Atelier 15, article 1


© Leslie Wayne :
(from New York Times, March 6, 2001)

                                  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." 

                               Copyright © 2001 the International Herald Tribune All Rights Reserved

Retour