David, it is good to see you. Thank you very much for coming here.
My pleasure. It's good — it's baseball offseason, so this is a time you've got some free time.
Baseball is never offseason, but yes. You said the other day that you thought that the business community — and I think this was partially from some of your meetings here — was that they are going to get a better shake, rightly or wrongly, from this administration than they did from the last one. Are they right, or are they wrong?
I didn't use the phrase 'better shake,' but maybe something like that. Maybe somebody misquoted me. I would say that the business community feels that they will probably get a better hearing than they got under the previous administration, rightly or wrongly. That's their perception.
You interviewed Donald Trump for your most recent book, which is a book about presidents. What did you learn about him that surprised you?
Well, I was interviewing him right before the trial. He can compartmentalize very well. He was about to go on trial that afternoon, and he gave me an interview. He compartmentalized it very well, because I would not be doing any interview at that time. Look, he's a different person than he was before. I interviewed him before he ran for president of the United States. In the green room, he said to me, 'David, ask me any question you want, but don't ask me if I'm going to run for president.' I said, 'President, what?' He said, 'President of the United States.' I said, 'Donald, you're not going to be president of the United States.' He said, 'Well, you know, you never know.' So at that time, I don't think he really thought he was going to be president. He was interested in it, but I thought, you know, he felt probably it's a bit of a long shot. He had 17 other people he was running against. This time, I think he felt he was going to win almost from the beginning, despite all the aggravations he felt and all the legal problems. I think he thought he was going to win. He's a different person in the sense that he's much more experienced. When he went in last time, he had no experience in federal government. Nobody had ever been president of the United States with no experience in federal government. Nobody. He came in with no experience, and therefore he relied on a lot of people that he didn't really know. He didn't think they were completely loyal. Now he's used loyalty as a test. He's got his people, he knows what he wants to do, and I think he's going to move pretty quickly.
I'm curious, from an economic standpoint, how would you judge the Biden presidency?
Well, if you eliminate the politics of it and you just look at the numbers, more jobs were created in his four years than virtually any other president in a four-year period. Now, some of it was the rebound from COVID, of course. Secondly, inflation was not good, for sure. They missed it. They called it transitory in the beginning, but in the end they got inflation down to a tolerable level, roughly 3%. The unemployment level is very, very low. And, you know, if you say, look, the unemployment level is low, GDP growth was pretty good. On the whole, his numbers were pretty good. Much better. When I worked in the White House for Jimmy Carter, the numbers weren't as good, and we were criticized, we lost as well. I think Biden's numbers are much better than he got credit for, in my view.
Are you surprised — you know, to go back to the beginning — are you surprised that the business community is so excited that Biden is out, given what you said, that the numbers were good?
Well, those numbers are macroeconomic numbers. Getting deals approved through the FTC and the Justice Department weren't so wonderful. Getting your cryptocurrency approved by the SEC wasn't exactly an easy thing to do. So the business community, I think, felt that President Biden went in and he campaigned as a moderate, but then he had more leftist people running some of those agencies, and I think they were disappointed. So I think on a micro level they were not happy, and I think they feel they'll get a better hearing, let's say, in this administration, rightly or wrongly.
You obviously co-founded and chair Carlyle Group, private equity. For the last couple of years, there has been a dearth of exits in the industry as a whole. Lots of limited partners in funds basically keep saying, 'Where's my money?' And the response from a lot of partners and heads of private equity firms is to basically blame the Biden administration on the antitrust side. I never blame the — I don't blame the Biden — where have — that's fair. Why have we seen relatively few exits out of private equity?
It's true of venture too. I don't think it's just because the regulators are the problems. I think inflation was very, very high, and so that was a problem for people. Interest rates were high, that was a problem as well. So high interest rates and high inflation is not a good prescription for IPOs. And also remember, we have fewer companies that are public than we did, let's say, in 1997. We have half as many. So taking an IPO isn't the end-all of business anymore. It used to be, but now you have a company like Stripe — they're happy never to go public.
They are. I mean, why — you know, when Carlyle speaks to its limited partners to say, you know, why has the exit pace gone down, not just for you but for your peers? I mean, the public markets — I appreciate what you said about inflation, but the public markets have been fairly good. And if on the acquisition side private equity still mostly sells to other private equity, and even that slowed down, and there's almost never an antitrust problem or regulatory problem, right?
Well, private equity still, for all these years — the Biden years — outperformed most other asset classes for most of those years. Not every asset class outperformed the public markets. The public markets are pretty good. Last couple of years — I should have mentioned that as well — the last year or so, the public markets are up 20-some percent. That's not bad. So on the whole, Biden's economy wasn't so terrible. The private equity markets have been a little bit challenged, for sure, but firms, investors aren't going away. They're not going away. I think one of the excitements that private equity people have now is that there's a big sea change going on in the investor base. It used to be the investors were banks and insurance companies, high-net-worth people. Then it became state pension funds. Then it became sovereign wealth funds. Then it became family offices. But now the Holy Grail is going to be the 401(k) market. There's about $14 trillion there, and the US government's policy is: if you went to Harvard or an equivalent school and you majored in economics and you're first in your class, but you went for Teach For America and you're there and you make no money, but you're not a qualified investor because you don't have a big income, so you can't get some of your 401(k) to go into a private equity fund. If you're an idiot, your father gave you $100 million and you don't know what you're doing, you can put all your money in private equity. Nobody cares because you can afford to lose your money, right? But the US government policy has been to not let people who should get higher rates of return and need them — the Teach For America example — they're not letting them put even 5% of their 401(k) into a private equity vehicle. And I think that's going to change in this administration.
When do you think that's going to change? Do you think it's going to become a true free-for-all, anyone's going to be able to put a certain percentage of their net worth into private equity?
Well, I can't speak for the regulators, but I would say it wouldn't be — if you were to design it, and I know I appreciate your question, you say 100% — I wouldn't say that. I would say I don't think anybody will — well, first of all, as Marc Rowan has pointed out, and I think it's a good point, right now people buying public index funds — 35% of the S&P 500 is in seven companies, more or less. So why be so tied up in seven companies? Why not let 5% or 10% of your IRA or 401(k) go into an illiquid fund which has some valuations put to it, just not daily liquidity?
You — one of the things — we're about to get a major DC tax conversation. It's coming again, in terms of corporate taxes, personal tax, etc. When this happened back in 2017, carried interest tax, which is taxed — obviously it's near and dear to the heart of private equity — was part of that conversation, and ultimately the treatment wasn't changed. Could you first —
It was changed. It went from two years to three years. But the basic theory, the basic argument that it should be treated as ordinary income, the big money was not changed. Yeah, President Trump — from — but Trump wanted to do it back then. Trump was not in favor of carried interest taxation, and it was pushed back from Capitol Hill. That went from two years to three years. Who knows where that's going to be. I don't get carried interest, so I got tired of responding to that question, so I just structured my affairs so I have no carried interest.
Wait, you have no carried interest in Carlyle funds?
No, no. All I have is my stock, my dividends, and my personal investments in the funds. The carried interest goes to people working on the deals right now, and I'm not doing that.
So do you have no opinion on what should happen with it?
I have opinions. Just because I don't get any doesn't mean I don't have opinions. I think it's not the end of the earth. It's not the biggest tax issue of all time. There are much more significant tax issues, but it'll get much more attention than I think it deserves.
But could private equity as an industry, the way it's currently structured, the way Carlyle is and others, could it survive and persist if carried interest was treated as ordinary income?
Well, I think nothing is going to stop private equity from existing, I think. But clearly you attract more people to some extent than you might have otherwise. But I don't want to say the industry will fall apart. I think the industry is better off with it, but I don't get any of it. I don't really care. It's not my main issue. I do think that people that want to change the carried interest rules are going to have a tough time getting that through the Senate.
A lot of the conversation here in Davos and on this stage has revolved around — private equity has always been known as this apprenticeship business. You know, often you bring in people young as analysts and they work their way up, they learn things. I asked a similar question earlier —
It's true of most businesses.
It is true of most businesses. When you think of Carlyle, do you see AI at some point starting to replace some of those lower levels, and will there not be people to promote to managing director, managing partner?
I worry less about the lower level and the senior levels being replaced. But no, look, AI is going to help people make the core decision you have to make in the private equity world: do this deal, not do this deal. So we have a relationship with OpenAI, and we're working in a system where you use the data that you get through artificial intelligence to help you make the decision, and we've been doing that already and like it. It's like take our fund-of-funds business. If you're going to do a fund-of-funds portfolio and let's suppose you're going to buy $500 million of secondaries, you have to go through all those portfolios in that thing. It takes months to do that. With AI, you can do it relatively quickly. And so I think AI is going to change the investment business of private equity by enabling people to make quicker decisions, for sure, and hopefully better decisions.
Bill Ford of General Atlantic held a panel down at Lighthouse earlier today, and he talked about how they now have an actual AI on their investment committee — not a vote, but it gets to basically tell them if it thinks their vote is wrong by going through all their old investments and things that worked, things that didn't. Do you foresee a point in time, I guess, where a computer or an AI really gets a vote on what Carlyle deals it actually does and doesn't do?
Well, it will have the controlling vote? Probably not. But it will have some influence, for sure. But, you know, people have their own opinions, and it's hard to — somebody has a view that it's a great deal to do, and he or she knows this business very well. Artificial intelligence might suggest something different, but people rely on their gut. For example, I don't think Warren Buffett is going to rely on AI to make decisions, and, you know, he relies on his gut, and he's got a pretty good gut. So a lot of great investors rely on their own backgrounds. I did a book on great investors, and most of them are probably not focused on the kind of things that AI helps you with, though I'm not sure that the average investor wouldn't be benefited from it.
Do you use AI at all in your personal life?
