The Carlyle Group
The Ex-presidents' Club
by Oliver Burkeman and Julian
The Guardian, October 31, 2001
It is hard to imagine an address closer
to the heart of American power. The offices of the Carlyle Group
are on Pennsylvania Avenue in Washington DC, midway between the
White House and the Capitol building, and within a stone's throw
of the headquarters of the FBI and numerous government departments.
The address reflects Carlyle's position at the very centre of
the Washington establishment, but amid the frenetic politicking
that has occupied the higher reaches of that world in recent weeks,
few have paid it much attention. Elsewhere, few have even heard
This is exactly the way Carlyle likes
it. For 14 years now, with almost no publicity, the company has
been signing up an impressive list of former politicians - including
the first President Bush and his secretary of state, James Baker;
John Major; one-time World Bank treasurer Afsaneh Masheyekhi and
several south-east Asian powerbrokers - and using their contacts
and influence to promote the group. Among the companies Carlyle
owns are those which make equipment, vehicles and munitions for
the US military, and its celebrity employees have long served
an ingenious dual purpose, helping encourage investments from
the very wealthy while also smoothing the path for Carlyle's defence
But since the start of the "war on
terrorism", the firm - unofficially valued at $3.5bn - has
taken on an added significance. Carlyle has become the thread
which indirectly links American military policy in Afghanistan
to the personal financial fortunes of its celebrity employees,
not least the current president's father. And, until earlier this
month, Carlyle provided another curious link to the Afghan crisis:
among the firm's multi-million-dollar investors were members of
the family of Osama bin Laden.
The closest the Carlyle Group has previously
come to public attention was last May, when a Seoul-based employee
called Peter Chung was forced to resign from his £100,000-a-year
job after sending an email to friends - subsequently forwarded
to thousands of others - boasting of his plans to "fuck every
hot chick in Korea over the next two years". The more business-oriented
activities of Carlyle's staff have been conducted much more quietly:
since it was founded in 1987 by David Rubenstein, a policy assistant
in Jimmy Carter's administration, and two lawyer friends, the
firm has been dispatching an array of former world leaders on
a series of strategic networking trips.
Last year, George Bush Sr and John Major
travelled to Riyadh to talk with senior Saudi businessmen. In
September 2000, Carlyle hired speakers including Colin Powell
and AOL Time Warner chair Steve Case to address an extravagant
party at Washington's Monarch Hotel. Months later, Major joined
James Baker for a function at the Lanesborough Hotel in London,
to explain the Florida election controversy to the wealthy attendees.
We can assume that Carlyle pays well.
Neither Major's office nor Carlyle will confirm the details of
his salary as European chairman - an appointment announced shortly
before he left the House of Commons after the election - but we
know, for the purposes of comparison, that he is paid £105,000
for 28 days' work a year for an unrelated non-executive directorship.
Bush gives speeches for the company and is paid with stakes in
the firm's investments, believed to be worth at least $80,000
per appearance. The benefits have attracted political stars from
around the world: former Philippines president Fidel Ramos is
an adviser, as is former Thai premier Anand Panyarachun - as well
as former Bundesbank president Karl Otto Pohl, and Arthur Levitt,
former chairman of the SEC, the US stock market regulator.
Carlyle partners, who include Baker and
the firm's chairman, Frank Carlucci - Ronald Reagan's defence
secretary and a former deputy director of the CIA - own stakes
that would be worth $180m each if each partner owned an equal
slice. As in many areas of its work, though, Carlyle is not obliged
to reveal the details, and chooses not to.
Among the defence firms which benefit
from Carlyle's success is United Defense, a Virginia-based contractor
which makes vertical missile launch systems currently on board
US Navy ships in the Arabian sea, as well as a range of other
weapons delivery systems and combat vehicles. Carlyle's other
holdings span an improbable range, taking in the French newspaper
Le Figaro and the company which bottles Dr Pepper.
"They are big, and they are quiet,"
says David Mulholland, business editor of Jane's Defence Weekly.
"But they're not easy to get information out of, [but] United
Defense are going to do well [in the current conflict]."
United also owns Bofors, a Swedish munitions manufacturer.
Carlyle has said that it does not lobby
the federal government, thus avoiding a conflict of interest when,
for example, Carlucci met Rumsfeld in February when several important
defence contracts were under consideration. But critics see that
as a matter of definition.
"It should be a deep cause for concern
that a closely held company like Carlyle can simultaneously have
directors and advisers that are doing business and making money
and also advising the president of the United States," says
Peter Eisner, managing director of the Center for Public Integrity,
a non-profit-making Washington think-tank. "The problem comes
when private business and public policy blend together. What hat
is former president Bush wearing when he tells Crown Prince Abdullah
not to worry about US policy in the Middle East? What hat does
he use when he deals with South Korea, and causes policy changes
there? Or when James Baker helps argue the presidential election
in the younger Bush's favour? It's a kitchen-cabinet situation,
and the informality involved is precisely a mark of Carlyle's
The world of private equity is an inherently
secretive one. Firms such as Carlyle make most of their money
buying firms which are not publicly traded, overhauling them and
selling them at a profit, so the process by which likely targets
are evaluated is much more confidential than on the open market.
"These firms certainly don't go out of their way to get into
the headlines," says Steven Bell, chief economist at Deutsche
Asset Management. "They'd rather make a splash in Institutional
Pensions Week. The aim is to realise very high returns for your
investors while exerting a high degree of control over the company.
You don't want to get into the headlines when you force the management
to fire a director."
The process has worked wonders at United,
and this month the firm announced plans to go public, giving Carlyle
the chance to cash in its investment.
But what sets Carlyle apart is the way
it has exploited its political contacts. When Carlucci arrived
there in 1989, he brought with him a phalanx of former subordinates
from the CIA and the Pentagon, and an awareness of the scale of
business a company like Carlyle could do in the corridors and
steak-houses of Washington. In a decade and a half, the firm has
been able to realise a 34% rate of return on its investments,
and now claims to be the largest private equity firm in the world.
Success brought more investors, including the international financier
George Soros and, in 1995, the wealthy Saudi Binladin family,
who insist they long ago severed all links with their notorious
relative. The first president Bush is understood to have visited
the Binladins in Saudi Arabia twice on the firm's behalf.
The Carlyle Group does not employ anyone
at its Washington headquarters to deal with the press. Inquiries
about the links with the Binladins (as most of the family choose
to spell their name) are instead referred to someone outside the
company, on condition he is referred to only as "a source
familiar with the relationship". This source says: "I
can confirm the fact that any Binladin Group investment in Carlyle
has been terminated or is being terminated. It amounted to a $2m
investment in the Carlyle II Fund, which was anyway a very small
portion of a $1.3bn fund. In the scheme of the investments and
in the scheme of the business of either party it was very small.
We have to get this into perspective. But I think there was a
sense that there were questions being raised and some controversy,
and for such a small amount of money it was something that we
wanted to put behind us. It was just a business decision."
But if the Binladins' connection to the
Carlyle Group lasted no more than six years, the current President
Bush's own links to the firm go far deeper. In 1990, he was appointed
to the board of one of Carlyle's first purchases, an airline food
business called Caterair, which they eventually sold at a loss.
He left the board in 1992, later to become Governor of Texas.
Shortly thereafter, he was responsible for appointing several
members of the board which controlled the investment of Texas
teachers' pension funds. A few years later, the board decided
to invest $100m of public money in the Carlyle Group. The firm's
magic touch was already bringing results. Today, it is proving
as fruitful as ever.