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At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you the same question now at the same time? I'm a cybernetic organism living tissue over metal and this go to Paris, so. Hello, boys and girls, ladies and germs, this is Tim Ferriss, and welcome to another episode of The Temperature, where it is my job to interview and deconstruct world class performers of all different types from all different fields.
My guest today is David M. Rubenstein. He is co-founder and co executive chairman of the Carlyle Group, a global investment firm with approximately 230 billion dollars under management. Mr. Rubenstein is chairman of the Board of Trustees of the John F. Kennedy Center for the Performing Arts and the Council on Foreign Relations, a fellow of the Harvard Corporation and a regent of the Smithsonian Institution. He is an original signer of the Giving Pledge and has made transformative gifts for the restoration or repair of the Washington Monument, Kennedy Center, Smithsonian National Archives, National Zoo in the National Museum of African-American History and Culture.
Mr. Rubenstein is also host of the David Rubenstein Show, Peer to Peer Conversations on Bloomberg TV and the author of The American Story Subtitle Conversations with Master Historians and his latest How to Lead subtitle Wisdom from the World's Greatest CEOs, Founders and Game Changers. He is a graduate of Duke University and the University of Chicago Law School. You can find him online at David Rubenstein dot com. David, welcome to the show. Thank you very much for having me, Tim.
If we hop back to. Your, I suppose, adolescence or childhood, depending on how you want to frame it. What direction did you think you were going to take when you were, say, in your early teens at that point? Did you have an inkling of an idea of what you wanted to be or what you wanted to do?
I did. I was very interested in politics, maybe because my sixth grade teacher drummed into me the and all of my classmates, the inaugural address of John Kennedy and how it was poetry and prose form. We studied it. And like many young people in those days, we were attracted to the image, the vigorous image, the young image of a president who contrasted so much with the his predecessor, Dwight Eisenhower, in terms of image and youth and vigor and so forth.
And so I always thought the politics was the highest calling of mankind. And so I would say and then and so I was interested in going into politics. And then I thought to go into politics, you have to be a lawyer. And to be a lawyer, you have to learn how to read and write reasonably well and talk reasonably well. And those were probably skill sets that I thought I had. I didn't think I was a great scientist in terms of when in medical school.
And I really didn't know about business because business was not something that was really very common in those days. Just in the nineteen fifties and sixties, there were no hedge funds, there were no private equity funds, there were no tech startups. If you went in the business in those days, you only had three choices. You went into your family business, which was typically a small business. You would join a gigantic company like JP Morgan Guaranty or Procter and Gamble, or you might find a local business in your city that wasn't famous nationally but basically had a local and a business.
But those are the business opportunities. People didn't think about getting wealthy, and I didn't aspire to make a lot of money. I didn't think it was realistic. So I really wanted to be in politics and be a lawyer to get into politics.
When did Ted Sorensen enter the picture? And for those who don't recognize the name as I didn't, who is Ted Sorensen? You can calculate in either direction.
When John Kennedy was elected to the United States Senate in nineteen fifty two, he started hiring new staffers. He had been in the House of Representatives from nineteen forty six on. He served three terms in the House and he was elected to the Senate and he started hiring some young people. He interviewed a young man who was then I think twenty five or six named Ted Sorensen, who'd been first in his class at University of Raschka Law School. Very smart person, but didn't have roots in Washington, DC But he came there looking for a job.
He had a choice between Scoop Jackson and a senator from Washington State, where the new John Kennedy decided Kennedy would offer a greater career opportunity. He became his top adviser many ways, but also as a speechwriter. And later John Kennedy would say his intellectual blood bank. And so John Kennedy's wonderful rhetoric, his great speeches, his is great writings, the profiles in courage were to some extent written with the great help of a man named Ted Sorensen. And so when Ted Sorensen stayed with John Kennedy when he elected president, he became his top, I would say, adviser on many different things, but principally his top speechwriter.
And so I admired a man who had written these brilliant words. And so at the time that I was getting ready to leave the law school and go to law firms, I decided I wanted to go to the firm in New York that he was that in part because he had a lot of people in that firm. Paul Weiss had political backgrounds. Adlai Stevenson had been there. Arthur Goldberg had been there. Ramsey Clark had been there at Sorensen. And many other prominent people were there.
And I thought it had the combination of what I wanted a lot of good legal training, but also people cared about politics and government. And I thought if I worked with Ted Sorensen a bit, he could help me ultimately get into government myself. Are some of the best.
And this is coming from someone who knows nothing about speech. Writing, especially from a political perspective, are many of the best speechwriters in politics extremely young? Is it like professional sports? Because I'm thinking of your description of Ted Sorensen. I'm thinking of Jon Favreau, the speechwriter for Obama and not the director. Is that common to find that speechwriters have their power zone in earlier years?
Yes, for a number of reasons. Now, mathematicians are generally said to peak at the age of thirty. You don't find a lot of mathematicians doing great things at the age of 60 or so. And in the speech, writing really requires around the clock kind of dedication to writing because you're working for a senator or a governor or president. There are an infinite number of speeches you have to write, and it requires a pretty good work quotient. You know, when you're 60 or 70, you probably can't work quite those hours that you can when you're in your 20s and 30s pulling all nighters.
Also, it's not a highly paid profession. It's not like you get equity in a in a private equity transaction. So you're not highly paid and therefore you tend to get people who are generally single or maybe newly married and people who are young. And that's what you see in all presidential staffs when we look at their speech. Contingent. So, yes, that's probably true. Ted Sorensen became the top speechwriter at 31 and then when John Kennedy died from assassination, I think Ted Sorensen was then probably thirty four.
Thirty five. So you think about it at the age of thirty four. Thirty five, his whole career kind of ended in some respects. He then made himself a very good lawyer and he stayed with President Johnson for a while. But but he was always known as the great speechwriter and intellectual blood bank for where John Kennedy Intellectual Blood Bank.
That's a term I'm going to have to find a way to use that Richard Nixon had said, you know, Richard Nixon, who wasn't famous for those those great speeches and maybe John Kennedy deserves some credit for it. He was a reasonably good writer himself and he aspired to be a writer. Had he not gone into politics. So I did want to make it sound like all Sorensen. But Richard Nixon once said to somebody, if I had had Ted Sorensen as my speechwriter, I could have given those great speeches and maybe I would have been elected president in 1960.
The secret weapon weapon X. I've read a number of descriptions and also heard you describe being told when you were practicing law, some version of Hey pal, you're not really cut out for this. Maybe you should try something else. Did that affect you? If I'm getting that that part of the story right.
Or did you just view it as a prerequisite intermediate step to politics and as such that that did not really affect you on any deep level?
I've said that many times and it's somewhat tongue in cheek. I was nobody was saying I was a Supreme Court clerk are going to be the greatest lawyer of all time. I suspect had I stayed at otherwise, I might have worked my way up maybe to becoming a partner. Took about seven or eight years to become a partner, but I might not have in my class. That started at Paul Weiss. We had about twenty four twenty five people. I think only two stayed long enough or three stayed long enough to be partner.
So maybe I wouldn't have made it, but I would say I was an OK lawyer. But a great lawyer has a dedication to the practice of law that maybe I didn't have. They have an attention to detail that maybe I didn't have. They have a relish or kind of having blinders on and just focusing on these narrow issues and which is a very good skill. And I was always interested in so many different things, like eclectic interests, so much.
Sure, I would have been a great lawyer, but had I been a reasonable lawyer and stayed and I think the life of a lawyer was all that great. You basically were you know, I had clients. You weren't going to make a lot of money as a lawyer relative to what you would make in business. You were a captive of the clients. And so I, I really was interested not in practicing law and probably not living in New York at the time.
So I really was interested in going to Washington and getting involved in politics, maybe going to the White House. Well, let's hop to the White House next, and this is always wobbly terrain for me because I unfortunately consider myself at least moderately politically illiterate or uninformed at the very best.
I'm trying to remedy that. But it's one baby step at a time. How did you end up, as I understand it, the deputy domestic policy adviser under President Carter. How did you get there?
Most people who get White House jobs tend to work in the campaign one way or the other, and they know the candidate in one way or the other. At a young age, you have people who are in their 20s, three, four or five, six, seven, eight. They're working in campaigns. On my case, I got a job on Capitol Hill that Ted Sorensen helped me get. The person I was working for, Senator Birch Bayh was running for president.
I thought that was a twofer. I get to work on Capitol Hill. You might get to be president so I could learn something about Congress, but I might get to work in the White House. He dropped out shortly after I joined his Senate staff and then an opportunity came to interview for the staff that was being assembled for the general election campaign in nineteen seventy six for Jimmy Carter, Jimmy Carter that had only one full time staff person working on his policy staff.
And in those days, that was even then it was small and that person ultimately had to go out and hire a staff for the general election campaign. He came to Capitol Hill, interviewed some bright young Capitol Hill people. I got an interview. He hired me. I went to work down in Georgia for three months of the general election. We won the election. My boss became the assistant to the president for domestic policy, and I was one of his two deputies.
And so I got a job as his deputy and an officer in the West Wing. And here I am, twenty seven, three years out of law school. And all of a sudden I'm making more than I would have been making in in private practice, as it turns out, for some strange reason. And then I'm an officer in the West Wing and I'm running around on Air Force One, on Marine One with the United States. So pretty heady stuff, I would say.
So would you describe yourself as qualified for that position, number one? And what does in any case, what does the first say month of being on that job look like for you in terms of your priorities and how you're thinking about executing?
I wasn't qualified by the traditional standards of of having a lot of experience. But if you look at all White House staffs, they often are filled with, you know, the junior level with the young people. These are people that work in campaigns and they get rewarded by working on the White House staffs. Some of them turn out to be really great and some of them turn out to be less than great. And I knew a lot of people from the campaign, so I actually was pretty conversant with the people who got the jobs in the White House, even though I was not a Georgian and I had not been involved with Jimmy Carter, really.
And I had not even met Jimmy Carter until about two weeks into the White House. I never met him in the campaign. So I you know, I was a little unusual. Yes.
And was there a curriculum, so to speak, or a way of learning on the job? And just I'm curious how someone who seems to be such a diligent student in all things, who has what seems to be clearly an almost a Ditech memory. I mean, you have such a incredible ability to retain facts and figures and to then use them in speeches and fundraising and so on. How did you approach learning the job of deputy domestic policy adviser?
I would say the first thing you mentioned is I can remember things pretty well. And details of the things 10, 20, 30 years ago are things I read. Trying to find my keys from time to time can be a challenge, particularly if I in my hand. So you do find this bizarre thing that you you can't remember where you put your glasses, even though they might be on your forehead. But you can remember something that happened in thirteen, twelve or something.
I don't know. I don't know why the brain works that way. But to answer your specific question, what what Jimmy Carter wanted to do was to to do everything at once. He didn't really want to focus on one or two priorities and people told him that was a mistake. But he said, look, I'm as many presidents do. If you're so smart, how come I'm President United States and you're not so many presidents say that. And so he basically thought, look, now's a chance to get things done that he wanted to get done.
So we tried everything. So we have to have bills, the Congress. We have to respond to things that Congress wants to do. And so my job was to help my boss, who is the domestic adviser, who had known Carter for quite some time. And so he had really good insights as the Carter one on what Carter wanted. And we had a domestic policy staff about forty people. And so my job was to help coordinate things with them.
They had specialties in various areas. We had to worry about agriculture, housing, energy, whatever it wasn't. My job was to help coordinate, write some memos and things like that. And then the ten meetings where these discussions are being held. And it was a little heady when your your parents have not graduated from college or high school. And then one day they're they're standing on the South Lawn because I invited them and they see me walking out of the Oval Office with just Jimmy Carter and me and a Secret Service.
And we're getting on Marine One to go some trip. And so they're kind of seeing how this happened. Of course, I'm saying that myself. How did this happen? But. Lots of times in life, people get jobs that they're not really that qualified for. And it wasn't that unusual. There were a lot of people who probably had less qualifications than I did and some had more qualifications than I did. That's just the way all White House staffs tend to work.
We're going to get to business, of course, to the finance world and so on. But before we do, I'm curious up to that point in time, in retrospect. What were some of the best decisions that you made or investments of time up to that point in your career? I mean, you strike me as very, at least in many respects, in many facets of your life, quite methodical, thoughtful, analytical. So whether by design or by luck, what were some of the best decisions that you made up to that point?
Well, I guess there are some personal ones. I decided not to drink alcohol, so I've never tasted alcohol. A club that I was in the Lancers Club. I would say that the judge probably didn't think young men should be drinking alcohol. And I just adopted that rule. And that was probably a good thing I did. I saved a lot of time and didn't get any trouble. And the same with other kinds of things like drugs or things like that.
So and I'm staying on the straight and narrow was probably helpful. Secondly, being a hard worker, I generally had the view that if you worked hard, it was better than if you didn't work hard, you're more likely to produce something and it's something done. And so I finally made myself into a bit of a hard worker and admired people who had done that as well. And so I also read a lot. I tried to perfect three skills, very simple ones, learn how to write.
I had a very good high school teacher and he taught me and others in my class at a right, the king's English in a way that's comprehensible. And so I like to write and I thought I was reasonably good at it. And so I was pretty good at writing memos or things like that. Secondly, I learn how to talk. You know, you have to learn how to communicate as well orally if you're going to get somewhere in life.
And I so I took advantage of every opportunity I could to learn how to speak by taking speaking engagements or just watching people speak or reading about people who have been great speakers and practicing the kind of things they had done. And then just reading everything I could, just reading, just reading every newspaper, every magazine article I could that was relevant to what I was doing, just soaking up as much information as I could. And so those kind of basic skills were helpful to me.
And and ultimately, in the end, if you're willing to do all that and put the hours and you can you can get somewhere in life.
I've watched a number of talks that you've given, including one at Oxford from a handful of years ago, I think 2018. Right. If you were teaching a freshman seminar on, you could pick either speaking well or writing well and understanding there quite closely related and a lot of ways. How might you go about teaching either of those? Would there be any particular exercises or principles that you would put forth? Well, like in anything is practiced, so in writing, writing as much as you can, writing in my case memos or writing other things that people might read publicly, but just practicing, writing, having somebody go over with you and pointing out the mistakes and learning how to make sure you understand grammar and punctuation.
When Jimmy Carter was president, he was obsessed with proper punctuation and grammar. And so all of us were very careful. We sent a memo to him. It had to be written extremely well because he was very careful about those kind of things in terms of speaking. Really, it's an important skill that I think many people don't practice as much as they should, but in my case, I try to take advantage of all the opportunities I might get to speak somewhere and learn how to speak in a way that works for each person.
Now, if you watch that speech and I was I remember that event, I was invited to go to Oxford, to Oxford. I think it's called political union or I think that's what it was called. And so I you know, I'd never been to Oxford. So I got there and and they'd say, OK, well, this is a great thing. Lots of famous people come here. So really, who was the speaker right before me?
They said, well, last week we had Monica Lewinsky said, oh, OK. So I didn't know whether I should I was a step up or step down. Now, in terms of attracting people, she probably attracted a lot more people than I did. But if you saw that speech, what I have tried over the years to develop a style that works for me but may not work for other people, which is to not read from a text.
So if I give a commencement speech or any kind of speech these days, I generally what I do is I write down what I want to say. And so somebody might want a written text where I might outline it and then I try to commit. It's a memory. And I find when you're looking at an audience and you can look them in the eye and not looking up and down, up and down, up and down, you can be a more effective speaker.
But, you know, everybody can't do that style. May people get nervous about not being able. Remember exactly what they were supposed to say, in my own view is it's not that hard if you practice it. So if you watch speeches I give or interviews that I do, I don't use notes. My view is that I can commit most of it to memory. And if I forgot one or two things, nobody will really remember that. And I think it's easier to have a conversation that way.
It's also easier to give a speech that is going to be listened to as opposed to when you have your head buried down and you're just reading from a text to the Oxford Union presentation portion was probably 30 to 40 minutes.
And you have a very action packed word per minute rate. You do not. dilly-Dally So you get a lot in it's probably hour to an hour and a half worth of material for a lot of other people.
How do you commit that to memory? Is it reading it over and over again? Is it practising it as a rehearsal? How what is your process? I processes if I'm going to give a speech and it works typically at this kind of speech I gave at Oxford is a speech I've given before. So it's not that hard a speech talking about my background and the things I'm working on or whatever it might be. So it's not that difficult to do if I'm giving a commencement speech.
You want to say something a little bit different? I do type tend to write it out and then I try to take the written thing and then I'll say I'll give it to the university if they want to have a written record of what I was my actual text, and then I'll commit the 15 points to the key ones and just kind of memorize the key points. And I can do it because my brain works in a certain way. I remember after point one, the logical thing is to have point to an entry point to the logical thing would be go to point three.
And so it's really not that hard. I find that people who actually have notes in front of them actually stumble more than people that don't have notes, because when you're reading from a page, sometimes you might misread something, you might mispronounce something. It's actually easier when you don't have notes. In many respects, though, I have been surprised, honestly, sometimes people who are gifted, gifted speakers, sometimes they have notes in front of them and they just better at reading a text.
And I guess I am. But sometimes I've seen some really famous of lawyers and other people who are great political figures. They still feel uncomfortable in giving a speech without a note and they want to have it written down. And I understand that everybody has their own style, but that's my style, is to kind of look at the audience and talk to them or look to the person you're interviewing and talk to him or her and not use notes. It's not as hard as it sounds, honestly.
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How did you decide and when at what age did you decide to? Become an entrepreneur? Well, I didn't really decide at a young age I wanted to do that. My goal in life was simply to work in the White House. And I thought, OK, I come, I go. I'm twenty seven years old. I'm at the White House. And I thought that in the second term, Carter would be re-elected because most presidents get re-elected. Most obviously we've seen that one that didn't get re-elected recently, but most get re-elected.
The ones that didn't in the 20th century, though, were Gerald Ford, George Herbert Walker Bush and Jimmy Carter. But they get re-elected. And my thought was Jimmy Carter is a really smart person. Ronald Reagan is very old. I thought, how can he get you can't get out of bed in the morning. Sixty nine years old. I'm now seventy one. So I don't think it's quite as old as it used to be that he looks kind of young now.
Sixty nine. How he was so young. But I thought the Carter lose. He's so smart. Yes, we had hostage problems but we'll get the hostages out. Yes we had inflation but wasn't his fault. Yes, we had gas lines but it wasn't his fault. So there's a cognitive dissonance that works in the White House, like in any place that has power, I guess. And basically your view is anything that's bad information. It's because people don't know as much as you know.
And if anybody knew as much as you know, they would make the same decisions you would make. And most presidents have that same view, which is they're making the decisions because they have the best information coming to them and then they make the decisions. And then those decisions when they're implemented should work out. If they don't, it's because they're not communicating properly or people aren't understanding properly. So I thought Carter would ultimately be understood better, communicate better, and he get reelected because he's running against an old man who was too conservative.
When that didn't work out, I had to do what you may or may not have had to do in your life, which is to recalibrate my life. So all of a sudden people told me what a brilliant young man I was. I called him up and said, OK, I'm I'm still brilliant. I'm ready to come work for your law firm. You want me to work for you when Carter was president? I don't want to leave that now.
I'm ready to work. And I hadn't planned on any of this before because I had always thought Carter would be re-elected and I would be in the second term, maybe the senior domestic adviser, my boss might have become attorney general or something like that. I would have risen up and had I done that, I probably would have been had a different life, because if I stayed another four years with Carter, I would have been old enough then. Thirty four, thirty five to go get a great job practicing law in Washington, probably as I would have been more well known.
And then I would have settled into the convenient life and the easy like being a Washington lawyer, lobbyist. You, you have clients and you kind of influence people a little bit, maybe practice a little bit more. You make some speeches and then you go back into another administration. You go back and forth. Eventually, someday you become a cabinet officer if you're lucky. And that's probably what what I was destined to do. And my parents would have thought that was great and I would have thought was great.
But what happened was I couldn't get a job practicing law so easily because I really wasn't qualified, only practiced law for two years in New York and nobody really wanted the Carter White House. So I call the famous law firms I interviewed with. None of them gave me an offer. And so I really had to struggle for about six months to get a law firm to hire me for any position, even a lowly position. Finally, a mid-sized law firm either felt sorry for me or they took a chance.
They gave me a job and a mid-level position. I wasn't a partner or anything. And so I started doing it and I realized that I didn't like it. I wasn't that good at it. I didn't have a lot of contacts. I didn't have a specialty. And I realized, if you don't love what you're doing, you can never be great at it. Nobody ever won a Nobel Prize hating what they do. You have to love it.
And so as I became eventually I became a partner in this law firm, but I realized every partner meeting was really just talking about how much money we're making or not making. And I realized it was really a business that had been seen as a profession when I was in law school. But it's really a business. I figured if I'm going to be in business, I might as well be in a business that makes more money. And I kind of switched a bit.
I had never cared about money. But once I was out of government and I started to have a family and kids, I started caring about money more. And so I said, OK, I'm going to be in the money making business. I might as well be in a more profitable business. And I read about Bill Simon, who had started a buyout firm in New Jersey. It worked very well. And that's when I decided I will try to start my own buyout firm in Washington, D.C..
So, Bill Simon, I think and please fact check me, I'm not getting this, but took one million two years later, had turned it into eighty million, something like that. So pretty good, pretty good input output for those who don't know. What does a buyout firm do?
OK, in the early days when buyouts were done, what they were basically doing is they were taking a business that somebody didn't want. He bought Gibson greeting cards from RCA or a family run business. There's nobody left in. The family really wants to run it. And they were buying it, using a lot of leverage, then kind of leveraged buyout. And a lot of leverage meant that you were basically putting in one to five percent of the purchase price in equity money that was at risk, theoretically, and then you're borrowing ninety five to ninety nine percent of the purchase price.
So if you buy something, let's say that make it understandable, let's say at five times the cash flow numbers, the five times the cash flow, the free cash flow that comes off the arm of the company, you buy something at four, five times cash flow. You're like. Bring it up ninety five to five, if you make some fixes in the company and you improve it in a couple of years, you'll probably be earning a lot more and then you can sell the company or take it public and make a pretty good profit.
And the people that did this in the early days of the buyout boom, let's say in the 1970s and 80s, they were making spectacular rates return. To put it in context, for everybody who would understand it, let's suppose you put your money in a bank account and those days you got a three or four percent rate of return on your bank deposit, something like that. And maybe you put your money in the equity market equity fund. You got a six or seven percent rate of return.
Well, in the way these buyouts were working, people were getting 20 and 30 and 40 percent rates of return. So people said that's a pretty good business. I'd like to invest in that business for work in that business. So a buyout is basically an effort to fix a company, make it better. It's different than venture capital. We are creating something brand new. But you're taking an older company and managing it better than people did before. You're incenting the managers, giving them a piece of the equity.
And the buyout boom boomed in part because the first people that started venture capital and buyouts and this was so risky then that venture capital was called adventure capital is so risky.
They went through their first backers and they said, you know what, this is risky business and we're going to take a lot of risk here. It might not work out, but we want to be rewarded if we really do something. So don't just give us a one percent fee like romantic. We're an investment banker, something we'd like, let's say 20 percent of the profits. And the people said, well, OK, 20 percent of the profits of their profits.
We get our money back and we get 80 percent of the profits. You get 20 percent. They agree to that. And so that really fueled the whole industry, because if you get 20 percent of the profits on a lot of money and you make four or five, six times your money, you can make a fair amount of money as a person doing this kind of business.
Were the buyouts at the time effectively all leveraged buyouts sort of in these kind of barbarians at the gate? Yes. And Nabisco of that era, where were we where were you talking in almost every case about leveraged buyouts? Yes, yes. The early days these were called or the first days they were called bootstrap deals. You were bootstrapping yourself to to a company where you were basically bootstrapping yourself because you didn't have any money. You were basically borrowing all the money.
They later became called leveraged buyouts, but the word leverage became odious. So they went to management buyouts and it was friendly to some leveraged buyouts or unfriendly. Then buyout became unfriendly and became a word that wasn't so like. So they went to private equity. And so now private equity probably isn't like I haven't found a better name. But yes, in the early days in the Bill Simon example, I think he put in a million dollars. He made eighty million dollars.
I think he only had about one percent of the equity in the deal by which they only put in one percent. They borrowed ninety nine percent. The banks in those days, for whatever reason, were willing to let you do it. The regulators in those days weren't even focused on it because these deals were small. They weren't going to affect the regulatory system that much because they weren't that many buyouts being done in the RJR deal that you referred to, the barbarians at the gate.
For those who don't know, that's a famous book written about the RJR takeover done by KKR in nineteen eighty nine. When KKR did that deal, they beat out a couple other buyers, but they did the deal at with five percent equity in ninety five percent debt. And nobody at the time really thought that that leverage percentage was, was too high or too low. They thought it was OK, it was consistent with what was normal then the way the structure, the debt though had some problems.
I won't get into a technical thing, but it was, it was a lot of debt. So it worked. It didn't really work out so well because of the way the debt was structured. But what had the deal worked out better? If you have five percent of the equity and you control the whole company at five percent can make a lot of money. And so buyouts were tended to be really relatively profitable, in part in the incentive people to go into the business, in part because you got 20 percent of the profits and, you know, 20 percent of somebody else's money can can be very profitable.
If you do a good deal. It makes two, three, four or five times your money.
I would love to dig into this a bit because I rarely have conversations about it. Leveraged buyouts or private equity on this show. The listeners of the show who've listened for a long time are probably more familiar with venture capital just because that's a world I was involved with. For a long time. We've had investors like Marc Andreessen and Reid Hoffman and many others on the podcast, which has a say a two and twenty or in some cases a three and thirty structuring the management fee.
Then then the the the let's correct the profit incentive. In the case of assuming debt, some of the examples that you gave that sort of strikes terror into my heart, not understanding how these deals are really structured, the subtleties of them, what are the threats and how do you or risks, I should say, and how do you mitigate the risks of things going sideways in in in those deals in the early days of the buyout?
We're all. The people doing the deals were former investment bankers to some extent, so they were finance people and they were borrowing ninety five percent of the purchase price. Well, that's a problem, because if the economy goes south, then you're your projections are probably going to be off. You don't have a lot of margin. In the late 1980s, around the time of the RJR deal. A lot of people were doing deals with five percent equity and then the economy went into a recession.
And there was a kind of a bubble burst and a lot of the deals went under. And so the buyout industry reshaped itself and it basically began doing deals where were putting in 20 percent of the of the capital structure and then 30 percent now could be 40 percent or so. And sometimes it's even 50 percent. And also the debt has been structured differently. So it's a little bit harder to default because they have covenants that are looser, let's say, on the floor.
But one of the major things that's changed is that today all the buyout firms have people in those firms who are not so much former investment bankers, but there are people that have worked in operational companies who have real management expertise. So as soon as you buy a company, you say, OK, here's one hundred day planner, 30 day plan. We're going to change the company dramatically by making these management improvements. Now, in the early days of buyouts, these were relatively novel kinds of things.
Today, they're well known at that public companies do the same things that private equity people do in many respects because the techniques are pretty well known. And so today, I'd say the risk is much less because that often has it's harder to default on it. You have so much more equity underneath it. You have people much more expert in how to run the risk of these companies watching them. And so it's much less risky now. The returns are much less to the days of 30 percent and 40 percent buyout returns or very, very few, because unless you get lucky on a deal, it's unlikely you're going to get 40 percent, 50 percent rate of return.
Now to happens from time to time, you will see some deals from time to time. But generally, people put their money in a fund and a fund does 20 or 30 deals. It'll probably in this day and age, I would say average in that mid teen net, greater returns, let's say 15, 16 percent annualized, which is pretty good when interest rates are more or less at zero. The old days, people thought they could get 20 percent net internal rate for even twenty five percent that internal rates of return, that that's harder to do today because there's more competition.
When I started Carlyle, there were maybe two hundred and fifty buyout firms or investment firms of its type around the entire world today. They're probably, I'd say six or seven thousand. So it's more competition prices have been driven up. I would also people often ask me, where are the how do you get 20 percent? Who came up with that and why is it called a carried interest? And let me explain. The first twenty percent really in the modern age was the first hedge fund was done pretty much after World War Two.
And the first person who built a hedge fund, he asked for 20 percent of the profits. It's not clear why he asked for 20 percent, but the investors agreed. The first venture capitalist again, I said earlier, the adventure Kappus, they kind of asked for twenty percent as well. And there are investors said, OK, nobody knows exactly why they asked for 20 percent now versus twenty five or 10 percent. But I analogize it to the days in the week, it kind of seems like five days of working works and two days of rest, five and two out of the seven.
That seems to be normal around the world as a way to kind of modulate the amount of time you have to work and so forth. Well, 80, 20 seemed like for most investors, a fair way to split profits. We get 80 percent of our profits back. We get our capital back, and we'll give you guys who work very hard. Twenty percent in the old days in the Middle Ages, the Venetian shipowners used to send empty ships to Asia to bring back spices.
And the people that worked on the ships would get a piece of the profits they would carry. They would have a carried interest. They have an interest in what they carried back from Asia. Would you carry back a lot of spices from Asia? You have an interest in it. It's a your carried interest and it was twenty percent. So maybe it came from there. Who knows? But any event that that's where the phrase probably came from and 20 percent seems relatively normal.
But as you point out in the venture world, the best venture people today are probably getting 30 percent returns, 30 percent carried interest, and sometimes now people in the buyout world, in order to attract more capital or to do things differently, they might take a slightly lower than 20 percent return. Twenty percent carried interest.
So you lower the carried interest on Spice's. That is a fantastic story. I hope. Hope that's the account. The etymology.
If we look at a lot of the the current day norms or we could just look at recent norms, those could be different instruments like convertible debt in early stage venture capital deals. Just because I'm more familiar with that, we're all different types of standardized documents that are used by places like Y Combinator and so on. These were all innovations at some point that really rocked the boat or changed things, even though they're viewed as quite normal. Now, what were some of the not just what were they, but how did you and possibly your partners arrive at some of the innovations that that drove the success of the Carlyle Group?
Well, as John Kennedy said, victory has a thousand fathers and defeat is an orphan. So I'll tell you some of the things we think that were that were successful, but not a people now take credit for it. At the time, we thought we were novel. Let me give you. For example, in the private equity world, when the KKR deal for RJR was done in nineteen eighty nine, I think KKR had about seven investment professionals. They were very small firm, but the firms were very small then.
And one of the reasons the firms were small is that you were only allowed in those days to have one fund. So if you raise the buyout firm and you were KKR or some equivalent firm, you had to spend one hundred percent of your time managing that fund, which makes sense that people gave you money. I came up with an idea which I thought was novel at the time. Now, maybe people other people said they did the same thing.
I don't know. But it seemed it seemed to me that after we raised our small buyout fund at Carlyle and I said to my partners, you are the investment professionals. You know how to invest the money. I'm really not an MBA when my skill set is. I know how to go out and raise the money and I'm pretty good at recruiting people. So here's what I have in mind. Let's build a fidelity or T. Rowe Price of private equity, which is to say, not have one buyout fund, but have a buyout fund, a venture fund, a growth fund, real estate fund, and basically take our brand name.
And as Fidelity had done and as T. Rowe Price had done, and Vanguard have many different funds and therefore institutionalize our brand name, institutionalize our business by centralizing fundraising, accounting, tax and everything in one place that's, say, our headquarters in Washington. And then we have multiple funds. And the theory is, if you like us some buyouts, give us a chance. In venture capital, you like a symbiotic venture capital, give us a chance of something else and that more or less work can be built that an institutional business.
And the second idea was to globalize it. When KKR did this RJR deal, everybody did deals in their own country. To the extent that that deals were done in Asia, they were a minority stake transactions, but they were buyouts in Europe. They were basically done by Europeans. Americans did American deals and Latin Americans did Latin deals to the extent they were doing them. I said, why don't we go and recruit a European team and Asian team, a Japanese team, Middle East team, African team, Latin American team, and then have our own people that we control.
They work for the firm, but we're doing global. So we basically built an institutional firm and a global firm, and that was the novelty of it. And I became known as a well-known fundraiser because as we're raising all these funds, I had to be the person running around the world trying to get the money so I would travel an enormous amount of time to raise money for these funds.
Did you start with that end in mind? In some sense, you've been described as a virtuous of private fundraising.
Were you thinking about in your mind's eye how to differentiate Carlyle in fundraising and then building the product around that? In a sense with the multi Geographe approach, multiproduct, like you said, sort of fidelity type approach, did that come from your strength as a fundraiser and thinking about how you would be most effectively able to pitch this?
To some extent? I mean, I don't want to pat myself on the back, but I realize that I once I raised the fund and I wasn't I was on the investment committees, as I still am, but I'm not day to day doing the deals. So I would say, well, I have time. I could go out and raise another fund. I could recruit people for a fund, and then I run a fund and let me go raise money around them.
And then my partners could oversee the investments. So I did think that that was something that I could do and it worked out. And then so I built a large in-house fundraising team. Historically, when you were raising a fund, firms would use third party people to raise the funds for them because nobody really wanted to be a fund raiser. You know, people who are doing deals, that was the high point of the food chain doing a deal.
You're a private equity investor that the low point of the food chain was being the fundraiser because nobody really wanted to go out and ask for money. It's unpleasant. People thought and just not seemly. But I didn't have anything else that better that I could add to the firm. So I said, all right, I'll go out and recruit the people and then I'll raise the money. And I was willing to do that. One other innovation that we came up with for which we got criticized, but maybe help this as well and others from now used it because we're in Washington, D.C. We had a lot of former government people who were leaving the government and they sometimes they didn't really want to go practice law.
They weren't lawyers. So we recruited Frank Carlucci was leaving the Reagan administration as secretary of defense. And four years later, we recruited Jim Baker, former secretary of state. And when these people joined our firm and we brought in other people like Arthur Levitt, the former head of the SEC, Dick Darman, the former head of OMB, George Herbert Walker Bush. As an advisor, we became very well known because we had these famous people. Now they weren't doing deals.
But if you were invited to a dinner with David Rubenstein in those days, you wouldn't show up. If you're ready to eat a dinner with Jim Baker, you probably show up. So that was it was really a not an original idea of inviting people to a dinner or an event where there's a draw. That's obviously something that a lot of people have used for many times. We we did that and then eventually it kind of backfired on us a bit because we had so many government people, people thought we were lobbying the government or doing inappropriate things.
We weren't doing that. But it backfired a bit when because when George W. Bush became president. His and the war in Iraq went went south, we were, for whatever reason, blamed for it, and some people thought, well, the father's connected to the firm and Jim Baker is in the firm. He's close to Bush. So we basically had to change our image a bit. And I recruited Lou Gerstner then the hiring at the age of 60, which seems very young today to retire.
He retired from IBM at 60 and I recruited him to be the chairman of Carlyle.
And then the government people and I retired when that all went down with respect to the Iraq war and so on. The acquisition associated with that, how did that affect you?
If it did you seem, at least from a lot of the reading, to be very unflappable, did it have a significant impact on you or did you take it stoically and keep calm? Carry on? How did that experience sort of travel through you, if that makes any sense?
Well, I wasn't it was not a highlight of my life because, you know, one day you're doing private equity deals and you think you're doing a reasonably good job at it for your investors. And all of a sudden people are attacking you as being the people behind the Iraq war, which we have nothing to do it. So it wasn't a pleasant experience in our image, I think was hurt. So we looked at what we had to do and what we had to do was kind of a couple ourselves from the people who were not responsible for it either.
But just having an association with political people probably engendered more criticism than probably worth. And so all those people volunteered to kind of retire from the firm. And then we brought in Lou Gerstner, as I mentioned, that we try to depoliticize our image. And so I would say it was a painful experience, but lots of things in life are painful. You live through them. You do the best you can.
If we come back to your reputation as a virtuoso of fundraising, what mistakes do you think novice fundraisers make? What are some of the more common mistakes that you've seen in your career?
In the fundraising world? There are three types of fundraising. Basically, there's political fundraising, there's philanthropic and there's business. In many ways, business is the easier of them because you're offering people rate of return and therefore they're not theoretically going to get their money back and plus get more money. Philanthropic is more challenging because you're asking people to do something for the good of the country or the good of the organization. And it's more ephemeral as to what the benefit is.
In political, the amounts are relatively smaller, so probably not as challenging. But the mistakes that I see people make, our number one, they say, I'm sorry to ask you for money. If you're sorry, don't do it. If you want you want people to give you money, you should tell them why they should give it to you. You should know what you're talking about. You should have as much information at your fingertips. You shouldn't have to keep saying, I'll get back to you, I'll get back to you should know the information yourself or have somebody with you who can do it.
You should always be polite and appropriately so, not arrogant. You should give people a chance to think about it. You should give people a follow up note or card after the meeting is over and then appropriate time, follow up and see what what's done and then keep them informed all the time about how the investment they might have made is doing. You shouldn't raise money from people and then not talk to them again until you're ready to raise another fund.
Obviously, even if you treat people not as well as you should, if the returns are spectacular, people will probably reinvest with you. But returns are probably going to be in the medium and therefore not so spectacular that people give you money no matter what you do. So treating people appropriately is good, but knowing what you're doing in the old days, it used to be important to show up. It was the kind of thing where if you really cared for me and you want my money, show up and show you care.
Now, in the era of Zoom, you can't show up. And so it turns out that's a lot easier to raise money today. If you have an established fund because you have a track record, people already know you. It's a lot harder to raise money if you're doing it for a first time because people really can't meet with you and they can't meet with you. They probably have a better excuse not to invest with you. But in the end, it's not anything more challenging than doing the kind of things you would want people to do, which is give you information, be transparent, be honest, give bad news up front.
Interestingly, if you go to Harvard Business School, Stanford Business School or any other good business school, Wharton, Chicago are all very good places. And you say, you know what, I want to be a fundraiser. I don't want to be a manager. I don't want to be an investor. I don't want to be anything. I want to be a fund raiser. I don't think you'll probably find a lot of fundraising courses or maybe none, because people don't view it as a skill set that's worth intellectual time.
But I do think that people who actually know something about fundraising, I'm not looking for a job, but people know that I should probably teach what it takes to ask for money. For example, you've been in the business world and you would know that your experiences like mine if I go to an audience, any. Any audience and I say how many people in the last month have been asked for money for a philanthropic, political or business thing, and half the people will raise their hand and say, how many people have asked other people not been asked but asked.
The other half will raise their hands. In other words, everybody is asking people for money or being asked. It's a very common thing in society, but it isn't treated as an intellectual, kind of a difficult thing, and therefore you don't tend to get courses in it. There are very few books written about private equity fundraising or things like that.
But anyway, so in the sort of embryonic stages of the Carlyle Group, two questions. The first is, did you have a placeholder name before it was called the Carlyle Group? And second, what did that initial fundraising look like? How much were you trying to raise? You now have approximately two hundred and thirty billion under management. What were you trying to raise then? If you look at the original business plan for Apple, Microsoft, Amazon or any great company, and I wouldn't say we're in that league, you will see that the original business plan probably bore little relation to the company that they actually turned out to be because the world changes and so forth.
Remember, Jeff Bezos was only going to sell books. That was his plan. He didn't really think about doing anything else so much later or at least a few years later. In our case, we originally decided to have a name that would be one of the usual Greek and Roman names that you can roll that your name before Roman or Greek goddesses. But all the ones we looked at were either taken or we couldn't pronounce them. So then we came up with things that says, how about why don't we just say what we are Washington International Finance and Investment Corporation?
But people pointed out that didn't exactly roll off one's tongue was too long. And so one of my partners said, well, what about Carlyle? Because he had read a book about a man named Andre Meyer, who is the then running Lazard Freyer, and he lived at the Carlyle Hotel in New York and had a he was not married and had a nice lifestyle. And I guess my friend or partner at the time aspired to live in the Carlyle Hotel and have a kind of a single man's lifestyle and the Carlyle Hotel.
And it seemed like a good easily pronounceable name. It sounded a little British and therefore maybe it sounded like we had some class behind us. And so we went with him.
And what was the initial target fundraise and how much money were you aiming to raise?
Well, we originally wanted to raise five million dollars, not five billion, but five million. And so a friend of mine who now in the firm helped us get it done. We raised it from four investors, won a West Coast Bank. One was T. Rowe Price, one was Alex Brown, and the other was the Mellon family out of Pennsylvania. And ultimately, they put up the five million dollars. And then after about a year or so, the Mellon family bought the others out.
And so they were became our main partner.
Let's double click on that, because you've mentioned it was hard to get a job. You were calling these people who had expressed all of this hot interest in you when you were a player at the White House and then no return calls.
What were some of the key decisions or factors that allowed you to raise that money? Well, the five million was really raised because the person who was helping us was a man from T. Rowe Price, and he was a friend of mine and he helped us. His name is Ed Mathias, and he ultimately became part of our firm later on. But he basically had a really good network. And again, five million dollars isn't that much. It was two million to operate the firm and three million dollars to invest.
We were going to each time we had a deal, we would raise money on a deal by deal basis. That was the theory was a little challenging to do that from time to time, but so it wasn't that much money. Obviously, in our first fund, we all we went out to raise a fund at one point after a couple of years and we raised one hundred million dollars. And so that was all we could raise. Our second fund was about a billion or so, but that was because we had invested a lot of money alongside the hundred million dollar fund co-investor.
And our track record was good. If you have a good track record, you can raise an infinite amount of money if you're do reasonable things to ask people for money. If you have a bad track record, no matter how polite you ask, it may not make much difference.
When you say good track record, could you give people an idea of what that track record looked like? Yes, we in our first couple of deals, we we were making maybe two, three, four times our money on some of the early deals and that was pretty good. They were small deals and they weren't gigantic deals, but they were good enough to give people a sense that, yeah, we probably knew what we were doing and we were OK.
And I think people were willing to take a chance on us. But it's a concentric circle. First, you raise money from your friends and your relatives, then you raise money from people you might know in your city, then your state, then your region, then the country, then other countries. And so you just kind of work your way around the world. Eventually, I learned that no matter where you go in the world, there are always people that basically have been educated in investments and in business and they talk the same language.
But the cash flow multiples, p e ratios carried interest. They all had a sense of what you're talking about and the energy they generally you find when you feel the need to finance somebody in the organization, it really the person that knows something about what you're talking about and they won't be the one that probably makes decisions.
What did you do differently from other? Fundraisers. If you had to pick one or two things, you know, looking back, what did you do differently? I mean, you were clearly a top performer within that skill set. What did you do differently, would you say?
Well, one, it was novel to have a big in-house fundraising team at that time. Now, it's fairly common for large firms. But in the old days, I was saying earlier, if you were raising a fund, you probably only raising one fund a year or every couple of years. So you would go out and hire Merrill Lynch or Lazard Frare or somebody that had a full time team that did nothing would raise money. I built an in-house team that was unusual and it was all around the world and I heavily incented them they were heavily rewarded for doing well.
So we were paying our fundraisers probably more than the market would dictate we had to. And as a result, we got very good people and we retained very good people. And then I was willing to schlep around the world, go anywhere, see anybody, do anything to kind of help make the case. And so since I was a founder of the firm and I was willing to run around the world, I could see a lot of people and people kind of respected the fact that I would show up in places that many people didn't show up.
And very often, if you're open to saying a little bit more about compensation, I'd be very curious to know how you ultimately, at least at that point in time, ended up incentivizing your fundraisers.
Well, fundraisers tend to get compensated in any business world or any salesmen's, as generally you can call them, fundraisers here. Salesmen generally get compensated as a percentage of revenue they bring in or some percentage of something. And so we had a kind of percentage that we would pay people. And if they had a spectacular year, we wouldn't say, well, you're making too much money this year, so we'll cut the percentage or we won't give you as much as you're entitled to.
So we want to honor our commitments now. Therefore, we are. Fundraisers were very highly compensated in hindsight. We could have changed the way we structured it. And now we've got a system that's a little bit more complicated in terms of we say, well, you get compensated more if it's a harder fund to raise, compensate less of it's an easier fund raise, so forth and so on. But I at the time to get it going, I was not interested in that nuance.
I just wanted to get into the market, get the money raised. And so we probably were more generous and maybe other people.
You mentioned a name earlier that I know is featured in your book, How to Lead Wisdom from the World's Greatest CEOs, Founders and Game Changers. And that is Jeff Bezos. Right now. The implicit in the in the title How to Lead is, is that one can learn at least how to be a better leader. And do you have a tremendous list of names of those you've interviewed, Jeff Bezos, Ruth Bader Ginsburg, Phil Knight, Oprah and so on.
What are some of the deepest impressions that have been made on you from your time with Jeff Bezos?
What are what are the sort of learnable or emulator all aspects of Jeff Bezos?
Jeff is a very smart person, very hardworking. My interview he pointed out some of his tricks, which I wish I'd known, which was getting eight hours of sleep every night. I you know, I could have gotten more sleep over the last thirty years. I realized that was the key. Doesn't make decisions before 10:00 in the morning. It doesn't really make decisions late in the afternoon and tries to make only a limited number of big decisions in a week or so.
So he's very creative and very smart. I first met him after our company helped him get in the business because when he was selling books over the Internet, that was his plan. You had to get a bibliography of books in print. And one of our companies had such a bibliography and we rented it to him. Later I realized that probably we should have taken his original deal, which was the I think it was twenty or thirty percent of the stock of his new company, Amazon, in return for renting the bibliography.
But we said, no, we want to cash. So that was probably a mistake. But I went out to see him first time and said I'd rather have that 20 percent or 30 percent. He said, Well, David, that was two years ago. I don't need you so much anymore. But you were a great help when he did give us some stock and that stock was probably maybe one percent of the company, which today is worth, what, twenty billion dollars or something like that.
So I probably should have held on to the stock, but we sold it pretty quickly.
Any other tricks or. Mental frameworks, anything that really stand out for you from Jeff Interm from Jeff, well, Jeff is a person that has like a lot of very successful business people, a lot of self-confidence. He's got a pretty good sense of humor. If you read the interview, you can see that he can laugh at himself and he has pretty good insights as to what works and doesn't work, as he said. Intuition is what he really relies on his gut.
If he relied on consultancy, probably never would have started the company. So I would say Jeff is is an easy guy to get along with in many respects and even think about it. He's now the richest man in the world. And let's say up until maybe a couple of days ago, the second richest was Bill Gates. If you think about it, when you're the richest person in the world, it can tend to be isolating. Many people, been the richest people in the world have tended to isolate themselves.
J Paul Getty was relatively reclusive. Howard Hughes was extremely reclusive. Daniel Ludwig, who maybe was the first billionaire in the United States, was relatively reclusive. Now you have these multibillionaires, he's centa billionaires and they are accessible. I mean, you know, they're not walking around the street like everybody else, but they know they go to meetings and they you know, you can get meetings with them, you can do interviews of them. And, you know, it's a much different phenomenon.
And you saw years ago, I think Jeff is a person that's is built an incredible company. When you think about it, company didn't start, I think, to nineteen ninety four. And now the company has got a million employees and a market cap of about two trillion dollars. It's a staggering what he's built in relatively short period of time.
The annual letters also are just fantastic. There are for people listening pdf of the collected annual letters to shareholders and they make for a really, really good read. Just a little Easter egg for people if they haven't run into it. If you go to relentless dotcom, that will redirect to Amazon.com an initial pet you URL, Jeff Bezos, Ruth Bader Ginsburg. What struck you or stayed with you most from your time with her?
Her passing at a tremendous farewell. Her life certainly had a tremendous impact on on countless, countless millions. And her death had a huge impact on a lot of people close to me. Also, what were things that stood out about her to you?
Well, she was very diminutive. I've interviewed her a few times. One time was in the book for the book. I did that at the 90 second Street Y in New York, very small. If she weighed one hundred pounds, I'd be surprised. 90 pounds of that was probably her brain. Brilliant person. First in her class at Harvard Law School, first in her class at Columbia Law School, at a time when women were barely admitted to law schools and she couldn't get a job.
But this is a complicated person to interview in some respects, because when you interviewed you, she would not respond right away. In other words, if you asked me a question within, you know, many, many second, I'm going to give you an answer. Maybe I shouldn't, but I do. And that's what most people do. She would sit there for, like, twenty seconds. Am I. Is she having a senior moment? Is there a health problem?
She can't hear that. Well, if I say something wrong. But no, apparently she did that her whole life. She actually had this incredible habit of thinking before she talked. Imagine that thinking before you talk. And so you would think very carefully what you want to say and then she would say it. So a lot of times people were put off by that. But I wasn't I got to know him reasonably well because as a chair of the Kennedy Center, she would come relatively frequently to see operas and and she'd get the gigantic standing ovation.
So I realize after a while I had to be careful because every time I would announce she was there, it'll be a 20 minute standing ovation and presence. The United States, they get a two minute standing ovation. She would get 20 minutes. So we had to kind of calibrate the times we introduce her because we knew it would set things back by twenty minutes. But she deserved it because she really represented women in a time when women weren't really being represented for gender equality.
And she revolutionized and really created the gender equality law that we now have. And then as a member of the Supreme Court for more than 20 years, she really helped write some historic opinions.
I've interviewed and certainly have met many iconic figures, the names that we've mentioned known to millions. Does anyone pop to mind anyone you've spent time with who is an extraordinary leader, who is perhaps lesser known? They could be well known within a niche or within a a particular industry. But just in terms of broad mainstream awareness, perhaps, or not as well known as some of the names that we've mentioned.
Well, there are always people that you interview who are not as well known as I think they should be. They've done great things, but they're in a narrow niche or something. But I mean, before I respond to that in detail, I would say that as somebody that does interviewing yourself, you've done I don't know how many podcasts is it, 500 or a thousand or something? About five hundred. Five hundred. It's an interesting format when you think about it.
Why don't we have any interview transcripts of Julius Caesar, William Shakespeare, Charlemagne, Alexander the Great Henry, the eighth Abraham Lincoln? Well, this format of interviewing people for information and to some extent entertainment is a relatively new phenomenon in the grand scheme of intellectual development and civilization. Obviously, lawyers depose people and that's happens in court. But as a way to kind of learn, reading and interview and listening to an interview and being interviewed is a relatively new phenomenon.
I kind of tributed going back to maybe the early days of The Tonight Show in the 1950s when people went on television, they were interviewed and people thought it was not only interesting but entertaining as presumably podcasts and other things are now. And I just wish I had a chance to go back and interview some of these people and think about if we had an interview of George Washington, interview of Abraham Lincoln, interview of Henry the Eighth. You know, we could say to Henry Eigth, why why don't you just get a prenup and not and not, you know, chop off the heads of all these wives.
You had her or Alexander the Great. Couldn't you have attached a little more modest name to your suit yourself rather than the great I mean, just being fun to interview people like that. In terms of your specific question, I interview a lot of historians for programs that I have a history program and they have incredible stories to tell. They themselves are not as famous as the people they're writing about in many ways, but they know the person so well that they can.
You feel like you're talking to the person. So when you talk to Robert Caro, who spent thirty five years of his life working on Lyndon Johnson, you feel like you're you're talking to Lyndon Johnson or when you talk to Doris Kearns Goodwin, you feel like you can you really understand Lincoln or the other people she's written about FDR, so many other people. I like to interview writers as well, because they can do a terrific job of explaining things in ways that you didn't really understand before.
You mentioned Robert Caro and LBJ, also the author, as I know you know, of the powerbroker. And when you established the Carlyle Group, you established it in Washington, D.C. instead of on Wall Street. And I would love to. And this is just my personal curiosity. Talk about. Your perception of power in politics, because I'm familiar with money as a currency in the world of business and investing, I'm familiar with, say, status within the world of research and academia.
The different flavors or species of political power, though, are not a it's a native language of mine. I really haven't had much exposure.
When you spend time in a nexus of political power like Washington, D.C., what are the different forms that it takes? Because there are certainly many benevolent drives among those who are forming policy. And then there there seems to be also, I mean, a drive to power. And I just love to hear, given the amount of time you've spent, what your experience of in perception is of of power.
Well, throughout history, some people have liked to have power because it gives them a sense of control over their lives and the lives of others, makes them feel more important. It makes them feel maybe they can accomplish something. It is the thrill of having power isn't enough for them. They want to actually accomplish something with a power. And it's intoxicating in many ways. As Henry Kissinger famously said, power is the ultimate aphrodisiac in Washington, D.C. You could be a wealthy billionaire or multimillionaire and try to meet with a senator or congressman or a cabinet officer.
And they may not care how wealthy you are because if you don't have power in Washington, you're a dead person. So now people in Washington care more about who the chairman of the Ways and Means Committee is and who is the, you know, the CEO of a major company. People in Washington, they care about who's got an important job in the White House when they care about who's starting the National Venture Capital Fund. That's going to be a terrific venture capital fund.
So Washington is a place where power really is the ultimate card and that means something to people. And it's interesting when you don't have the power, you know, you're out hailing a cab with everybody else. But when you have the power, you can get almost anything done. And you want in Washington, that's what people in Washington have is their currency. The coin of the realm here is having power and money isn't as important in Washington as it is in virtually every other city.
You've studied history. You've studied the historians who write history, and you've spent a lot of time certainly restoring, preserving, highlighting, highlighting history in many, many different ways through your philanthropy. If you look back as someone who I believe, as you mentioned, names to read one hundred or so books per year, if you had to pick, you know, one or two books that really highlight the power of the white hat variety, meaning the the use and wielding of power for the forces of light, the grandiose.
But I think you get the idea and then one or two that exemplify the opposite, you know, someone who is perhaps overly intoxicated that fell into a delirium or just was otherwise wielding it in more of a black hat manner. Do any books, biographies or otherwise come to mind for either of those?
Well, there's a new book out that I've interviewed the authors on, Peter Baker and Susan Glasser about Jim Baker, who was the ultimate gold standard as White House chief of staff under Ronald Reagan and then the secretary of treasury and secretary of state. It's basically I would say it's completely favorable, but it's pretty favorable about what he did. It has some of his words in there. As we all have words. He was a partner in our firm for a number of years.
So I know him quite well. It's a really good read on a power in Washington, DC, because for twelve years he had an incredible amount of power. I think the book that won the Pulitzer Prize for Robert Caro was the book on Lyndon Johnson in the Senate, and that is the best book about what it's like to have legislative power. Not terrific read. I'd say presidential books. The ones that I like are, I think, Ted Sorensen's book on when Kennedy was a great look inside the Kennedy White House from an insider, a terrific book.
Arthur Schlesinger wrote a really good book as well about the Kennedy administration, though those books were written before. We have a lot of information that we now have. They didn't really have them. I'd say most presidents have biographies that are pretty flattering. There's another one out now that's not completely flattering, but my former boss, Jimmy Carter, by Jonathan Alter, a very good book, really the first full length biography of Jimmy Carter that has the good and the bad in there.
People tend not to write books about presidents that say how terrible they are. Then obviously books about Andrew Johnson are not going to be that favorable or James Buchanan are not that favorable. Probably Warren Harding are not that favorable. But generally the people who write books, if they're writing them, they're generally you have to live with somebody for three, four or five years to do that. You're generally going to do it if you find reasonably good things about a person to say you generally don't.
I want to spend three or four or five years of your life writing a book about somebody you actually hate, so you don't usually get terrible books about people. They do point out towards autobiographies written by presidents tend to be in a fairly unique category because they're not going to say how terrible they are. They don't usually put out all of their insecurities or so forth. But some people have written really good books who are presidents. And, you know, it's it's a genre that I think is not one where you get a lot of Pulitzer Prizes from people who've written presidential autobiographies, but the new one by Barack Obama.
I haven't read yet, but I hear it's pretty well written because he's a very good writer. But it's only one of the two volumes. It's not complete yet.
Do you read any fiction or is it entirely non-fiction? That's a good question. I do not read fiction. We all have our failings in life. We all have our weaknesses. But I my theory is that I'd like to get as much information as I can. And so more factual information is probably in non-fiction than fiction books. So I recognize a lot of research is done for good fiction books and I tend to read books that I know something about.
So I like to read one hundred books a year and meaningful books. You've got to have a system and to do it. One of the ways I get done and get it done is I'm interviewing authors all the time and so I have to read the book. So I kind of forced myself to do it. But I also I'm reading books about things I know pretty well. So history, business, philanthropy or politics, things I know reasonably well.
So I've read when I read the twenty third book on John Kennedy at that point, I know it pretty well. So it's not that hard for me to get through it. If I had to read a physics textbook or a chemistry textbook, it would take me about a 10 years to probably get through it. So to read a lot of books I'm reading and things and things I know reasonably well and can absorb it pretty quickly and I can get through them pretty, pretty readily.
How do you choose those books? I mean, even though you're reading one hundred books, let's just call it per year. I know that you feel like you're in, as we all are, a race against time. You know, you're not right. You know, we're all in the process of sort of trending towards extinction, personal extinction. How do you choose your books? Right. Because some people listening might hear twenty third book. And that might be an exaggeration.
But I know you've you've read a lot of books that overlap. How do you choose the books that you dedicate time to? And then do you ever quit books? Do you ever stop when you're partway through?
I generally when I realize I'm reading a book that isn't that well written or not as good as I thought, I might just skip to the chapters that I think I'm really care about. So sometimes I generally don't like to do that, but I generally feel that sometimes books are not as great. I won't mention some that I've read recently where I said, why did I pick this book? I'm going to interview this author in this book. I can get through this book.
It's just not I mean, English is not the person's native language, I suspect. I can't believe this book, but I never would tell anybody that. I do think it's a courtesy to read the book if you're interviewing the author. So I try to do that as a way to force feed myself a bit. And I don't have any disrespect for fiction. I just tend not to be as big a fiction reader as I probably should have been or I was when I was younger.
But in terms of the way I pick the books as I I love to go to bookstores and caress the books, pick them up, look at them and figure out what's what might be appealing. Secondly, I read the book reviews of New York Times and other places to see what's coming out there. And then I'm now in the in the category of people sometimes send me books, friends of mine and writing books all the time. And so I get a lot of those books and then people think I might be good for a blurb.
So people some books that they want me to put a blurb on or say something about it. And and generally in some books I know something about people tend to send me books, so I just do it that way. But what I wanted to comment about the books, though, is this this is very important to me. I care about books because it open a new world for me. And that's why I love reading, because I can learn so much and I get wherever I got in life, I got through education and by education I mean learning continuously.
And I give a commencement speech. I like to tell students, look, the word commencement begins means beginning, not the end. So don't think you're educated, you're just beginning. And I remind people that 30 percent of Americans who graduate from college never read another book in their life. 50 percent of Americans have not bought a new book in a bookstore or ordered a book online in the last five years, 50 percent. And so that's called a literacy.
You can really choose not to. And I think reading books is better than reading newspaper articles or or magazine articles, which I read an enormous amount as well. But books focus the mind. It takes so many hours to get through a book and therefore it has a certain concentration skill which is useful. The other problem, which is even more serious, is illiteracy. It turns out that 14 percent of Americans are functionally illiterate. They can't read past the fourth grade level.
And I don't mean they came from from Spanish speaking country and they can read Spanish, not English. I don't mean that. I mean, they can't read it in Spanish either. And it's a sad situation now. Eighty percent of the people in the juvenile delinquency system are fucking. The illiterate and two thirds of the people in our federal prison system are functionally illiterate. That is one of the greatest causes of income inequality. People can't read. If you can't read, you're not going to get very far in life.
In my view. So I really try to urge people and I've set up a lot of literacy kind of things to kind of encourage people to do more. But obviously I'm a drop in the bucket compared to what what is necessary.
What do you consider some of the most leveraged or intelligent ways to address that problem? Because you're very effective, I think, in a lot of your giving. Very thoughtful. And a lot of people are not. There's feel good philanthropy.
Then there's DOGOOD philanthropy. And there's a lot between in terms of addressing illiteracy, what are some of the most surgical sort of highly leveraged approaches in your mind? To answer that question?
I'd say as a general rule, I try to find things that I can start in philanthropy, I could finish in philanthropy. I'm likely to be alive to see the benefit of it. And I have some intellectual interest in it. Literacy is something I created the Literacy Awards, the Library of Congress, and try to do some things there. But I don't have enough money or enough time on the on the face of the Earth to really tackle something as big as literacy.
It's a gigantic problem. I think we just need to do a better job of keeping people from dropping out of high school. For one thing, we have one point seven million people dropping out of high school each year. Many of those cases is for lack of literacy. They just lost interest or other issues, but people dropping out of a high illiteracy factor. So I don't have a solution for it. If I did, I would have been would have been in Iowa and New Hampshire, maybe running for president.
But but I decided not to run for president because I'm too young. I'm only 71 years old and nobody so young and inexperienced could probably get to be president. So I didn't go to Iowa or New Hampshire. But to be very serious, I, I think it's one of the kind of problems we should get more people to focus on you. Rarely, rarely. I can't even think of when the last time a president, United States talked about the importance of literacy and importance of reading.
And I think if we could get people to read and not drop out of high school, that would be a big push towards ending, not ending, but reducing income inequality and enhancing social mobility. Di agree it's a it could mitigate that, I think, tremendously there's there's a if you have the time, there's an outstanding organization, very innovative, called Westbridge, based in the Bay Area, that that does some excellent work with addressing some of the missing pieces in terms of matching and sourcing talent to scholarships.
And that helps to kind of span that that that missing piece between high school and college. I'd like to ask you about kids. I have kids on my mind. I don't yet have any, but I'm planning on parenthood in the not too distant future.
And I've heard you speak to the benefits, the advantages of growing up working class. And I'd love to hear you describe your advice to new parents who may have scrapped their way to some modicum of success or financial security as to how not to. Raise kids who are complacent, entitled, or any of those things, it's I've seen very few I have seen examples of it done well, but I haven't seen that many. And I'm just curious to hear your thoughts and what advice you would give.
Jackie Kennedy famously said raising if you mess up, raising your children, nothing else in life matters. And she's right. And it's the hardest thing in the world to do. People have been doing it forever and some people have done a bad job of it. Some people have done a good job, but it's not easy to do. If anybody knew how to perfectly raise children, they would have told people by now, everybody be fine with it. So it's not easy.
I would say it's easier to be a child in many respects when you're not from a wealthy family because you don't you realize you're going to have to make it on your own. So poverty is not a wonderful thing. I'm not saying people should be raised in poverty and can be good for them. But if you come from a lower middle class family, maybe I did or a blue collar family, in hindsight, it's a great thing. I wish the times that my parents had more money, I could have gotten certain things I wanted that I didn't get.
But in the end, I realized if I was going anywhere, I had to make it on my own. My own children have grown up in a time. I have three children growing up in a time when I would be reasonably wealthy by any normal human standards, not by Bill Gates or Jeff Bezos, but by any normal human centered, very wealthy person. So how do you raise them in that context? Well, one, don't give them too much money.
Don't buy them all the things they want. Make them do well in school by by showing them how important it is to you that they do well in school. Don't flash your money in front of them or in other people and try to live a more modest lifestyle. Now, if you're very wealthy, you don't have to be take a vow of poverty all of a sudden. But I do think it's not good to kind of make your children think that they're going to have money their whole life if they don't work.
So I have made enormous number of speeches saying I'm giving away all my money. I hope my children are are listening to these speeches. I try to give them a good education. They've all gone to really good schools. They all have MBAs, which you could say is either good or bad. Maybe they're not struggling. Artists and poets are not painters or something. Maybe that's good or bad. But all of them seem to be pretty interested in in investing and and capitalism and and and but doing socially good things.
So they have money that I have given them to give away. Not staggering sums, but enough that they can taste the pleasure of philanthropy and which is important to me. But I want them to be able to do it in a way where they really understand the value of their decision and they have to make the decision about how to follow through and so forth. But raising children is not easy. You'll find out if you get children that it's one of the great pleasures of life.
That's why so many people want to have children. But it's also one of the great struggles of life. How do you raise children? And people always say to me, well, when do you stop worrying about your children? I say, probably when they're about seventy or seventy five. You may not worry about them that much because you're always worrying about your children and because, you know, something can always go wrong. And it's a fear that every parent has, which is that your child will not be happy or healthy at this point in your life.
What do you fear, if anything? I mean, do you have any present fears or recurrent fears?
Well, I guess I'm seventy one, so I would like to be able to live a reasonable life. And my parents made it to eighty five and eighty six. So that means my genes are reasonably good if I don't do something stupid or have a bad accident. So I think my fears are not getting everything done before I my time is up. So I call what I'm doing now sprinting to the finish line. I'm now trying to get things done.
I probably should have done a long time ago, but I didn't do them. At seventy I came out with my first book at seventy one, my second book. I'm trying to do one book a year. What was I doing in my 30s, 40s, 50s and 60s? Why wasn't I writing books then? I wish I was. I have a bucket list of things I place I haven't been things I want to go do. I haven't done yet because I've been working pretty hard my life and haven't really relaxed in the traditional sense.
But I maybe I'll get to do some of that. But I, I want to, you know, just get more things done. I want to give away the money that I have committed to giving away. I want to kind of do the kind of patriotic philanthropy things I'm interested in doing. I'm involved in a lot of universities and medical research. I want to see those projects finished, the sense that I can. So, you know, and then, you know, I want to do it in a way that would make my children proud of me.
And, you know, my parents were proud. And I often ask people in my interviews, if you've seen them, I generally get around to saying, what did your parents live long enough to see your success? And people ask me, why do you ask that all the time? And I said, well, one of the great pleasures in life is seeing a child grow to be successful. And I want to know whether a child really had that before their parents passed away.
If they did. And I did try to remind people that's a very good idea if you're successful, even if you're not successful, but you have the means to do something to honor your parents while they are alive. It's a lot more fun to do that for them and you when they're alive than when they're not alive. And I made some mistakes in that area. I probably should have done much more to honor my parents than I did. But when my father passed away relatively unexpectedly, I realized I really hadn't done enough to honor him other than.
He was happy with my success in life, but I decided to find something to do and he was a Marine, it worked. It was in World War Two. So I realize the Iwo Jima Memorial was kind of falling apart a bit, not falling apart, but it needed some repair. And so I put up the money to do it in his honor. But then I realized my mother, she could die suddenly. So I decided to have something named for her in Washington, D.C. and I surprise her, brought it to the sea.
Her name was there. And then I got her to sit down to at the dinner with Ruth Bader Ginsburg and which is one of her role models. And she really loved spending a couple of hours with Ruth Bader Ginsburg. So but I should have done should have done that earlier. And probably I made a mistake in not doing that earlier. So I encourage people to try to do do more of that. Are your parents alive? They are alive.
They are alive. And they must be proud of you, right? They are.
They say that they are. And they tried and worked very hard, very similar on some level. Similar background, middle class, lower middle class and. Scrolling through my mind's eye, thinking of how what honoring them might look like, I'd love to hear you speak further to that, because if someone listening say it doesn't have the means to dedicate a memorial or the connections to invite their parents to a dinner, that might be as meaningful, which are amazing, don't get me wrong, those are incredible gifts.
What advice or or words might you have? Well, I'll give you some advice. Not that you need my advice, but there used to be it was a very it used to be a famous football coach named Bear Bryant, used to coach for Alabama. And one time he was hired by AT&T to do an advertisement for I think it's Mother's Day. And Mother's Day was traditionally and has traditionally been the most used phone day. This is when people for people had cell phones, I suspect.
And so he went on TV and his mother passed away not too long earlier. And they had him do an ad and said, you know, today is Mother's Day, tomorrow's Mother's Day. Please call your mother. I wish I could, but I can't anymore. And it kind of reminded people, you know, the call your mother while she's alive. And so when my father passed away, my mother was living alone in Florida and now she didn't want to move back to where I was living and she didn't want to move into any kind of assisted living or anything.
So she living alone in a house. And I resolved to call her every single night, which I did, and for the remaining five years of her life. And she later told people, you know, there was a highlight of her day, was getting a call every day with clockwork, wherever I was in the world. And so I wouldn't say everybody has to call their parents every single day, but calling them more frequently is probably a good idea just to kind of show some respect.
And so that doesn't take a lot of money just to do that. Yeah, yeah.
It's got me thinking of filial piety doesn't maybe come as instinctively in the West, at least in the United States as it is it does in some other places.
When you talk about sprinting to the finish line and doing these various things on your bucket list, I mean, you're a hard charging worker and you were very, very diligent in how you've applied yourself, aside from doing more in a sort of broadly sweeping way. Are there any must do bucket items for you that are just non-negotiable? I need to do these before I turn to dust. Well, I just want to make sure my children are as prepared for my not being around as possible, so I'm happy to try to still work on that.
There are some philanthropic projects that I have in mind that I want to get done before my time is up. Some in the patriotic philanthropy area, some of the education areas, some of the medical research area, like they get those done. And I also want to do as much as I can to give back to the country. In many ways, that's what I patriotic philanthropy is about to me. And I, I expect to have a book out and that maybe you're ready for next for a book on what?
Giving back to one's country. It means my next book is going to be about that's coming out next year about what it means to be an American. And, you know, what are the qualities that make one an American as opposed to a European or somebody other country? And so I enjoy writing these books and I enjoy giving speeches and talking about my thoughts. And so I am really happy. My problem is I'm now 71. You're not going to live forever.
So I'm trying to just get things done and I'm giving away my money in an intelligent way. My children are ultimate legacy. That's an important thing to me. And giving back to the country in whatever way that I can. Those are the things I kind of focus on a bit.
Just a few more questions. I appreciate all the time 60 Minutes, because of this patriotic philanthropy, as you put it, is called you Clark Kent in a suit and tie. You've done a lot of these many things that you have done that you would put in the category of patriotic philanthropy.
What are you proudest of or what holds a particularly strong sort of foothold in your heart? Is there anything that really stands out for you?
I would say if I answer your question in a moment, but interestingly, when my mother did pass away, I went through all of her papers and she had scrapbooks of all of my patriotic philanthropy things and none of the scrapbooks and none of the articles about Carlyle. She was really interested in what I had done. She told me that when I started giving away money to kind of give back to the country what I call patriotic philanthropy. She was extremely proud and that's where she collected all the articles about that.
Not so much Carlyle's successes. So the interesting thing about patriotic philanthropy is it's a relatively small part of my philanthropy, maybe five to 10 percent, but it gets ninety nine percent of the attention for whatever reason, because people aren't doing it so much. So if I give a large amount of money to a cancer center at a cancer hospital, that's a good thing, though it's modest compared to what Bill Gates or other famous cancer philanthropists are doing. But if I give 10 million dollars to keep the Washington Monument in reasonable shape, that gets an enormous amount of attention.
Maybe it should. Maybe it shouldn't. But I just I've been surprised at how many how much attention it gets and how few other people seem to want to do it. But, you know, I try to convince a lot of people at the giving pledge and other places that they should do. They are a lot richer than me and many of them to do the same things, but doesn't seem to attract as much attention. Maybe because people think the government should be doing this.
I don't know. But my mother used to watch it. And so one time I, I decided that one of the the Lincoln Memorial, which was such a famous part of our history, I thought it needed some repair and was kind of run down a bit in the Park Service doesn't really have the money to do everything. So I said I'll put up a certain amount of money to fix it. And they said that's announce it in front of the Lincoln Memorial.
I said, OK, so we have an announcement there. And soon as we're doing it's covered on C-SPAN live, it starts to snow. So I'm sitting there in the snow and I get a call, my cell phone from my mother. She's watching C-SPAN. She said, David, put your hat on. It's snowing.
So I said, OK, so your mother's always are paying attention. And so I put my hat on. Anyway, I have enjoyed this, you know, fixing the monuments or preserving documents like the Magna Carta or the book collection. That is probably one of the better American book collections of historic American books. And ultimately, I'll give these things away and the places that seem appropriate. I like putting them on display. And the reason I put them on display is that if you look at a computer slide of the Magna Carta or if you read a computer slide out of the Washington Monument, doesn't have the same impact as visiting at the human brain, still gets much more out of visiting something.
You prepare for it. You learn more when you're there. You may learn more afterwards. And so I'm trying to get people to learn more about our country's history. And the reason is this. If you want to have a good democracy, you have to have an informed citizenry. That's what the founding fathers believe. Informed citizenry will lead to a better democracy. Right now, we don't teach civics very much in our country's history and we don't teach in our country schools and we don't teach very much about American history.
You can graduate from almost any college United States without having to take an American history course. So now situation is such bad that recently in a survey, two thirds of Americans couldn't even name the three branches of our federal government. And while 91 percent of people apply for citizenship, tests in this country can pass the basic civics test in 49 out of 50 states recently, the majority of citizens couldn't pass the basic citizenship test that you have to take to be a citizen.
So we just should do a better job of informing our citizens. And that's why some of the things I do is designed to kind of get people educated about this a little bit more than maybe they otherwise would be.
If you could get a message, a quote, a word, an image, anything out to billions of people, metaphorically speaking, on a huge billboard could be anything.
What might you put on that billboard, give back to your country, do something that makes the world a better place and your country a better place to honor your parents. Your reputation is all you really carry around with you. It takes a lifetime to build a reputation and five minutes to destroy it. So don't do anything that destroys your reputation, but do things that will honor your children, your parents and yourself and give back to the country, which, you know, you presumably think it's the best country in the world or you wouldn't be here.
Really enjoyed this, David.
Thank you so much for your time. Appreciate it. Thanks for all your research, your obviously well researched and you know your material pretty well. Thanks.
I mean, I do I do my best. And people can find more at David Rubenstein Dotcom, the new book or the latest book, but certainly one of many to come is how to lead wisdom from the world's greatest CEOs, founders and game changers.
So anything else that you would like to to say or request of my audience before we bring this to a close?
No, I would just say I've been interviewed by a lot of podcasts, people, and you are as well-informed as anybody I've ever been interviewed by your obviously do a lot of research and I appreciate it. And you have a very soothing voice which works quite well on podcasts. So I know you have done other things in the business world and so forth, but you have a real future here. And I look forward to listening to a lot of your podcasts and to I'm going to go back and reread some of your books.
OK, thank you, David. I really appreciate it. And this is this has been really enjoyable for me. And perhaps at some some point post covid will bump into each other.
Maybe so. But my new book is going to be seven day work week. We need a seven day.
I you know, I was thinking when you were like, oh, this this person's native language isn't even English. I was like, you know, that guy could be a blurb on the back of one of my books maybe.
I'll send a galley for you to read, but really appreciate it. And to everybody listening will have notes for everything at Tim's blog Thoughts podcast.
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