The Carlyle Group is one of the most well-known private equity firms in the world, with 26 offices across five continents and $301B in assets under management. That success may be attributed in large part to its co-founder David Rubenstein.

Rubenstein is a lawyer who served as chief counsel to the U.S. Senate Judiciary Committee's Subcommittee on Constitutional Amendments and as a deputy domestic policy adviser to President Jimmy Carter. He is also a philanthropist, a member of the Harvard Corp. and an interviewer with shows on Bloomberg TV.

This week, Rubenstein was the guest on the Walker Webcast where he spoke to Walker & Dunlop CEO Willy Walker about what it took to build The Carlyle Group, the rules of money management and the state of private equity.

Walker started off by asking Rubenstein what set The Carlyle Group apart from other firms when it was first established in 1987. Rubenstein said opening an investment firm in Washington, D.C., was different since the majority were operating out of New York and Chicago. Additionally, they brought in people who had worked in the government to improve visibility. But what he said he truly believes The Carlyle Group did to change the face of private equity was to redefine how it had been done traditionally.

“We decided we would do more than buyouts — we had a buyout fund but we also had other disciplines including real estate, growth capital and credit,” he said. “We decided to build an institutional firm, and then we decided to globalize it, recruit people for a European fund, an Asian fund, a Latin American fund and so forth.”

Rubenstein said in the firm’s early days, he intended to keep it small, to the point where he had his real estate broker remove the option on the company’s first office space for additional lease so they wouldn’t be tempted to grow. Of course, the group did end up growing, which he attributes to the fact that it was turned into a multiple-discipline, global firm.

Walker then brought up a series of rule changes recently proposed by the Securities and Exchange Commission that call for more information and disclosures from private equity firms and asked Rubenstein, “Is it fair to say that SEC Commissioner Gary Gensler doesn’t understand the meaning of the word ‘private’?”

“What is private anymore?” Rubenstein said. “You are getting investors to give you money, and very often, while it might be called ‘private equity’ you are often in the public domain in some respects. I’m not surprised that people want more disclosure. There's a general view that sunlight is the best disinfectant, so getting more information out is probably not a harmful thing.”

Walker went on to ask Rubenstein about his three rules for money management, which are: Don’t lose what you have, diversify and have realistic expectations about the rate of return. Regarding the first point, Walker was curious about Rubenstein's move in 2020 to reinvest $162M into Carlyle funds when based on his rule, he should have put it somewhere less risky.

Rubenstein said Carlyle has done quite well for him over the years so he does not view that investment as a risk.

“What I mean by that rule is that very often people make money in one arena that they are a genius in, and think that because they’re a genius in that one thing they're going to take the same kind of risks they took in building wealth in investing,” he said. “It's a different skill set so I would warn them not to lose what they have by taking an undue risk when they’re not really familiar with what they’re doing.”

As for the types of “realistic expectations” people should have about their returns, Rubenstein said for people going into private equity, somewhere between the mid-teens returns or slightly better would be realistic. For mutual funds, he said, those expectations should be slightly lower and for people investing in core real estate, they might see a 3% to 5% rate of return.

“Nobody really can predict where the markets are going,” he said. “I think today, we are not looking at a recession in the near future. I think the economy is in reasonably good shape."

On Feb. 16, Walker will host Alex Rampell, general partner at Andreessen Horowitz. Register here.

This article was produced in collaboration between Studio B and Walker & Dunlop. Bisnow news staff was not involved in the production of this content.

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