‘How to Invest’: The Carlyle Group’s David Rubenstein on Building Wealth With Integrity

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• The Top Traders audience comes to us for insights from professional investors, academics, authors and other finance experts. So Carlyle Group Co-founder and Chairman David Rubenstein is a dream guest for many of us who work on the show.
• David’s new book, “How to Invest,” is a collection of interviews with uber-successful investing leaders.
• David joins us to discuss his career, the book, his opinions on the U.S. tax code and much more.

On Top Traders Unplugged, we like to share the wealth (of knowledge, that is) about investing. The more we learn and practice, the better our results. 

But Carlyle Group Co-founder and Chairman David Rubenstein is the first to admit that investing is a combination of skill and old-fashioned good fortune.

“I got lucky in many ways,” he says. “When I was in high school, nobody thought I’d be a great investor — and in college, nobody thought I’d be a great anything.”

Ever humble, David still doesn’t think he’s a great investor, even though he chairs one of the world’s largest investment firms (with more than $370 billion under management) and hosts two shows on Bloomberg TV.

David’s background is in politics and government, not finance. Inspired by John F. Kennedy’s call to “ask what you can do for your country,” he sought a career in public service. 

And he certainly wasn’t born rich. The son of a postal clerk, David grew up in a row house in a working-class Jewish neighborhood in Baltimore. He earned degrees from Duke University and the University of Chicago School of Law, choosing those schools because they offered the most generous scholarships. 

Today, David’s net worth is reported to be about $3.4 billion, and he funds scholarships at both schools (and several others) with seven- and eight-figure gifts. He sits on the boards of dozens of educational and cultural institutions, including the Kennedy Center, the Smithsonian and Johns Hopkins Medicine. He’s one of the original signers of The Giving Pledge, which is a commitment among billionaires to give away a majority of their wealth. And David is a massive history buff: His philanthropy is perhaps only matched by a penchant for buying rare historic documents, including original copies of the Magna Carta, the Declaration of Independence and the Emancipation Proclamation.  

On the latest Ideas Lab episode of Top Traders Unplugged, David joins us to discuss his new book, “How to Invest,” a compilation of interviews he conducted with 23 leading voices — and thought leaders — of the private wealth world.

From the White House to Wall Street

David began his career as an attorney, practicing law for two years at the prestigious firm Paul, Weiss, Rifkind, Wharton & Garrison in New York. But he was always interested in government and politics. He saw law as a “way station” along the road to a position in Washington, D.C. In the mid-1970s, he served as Chief Counsel to the U.S. Senate Judiciary Committee’s Subcommittee on Constitutional Amendments. Then he joined the Jimmy Carter administration, as Deputy Assistant to the President for Domestic Policy. 

When David left the White House in 1980 after Carter’s loss to Ronald Reagan, he went back to law, landing at Shaw, Pittman, Potts & Trowbridge (now Pillsbury Winthrop Shaw Pittman) in Washington. 

“It was the only profession I had,” he says. But David realized he didn’t enjoy practicing law. 

“My view is, if you don’t enjoy something, you’ll never be great at it,” he says. “Nobody has won a Nobel Prize hating what they do.” 

So David turned his ambitions to the world of private capital. Together with four other partners who had backgrounds in finance and government, he launched the Carlyle Group in 1987. He didn’t have an MBA or financial experience, so he acted as the “fundraiser, the strategist, the recruiter of people and the face of the firm,” he recalls. 

The Carlyle Group is now one of the most successful and influential private equity firms on the planet, generating an investment income of $210 million from balance sheet investments in 2021 alone. 

Making and moving beyond mistakes

David wrote “How to Invest” with three different audiences in mind: students considering a career in business; people who want to learn how to invest; and people who want to build wealth but don’t want to be hands-on about it and therefore need to choose professionals who can manage their money well. The book features interviews with some of the world’s most successful investors, including Stan Druckenmiller, Sam Zell and Mary Callahan Erdoes. He intersperses their advice with anecdotes from his own life and career. 

“You don’t have to be a superstar investor to enjoy this book,” he says. But professional investors aren’t his audience anyway. 

When interviewing the subjects of “How to Invest,” David encouraged them to share their gaffes as well as their guidance.

“As a general rule of thumb, I value humility over arrogance,” he says. “One of the ways I think people can show their humility is by talking about their mistakes. And generally, the people I interviewed have a fair amount of humility to them.” 

The key to success in spite of mistakes, David adds, is to acknowledge errors and move on to the next opportunity. But he knows firsthand how difficult that can be.

“I still linger over my mistakes 30 years later,” he admits. “Whereas a lot of these great investors, they go over it get over the next day, and they’re on to the next thing.”

There’s no ‘I’ in ‘team’ — or ‘moneymaker’

When David hires portfolio managers for the Carlyle Group, he looks for “people who get along with other people, because investing is a team sport, in many ways — at least in private equity.” 

Candidates should “have their egos in check” and be “reasonably intelligent, but not geniuses,” he says. “Hiring geniuses and managing them is very, very difficult, as I’ve learned over the years.” 

They should also be “pretty hardworking, but not obsessive-compulsive to the point where nobody really wants to be around them,” have a sense of humor and be “willing to give back to society if they’re successful.”

His last requirement? Excellent communication skills (both written and oral) and a love of learning. He finds that many young people, even those who graduate from good schools, can’t write very well and don’t tend to read unless it’s a compulsory assignment. 

Taxing subjects

Many governments have attempted to implement substantial taxes on the wealthiest citizens, but “they’re very hard to administer,” says David. “You tend to force people to leave the country.”

He can’t think of any nation that has enacted a significant wealth tax and managed to ensure that high-income individuals stay, creating new entrepreneurial ventures, instead of leaving for friendlier (read: tax-haven-ish) shores.  

“I do think that you can argue that our tax rates are too low. In some cases, you can argue that the [tax] system is poorly administered. But … it’s very hard to figure out how to tax wealth: for example, illiquid real estate. What do you do if you own thousands of acres of prairie land? How do you tax that? There’s no cash there. It’s very complicated.”

While we don’t have the best system in the world, David says he prefers the current system over a wealth taxation framework that would be “difficult to administer and easy to cheat your way out of.”

IRS versus benevolence

David knows that philanthropists get their fair share of political criticism for how they choose to spend their considerable wealth. People ask things like, Should Bill Gates decide the priorities for our society? 

“Some people might ask, Why should David Rubenstein decide what’s important?” he says. “Who elected him?... or, Who elected Bill Gates? That’s a fair point.”

But we have to consider philanthropy in a wider context, says David.

“The U.S. government, for example, has a budget this year that’s probably close to $7 trillion. The amount [of philanthropic donations] given in the United States this year will probably be around $450 billion or so,” he explains. 

He adds that 40% of that $450 billion is given to religious institutions, “which are a little bit different, but we count them as philanthropy.”

Subtracting that religious 40% (which comes to $180 billion), the remainder of philanthropic giving compares to about 1% or 2% of GDP. David argues that “it’s hard to believe that 1% or 2% of our GDP going into philanthropy would change society all that much.”

That said, he is concerned about the growing inequality of wealth in the United States: “It should be an issue and it is an issue,” he says. “But it’s not clear to me that you would solve the problem by taxing people more.”

What could make a real difference? “Make sure that the programs you already have work better.”

And to anyone who balks at this argument, thinking that given David’s substantial wealth, of course he wouldn’t want to be taxed more. That may be true, but he does note that he pays “staggering amounts of money — nine-figure amounts in federal government income tax a year … unlike some well-known public figures,” he says. 

As one of The Giving Pledge signatories, David’s willingness to pay rather than skirt taxes should come as no surprise. Imagine what could be accomplished if other people of wealth follow his lead.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.