For the Old Bush Team, a Whole New Ballgame:
Star
Power and Connections Are Paying Off for Ex-Officials in Private Equity
Business
by Leslie Wayne
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.
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.
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.
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.
Mr. Bush and Mr. Baker were accompanied on their trips by
former Prime Minister John Major of Britain, another of Carlyle's
political stars.
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.
Private equity, which involves buying up companies in private
deals and reselling them, is a high-end business open only to the
very rich.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Carlyle executives point out that many corporations have former
government officials as board members.
"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."
Others, however, see little difference between potential conflicts
involving lobbying and those involving investments.
"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.
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."
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.
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.
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.
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.
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.
From Carlyle's point of view, the involvement of Mr. Baker and
the former president is invaluable.
"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."
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.
These numbers put Carlyle in the same league as better-known
private equity firms like Kohlberg Kravis Roberts Co. and
Forstmann-Little Co.
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.
"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."
A former Carlyle employee said, "The firm understands that having
Bush and Major around is like having movie stars around."
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.
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.
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.
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.
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.
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.
That said, Carlyle partners bristle at any suggestion that the
company's success is based only on high-powered schmoozing.
"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."
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