The New York Times | March 5, 2001, Monday


   Elder Bush in Big G.O.P. Cast Toiling for Top Equity Firm

   By LESLIE WAYNE

   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 A. Baker III,
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 firm based in Washington that has parlayed a roster of former
top-level government officials, largely from the Bush and Reagan
administrations, into a moneymaking 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 include investments in most corners of the world. It owns
so many companies that it is now in effect one of the nation's biggest
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, one of Korea's few healthy 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, and 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 C. Carlucci, a Reagan secretary of defense who as
much as anyone is responsible for Carlyle's success, said he met in
February with his old college classmate Donald H. Rumsfeld, the
secretary of defense, and 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 firm's activities do not present
any potential conflicts since Mr. Bush, Mr. Baker and other former
Republican officials now at Carlyle -- including Mr. Carlucci, who is
Carlyle's chairman, and Richard G. Darman, Mr. Bush's former 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 with the federal
government,'' said David Rubenstein, the firm's 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 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 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; he is
an adviser and an investor and 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 A.
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 nation's
largest 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 & Company and Forstmann-Little & Company.

   Two hundred forty Carlyle employees are stationed throughout the
world either raising money or finding ways to spend it. Carlyle has
ownership stakes in 164 companies, which last year employed more than
70,000 people and generated $16 billion in revenues. About 450
institutions -- mainly large pension funds and banks -- are Carlyle
investors.

   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 Bush is involved doesn't 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.''

   One 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 the 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
French newspaper.

   ''Carlyle is one of the most successful fund-raising groups,'' said
Mario L. Giannini, president of Hamilton Lane, a Philadelphia consultant
to institutional investors. ''They have tremendous access and they have
done very well with their money.''

   And its access extends well beyond American shores. In Europe,
Carlyle has assembled an advisory board that besides Mr. Major includes
Karl Otto P÷hl, former president of German's Bundesbank, and the past or
present chairmen of B.M.W., Hoffman-LaRoche, NestlÚ, LVMH-MoŰt 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 V. Ramos of the
Philippines, the former prime minister of Thailand and the executive
director of the Abu Dhabi Investment Authority. The 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 firm'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 Mr. Bush is one of our advisers.''

   On that point, others agree. ''People took potshots at Carlyle early
on and tried to denigrate their investment credentials because they had
all these government officials over there,'' said Bernard Aronson,
managing partner at ACON Investments, a private equity firm in
Washington. ''But that's sort of a myth. The all-hat-and-no-cattle has
disappeared because they performed consistently, delivered excellent
returns and have become global players.''

   One of the people who put Carlyle on the map -- developing its riches
and its image -- is Mr. Carlucci, who joined the firm in 1989 when it
had engaged in a string of ill-fated ventures. He is credited with
steering Carlyle into successful defense industry acquisitions -- just
when other investors were shunning them -- and with using his seat on
more than a dozen corporate boards to bring Carlyle deals and investors.

   In an office adorned with photographs of Mr. Carlucci and the
politically mighty -- he sits beneath an Oval Office picture of himself
and Mr. Reagan -- Mr. Carlucci makes it clear that his extensive
government and global ties are as fresh as ever.

   ''I know Rumsfeld extremely well,'' Mr. Carlucci said in an
interview. ''We've been close friends throughout the years. We were
college classmates.''

   Pointing to a picture of the Chinese president, he said, ''There's a
photo of me and Jiang Zemin. And there's me and the president of
Taiwan.''

   Right now, Carlyle is hoping that financing is provided for the $13.7
billion Crusader program. The Crusader is a heavy-duty tank made by a
Carlyle portfolio company and other contractors. And Carlyle just lodged
a complaint with the government after another of its portfolio companies
lost a $4 billion contract to build a lightweight combat vehicle.

   While Mr. Carlucci is open about his discussions with Mr. Rumsfeld on
Pentagon policies, he said he never lobbies. ''I've made it clear that I
don't lobby the defense industry,'' Mr. Carlucci said. ''I will give our
Carlyle bankers advice on what they might do and who they should talk
to. But I do not pick up the phone and say you should fund X, Y or Z.''

   If Washington's revolving door brought Republicans to Carlyle during
the Clinton presidency, now the firm is preparing for an onslaught of
Democrats. The day these interviews took place at Carlyle's Washington
office, Gene Sperling, one of the Clinton administration's top economic
advisers, was in for a job interview.


   (In accordance with Title 17 U.S.C. Section 107, this material is
distributed without profit to those who have expressed a prior interest
in receiving the included information for research and educational
purposes.)

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