 Good afternoon and welcome. I am Moises Naim with a Carnegie Endowment for International Peace. I'm substituting for our annual meeting, Latin American meeting, co-chair Stanley Mota, who apologizes he had to leave because of a family emergency. So we are here for a conversation with David Rubinstein. He is the founder, 27 years ago. He founded the Carlisle Group. Today, the Carlisle Group has $190 billion on their management. It operates all kinds of asset management investment funds. He also funds the funds in different industries, in different regions. And he has been selected like the man of the year by a very large number of magazines. He's usually on the cover of one of these magazines. It wasn't people, though, for Sexiest Man Alive. I can assure you. And one of these days, he's going to be a people. So I live in Washington, DC. And every time I pick up the newspaper, there's a story about David Rubinstein. Some of the stories are about how much money he makes and how big the Carlisle is and the deals. And other stories, even more frequent, is how much money he's giving away. He is one of the very significant philanthropists in the world today. And just to give you an example, he funded the Washington Monument, was in dire need of repairs. And David came up with the funds to do that. He is also a donor and in the board of a very large number of institutions, just a sample. He's the chairman of the Kennedy Center in Washington. Duke University is one of the trustees, the economic club in Washington. He's Regent of the Smithsonian, vice chair of the Council for Relations, Brookings, Lincoln Center is a trustee, John Hopkins, and so on. I was the beneficiary of one of his philanthropic endeavors because with the group of 50 which I run, which is a group of leading business people in Latin America, we were invited by David to go to the National Archives where he hosted us. And the reason he invited us there is because he had just paid $21 million for a copy of the Carta Magna. So let's start there. Let's start with that and then we'll go first to how you give your money away and then we'll move quickly to how you make money. Tell us, why the Carta Magna? Well, let me explain. My background is one that is a lawyer and so I obviously knew the Magna Carta. It was the document that was the inspiration for the Declaration of Independence, the Bill of Rights, the Constitution of the United States. And it was an 800-year-old document. There are about 17 of them left. They were the first document that really in the Western world gave certain people certain rights to write the trial by jury and so forth. And there was one copy in private hands that Ross Perot had bought years ago, put in the United States. He had it at the National Archives and he decided to put it up for auction. So this was the only copy that would ever be in private hands. I decided to go to the auction and try to buy it and keep it in the United States because it was the inspiration for those documents. So I went to the auction and I'm not an art collector and I showed up and they put me a little room and I started bidding and if you get, anybody's been in auction, you get carried away and all of a sudden I won. So they came in, the head of Sotheby said, okay, who are you? We never seen you before. And I told him who I was and he said, okay, that's fine, you have the money for this. I said, well, yes, but nope, you can leave at the side door and nobody will know or you can tell people there are 100 reporters out there. And I said, I wanted to give it as a gift to the country as a down payment on my obligation to pay back the country for the good fortune I've had. I came from very modest circumstances and my parents never made more than $7,000 a year and they did not graduate from high school. And so for me to be able to rise up and be able to afford something like that, I thought was a good thing in our country and so I wanted to give it back to our country and I've tried to do something that I'd call patriotic philanthropy, giving back to the country. So many different things I will do by a copy of the Emancipation Proclamation and give it to the presidents in the Oval Office now or fix the Washington Monument or other things. Try to give back to the country for the good fortune I've had. So, that's my mother behind me. You have also been involved with the zoo, right? Yes, I'm a regent of the Smithsonian and the Smithsonian was, as all of you may know or may not know, a man named James Smithson in 1830s left money to the United States to create some kind of organization for the diffusion of knowledge and he had never been the United States. He left the $500,000 United States was suspicious of anybody in Britain giving money that we didn't know so debated it for three years, finally they took the money, they lost it but then Congress replayed the money and now they've built a series of 19 museums and other things but they also own the national zoo and the national zoo is one of the four zoos in the United States that has the most popular species on the face of the earth. Remember this, 99% of all the species who own the face of the earth are extinct. Now 99% of all the species that ever existed are gone. There are five million species left. Humans are one, pandas are another and pandas are the most popular species so as a region they came in and explained that the Chinese don't give these pandas away anymore, they rent them, they rent them for a million dollars a year, a male and a female and there are four zoos in the United States that have them and there are about 20 other zoos around the world and if they reproduce, the offspring ultimately goes back to China and it's an interesting phenomenon. We have seven billion people on the face of the earth. When I was born there were two and a half billion people now there's seven billion. Before I'm projected to die, actually there'll be nine billion people. There are only 1600 pandas. Now why are there so few pandas and there's so many people? Well, the reason is this. Pandas have a unique way of reproducing. No other mammal has this system. The female can reproduce only four hours a day, one day a year. So it's a very limited time frame. So the way it works is in the wild, the female will leave some sense on a tree saying, well in four weeks I'll be ready to reproduce, the male will pick them up and he'll leave a sense saying four weeks I'll be there, three weeks, three weeks, two weeks, two weeks. When they get together in the wild the problem is they're so inexperienced that parts don't go where they're supposed to go because they don't really know what to do. So in China what they do is they show the movies in captivity of pandas mating. They call it panda porn. And it's designed to enable them to get the picture but it doesn't seem to have the same effect as such a thing does with humans. So the result is that very often you have to artificially inseminate them and we did that in Washington recently, artificially inseminate female because the male and female got together for this four hour period of time they were fighting and all of a sudden they called me and said, would you like to be there for the artificial insemination? I said, I don't think so. Would you like to be there for the extraction of the semen from the male? I said, definitely not. I don't want to be there for that. So the point of this really is I like to analogize it to what's going on in Washington. Members of Congress know what they're supposed to do but they don't know how to do it and pandas know what they're supposed to do but they don't know how to do it either. So members of Congress aren't really getting that much done unfortunately and maybe the pandas are actually more productive than members of Congress in some ways. You're an acute and well-informed observer of Washington politics. What do CEOs in Latin America should expect that it's coming their way from Washington? What was gonna happen in terms of economic policy, the tapering of the... Well, I think if you have low expectations you won't be disappointed. Right now we have a situation in Washington where the president is really not that popular as we all know his popular ratings are pretty low. In fact, George W. Bush who wasn't thought to be that popular his rankings to the ratings today are higher than President Obama's which is hard to believe when you consider how unpopular George W. Bush was at one point. President Obama today is in a difficult situation. The Republicans pretty much can block what they want to block in the Congress. And there's a general view in Washington and conventional wisdom today the Republicans have a pretty good chance of getting the Senate next time. So in November, if Republicans pick up the Senate and they already have the House and they'll probably keep the House they will control Congress. And for the last two years of his administration the president will get very little things done. That's why in his State of the Union he said he would do a lot of things administratively. So right now I don't think he's gonna get anything through Congress of any consequence, nothing at all, no immigration reform. Tapering is something he has nothing to do with and that will continue but it'll continue as the head of the Federal Reserve outlined it but I don't think we're likely all of a sudden when tapering is over to have interest rates go up the Chairman of the Fed said recently probably wouldn't happen for quite a while. So interest rates will stay low for a while. I think that in Congress there's just no interest in passing anything. And the president normally in a second term when he can't get anything done a president normally spends time on foreign policy the president doesn't seem to be as interested in some of these foreign policy things as maybe other of his predecessors. He's at John Kerry's doing a lot of it. But the president is in a difficult situation. I empathize with his problem. He's got all the power in the world theoretically but he doesn't really have the ability to get a lot of things done in Washington right now. What CEOs in Latin America expect is not a lot of change in foreign policy from the United States or what you now see and not a lot of change in economic policy. I'd say the tapering will probably have some adverse effect on emerging markets and we're beginning to see that a bit and so I suspect that'll continue a bit. Which countries in Latin America are you now considering in terms of investments? Well my firm invests in certain countries in Latin America the one that we're most focused on obviously is Brazil because it's the biggest GDP. It has I think the greatest potential. It's the fifth biggest country in the world population wise sixth biggest country in the world in terms of GDP. I think it's a country that it has great potential. Obviously people have always said it had potential but it has some problems for sure. I don't want to make it sound like it's easy to get deals done there. We have done a number of deals there. We have a large team there but you have to recognize that Brazil is not growing at 5% as it once was a couple years ago and they have some problems on resource development and actually extracting some of the resources that they have discovered. So I would say we like Brazil. We're heavily involved there. We also like Peru while Peru is a much smaller economy. The GDP of Brazil is roughly $2.3 trillion. The GDP of Peru is roughly $41 billion so it's much smaller but there's not that much private equity competition and there are a lot of good opportunities there so we're there as well. We have been in Mexico and we've looked at whether Mexico is something we should go back to. Mexico has a very large economy as well about $1.3 trillion I think, something like that and it's got a deregulation of oil is now coming and the energy sector produce a lot of good opportunities. The areas that we like are consumer oriented kinds of companies. Ones were played to the middle class. The growing middle class in Latin America is probably where we try to invest. Companies that will sell products to those kinds of constituents because the middle class is growing. Now obviously Latin America has a big income inequality problem of the 15 countries in the world that have the worst income inequality, 10 are in Latin America. So there's a gigantic problem and one out of three people in Latin America live in what is called poverty. So it's not as all of a sudden everybody's getting wealthy but there are enough people in the middle class to make it possible to invest in companies that appeal to the middle class and then I think do well. As you know the widespread expectation is that the coming years for Latin America are not going to be as good as the decade we just left for commodity prices and easy money and all that. So are you already detecting drops in asset values? Are you finding now bargains in Brazil or in Mexico or in other countries that are, have assets become more attractive price-wise? Well clearly things are cheaper than they were at some point and therefore it's an opportunity to buy at lower prices is there and you have to take a look at what the future is gonna be. So is the economy gonna be pressed for a long time? Nobody really knows. Right now the concerns that people have are you still have a large income inequality problem. You have a problem that three quarters of the exports of Latin America are commodity based. So when commodity prices tend to go down then it can hurt the economy and as tapering occurs in the United States that will have some adverse effect. On the other hand, what's happened in Latin America in the last 10 years is pretty interesting. You have a higher percentage of people getting educated. You have a higher percentage of people in the middle class. You have government debt down dramatically from where it was. Inflation and currencies are not a big of a problem as it used to be and generally the threat of military takeover in larger economies is not quite what it once was at some point. The thing that I think people should recognize though in looking at Latin America is that it's gonna take a while to make private equity as attractive in Latin America as let's say in the United States because the quality of professionals isn't quite as deep. Quality of financing isn't as readily available. The companies often aren't for sale. You have to have somebody to sell something to you if you're gonna buy something and very often in Latin America there's not a big tendency to sell as much as there might be in the United States. One of the things I think is important to think about in terms of Latin America is that it has moved forward dramatically in the last 10 years but so has the rest of the world. So actually over the last 10 years Latin America's percentage of the world's GDP has actually gone down. I think it was about 8.9% now it's about 8.6%. So what's happened is Asia has dramatically increased its percentage of GDP and the percentage of infrastructure investments in Latin America is much below what it is in say Asia and it's percentage of people getting higher education in Latin America is much below. So there are a lot of opportunities for improvement but still we are very attracted to here because in part there's not as much competition and the signs are generally positive. I wanna go back about comparing having Latin America a more comparative perspective with Asia but before we go there you once told me that investing in Mexico is particularly difficult for private equity firms. Why did you say that? Well the reason I said that was because it was true but I was just in Mexico the last two days and I may have rethought my position but let me explain. It takes two to tango. You can't have great private equity if nobody will sell you anything. So in that economy one man controls a very large percentage of the GDP. And a number. Who is that? Carlos Slim. He's a very talented businessman but he has a very large percentage of the publicly traded value of the stock market. He owns a large percentage of it because of his holdings. So he's not selling anything to speak of. Then you have a number of other families that own a large percentage of the economy and they don't tend to sell. Now because in the United States there's an estate tax and therefore families tend to have to pay the estate tax. They tend to sell and there's a generational change and also there's not as big a tradition of staying in the family company. People do other things. In Latin America is more of a tradition of some one of the children staying in the family company and keeping it and there's no estate tax generally and therefore you can keep it going for many generations and so many people in Mexico just don't sell their company so there's not as much to buy. So we did have a fund there and it did well but it did very small deals. It just wasn't much to buy. I'm hoping that the situation will change and the deregulation of energy and the deregulation of many other things in Mexico makes me feel very optimistic because you've got a part of the economy that's so significant that was controlled by the government and I think the government will let other investors come in. So based on my last two days there I'm much more optimistic about the future of Mexican private equity than I was before I went. Let me take you back to your comparative perspective on Asia and Latin America. In investing in both regions give us a compare and contrast. What do you see in Asia that it's more or less attractive and compare it to Latin America? Well remember in Asia you have 60% of the world's population. So in Latin America you have roughly, I'd say 600 million people and a GDP of roughly $6 trillion. So that's very good but in Asia you have one economy China which is by itself $8 trillion and will be the largest economy in the world in your lifetime in my lifetime. So the size is so much greater in China and India. The entrepreneurial instincts in China are actually pretty impressive. One out of every 10 adults in China is an entrepreneur by the UN definition. That means they all have some businesses on the side or they have their own main business and that's a very high percentage. And when I go to China and I go there very frequently and I talk to government officials, they know more about my business than I think I do. They really know about investments in private equity. When I talk to members of Congress I have to explain the difference between a mutual and a private economy. And then a hedge fund sometimes they don't know. But in China the reason they welcome people like me is they think they're in effect renting my expertise for a few years. We'll buy a company, we'll make the company better, we'll teach the Chinese how we do it and ultimately we'll sell it to a Chinese and they ultimately will stay there. The same is true in India. A very large population, hard place to make money. We've done a lot of good deals in China and made a lot of money. We've done not as well in India because there's not as many things to buy but India will ultimately become, I think the second or third largest market in China. I think the second or third largest market in private equity in the world because of the size of its population. And then you've got Indonesia and Korea and Taiwan. So there's a lot of very good companies. Remember the infrastructure in Asia is pretty spectacular. If any of you've been to the airports in Beijing or Shanghai or Hong Kong or Singapore you see airports that are embarrassed the rest of the world. What we have in the United States is not very impressive. The infrastructure throughout parts of Asia is spectacular. In Latin America obviously the infrastructure investing has been much lower as a percentage of GDP than in Asia. How do you compare the human capital, the quality of the average professional you hire in Latin America or in Asia? Well what would you expect me to say? The truth. I would say a lot of people in Asia are increasingly educated, people that we tend to hire are educated in the United States. They tend to let's say go from China or India or Korea, Taiwan and Japan. And they come to the United States for business school typically and they work here a couple of years in the United States and then they go back. So they're pretty well trained or educated and I think that's a big advantage. They also have a large population, a large number of people to pick from. The people that we've hired in Latin America are very, very talented. Many of them have business school degrees from the United States and that's not the only good place to get with them. So I would say it's hard to say it depends on the individual. There's a bigger talent pool obviously because there's more people in Asia. One of the most interesting things about Asia is this. I would say 20 years ago when the best Asians came to the United States for business school, they stayed in the United States. Now because of what's going on in China and India and Indonesia and Korea, they're going back. So you have very talented people going back there. And what about corruption? Compare and contrast corruption in Asia with corruption in Latin America. Well I do wanna leave it. I do wanna leave the country today so I could be careful how I answer this. Look, when I worked in the White House as a young man, we drafted something called the Foreign Corrupt Practices Act and it was a revolutionary thing in those days because corruption or bribes was not an uncommon thing around the world. The United States changed its policy. It's still a complicated policy to understand but generally it's recognized what Americans can do and cannot do. So we are very careful about it and you have to be very careful in doing this. One time we were looking at a company, I won't mention the part of the world. It's not a part of the world we're talking about now where they had a very talented accountant in the company and we went to do the due diligence and the accountant privately said, well here's all the list of all the bribes we've given our last 20 years. Very carefully set forth. So obviously you can't buy that kind of company. I'd say we are very cautious about it. You tend to avoid companies that deal with the government because when companies that deal with the government a lot there's a higher probability of something like that happening but I don't wanna say that one part of the world is better than the other part of the world or one part of the world is worse. They have this everywhere. And United States is not free of these things. We, United States, we call, we use different names for things but United States is not a perfect country either. Tell us about your plans. What are you, what is next for you? Well, I am 64 years old. So when you turn 50 you can pretend you lived half your life and you can say well I got another 50 years ago you might not make it but nobody on their 50th birthday is upset that they're about to die. When you turn 60 you do look at the world differently because you realize you've lived more than you're probably gonna live. And I notice when I turn 60 a lot of people come up to me and they say well David you look good today. Well how was I supposed to look? Well but you look good today. And at the Kennedy Center where you pointed on the chairman I have these young women who escort me around from various events and they're like 24, 25 years old and they say well Mr. Rubinstein there's seven steps here. Can you walk these steps? Or do you wanna take the elevator? So I kind of say you know the world's different. I'm writing a book about my life and kind of a working title is Sprinting to the Finish Line. Because I realize now I have more money and access and ability to do things than I did when I was in my 20s or 30s but I don't have many years. So I wanna get everything done. I don't wanna be on my death bed and say I wish I'd done that, I wish I'd done this. So I'm trying very hard to run my company with my co-CEO and a lot of other people in the firm and then give away the bulk of my money. I signed the Giving Pledge, I was one of the first 40 people in the world to sign it with Bill Gates and Warren Buffett and I'm gonna give away more than half my money. My selfish when I'm doing it because I have a theory that when you give away money you help other people, you'll feel better about yourself. When you feel better about yourself you live longer. How many people give away money and say I wish I hadn't done that, I wish I hadn't helped those poor people. I feel better by myself. You feel better about yourself and people that feel better about themselves live longer. Grumpy people, they don't live as long. So I hope to live longer and I also think that maybe you get to heaven more quickly. Now I can't prove it but why should I take a chance? So I am committed to giving away my money and my children are more or less okay with it because they recognize that the truth is when you grow up with an enormous amount of money and your parents give it to you it's not as big a advantage as you might think. And the people that do the great things in the world they didn't inherit gigantic sums of money on average. Like how many people won Nobel prizes for after they inherited $500 million? Probably not that many people. People that do great things in the world are people that really have modest economic means and work hard and they really push to do something useful with themselves. We have just five minutes before we are out of time. I wanna conclude this conversation by asking you about a subject you mentioned that is inequality, economic inequality. As you know, President Obama, the Pope, they have said that this is the defining issue of our time. Inequality has always been there but in recent years it has become more acute, more visible, there are more debates about it. Give me your takes, your take on it. What do you think and both about the causes and what are your preferred ways of dealing with that? Well income inequality is one thing and it's gotten worse in the United States since in the last couple of years and probably it's now so bad that I think the people in the Forbes 400, those 400 people have more net worth than the people in the bottom 20% of the entire population. So it's not good. And now 1% of the highest income people in the United States make as much as people in the bottom 20%. So this is not a very good thing but I think most important people are the focus owners is social mobility. I don't think you can change overnight the ability of people to get more wealth and taxing the people at the upper end isn't gonna, there aren't enough of them to really make a big difference. But you have to make sure the people at the bottom feel they have a chance to go up. And right now we are losing a sense in the United States that you have a chance to rise up. I felt that I could rise up but I'm not sure today people feel they have a chance to rise up particularly the minority population. So that's a big thing. Now I think I don't have a solution that nobody else has come up with. It's education. In the city you live in and I live in, Washington DC, 25% of the people who enter the ninth grade in high school do not graduate. So when 25% of the people are dropping out of high school that is gonna produce a lot of problems because those people will earn less, they'll be more involved in the criminal justice system and that's a big problem. So we've got to fix our K-12 system in the United States as a long term. But I think around the world education is the best solution I think to income inequality. But there are other solutions as well but that's the best. As you know the main culprits are the reasons that people must mention are one is technology. Technology that essentially creates less need for workers and lower salaries. The other is globalization. Jobs lost to India, China, to Asia, to places where salaries are lower. The third is crony capitalism. It is essentially governments that are taken over by the wealthy and then the foreign, the policies of these countries are distorted by the special interests that benefit people in finance for example at the expense of the general population. Which of the three reasons do you feel has more weight in explaining the current situation of economic inequality in the United States? Well it depends on the country of course. In certain countries obviously crony capitalism will be more prominent than prevalent than other countries. I think around the world globalization has been a good thing but it has shifted the availability of jobs. I think in the end you have to get educated for what the current market will let you do and so being trained in certain areas isn't going to be as important as being trained in other areas. But in the end I do still think that education is the great equalizer. I came from out of circumstances I got a good education and I think that's the most important thing you can do to kind of break the back of this problem. But it's not going to happen overnight and it's going to take the work of a lot of people for sure but clearly when young people don't have a sense that there's a greater way to live their lives and they may have grown up in then that's really a sad situation. We haven't reached that point in the United States but we aren't I think how many people don't feel as socially upwardly mobile as maybe they should. But you have always been very hopeful and very optimistic about the ability of the United States to change course and deal and tackle. That's one of our great strengths. We reinvent ourselves all the time and the United States has many problems for sure but our ability to reinvent ourselves and adapt is different. Many other countries are very static and they just don't make change as much and one of our great things in the United States is our ability to reinvent ourselves, to do new technologies and to encourage smart people to really do something useful. For example, take Facebook, Microsoft, Apple, other Google. Why are those companies based in the United States? Could those entrepreneurs have actually built those global companies if they've been started in some other country? Maybe but so far a lot of these great companies that are changing the world have been based in the United States. I think it's because of the culture of the United States and Silicon Valley and I think other countries if they could replicate it would be better off. David Rubinstein, we wish you a long life and that you continue to give a lot of money away. Thank you very much. Thank you very much. Thank you very much. Thank you very much.