For the Old Bush Team,
a Whole New Ballgame

Star Power and Connections Are Paying Off for Ex-Officials
in Private Equity Busin
ess

Leslie Wayne New York Times Service (International Herald Tribune, Tuesday, March 6, 2001)


WASHINGTON
During the presidential campaign last year, former President George Bush took time off from his son's race to call on Crown Prince Abdullah of Saudi Arabia at a luxurious desert compound outside Riyadh to talk about American-Saudi business affairs.

Mr. Bush went as an ambassador of sorts but not for his government. In the same way, Mr. Bush's secretary of state, James Baker 3d, recently met with a group of wealthy people at the elegant Lanesborough Hotel in London to explain the Florida vote count.
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Traveling with the fanfare of dignitaries, Mr. Bush and Mr. Baker were using their extensive government contacts to further their business interests as representatives of the Carlyle Group, a $12 billion private-equity company.
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Based in Washington, the Carlyle Group has parlayed a roster of former top-level government officials, largely from the Bush and Reagan administrations, into a money-making machine.
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In a new spin on Washington's revolving door between business and government, where lobbying by former officials is restricted but soliciting investments is not, Carlyle has upped the ante and taken the practice global.
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Mr. Bush and Mr. Baker were accompanied on their trips by former Prime Minister John Major of Britain, another of Carlyle's political stars.
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With door-openers of this caliber, along with shrewd investment skills, Carlyle has gone from an unknown in the world of private equity to one of its biggest players.
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Private equity, which involves buying up companies in private deals and reselling them, is a high-end business open only to the very rich.
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Over the last decade, the Carlyle empire has grown to span three continents and includes investments in most corners of the world. It owns so many companies that it is now in effect one of the biggest U.S. defense contractors and a force in global telecommunications. Its blue-chip investors include major banks and insurance companies, billion-dollar pension funds and wealthy investors from Abu Dhabi to Singapore.
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In getting business for Carlyle, Mr. Bush has been impressive. His meeting with the crown prince was followed by a yacht cruise and private dinners with Saudi officials, including King Fahd, all on behalf of Carlyle, which has extensive interests in the Middle East.
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And Mr. Bush led Carlyle's successful entry into South Korea, the fastest-growing economy in Asia. After his meetings with the prime minister and other government and business leaders, Carlyle won a tough competition for control of KorAm Bank, one of the few healthy Korean banks.
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The steady flow of politicians to lucrative private-sector jobs based on their government contacts is a familiar Washington tale. But in this case, it is being played out for more dollars, on a global stage, and in the world of private finance, where the minimal government rules prohibiting lobbying by former officials for a given period are not a factor.
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These rules say nothing about potential conflicts when former government officials use their connections and insights for financial gain. They may attract more notice now that George W. Bush is president.
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Many of those involved with Carlyle, which invests largely in companies that do business with the government or are affected by government regulations, have ties to the Oval Office.
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For instance, Frank Carlucci, a secretary of defense under President Ronald Reagan, who as much as anyone is responsible for Carlyle's success, said he met in February with his old college classmate, Donald Rumsfeld, the new secretary of defense.
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He also met with Vice President Dick Cheney, himself a defense secretary under former President Bush, to talk about military matters - at a time when Carlyle has several billion-dollar defense projects under consideration.
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Carlyle officials contend that the company's activities do not present any potential conflicts. They say that former President Bush, Mr. Baker and other former Republican officials now at Carlyle - including Mr. Carlucci, who is Carlyle's chairman, and Richard Darman, who was Mr. Bush's budget director - do not lobby the federal government.
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Carlyle executives point out that many corporations have former government officials as board members.
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"Mr. Bush gives us no advice on what do with the federal government," said David Rubenstein, the company founder and a former aide in the Carter White House. "We've gone over backwards to make sure that we do no lobbying."
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Others, however, see little difference between potential conflicts involving lobbying and those involving investments.
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"Carlyle is as deeply wired into the current administration as they can possibly be," said Charles Lewis, executive director of the Center for Public Integrity, a nonprofit public interest group based in Washington. "George Bush is getting money from private interests that have business before the government, while his son is president.
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And, in a really peculiar way, George W. Bush could, some day, benefit financially from his own administration's decisions, through his father's investments. "The average American doesn't know that," he said, "and, to me, that's a jaw-dropper."
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It is difficult to determine exactly how much money the senior Mr. Bush and Mr. Baker have made. Mr. Baker is a Carlyle partner, and Mr. Bush has the title of senior adviser to its Asian activities.
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With a current market value of about $3.5 billion on Carlyle's equity and with the firm owned by 18 partners and one outside investor, Mr. Baker's Carlyle stake would be worth about $180 million if each partner held an equal stake. It is not known whether he has more or less than the other partners.
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Unlike Mr. Baker, Mr. Bush has no ownership stake in Carlyle; as an adviser and an investor, he is compensated by obtaining stakes in Carlyle investments.
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Carlyle executives cited, for example, Mr. Bush's being allowed to put money he earns giving speeches for Carlyle into its investment funds. Mr. Bush generally receives $80,000 to $100,000 for a speech. He sits on no corporate boards other than Carlyle's.
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Carlyle also gave the Bush family a hand in 1990 by putting George W. Bush, who was then struggling to find a career, on the board of a Carlyle subsidiary, Caterair, an airline-catering company.
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From Carlyle's point of view, the involvement of Mr. Baker and the former president is invaluable.
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"It punches up the brand awareness for us globally," said Daniel D'Aniello, a Carlyle managing director. "We are greatly assisted by Baker and Bush. It shows that we are associated with people of the highest ethical standards."
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With $12 billion from investors, Carlyle claims to be the largest U.S. private-equity fund and makes money by investing in undervalued companies and reselling at a profit.
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These numbers put Carlyle in the same league as better-known private equity firms like Kohlberg Kravis Roberts Co. and Forstmann-Little Co.
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The California state pension fund invested $305 million with Carlyle, and the Texas teachers pension fund - whose board was appointed when George W. Bush was governor - gave Carlyle $100 million to invest in November. Carlyle also works as a financial adviser to the Saudi government.
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"Let's say Carlyle is going fund-raising in the Middle East and they bring Bush along," said David Snow, editor of Private Equity Central, a trade publication. "He led the U.S. Army into that region." That will catch the attention of very wealthy investors in Saudi Arabia and Kuwait. The fact that Mr. Bush is involved does not mean that Carlyle will make great investment decisions. But it will get them access to certain deals and certain countries that they might otherwise not have."
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A former Carlyle employee said, "The firm understands that having Bush and Major around is like having movie stars around."
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Yet Carlyle's success is not just because of its high-powered connections. Carlyle has done well for its investors, returning an average of 34 percent a year over the last decade, in line with other private equity funds.
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It has done this by buying what it knows best - companies that are regulated by government. Nearly two-thirds of its investments are in defense and telecommunications companies, which are affected by shifts in government spending and policy.
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Carlyle has become the nation's 11th largest defense contractor, owning companies that make tanks, aircraft wings and a broad array of other military equipment. It also owns health care companies, real estate, Internet companies, a bottling company and even Le Figaro, the Paris newspaper.
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In Europe, Carlyle has assembled an advisory board that besides Mr. Major includes Karl Otto Poehl, former president of Germany's Bundesbank, and the past or present chairmen of BMW, Hoffman-LaRoche, Nestle, LVMH-Moet Hennessy Louis Vuitton, and Aerospatiale, the French Airbus partner.
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Carlyle's Asia advisory board, which helps raise money and finds and reviews deals, includes former President Fidel Ramos of the Philippines; a former prime minister of Thailand, Anand Panyarachun, and the executive director of the Abu Dhabi Investment Authority. A former South Korean prime minister, Park Tae Joon, was also an adviser to Carlyle.
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This star power is a source of great pride for Carlyle and part of an acknowledged long-term strategy to associate the firm with brand-name politicians and business executives in order to attract more of the same - along with their money, insights and connections.
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That said, Carlyle partners bristle at any suggestion that the company's success is based only on high-powered schmoozing.
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"If our track record was not good, people would not invest with us," said Mr. Rubenstein, the founding partner. "No one would gives us money just because Bush is one of our advisers."