Monday, May 10, 2010

Carlucci Column Cracks Carlyle Code

Frank Carlucci, Chairman Emeritus of The Carlyle Group, revealed his private equity firm's strategy for growing from $6 billion in funds under management in 1999 to $91.5 billion in 2008. His commentary states:

Firms have a fiduciary responsibility to maximize profits, while increasing competition. A public good is not in their rational self-interest. They will therefore naturally seek to influence government regulation in ways that strengthen their competitive advantage relative to other firms.

At the same time, politicians rely on millions of dollars in private contributions to win and keep their seats. To raise the necessary funds, incumbents naturally solicit the firms and other interest groups with business before their committees in a system of pay-to-play.

Where do we find private equity underwriters (PEU's) reforming government to their advantage? PEU's chair President Obama's Deficit Commission and Virginia Governor McDonnell's Government Reform & Restructuring Commission.

Erskine Bowles, co-chair Deficit Commission and Senior Advisor Carousel Capital

Fred Makek, chair Virginia
Restructuring Commission and Senior Advisor for Thayer Capital, former Senior Advisor for The Carlyle Group

Remaking the game board to private equity's benefit, that's a sweet spot. How might they steer government business to PEU's or remake the regulatory framework to benefit affiliates or PEU's in general? Interestingly, the Dodd financial reform bill gives private equity a virtual free pass.

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