be great.

14:13No. No, I didn't. No, I had none of those visions.

14:19And how do you find that? Do you feel any discrimination when you go there or do you find it as welcoming as any other place?

14:24No. I think that in many respects you can go there and the changes they're making systematically and very progressively,

14:35you know, if you're in Abu Dhabi, you know, there's a mosque, a temple, and a church all side by side.

14:42It can actually be somewhat more inspiring than some of the tension that we see here in the U.S.

14:48So, no, I never feel that.

14:50Well, let's suppose a president of the United States said to you, a lot of Goldman people, or former Goldman people...

14:55By the way, I'm sure it's obvious to everyone at this step point, none of this has been planned or rehearsed.

14:59I just want to make sure everybody understands that.

15:01So a lot of former Goldman people, Bob Rubin, John Whitehead, Hank Paulson, Steve Friedman,

15:08have gone into senior positions in the U.S. government at Treasury or State.

15:11So suppose a president of the United States called you and said,

15:14you were a senior person at Carlyle and Goldman, we'd like you to come in as Secretary of Treasury or the equivalent.

15:20Would you ever consider that?

15:22I think it gets back to your earlier question.

15:24If you're privileged enough to be in one of these positions where you've had a lot of experience

15:28and exposed to a lot of different market cycles and you think you can actually have an impact,

15:32I think you have an obligation.

15:33Just like, I mean, everybody knows David's one of the great philanthropists in the United States

15:38and gives his time and his capital.

15:40You know, he's leaving here to fly to D.C. because he's hosting an event tonight.

15:45What is it you're giving scholarships to?

15:47Is it D.C. kids?

15:49Some of the best in the high school.

15:51So I think you have to consider it.

15:54But right now, Carlyle's my priority, David.

15:57Don't get confused.

15:58Good. Great.

15:59Okay.

16:00So let's suppose in the case of ESG, ESG is an acronym that's gotten beaten up a bit by some people,

16:09though some people, you know, are great advocates of it.

16:12How does Carlyle and the private equity world generally look at ESG?

16:16Do you have to make all your companies ESG friendly, or do you think it's been overhyped

16:22and you don't have to worry about it so much?

16:24So I think we have an obligation to our partners, our investors, all of our constituencies,

16:31our employees, and our shareholders to operate ourselves in a very conscious, thoughtful way.

16:38At the same time, we have to deliver returns.

16:40And so we have, led by someone named Meg Starr, who now has a much bigger role,

16:46but I think probably one of the best ESG teams in the industry,

16:52and they have developed a policy that we call, for example, we invest, we don't divest.

16:58And this kind of gets to the core of, I think, part of your question.

17:03And so, you know, 80% of the world gets its energy from carbon sources.

17:08Whether you believe in climate change or you don't believe in climate change,

17:12obviously there's a need to have cleaner alternatives for fuel than 80% carbon.

17:19But we have taken a tact, very much led by this team,

17:22that by investing in industries and helping them decarbonize, we're having the greatest impact.

17:27And so we really think about, at the margin, how can we have the greatest impact?

17:32And when it comes to other aspects of ESG, whether it's diversity,

17:36I personally am quite passionate that you have to have diversity of opinion

17:42because teamwork is really what allows for operational creativity and solutions.

17:48And, you know, a bunch of guys that look like you and me sitting around a room may not be that creative.

17:53So early in your career, before you had a college degree, you were a bouncer at a nightclub.

17:59Technically, during college also.

18:02All right. So you're a bouncer, you're a big guy.

18:04So is it harder to be a bouncer and more dangerous, or is it harder and more dangerous to fire people

18:10when you have to call them in your office and say, you've been a good person, but you're gone?

18:13Which is harder, bouncing people out of a nightclub or basically firing people?

18:17It's unclear. It's circumstance specific.

18:22Generally, as a bouncer, you have a lot of other bouncers around you.

18:26If you're unfortunately in a situation where you're separating from an employee, maybe you have someone from HR.

18:30Maybe they're sort of diminutive. They're not big and brawny.

18:34I'm going to go with bouncing, more dangerous.

18:37Okay. So today, what is the greatest pleasure of running a publicly traded private equity, private credit firm?

18:44Is it you get to see anybody in the world? You get to make money?

18:48What do you actually enjoy about it?

18:50And why do you think it's a worthwhile endeavor for you to be spending your time doing?

18:54So I think that, well, first of all, it's an incredible privilege.

18:58All those things you listed, obviously, I get to do, and who really gets to do that?

19:03And so I think the greatest satisfaction is when we're working on a complex situation.

19:11Could be something in the portfolio. Could be acquiring an asset.

19:14Could be solving a client's problem.

19:16I think it's when the team comes together and we can come up with differentiated solutions and really perform and win.

19:25As a team, it's hugely satisfying for me.

19:28I've had the privilege of working with some of the best people on Wall Street for 30 years.

19:32And so that, I would say, by far is the most challenging.

19:36And seeing people's careers grow, right?

19:38As people evolve, and if you're fortunate enough to be the leader,

19:42and you see them grow even from being analysts to much more senior in organization, there's a lot of satisfaction in that.

19:48So many people are obsessed with who the next president of the United States is going to be.

19:52Do you think it makes that much difference for the private equity, private credit world if one person is president versus another person?

19:59Well, I think more broadly for markets, I think it's 23.

20:0423 elections since the S&P 500 was formed.

20:08In any year where there's a Democratic incumbent, the stock market goes up.

20:13I think it goes up something like, I'm going to get these numbers slightly wrong for anybody who's on chat or anything.

20:16I think it goes up 11% if a Democrat wins, 12% if a Republican wins.

20:21I think that specifically the narrow answer to your question is I don't think it actually has a big influence in terms of private markets.

20:30I think the capital that we're providing at the margin is so critical to economic growth that I don't spend a lot of time thinking about it.

20:38So if you could only have one magazine with you on an island...

20:42Forbes.

20:43Would Forbes be the magazine?

20:44Forbes.

20:45That's it. That's the right answer.

20:46Okay. Thank you very much. Harvey?

20:49Thanks, everybody.

20:50Okay. Thanks a lot.

20:52Great to be here. Have a good conference. Thank you.

Lessons In Leadership | Iconoclast Summit 2024

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