hello everyone and welcome back to conversations with tyler i'm here today with david m rubenstein david has a new book out the american experiment dialogues on a dream but david david of course has done so much more he is a founding figure in private equity and he
is co-chairman and co-founder of the carlisle group but also in philanthropy david's ventures are almost too numerous to mention he is chairman of the kennedy center has been chairman of the smithsonian has contributed to the renovation of the washington monument the lincoln memorial the breeding of
pandas he purchased a copy of the magna carta for 21.3 million dollars then lent out to the united states government is from baltimore and that is but the beginning david has done much more but let's start talking thank you for inviting me pleasure to be here
now in private equity for those who do it well the returns that accrue they're being paid to what scarce factor what is the thing that's hard to have that's scarce that makes you good at private equity private equity is a business of adding value to a company the theory of private
equity and i'm talking about buyouts as opposed to venture capital for the moment in buyouts you're taking a company that isn't performing that well and you're adding better management or incenting the incurred employees to do a better job and then ultimately after
three to five years you tend to sell the company and you typically make a return if you're good at somewhere 20 some percent per annum and 21 or 20 or 25 per annum is a pretty good rate of return uh when you compare to other kinds of things you can do with your money
venture capital is a little different you're taking bets on entrepreneurs helping them but probably not quite the same the way you would do in a buyout but if that boosts the value of the company what is it the private equity firm has that the company doesn't what's
the differential capacity well you have um expertise you have people that have been doing let's say buyouts for 10 15 20 years they know what makes a buyout work they know what doesn't make it work for example how to finance it how to add value how to make acquisitions how to
make certain that you sell things that are probably not really doing well or you make acquisitions of things you think will help the company that you're you're already owned so um it's a mystery to some people outside the industry what private equity people do and so you know
private equity is one of these industries where you can make jokes about the people in it you know you can very rarely in this environment can you make jokes about almost anybody anymore without getting in trouble you can make jokes about members of congress you can
make jokes about lawyers and i and others make jokes about private equity people but the truth is they do add value or they wouldn't be as well compensated as they are private equity has been growing for quite a while now right more so than most kinds of finance have been growing
and the fee structure of two and twenty i mean where does the 20 come from and why isn't the 20 declining more rapidly well it is in some respects and let me explain first of all the market and you're a market economist so uh people are getting 2 and 20 it's because that's
what the market will say is appropriate it's not as if people are being pushed and forced into paying people two and twenty nobody's being forced to go into these funds uh where did the 20 come from well i'll give you two examples of where i have come from when venetian ship owners would send
their ships to asia to get spices the spices would be brought back in the ships and those who brought them back who carried them back had an interest in the profitability of the spices when they were sold back in venice they had a carried interest in effect and that was
roughly 20 that may be where they came from but also when the first hedge fund was set up in the mid to late 1940s the person who set it up actually said i'm going to add value i'm going to do more than just manage it i want a percent percentage of profits i won 20
and when the first venture firms were set up in the 50s and 60s in the silicon valley they also had professionals who said i'm going to add value i want 20 of the profits and it's amazing that for all these 50 60 years later 20 has still stood the test of time obviously some
people have higher venture capital sometimes they'll have 30 percent and some people to get in the business may have 15 but by and large 20 is still more or less the rule i would say two is probably not as common as it used to be unless it's a small fund for a large
fund it'll probably be one or 1.25 or maybe 1.5 percent and 20. if we let's say at mutual funds there's a lot of entry and the cost of intermediation falls through vanguard fidelity lower cost than what there used to be what's the barrier to entry in private equity
that keeps that number at 20. well one you have to raise money so you have to be able to have some track record to be able to convince people to give you money it's a lot of money and remember you're asking people to give you money not for a day or two or three like in a
mutual fund but for 10 years theoretically these are 10-year funds you probably get most of your money back before 10 years but they're 10-year funds the barrier entry is not that significant they're now when i started carlisle there may be 250 private equity firms in the entire world
now there are more than 10 000. so the barrier entries there but not that significant to keep people from coming in if they want to you just have to come in smaller and prove yourself where track record before you get to big funds why did private equity take so long to
globalize well why did anything take a long time to globalize uh private equity as globalized as globalizations move forward um most private equity today is still done in western europe and united states probably two-thirds of all dollars invested in private equity are in
western europe and united states the so-called developed markets it's now moving into the so-called emerging markets but it's going to take a while because the environment is not quite as susceptible to private equity as it is in the united states there's not the
infrastructure the talent the financing markets the exit markets are not quite as developed as they are in the developed markets how would you contrast the skills of someone in private equity with the skills of someone in venture capital well venture capital people are taking
bets on entrepreneurs you don't really know when facebook showed up everybody passed on except axel so it's obvious now that facebook was a great company but why did everybody pass because they weren't sure the concept worked they weren't sure that mark uh zuckerberg
right out of harvard or dropped out of harvard was really appropriate to do this so i i think venture capital is a there's a more of a bet on a concept more of a bet on an entrepreneur whereas private equity you you have six months typically to do the due diligence you
can project cash flows pretty readily and because you have previous cash flows from which you can base your uh future cash flow projections i would say it's a little bit more um uh scientific in some respects with less of a crap shoot than venture capital is why did you not decide to meet with mark
zuckerberg way back when well when my now son-in-law uh told me about his classmate from phillips exeter and his then classmate from harvard starting a company i remember the dating services that had been prevalent in the 1960s and they all kind of went bankrupt
and so i thought this was described to me as a dating service more or less a way for people at harvard to get to know people at other colleges and so forth for dating purposes and that's actually actually what facebook was people forget it now but it was only for college kids
for a while when they expanded it to non-college kids that was an epic change but it wasn't really part of the original plan as far as i know so i didn't meet with them because in those days i didn't really think of somebody who was a harvard student was somebody that
was going to be the next bill gates and i just thought it was not likely to be successful i was wrong as you know investment banks were once quite often limited partnerships but now they're not is private equity going to undergo the same kind of evolution and why are they limited
partnerships now well you say limited partnerships you mean the way people invest in in in the funds or well there would be partners of a smaller investment bank say the way goldman was a long time ago but now it's just a publicly traded company well okay
so when you're talking about that concept yes there were fun firms that were private and they were all privately traded morgan stanley first boston goldman sachs now there are very few that are there's privately owned there's brown brothers harrium and a few others
that are still private in the private equity world most of the private equity firms are private partnerships there are a few that are publicly traded carlisle blackstone uh kkr apollo maybe tpg will come public and so forth uh i think cbc is another one that's
public but generally um they are uh privately owned because they're too small to be publicly traded companies in other words if you manage a fund of a billion dollars or two billion dollars that's not likely to produce the cash flow that will make a public company
seem really warranted for for that kind of status but why are they partnerships there's a lot of smaller companies that are just privately owned right so law firms are often partnerships what's the transactions cost advantage of having a private equity company be a partnership well
when private equity firms you tend to get people who are fairly uh and hardworking fairly smart and they also have the ability to move quite quickly and go elsewhere so if they were going to be working for one very wealthy person and that wealthy person wasn't going to give them a piece of the
profits they might say i can take my skills and go elsewhere so you tend to have partnerships because you want to share the wealth that's how you attract very talented people if you had a very wealthy person let's say jeff bezos or or mark zuckerberg they want to set up a
private equity firm to invest and they're the only partner in it you can probably get some good people but in the end the really good people have the skill set will want to get a piece of the 20 percent and usually these large private family offices don't give 20 of the
profits to the people working there so that's one of the reasons you don't tend to get so highly talented people like willing to work just for a salary and a bonus and typically in family offices or or organizations owned by one person they don't usually give a piece of the
profits a very large piece of profits to the professionals there what do you think is the best criticism of leveraged buyouts well leverage always has its uh downsides because leverage uh implies that you're gonna you're borrowing money and when you're borrowing money you have
to pay it back and sometimes when the economy goes down uh it's difficult to pay these back now in the early days of private equity they typically would borrow this is hard to believe 95 to 99 of the purchase price the famous kkr deal was 95
debt and 5 equity and some deals used to be 99 um debt now you have maybe a capital structure of maybe 40 to 50 debt and therefore it's not as likely you'll have a default so the risk is not as great but there's always risk and leverage whenever you have a meltdown in any
economy whenever there's leverage there's going to be a problem because when economy slows down the leverage typically works against you if you take in combined form the tax advantage given to debt and what is sometimes considered to be a tax advantage given to carried interest does
that mean our tax system is encouraging too much private equity well some people would say you can can't have too much private equity i guess somebody in the private equity world would say that uh there's no doubt that there's been a favorable tax treatment on carried interest and congress is
debating that again it's been debating it for some time the reason it probably hasn't changed yet is that uh carried interest is applied to not just the buyout people and private equity but it's also applied to real estate and real estate is probably where 55 to
60 of all the so-called carried interest dollars are actually uh paid and there's a real estate developer and developers in every congressional district so we'll see whether it changes or not um you know if it does it does uh congress uh has looked at it for for a
dozen years plus and hasn't changed it yet but it might well this time our private equity firms now using insurance companies as a way of getting very cheap financing right there's a lot of float it's like with checking accounts people just give them money they don't expect very high returns
well a number of private equity firms have bought insurance uh businesses uh or have been operating where they have an effect annuity contracts where they are um in effect uh managing the money to get a higher rate of return than the regular insurance company would
get so if an annuity is supposed to pay out five or six percent a year but you can manage that money at 10 or 15 or 20 percent you have a big spread and therefore a lot of the private equity firms are now trying to get some of this money so they can earn higher returns on
it and they don't have to pay out as high a return as they would for somebody who's in their regular funds and therefore it can be an attractive business if you know what you're doing but also the insurance regulators have to be comfortable with what making sure that you know what you're doing
now if you're with your friends or peers and private equity and you're debating the future of private equity what's the most interesting question where you might disagree with them like what is it you all debate and are not sure about well people always debate what's the
future of private equity is it going to grow as exponentially as it has over the last 20 or 30 years secondly will the carried interest 20 will that survive or not or because of competition as your first one of your earlier questions suggested maybe that will go down you
don't know uh will the rates of return that private equity people can achieve uh be as attractive as they have been private equity didn't grow to this large size because of the charming good looks of the founders as you obviously can see they grew to this large level because
we've outperformed as a whole um every other asset class over the last five 10 15 20 and 25 years by anywhere from 300 to 500 basis points on the on average the top quartile funds outperformed by a larger amount so as long as the returns are probably somewhere between 300 and
500 basis points on average better than you can get in a public market index probably private equity will do pretty well if private equity doesn't perform outperform then probably private equity won't survive when you started carlisle way back when
did you see that private equity would outperform the market for this long well at the time no 1987 uh the phrase private equity didn't even exist they were called leverage buyouts and there was a different world uh the biggest phenomenon in that time was junk bonds
and that was what was enabling a lot of people to buy companies it was a heavy use of so-called junk bonds at the time and equity was not really that big a factor you didn't have big equity funds the way you do today so at that time i didn't foresee anything like this and
you know most business people if you go back and look at the original business plan uh you'll find that there's no relationship to what they actually became so if you go back and look what bill gates steve jobs uh mark zuckerberg or jeff bezos we're going to do at the beginning what
they ultimately turned out to do was completely different for example jeff bezos and you know i knew him at the beginning he was just going to sell books over the internet that was it nothing else and then later he evolved to doing everything on the over the
internet but so everybody changed their ideas and i changed my ideas initially i thought it would be a small firm focus on washington but then we ultimately became a global organization are spax a good way to bypass what is now an over-regulated ipo process or is it a passing fancy
i think spax have uh come down in terms of their inflated values over the last couple weeks and maybe last couple months i think they won't go away but i don't think they're going to transform the ipo process to such an extent that ipos will go away ipos are heavily
regulated and very careful uh reviewed by the sec also very expensive to get one done it takes a lot of time spax have replaced that by making it easier to get things done much more cheaply but in the end like anything in life when you take a shortcut there are
penalties for it sometimes and right now we're seeing that people are nervous about the spac valuations and therefore the i'd say some of the errors come out of the space valuations if we look at an ipo it seems there's very often a price pop which might suggest there was money
left on the table there's an underwriter taking a fairly large fee why don't the companies just auction off the stock say the way google did or sometimes happens in israel like what's the value added of the intermediary in an ipo well when you um say why do 95 of the people that go
public or more do this process are they all stupid you have to say well there must be some reason the reason is that when you go through this process by the time somebody gets to buy the stock they know it's been vetted by reasonably impressive organizations it's been
reviewed by the sec and while there are a fair number of fees associated with it the fees are not so high as to discourage people from going this way and when you you price an ipo you typically want to have about a 15 bounce the first day because you want people to
buy it the first day to feel that they made a good decision and people want to and you want people to buy the stock at the opening so it's not uncommon to have a 15 bounce of if they price them for that if you have a 50 bounce that probably means the underwriter made a
mistake and un underpriced it and if it goes down then obviously underwriter made a big mistake because you can have a lot of unhappy investors who bought it and stock went down the first day that should not never happen but it does but it's the future simply more direct
offerings because when google went on the market we had all heard of google right google was as credible as anyone who might have been underwriting the stock of a google ipo so they just sold the stock right captured whatever price pop there might be for themselves right
well google went public uh toward the direct process they get eighty five dollars a share and now it's trading at you know two thousand or or 3 000 a share so obviously it's been a great stock but from the beginning there was great demand and people knew that google
had a search process that was better than any of the other search processes out there remember when google started people said who wants to give google money as a venture capitalist because they already saw a lot of search engines out there google actually had so much
trouble with their venture capitals the beginning that venture capitalists talked about taking their money back because google wasn't actually performing what they said they were going to do but when google was ready to go public people knew there was so much
demand for this that you didn't need an underwriter probably to take off the fees that they would probably take off because their underwriting fees might be anywhere from four to six percent and i think the google founder said there's so much demand we don't really need to have
the underwriter and take that spread but there are very few googles are out there the average company that goes public does not have the demand that google uh kind of had when it was going public does the financial sector draw too much talent away from the rest of the real
economy well i'd say the financial sector is part of the real economy it's a large part of the united states economy so there's nothing wrong with the financial sector getting uh very talented people uh but there are plenty of talented people in lots of places so academic
world has talented people the sports world has talented people lots of talented people in many different areas so i don't think the financial service world is getting too many talented people i think that most talented people right now are probably a lot of those people who are going into
entrepreneurial startups which you could argue that's financial but they're basically they're entrepreneurs it used to be people wanting to go to goldman sachs or blackstone or carla or or mckinsey now a lot of people come into the best colleges they want to start do
a startup what fraction of the financial sector do you think is zero sum you mean doesn't produce any value right but it's just a race to get there first like some people would say high frequency trading that's zero sum may or may not be true but what do you think is zero sum
i'm not sure i would know exactly what is a zero sum in terms of the way you're phrasing the question what do you mean that is no value added but you get profit someone else takes a loss you have talent diverted into seeking of rents not producing anything that a consumer
ever uses well of course those people that don't like private equity would say well private equity people is a zero sum they're not adding any value i don't agree with that i think they do but you lower costs and you boost share prices right at least on average right well
you know i don't think anything that's zero sum will survive very long um you know you could argue that cryptocurrencies are they are zero-sum or not some people think that they're complete um zeros and they're worth nothing and people are are buying these things you
know at their great peril other people think that they actually provide a service where people don't want to have u.s currency or other foreign currencies they have something on the side that's a different kind of currency you can argue that for some time right now we don't
know whether it's a zero-sum game or not what do you think of crypto what's your best guess my view is that the genie is out of the bottle and it's too late for the us government to say don't do this anymore remember we went through prohibition and we said people
don't drink alcohol it's bad for you and we didn't really work out so if we were to ban cryptocurrencies people will find a way to create cryptocurrencies offshore or some illegal way to do it people don't trust the government as much as they used to and secondly i
think that that there are there is money to be made uh in the cryptocurrency world if you're careful you know what you're doing but i've not bought any cryptocurrencies i have invested in some companies that service the industry and what i say to people is that i analogize
it to gambling if you are a gambler and you go to uh las vegas you know you're going to lose money if you spend a lot of time there you don't care because you're having fun you really like the setting and it's just it's your pleasure um the same thing is true with crypto a
lot of people like to be seeing the the oscillation of these cryptocurrencies they like to hear about it they think they're the new wave of what's going on so they buy it and i say if you want to do that just make it like it you do if you go to las vegas put one or two or
three percent of your net worth in have fun watching the stocks go up or the currencies go up and down but don't put in 50 of your money because i think that's likely to be a fool's errand if you look at the payroll of the new jersey net in the nba as a private
equity guy the new york nets brooklyn sorry now it's the brooklyn that's about yeah you see you have a new jersey bias correct i do i still do but what do you think do you think the team's overrated their costs are too high they need a leverage buyout or do you think i'm
about to go interview joe tsai soon so i don't know if i will ask him whether his team is overrated um look in that business unlike many other businesses it only takes one or two or three players to make a championship team so in baseball you probably can't win a championship or
football with just one or two really great players and basketball you can and so you probably can't pay these people too much and you know as you know there's caps on how much you're allowed to pay people in basketball and they have these maximum contracts i would say
very few people i have known and i know a lot of people who have bought sports teams very few people who have bought sports teams have lost money owning those teams you typically make the money when you sell them now are are the players overrated or overpaid it's hard
for me to say that anybody's overpaid um if they're they're filling the arenas and so forth and they they have unique talents so in kevin durant's case he's a unique talent a very unique talent one of the best basketball players in the last 20 or 30 years so i don't know you
can overpay him and kyrie irving you know he went to duke so any you can never overpay anybody i went to duke it's my my view if he gets vaccinated um well we'll see whether he gets vaccinated or not but uh and james harden is obviously an incredible triple threat so i don't know that they're
overpaid but you know right now i think the owner is pretty happy with the team that he has he wished he'd won a championship last year but he thinks he won't win this year how is learning to be a great interviewer made you a better investor i don't i'm not saying that it has it
may not have uh uh you know if you want to be great at something i spend a lot of time and i'm spending a lot of time doing interviewing so probably not a great investor so much now what i've done is in the investing world i was never the investor at carlisle i was
always the fundraiser the strategist uh the face of the firm and the recruiter i had other people actually knew how to invest better so i would sit on the investment committees and give my points of view but they weren't really relying on me i've set up a family office and
i've hired some pretty good people to invest my money outside of carlisle without being a conflict with carlisle and i look at what they're doing and they you know tell me about what they're doing but i'm not the day-to-day investor so i'm not sure in interviewing has made me
a better investor but you're doing a lot of interviewing it might make you a better investor i don't know what is it you think you know about recruiting of talent that is not obvious and other people might not know well when i recruit people and i i've now been doing this for many years i
generally have certain biases and my biases are ones that have generally proven to be right but sometimes i'm wrong i i've made a mistake in hiring some people and i made a mistake and not hiring some people but generally i look for people who are hardworking
reasonably intelligent um have some vision of what they want to do with their life they're not difficult to deal with they have some humility about themselves they know how to get along with other people and they have to share the credit and there's always going to be an outlier
a genius who can't work with other people who might be a good investor or a person who um is not all that smart but just very very hard-working so you just can't really know who's gonna be a great investor i'm doing a book now on great investors and it'll come out next year
and i have a tv show now on investing and basically i i found that the great investors all have in common you know a pretty good degree of iq a pretty high degree of iq but it's focus and it's a desire to prove that they're right about something as opposed to
making money in the end making money once they become a great investor they've got enough money for their real purposes they just like the game of investing the way you might like the game of betting or some other game so there are many different qualities that
great investors have i wouldn't say that i have them but i observed other people having them what does wall street least understand about washington well washington is relying on wall street and wall street is relying on washington it's a bizarre symbiotic relationship
people on wall street say well the debt's not so bad because uh you know people in washington they keep passing these bills and they must know what they're doing down there or the fed wouldn't allow this to happen or the treasury wouldn't allow us to happen people down here saying well the wall
street markets these people are good investors if we were borrowing too much money the markets would collapse and they're each relying on the other and so i at this point i think what wall street doesn't really understand about washington is that washington basically
isn't all that sensitive to what's going on in the markets unless there's a gigantic collapse then they pay a lot of attention but generally day to day people on capitol hill and the white house are not focused on the markets the way that a professional investor might
be they the ups and downs and oscillations don't bother them as much unless there's a gigantic collapse of course what is silicon valley understand least about washington well silicon valley historically didn't pay much attention to washington and therefore they had very few lobbyists
here they had very few people to tell their story now i think the biggest lobbyists here are the technology companies google facebook uh microsoft have gigantic lobbying operations now because they realize that the government united states can impact their businesses in way that they
didn't probably realize when they first started these companies but what is it they don't understand now still right it's not in their cultural blood so to speak so they throw resources at the problem do they understand how dc works well i think they don't understand that
it's it's in in technology whoever has the better technology might ultimately prevail and therefore merit is ultimately thought to be the ultimate important factor who has the best software who has the best hardware who has the best process for getting something done in washington dc
the merits are not necessarily the most important thing it's the politics that are much more important and so sometimes if somebody from silicon valley comes to washington says i have the best software look what it's doing for america it's great we're selling a lot of services
and people are living better because of it that may not mean much to people in washington if some people are complaining all the time because the prices are too high or something like that over the product should we let members of congress or for that matter regional fed bank presidents
trade equities and securities well there were two fed uh bank presidents the one in boston one in dallas who uh managed to uh do that and uh they've now resigned but it wasn't illegal right like they were allowed to do it it's not illegal and it's not
illegal as far as i know for the chairman of the fed to do that it's not illegal for the president united states to do that it's not illegal for members of congress to do it either you have to disclose it but it's not illegal but should it be illegal well i'm not sure that uh in all cases
it should be illegal remember we are asking people to work for very very modest incomes and uh if they are they supposed to put all of their trust into complete treasury bills and that's all they have you might get fewer people coming to government service if they
they could only get treasury bill rates of returns say s p 500 they can get a blindly managed mutual fund i think that would be better um rather than doing the stock trading yourself i do think it's better if you were to go into a mutual fund or things like that like the
chairman of the feds typically they they have uh you know somebody like a a mutual fund or they might have t bills or things like that but i think it's better to not be trading when you're in those positions i do think that's true here's a reader question and i quote
another impolite question why is it that so many politicians and their aides and their wives children cousins become wealthy in the private sector well the private sector is designed among other things if you want to go into that area to make money so and it's
not that difficult to be wealthy by the standards of government compensation if you're a member of congress your compensation is roughly 180 000 a year hasn't changed much for about 20 years so if you go into the private sector it's difficult to make less than that if
you're really doing something in the private sector that adds some value so um and also obviously some people who do lobbying and other kinds of things are using their contacts and so forth that they got in government service um if you were to say nobody who's ever served in
government service can ever lobby anybody again you'll probably get fewer talented people to come into government service i think a lot of people won't go into government service now because you have to sell all your assets if you go into government service and that's a
barrier to some people so you know you can have constraints on getting people into government servicing therefore you won't get the best people so for example um when we only had three million people in this country who do we have in government service well we had george
washington thomas jefferson john adams james madison james monroe john jay now we have 330 million people and where are the thomas jeffersons where are the george washington's they they may not be in government service they may be doing other things so i think we often have
more barriers to getting good people into government than than than we should have i'm under the anecdotal impression that in the 1960s the 1970s the smartest young people were more interested in joining the dc elite than is currently the case do you agree
well when john kennedy became president he had a clarion call to young people to come in and do government service he was a young man he was 43 years old and his cabinet was relatively young and and yes it was a time where it was pre-vietnam and pre-watergate and so there was much
greater uh belief that what government could do was good and there was much much less cynicism and the government of the united states didn't have the credibility gap that it developed in vietnam and watergate and so forth so i think yes it was a time where there was
a lot of interest in young people coming to government service uh today a lot of the best young people they want to go and be entrepreneurs or they want to you know be create uh you know things in in silicon valley or be a venture capitalist and so forth um but there's still a lot of
talented people going to government but i do think that uh government does make it more difficult than it used to be to go into government service because of the various constraints you might have when you go in in terms of what you can do with your existing money or what you
can do after you leave government but you know it's not not lacking that in some good people going to government but i think the most talented people in the country probably don't want to go into government as much as they did in the 1960s you once mentioned that you were not a
good lawyer why weren't you a good lawyer to be a good lawyer i think you have to have a uh attention to detail as opposed to the big picture sometimes secondly you have to obsess over the merits of your clients uh causes in some cases third you don't you can't be distracted
by something you think is more interesting so i thought government service was more interesting than being a lawyer and i also thought that what lawyers do and corporate lawyers do was not the best use of my gray matter so i probably didn't enjoy it and i didn't
think it was you know all that uh attractive a way to spend my life why do so many wealthy people have legal backgrounds but the very wealthiest people typically do not well lawyers um tend to be very process oriented and very systematic and as a result they tend not to take big leaps
of faith because you're taught in law school to worry about precedent well precedent is not what makes entrepreneurs successful you have to ignore precedent and you'll break through walls and say uh you can't be worried about what the president was if
you're worried about precedent you'll never make a leap of faith to create a company like apple or company like amazon so lawyers tend to be more i would say tradition oriented more process oriented and more precedent-oriented than great entrepreneurs are
within say a 25-year time horizon what do you think is the greatest risk to american prosperity probably the rise of china china is a bigger population than we have by three times and given the fact that they have a different type of capitalist system than we do but they
have a capitalist system i would say uh given their population base and their technology uh strengths i think that we will have to recognize that 25 from years from now it's unlikely we'll be the biggest economy in the world and if we're not the biggest economy in the
world it's unlikely we can support the biggest military in the world and unlikely will be the biggest geopolitical power in the world but how would that harm our prosperity i can see it might be bad for smaller asian nations bad for taiwan obviously but many others but why would we be worse off
as economic entities well generally the most prosperous countries tend to be ones that there are leaders in let's say their given area so if we're not the leader in in technology we're not the leader in financial services because those worlds have shifted to china we probably won't get
the the profits and and the most talented people coming here and a lot of other kind of things that you need to be a prosperous country we've been the biggest economy in the world since 1870 and probably in about 10 years or so as measured by gdp we won't be by purchase
price parity we're already not the biggest and i i do think that that more and more people want to deal with the biggest economies in the world and the biggest economy in the world will have more money to to develop new companies and sent entrepreneurs and so forth but
i i'm still very bullish in america but 25 years down the road is hard to predict but i'd say 25 years from now given our population we probably won't be as prosperous as we are now relatively speaking before the pandemic you were visiting china six to seven
times a year what's your favorite part of china well i think the most exciting city in the world today or at least i'd say before kovit was probably shanghai because shanghai was the center of the chinese business world and china was doing so many exciting things
pre-covered i i've often said that uh you know before shanghai and china came along i thought hong kong was among the most attractive places for business people to go in terms of pure excitement outside the united states now i think that's shifted to shanghai and i haven't
been to china now in about two years because of covet but i think shanghai is probably an extremely attractive place as a business center let's consider your role as donor and philanthropist let's say and maybe you've even done this you had 200 million dollars to allocate to baltimore
to make it a better city right it's not enough money to be transformative but it's not a tiny sum how would you spend it well baltimore has serious problems when i was growing up it was this it was the eighth largest city in the united states with a population of 939 000. now it's
about half that size so uh you've had a a uh a white flight you've also had um the business headquarters have largely moved out of baltimore there aren't that many headquarters there compared to what it used to be so what would i do with 200 million dollars
well 200 million dollars as you suggest is not 2 billion or 20 billion with 200 million dollars i i guess i would put some of it into education because baltimore has a very high dropout rate in high school and also has a very high um i would say illiteracy rate it has a
high syphilis rate it has a high std rate it has a high a murder rate so i don't know if the 200 million dollars would solve all those problems but if i could do anything to help baltimore it would probably be to use some of that money to incent businesses to come back
into baltimore and give them some incentives to come back in because if you get business to come back in they'll hire people and ultimately that will help out but you've got to deal with the education system if you have a large percentage of your population that's functionally illiterate that's
going to produce a lot of crime it's also going to produce a lot of poverty there was a time i think in the 1990s when the word was well baltimore has come back there's the aquarium the waterfront has been refurbished and somehow that all didn't materialize so
it the momentum looked good for at least five years what actually do you think went wrong well baltimore renamed itself charm city under mayor schaefer mayor shaffer was a very dynamic mayor um but he uh he couldn't control white flight and therefore the city wealthiest people moved out and the
biggest companies in baltimore moved out and so in the end i think crime just took over and the poverty rate just accelerated and just so many endemic problems and baltimore did not have entrepreneurs coming here starting new companies um and it didn't have the kind of
revitalization of uh the entrepreneurial spirit that you saw in some cities which had gone through difficult times but take pittsburgh as an example pittsburgh used to be a steel center now people see it as an artificial intelligence center or as a computer center or as a city
that's remade itself in many ways now it didn't have quite the minority population that baltimore did but it it in many ways has revitalized itself and some other cities have not been able to revitalize themselves take detroit detroit is also like baltimore enormous uh
socio-economic problems and despite the best efforts of some pretty talented business people there um like mr gilbert they they just haven't really been able to revitalize themselves to the point where they were in the 1950s let's say as a leader where do you think your marginal dollar
does the most social good being paid to government in the form of tax being invested through private equity at a reasonably high return or in philanthropy philanthropy because um when i pay taxes and i do pay a fair amount of taxes uh uh when i pay taxes
like you know it goes for good purpose i guess but it's hard to know that i'm paying enough taxes to make change the world um and nobody knows exactly what i'm paying uh when i do private equity lots of people are doing private equity so i'm not sure i'm changing the world
that much there when i make a philanthropic gift that gets attention it might inspire people to do something so if i fix the washington monument you know i might encourage other people to do something with the same kind of dollars or the same kind of uh motive in
mind which is to say i'm going to give back to the country in that way and it gets more attention maybe it deserves the bulk of my money goes to medical research and education and scholarships but 10 percent goes to what i call patriotic philanthropy so fixing the
washington monument gets a disproportionate amount of attention but it might incent a large people number of people to really do the same things and that would probably be good but you seem to be in good health what if someone makes the argument to you you
would do the world more good by not giving away money now but investing it through private equity earning whatever percent you could earn and when you're a bit older give much more away right you can always give more to philanthropy five years down the road well of course you never know when
you're gonna die and covet uh you know we lost 700 000 americans in covet i could have been one of them i'm 72 years old so if you wait too long to give away your money you might find your executor giving it away uh secondly um but you could even write that into your will
right if you wanted but you'd have more to give away maybe 15 a year yes but if you if you take the view that happy people are live longer um and if giving away money while you're alive and you're seeing it being given away and that makes you happier you might live longer
grumpy people my theory is don't live as long happy people live longer so if giving away money and having people say to me you're doing something good for the country makes me feel good it might make me live longer so if i waited till the last moment to give away the money
it might be too late to have that feel-good experience do you think the foundations of other very wealthy people after their deaths have gone well or gone poorly like anything in life they're good thing cases and they're bad cases some people have done really good things with their
foundations after they died and some people's foundations probably haven't been as productive but i would say uh in the end i encourage people to give away as much money as they can while they're alive i am amazed that probably 99.9 percent of the population gives
away about 95 percent of its money upon their death you kind of say to yourself why are you waiting so long i remember i won't mention his name but a very famous businessman uh said i'm gonna give away when he was 93 years old i'm going to give away 400 million dollars to my
college upon my death you kind of say well what do you need that 400 million between the age of 93 and 94 95 why don't you just give it away now i don't understand why people wait until they're dead before the money is given away you presumably think you're going to be in
heaven and see where it's gone but that's a big risk how do you handle our filter what what must be a steady stream of solicitations and requests money money money right everyone wants money how do you actually process the near infinite i don't have the uh
the money that bill gates has i asked bill the same question though i said bill everybody's coming here for money all the time he says i have a lot of people that are hired to say no so they don't really get to him so easily i don't have a foundation i don't have anybody doing my
philanthropy so everything comes directly to me i have four standards i use though number one is i want to see something with my money uh started that i would otherwise get started like or second something that would wouldn't otherwise get finished or third
i have an intellectual interest in it so i think i will stay involved and i just won't write a check and ignore it and fourth i'm likely to see progress uh in my lifetime so those are my standards that i use and you know i'd like to be involved in the things i'm doing as well
but you know in the end i've made some mistakes in philanthropy and some things have worked out well would you agree with the judgment that today art museums are less culturally central than they used to be and they need to do something to remedy that well i was elected earlier today the new
national gallery of art chairman congratulations it would be unlikely for me to say that art museums are not relevant anymore no i think art is an important part of society and for you know from time immemorial people have been painting and doing other kinds of
visual arts and i think people's brains get get improved by seeing what people have done with their creative skills so no i think art museums and all museums are good and this is the reason the human brain has not yet evolved to the point where if you see a picture of
the mona lisa on a computer slide it's the same experience as going to the louvre and seeing in person because before you go to the louvre while you're there and afterwards you're more likely to read about it you're more likely to learn about it and i think when you do that
you're more likely to have a better human experience than just looking at a computer slide so if you eliminate all museums and everything was on a computer slide i'm not sure that'd be a good experience for people should the national gallery have cancelled it with
its pending neapolitan baroque exhibit well we've had a lot of issues because of covid and and so forth so we want to make certain that people can attend and but i've been going to the national gallery it more or less works other museums are putting on the exhibit
people worked for years on it and then to you mean the the the uh the um uh not the failure of gustan what not that that's being postponed but there is an exhibit plan great baroque works from naples that was supposed to happen a national gallery a month ago i'm not sure but right
basically just said no we're not going to do this well there were some considerations for that but i'd say look we put on a lot of exhibitions we can't uh everything can't work out perfectly as originally planned but we are increasing our exhibition schedule and i hope that we can be a
much bigger leader in exhibitions than we have been in let's say recent decades and what is personally most important or closest to you in the visual arts well the most important thing is having people appreciate the arts no but what artists what what what excites you to
look at what well i mean like there's so many different types of art but i'm looking uh increasingly i'm collecting art work done by um minority uh artists the national gallery of art historically has been a western art museum but it hasn't really you know had very many artists who are
women very many artists who are minorities very many artists who are african-american very many artists who are latin american so we are now trying to increase our um ability to show people that great artists don't have to be white men from europe and that's an important focus of
what we're trying to do how would you reform or improve the american system of arts funding well right now uh arts funding is dependent to large extent on philanthropy and governments tend to be cutting back what they're giving for arts funding and i'm talking about
performing arts as well as visual arts so right now you have many different um performing arts venues and many different uh visual arts venues that are really supplicants i think at the table of the government begging for scraps typically for money and then you're very
dependent on philanthropy and i i wish we would have more government funding of the arts as they do in europe uh than we do have now right now we're very dependent on philanthropists for a large part of what makes possible for museums and performing arts organizations to
exist but how would you do that would it be federal would it be state would it be through the nea would it be a direct congressional allegation to the national gallery or smithsonian well we do get money from the we the national gallery does get a great deal of money from the
federal government but other art museums around the country don't get as much obviously from state governments as much as they might want or from local governments i i don't think there's any one formula for doing it but i think we have to convince legislators and other
government administrators that the arts isn't an afterthought that's a nice little thing off to the side and it's not going to help little johnny or little janey be a better person by by seeing good museums and so forth we think convince people that around the
rest of the world people recognize that we want to stimulate the brain and create great people very often stimulating them through the performing arts and the visual arts is a great way to make the bright the brain work better and so we should see it as a education
tool not just as a museum as you know most art museums put out a pretty small percentage of their overall collection that's correct could be as low as five percent as an economist this worries me like is this an inefficiency should there be a more rapid circulation
of artistic works should policy encourage this well every art museum and every gallery has more art than they can display we don't have infinite amount of space but if you kept um everything and put everything on display all the time you wouldn't have enough space probably
for it and you might not uh attract new people because if people think the same things are going to be there all the time they're not going to come back a second time or third time so you've got to rotate the collection so people will come back and see some things that are
new and there's plenty of empty space in washington dc other buildings communities there's also walk to the men's room well there's always cost in addition if you display art all the time some of it could uh you know be degraded or or or fade because if you expose art to sunlight unduly uh
and it's not protected sometimes it could damage the art but i think you know i'm glad that the art museums have a lot of things so they can circulate and get people to come back and back but yes there's always space but there's always money to build that space out
it's not insignificant in terms of your time management obviously you get a lot done what is your most unusual time management habit well probably um i'm the only person in the united states who's still going out and buying newspapers every day and reading all six of them every day that
makes two of us okay so i still go and buy the newspapers i don't read them online so i go drive to the place where i can find the newspapers i buy them i read them i don't like to read on newspapers online so that's probably a use of my time that some people would
say is not a useful use because i could read online but i don't enjoy the experience as much why don't you have them delivered which is what i do because i travel a lot and so i'm you know it's you know i'm of different places so i'm not in the united states
i'm not in my home that much at what level of wealth do you think you were happiest you know felix roeth and an investment banker used to be famous investment banker later became ambassador france when he was asked once how much money does it take to make you feel
financially secure he said is exactly twice whatever you actually have so that's probably true no matter what wealth you have you always think you need a bit more to be financially secure so i have more money now than i ever thought i would have when i was younger
and more money than i probably need to to get through the rest of my life so i am uh very fortunate but i you know i still think that i would like to have more money so i can give away more money i'm giving away all my money i just want to give away more it is my intuition that the billionaires
i know are quite different from the multi-millionaires what do you think actually makes that difference in terms of temperament or character well of course a billion isn't what it used to be um you know now it's a term of derision it used to be if he's a billionaire you say wow you've
accomplished business person now it's a term of derision uh everywhere because people say this is a billionaire these are terrible people these billionaires are doing terrible things to society but um multi-millionaires probably uh didn't have as much luck as the billionaires
did i suspect if if if making money is considered a matter of luck and i guess some people would consider it that but i don't think that that billionaires are any happier than multi-millionaires or any happier than non-millionaires you know happiness is the most elusive thing
in life and i know a lot of billionaires and i can't say they're you know as happy as some of the people that don't have any money but isn't there some difference in persistence between the billionaires and the multi-millionaires that's not just luck or no
well there's persistence is necessary if you're going to be successful in almost anything in life and some of the billionaires had lucky ideas and they persisted but there are a lot of multi-millionaires who said look i have a good idea and i've made a company work
i now worth a hundred million dollars but i want to spend my time doing other things so it's not always the case that people feel they have to make a billion dollars in order to feel successful with their life you've been a major donor to a number of very well-known universities
if it were all up to you how would you fix higher education what would you change well the higher education system in the united states is still the envy of the world our k-12 system is obviously not the envy of the world higher education systems certainly the private
universities are the envy of the world in terms of the way they work but they can always be better and i it's not clear that we educate people in all the ways i would like for example we you can graduate from almost any college united states without having to take an
american history course and so very few people know much about american history and in our country i think that's a sad situation so i wish people would learn a little bit more about our country's background and probably having more core courses that
would get you to learn certain basic things to be a good citizen would probably be something i would recommend people doing harvard and princeton chicago and duke they're all doing great but if you look at completion rates for the system as a whole it's even hard to learn what that
number is i suspect it's about 40 percent from what i can tell well i think the high the college dropout rate is about 25 something like that but those who finish you know state schools everything right it seems to be below half so what are we doing wrong the returns to college on paper are pretty
high right the socioeconomic returns health returns may be higher yet but so many americans are not finishing where are we failing whom and how well one we are telling people that the value of a college education isn't how much money you make as opposed to what you can
learn as a human and actually have a better experience as a human by getting an education so i think it's unfortunate that we only worry about whether you can make a certain amount of money uh by going to college and therefore sometimes people say after one or two years i'll
drop out and get a job i can get make a fair amount of money now or just as much as i had a college degree whereas i think it'd be better off if people actually got a degree and appreciate the value of learning and we're learners throughout the rest of their life but
that's a whole separate subject i i i think people are dropping out in part because economic pressures covet has obviously probably increased the uh the dropout rate and i'll say there's a lot of family pressures and other things do to support families in the case of lower
income people but it's unfortunate because uh i think higher education is really the the the pathway to on my view a happier life and a more successful life if you look at data on college professors or even incoming students at harvard it seems that they're very left-wing and they're much more
left-wing than they were before now one might even be a democrat or have left-leaning sympathies but it seems the system is somehow out of balance right i mean what went wrong and how do we fix that well your presupposition is that there are there's left wing left wing is a
pejorative term you might you could use what you want liberal or but i don't know that they are liberal anymore right well also you have to remember the ivy league schools that often are the ones seen as being too quote liberal or left-wing they are a tiny part of the
country's education system so if you go to kansas state university or oklahoma state university or the equivalent of the midwest i'm not sure the students are quite as left-leaning as you might think so on the whole um you know remember the country's kind of split
down the middle politically left and right and i suspect college populations throughout the course of history college students have probably been slightly more liberal um than they are when they're 50s or 60s it's just the normal course of life is people tend to be quite a little bit more liberal
when they're younger than when they're older when you interview someone how do you prepare for that what do you do well the person has read a book i've written a book i read the book and then if um you know a person hasn't written a book i will read everything that's
written about the person over the last year or two i gather it up and then what i do is i write up some questions and then i kind of memorize them a bit and sort of work my brain so that i can have the conversation with the person without you know referring to the notes so much
my my style is not to do that but um you know i try to listen to what the person says remember that uh you know being a good interviewer means good being a good listener not just a good questioner and i also think you have to engage the person and get the person to loosen up
and make the person feel this is a good good experience and all those kind of things and it takes some time to do that and i've now been doing it for a number of years i developed this skill a little bit and i've been surprised at how many people think the way i do it is
attractive and unusual or or fun to watch and it wasn't something i was trained to do but something i evolved into what's your favorite book well uh my favorite book of all i would say uh other than the ones i've written i i guess i would say is the bible
because if you were going to be in any one place and you only have one book the bible is basically as the the but the story of about humanity is more or less throughout all of the book and it's probably if you're on a deserted island you're going to have one book you
probably would get the most out of the bible be my guess what is most appealing to you in the magna carta well the magna carta that i own is the only one in private hands and so and whenever you can have something that's unique um that's attractive it was going
to leave the country most likely so i kept it in the country but what's most important about it it was the inspiration for the declaration of independence it had a bigger influence in this country's history than honestly it did in england in england it was ignored for quite some time but in this
country um it people when they when they got charters from the the king of england the charter said in effect you have the rights of english men which meant the rights of magna carta and so when the revolution started people started citing this as the rights of the
magna carta and this was often said to be the kind of thing that inspired the dec the the revolution so i think it's a it's the forerunner to the declaration of independence are there any changes you would make in our constitution yes when you think about it the
constitution was put together by you know more or less 55 white christian men who were property owners if you had a constitutional convention today that represented today's population and and and they had more gender diversity than they had then it'd obviously be a
different kind of thing but if i could do anything uh make any one change i would probably put the equal rights amendment in while i'm not sure it's necessary at this point given the way the law has evolved i do think it would make many people feel better we're included and i think it probably
you know it only came one state short of ratification i think i would probably amend that should we have a larger house of representatives i've never been asked that question before i would have a smaller one as you know the first amendment to the constitution as proposed in the bill of
rights would have actually had a house that would now be like 10 000 members if that first amendment had been passed it wasn't approved by the states it wasn't ratified um i think 435 is more than enough um you know you could argue for shrinking it a bit because right now it
is very large but i i wouldn't certainly enhance it i think it'd be too big living or dead who would you most like to interview well it's an interesting question uh the phenomenon that we're engaged in now which is an interview is a phenomenon that didn't really exist throughout most
of organized history so we don't have any interviews of cleopatra charlemagne alexander the great napoleon william shakespeare or william or or george washington or even abraham lincoln if i could interview anybody that's ever lived um it would be abraham
lincoln i think he was the greatest american and i think he was the kind of person that would be an interesting interviewee he had a good sense of humor um he had a good pretty good perspective on himself and he did some things that i think were pretty impressive if i look at your books of interviews
all the different people you've interviewed and online it's striking to me there are relatively few what you might call weirdos in the group so in your new book there's ken burns there's madeline albright uh there's in marsalis but someone just out there right who's
radical or different or not well known why not interview more weirdos well i interview people i usually know and i've had some relations with i don't probably know as many weirdos as maybe i know normal people um but they would accept the invite a lot of weirdos like
they'll accept my invites if i ask a weirdo we had a homeless guy on this program that was a good episode well it's a good idea for another book maybe just i don't you know just weirdos or i don't know but i don't know that book would sell as well but um you know
you could argue a lot of people i've interviewed um they were considered weird by a lot of people when they were growing up they just as they got more famous they weren't considered quite as weird who mentored you well i don't know that any one person mentored me i i've
um i worked for um ted sorensen briefly a bit when i was practicing law i worked for um stuart eisenstein when i worked at the white house but since i left the white house i haven't had a boss so i i'm now 72 and i left the white house since 31 so i haven't had a boss
for 41 years or so so but i admired a lot of people and i brought in a lot of people in my firm i thought were pretty impressive and two of them that i thought were extremely impressive were jim baker former secretary of state and george herbert walker bush
you know president united states and you know very impressive people i got to know them and i you know learned a lot from them and what do you think you understand about mentoring that might not be obvious well it it takes a lot of time i'm not a good mentor myself because i
realize that to be a good mentor to people you really have to put a lot of time into it now a lot of people have come to me later in their career and said you were a mentor to me but i think they're being polite i may have helped them a little bit or give
them some advice but being a mentor really takes a lot of time do you think a person should always have mentors including much younger mentors well a lot of people have been successful in life without having mentors i think mentors can be helpful to you for sure but i wouldn't obsess
over having a mentor if you can't find somebody that's going to be helpful having a bad mentor can be not helpful i know in your book you many different interviews with of course different people again the book is the american experiment dialogues on a dream but the
process of doing the book just to close if you had to sum up what you feel you learned from the entirety of the interviews maybe at a very meta level maybe you just learned about your own learning but what's the main thing you learned doing the book well the country has evolved and it is not the
country that was anticipated by the founding fathers uh they came up with some wonderful rhetoric that all men are going to be created equal but the truth is that we have lived in a way where not all people have been treated equal and so the country's history and the experiment is whether we
can have a representative democracy survive and actually live up to the to the rhetoric of the founding fathers without destroying the country and we've had stress tests that have almost destroyed the country civil war came close to it and as i pointed out in the
book we had a couple of stress tests recently most recently on in the election and the january 6th events but we survived that in part because what i describe in the book is certain genes of america that we have as part of our body politic one of them is
the rule of law and the belief that on the civilian control of the military and separation of powers and so forth those kind of genes prevailed on january 6 and subsequently i think that was a good thing david rubinstein thank you very much my pleasure thank you for inviting me