Masters in Business LIVE: Carlyle Group CEO Harvey Schwartz

0:00I'm Hannah Fry, and as we rely more and more on artificial intelligence in every facet of our lives and businesses, I'm on a mission to find out how we can build the internet internet. AI needs. Learn more later in the podcast.

0:40on the edge of what we think we know. Wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, radio, news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. We have a bonus Masters in Business for you live from future-proof citywide Miami. I sit down with Harvey Schwartz, the CEO of the Carlisle Group. He has a really fascinating and somewhat unconventional path to Wall Street. We talk about he's just a New Jersey kid who didn't know what he wanted to do and had a hard time figuring out his life goals.

1:33And, you know, thanks to people who took an interest in him and a couple of good breaks, plus a whole lot of smarts and hard work, he ended up really creating a career for himself, not only at firms like Goldman Sachs, but eventually getting tapped to become CEO at Carlyle. I find Harvey to be an absolutely fascinating guy. He is a no holds barred, blunt speaker, truth teller, really, really interesting person. I thought this conversation was great. You can tell I'm having a lot of fun. With no further ado, our special bonus Masters in Business Live with Harvey Schwartz, CEO of the Carlyle Group.

2:19I am just so thrilled to introduce you all to somebody that not only are you going to know more about in the coming years, but it's been my pleasure to get to know over the past couple of months. Harvey Schwartz is CEO of Carlisle. He comes to finance in a rather unusual way. And I'm going to let Harvey tell his story. Let's start right there. You have a really unconventional... Well, before we go there, Carlisle, private equity, private credit, been doing this for a long time. Chairman is David Rubenstein. Tell us a little bit about Carlisle first. What do you guys do? How much do you manage?

3:02Just give us the 30-second version. Sure. Well, first of all, Barry, thanks for doing this. Great to see you again. Everyone fantastic to be here. This is such an amazing venue. So, Carlisle today is about$450 billion of assets spread across private equity, real estate, infrastructure, credit, insurance, and secondaries and co-invest. For all of you in the audience, there are a number of solutions. You can show your clients, CTAC, which is the best of credit, CAPM, I'm sure we'll get into some of this, which is our secondaries co-invest business. and towards the end of the year, we'll be launching our private equity solution.

3:42But I would say, you know, for me, I've been at Carlyle for two years. It's been an incredible privilege. The firm was founded in 1987 by David, Bill, and Dan, who really have created a culture which is extraordinary in terms of the people. We're 2 ,300 people today. Zach Foreman, I don't know if Zach Foreman's in the crowd anywhere. Zach, can you stand up? Zach leads our effort down here, so everybody should go to Zach afterwards. And then we have a boot. So, hey, I'm done with my advertising for the day, but I feel like I've accomplished that. So let's talk a little bit about your background.

4:20You know, when I look out at the world of finance and see who are CEOs of companies that are 200 billion, half a trillion, a trillion plus, I don't want to say they're all alike because they're not, But there's a certain background that you tend to see, a certain type of college and business school and career path. You're just a guy from Jersey. How did you sort of fall ass backwards into finance? Well, I mean, there are other successful people from New Jersey, Barry. John Stewart is two. Bruce Springsteen. Three. No, there's a couple. But what Barry's getting at is a little bit unconventional.

5:00I mean, everybody has the complexity of their life story. But for me, I did grow up in New Jersey. I had two parents who were quite educated. But tragically, they suffered from severe mental illness. My mother suffered from what we would call today bipolar disorder. And my father suffered really quite tragic schizophrenia, which sort of over time really just completely consumed him. And this is, you know, many decades ago. And so treatment wasn't as good. an understanding wasn't as good the stigma of mental health related issues and severe mental health is still an extraordinary problem everywhere in the world certainly in our country but back then it was even much worse um and so my mother passed when I was 14 I don't want you all to feel like you have to go to therapy with me and Barry by the way um but uh my mother passed uh when I was 14 and then um it was me and my father and it wasn't a particularly healthy environment and so I basically ended up doing really, really badly in high school.

6:03I barely graduated. By the time I was a senior, I think it was like right around Christmas when I was a senior in high school in New Jersey, I'd missed 27 days of school, which by the way, if you actually do the math, it's super hard to do. And so there was a good chance I wasn't going to graduate. I didn't apply to any colleges, but I got super fortunate. And, um, you know, um, Chris was really generous when she introduced me, she referred to as a mentor. And I think you do have mentors for hopefully everyone here has mentors in your life. I had people that were more like angels that really like intervened for whatever reason they did to, uh, help me at certain crazy pivotal times in my life.

6:42And, um, one was a woman named Linda. I had, she encouraged me to apply to Rutgers. I wasn't going to college. I applied. I didn't get in. Linda, who's like not an influential person like you. Let me stop you there. Wasn't there a brief sojourn to California post high school? Yeah, well, that was like one of the earlier angels. So when I never really talked this much about this publicly, so I apologize if anybody finds it not interesting. But when I realized I had missed so many days of school, there was a chance I wasn't going to graduate. Certainly my grades were not doing well. My father and I were deteriorating pretty quickly.

7:19And when I turned 18 in March of that year, it was my birthday last week, by the way. In March of that year, I signed myself out of high school. And I had called some friends in California. I asked if they would let me come live with them. And so I moved to California. I actually graduated high school out there. Those are like, there were a lot of angels, but that family was an extraordinary angel. They took me in, but I didn't apply to any colleges. and then eventually Linda came along and encouraged me to apply to Rutgers. That was the next year. That was back in New Jersey. Yeah, so I come back.

7:51And by the way, full disclosure, I, Mac on New Jersey, I grew up in Teaneck, New Jersey, so I feel like I'm allowed to make fun of the state. Yeah, no, of course. And yet another successful person from New Jersey right here live. So no, it was a complicated, confusing time. I had to come back. I lived with my father. That wasn't great. I was working as, for those of you who are old enough, a health instructor at a squash club in Chatham, New Jersey, for any of you know New Jersey. And there was a thing called Nautilus. I was the person that trained people in the gym, which is sort of hard for you to imagine looking at me today.

8:31But I had hair thinner, better, more fit. But anyway, Linda and her husband used to come through, and I just got to know them, And she said she was a Rutgers graduate, but she wasn't an influential person like you, Barry. And she encouraged me to apply. I didn't get in because of my track record in high school. And she was so incensed by this that she called the university and basically convinced them to interview me and write an essay about why I was such a screw-up in high school. and Rutgers, which is an incredible institution, changed their selection, allowed me to go to school and that's why, you know, Linda's an angel and the Mora family's an angel and these people like really intervened in my life, I think, in ways that are kind of hard to conceive.

9:22And Rutgers today, I think the stats are well over half. The students still get financial aid, sort of one in three or first ever go to college and their family. It's an amazing institution and for someone like me gave me all the opportunity in the world. That's great. By the way, don't take the lesson that if your kid doesn't get into Princeton, call up and yell at the admissions department. That's not the lesson we want you to take from this. So you're now coming out of Rutgers. You don't have the traditional Ivy League business school background. How do you find your way into the world of finance?

10:01Very clumsily. I didn't know Rutgers, certainly back then, much better now. I didn't know there were JP Morgans in the world or Morgan Stanley's or Goldman Sachs. I had, I didn't even know where Wall Street was. I'd never been to Wall Street. First time I went, I was surprised it was such a little street. I just pictured a much bigger street. So it's pretty naive, about as naive as you could get. And then through a friend, I took a job at a firm called J.B. Hanauer. For those of you old enough, it was a municipal bond firm back in the day. This is 1987. And just show of hands, how many people know what it means to work on a draw?

10:42Yeah, so I worked on a draw, which means you got paid$1 ,000 a month, but effectively it was a loan and you owed it back and you cold called and you tried to build your book of business. And I proved to be uniquely bad at this. Uniquely bad at this. Yeah. Maybe a little bit was timing. My first day coming out of the training program was the day the stock market fell. 87. Yeah. October 19th, down 508 points. There I was like naively cold calling people. By the way, back then there were like real phones. You had to actually push buttons and stuff. and they had this little cushion thing. You would keep your head like this and you were mostly crippled by the end of the day.

11:25But so, yeah, it was a bad time to try and I didn't do very well at it. I had no money. I owed everybody in the world money. I had borrowed a lot of money to go to school, friends, anyone I could find. And, you know, it was pretty stressful. So how do you make your way from cold calling into either asset management or firm-wide management. You've run your way through a lot of different departments. How do you go from just being a smiler and dialer to somebody large and in charge? Well, I got really fortunate. I was at a tough point. My daughter was one year old, and I was kind of really running out of money.

12:14at one point I thought geez I might have to file for personal bankruptcy but I didn't really know what that meant but I knew it was a thing you did when you ran out of money and again a friend did me a huge favor and got me a position in the what they referred to as the back office at Citibank in 1989 and that was really the first time I'd say I was on a track that would begin to look more conventional, although obviously starting in the back office, I was hired as a temp. I eventually became a full-time employee, and then I went into the credit training program at Citibank. But I will say, right around that period, I asked someone, I worked with them at Citibank, and I was so impressed with how intelligent they were.

13:03And this will give you a sense of how clumsy I was still. And we went out one night and I said something to the effect of, geez, you're so smart. I would have thought you would have accomplished more by now in your life, which is a horrible, cringeworthy thing to say to someone. But he was so gracious. Taught me a lot in that moment because he was gracious about it, didn't get offended. And he said, you know, Harvey, you'll learn in your life, careers are 50 % luck, 50 % skill. And that always stuck with me, Barry, because I don't know that it's 50 % luck. But for me, I got to say, like, there are days it feels mostly 90-10 or 99-1 that it's luck.

13:43And I think along the way, people, every time you're given responsibility, somebody's making a leap of faith, giving you that responsibility. And along the way, people did, whether it was at Citibank, then I went to Goldman Sachs. I had some incredible experiences at Goldman Sachs. I moved around quite a bit after leaving Goldman Sachs in 2018. Ultimately, Carlisle called. Carlisle calling is luck, right? It's just a random thing that I end up sitting here with you. And so I think that it's really hard to... I'm going to pull out the yellow card and call on that because lots of luck up to this point.

14:24but you're a Goldman for a while and you're developing a reputation. You're improving what's already a very well-oiled machine. When Carlisle called you, it wasn't, let's randomly call somebody and see if we can find a new CEO. They knew who you are. Yeah, that's true. I don't want to overweight the luck thing. People would say to me when I say that, well, you can make your own luck. And that's true. To some extent, you can influence your luck through hard work. But okay, everybody in this room, just by being here, you, everyone here, there's prerequisites, right? You, you're all smart. Everybody's hardworking because that's like prerequisites.

15:06That's just table steak stuff. I do think luck and randomness play a lot in life. You know, I'm 61. I was born in 1964. In my life, that's a really good time to be born. Like, I don't think you can not acknowledge some of these things. And so, but I will say my early experiences, if anything, I would say I was so insecure because I didn't get into college and I barely got out of high school. I think it just... Motivated? Fear. I was scared, insecure, and I think all that kind of compounded into feeling like, wow, I am alongside all these people who went to these extraordinary schools, and the only way I could compete, I kind of felt, was to just work a lot.

15:59I always felt like that was my thing, and to this day, that's kind of what I think, although obviously I've had a set of experiences now which give me more confidence. So Rutgers to Citi to Goldman, the next question is what draws you to the private side of the market? You could have done public fixed income. You could have done equities for the rest of the career. You made a hard pivot to private markets. Tell us about why and what that experience has been like. Well, after leaving Goldman, I was in a really unique position in my life because I was so fortunate that I didn't have to work right away.

16:36But because, as you said, I had a nice resume. People knew me. I got a lot of opportunities. None of them were compelling until Carlisle came. And Carlisle was compelling for very, very simple reasons. One, I knew the firm. They had been my client when I was at Goldman Sachs. We committed a lot of capital to all those big firms. So I knew the firm. I spent a lot of time with the founders. They're incredible people, David, Bill, and Dan, both as professionals and as also just generous human beings and leaders. And then I knew the industry. And the secular trends and cyclical trends in this industry in private capital are extraordinary.

17:19And they've been this way for well over 20 years. And so I knew the industry. I knew Carlisle's role in it. And it was really too much to pass up. As our use of AI expands, how do we make sure it doesn't end up breaking the internet? I'm Hannah Fry, host of The Exponential Era, a series that explores the real-world impact of future network technology. And I sat down with two experts to discover how we can support the massive connectivity needs of AI. Find out what I learned at bloomberg.com forward slash Nokia.

18:01Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. So, I know David a little bit. I don't know the other co-founders. And he is legitimately one of the most amazing people I ever met in my entire life.

18:41And I've done, you know, 550 of these. But let's bring this back to the private equity side. So, that would be your favorite. This would be your second favorite. I didn't say my favorite. I just remember leaving that conversation and saying, Jesus Christ, this guy. every space he's in, he moves the needle in Congress, in markets, in philanthropy, in sports. Like, he doesn't touch something and not leave it better than how he found it. Yeah. It's really, it's inspirational. And I don't want to be, I don't want to make this about David. It's about you. But you get to work with him. Yeah, every day.

19:20So you mentioned the private market side. we have interest rates that crashed to zero in the early 2000s. Then following the financial crisis, we get ZERP for almost 15 years. How does that environment lead to Carlyle, which hasn't always been almost half a trillion dollars. It started out at a much more modest size. how does the past 20-year market environment lead to Carlisle really becoming the 800-pound gorilla in the room? Yeah, so I think you mentioned some really key factors which I think are contributing. It's always going to be the case that whatever the market environment is, wherever interest rates are, it's going to be the case that that's a contributing factor to how markets evolve.

20:12I don't think that's the key driver. If you go back to 2000, I'll get these numbers slightly wrong. I think there was something like 6 ,200 public companies. Now that number is closer to 3 ,000. This trend of public companies shrinking and private companies staying private for longer, this has been in place for decades. If you think about the evolution of capital broadly, and you go back to the fact that Carlyle was founded by David, Bill, and Dan. And they were literally driving past the Carlisle Hotel and decided to name it Carlisle. In 1987, there really was the birth of private equity, which they were part of.

20:52And you had venture capital. So you had buyouts and you had seed opportunities. What systematically has happened over the 30-plus year period, and certainly from 2000, when you now have companies staying private, is the capital available has just continued to grow. So whether it's direct lending, asset-based finance, integration with insurance, the opportunity set and the capital providers have just continued to expand, whether it's pension funds, now all of you participating in wealth, it's the capital that is creating the opportunity for companies to stay private. It's not as though companies woke up one day and said, geez, I wish there was private capital.

21:32I'd like to stay private. And so this evolution of the capital markets, I think, is just part of a broader evolution. We didn't have ETFs back in of such significance if you went all the way back to 1987. I can remember prior to 2000, I think it cost you five cents or so to trade a share of stock. So this is all part of the evolution of the capital markets. And the trend to staying private is substantial. Now, having said that, we took, at Carlyle in the past six months, we took three companies public. We took Standard Hour Public in the United States, which is an aerospace defense MRO. And that was the third largest IPO of the year.

22:09We did the largest private equity held IPO in India a few weeks ago, Hexaware. And then we did the largest ever privately held company IPO in Japan last year, Rigaku. So the public markets are still a fantastic opportunity to provide capital, but the option to stay private for longer exists. But the capital that's coming in is creating the opportunity. And obviously, then you get this flywheel effect. And to put some numbers on it, the famous Wilshire 5000 is about 3 ,400 stocks. Correct. Yeah. So let's talk about the different areas of opportunity. You guys are active in growth equity and private credit and private debt, of which there is a slight difference, and, of course, private equity.

22:55Tell us about the big growth areas that Carlyle sees as an opportunity and tell the advisor sitting in the audience what the sort of outlook is for this space relative to what we've been seeing in certainly in public credit. and if you want to talk about public markets, that's the cherry on top. Yeah. So I think, again, for everybody here, for the wealth advisors here, I don't do what you do. And as I said earlier, I was kind of uniquely bad at it back in 1987. And not that that was the same thing, but if you can't sell tax-free municipal bonds at 12 % tax-free, you're pretty uniquely bad at something.

23:35Let me interrupt you. I have this vision of you cold calling people. Hey, it's Harvey Schwartz. Market's down 22 % today. Great entry point. Can I buy you some stock? Yeah. You did what you had to do. I think the most dials I ever made was 508 in a day with not a lot of yield. But I would say that just like certain stocks are not great for every client on the wealth side and certain other forms of investment are not great for your wealth clients, I think you have to first make a determination about whether or not this is appropriate for your client and where does it fit into your toolkit. I think that there is a really unique role, whether it's in asset-based finance, which is a very fast-growing section of the marketplace.

24:26We did the largest transaction last year, Discover Card, which is an asset-based finance transaction. whether it's that part of the market or how insurance companies are coming into the marketplace or whether your clients have an interest in getting access to Japan where we raised the fund last year or if your interest for example is shifting to defense one of the first transactions Carlyle ever did in 1990 was in the defense sector we've been doing this for over 30 years You wouldn't have necessarily said five years ago this would be the topic around the world, given what's happening geopolitically, Europe now committing to spend a trillion dollars.

25:08What does this mean? The U.S. has to replace their supplies, our supplies. And so I do think that the capital demand is so high. And while we tend to focus a lot on wealth in the United States, because I do think the United States has been the leader in terms of private market adoption, I can tell you everywhere in the world I go, wealth is focused on this space. Half of all the assets in the world are controlled by wealth. The other half by institutions. Institutions have been participating in private capital for as long as we can remember. And so this shift feels quite natural. I just think as an industry, we have to be really, really thoughtful about making sure that your clients, in the end, that we all on our side and our part of the industry, what we say we do, we deliver to you so you deliver to your clients.

25:59Because I do think this is, we're in the early days of a transformative capital shift. So let's talk a little bit about private credit, which has been one of the key growth drivers of Carlyle as well as the whole private side. What are you seeing there? What's the future look like in terms of the business? I'm not asking you for a rate forecast. How do you see that business developing, and what can our clients do to participate? So I would say, well, first of all, the Carlisle Insurance Credit Platform is the largest part of the business today, which most people are surprised by because of the history in private equity.

26:36That's the largest portion of our business, almost$200 billion in assets. We're the largest CLO manager, super proud of the team. They just were awarded CLO manager of the year. It's about$50 billion of assets. So we've been in this business for quite a long time. I would say that first I think we should dismiss what I think are some misunderstandings about private credit. There's a lot of discussion about the growth of private credit being potentially systemically risky. I actually think the distribution of capital across private credit banks and other providers of capital actually is systemically reducing, not increasing.

27:16But I think that debate is kind of, that discussion has kind of been tested, right? We went through Silicon Valley Bank. We went through nearly 500 basis points of increases in interest rates and increases by the Fed. And private credit has been quite durable. I think when you have a lot of capital going into a space, you have to ask yourself, are the people who are stewarding that capital making the marginal capital commitment thoughtfully? Or is there too much capital? But I think that's about a performance question, not a systemically risky question. And so I think that, again, if you think about the trajectory of how capital evolves, it really evolves over decades, Barry.

27:55Now, there's a lot of excitement in alternatives, and particularly for the largest firms like ourselves, because it's a growth area. Having a global footprint allows you those opportunities. but our team is seeing opportunities all around the world to deploy credit. And actually, even before this sort of potential stimulus resurgence in Europe, we were already seeing, I would say, at the margin, more opportunities to deploy credit in Europe than in the U.S. Now, at Carlyle, you can all avail yourself of SeaTac, which is basically the best of credit at Carlyle across a spectrum. And again, Zach can give you all the details after the show, But I'm a customer.