← The Master Investor Podcast with Wilfred Frost
The Master Investor Podcast with Wilfred Frost
Harnessing Insecurity: Harvey Schwartz on Leadership & Markets
00:42:01
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- [00:01]
A
The greatest economic elixir is confidence. And if people have confidence, they will spend. If they feel good about the political framework, they'll feel confident about their jobs. I don't think it's surprising we have in a recession, and just because we haven't had one doesn't mean we should have one immediately. You have to look through all that noise and ask yourself, is the economy pretty good or not? And the answer is pretty good. And if earnings hold up, the markets will hold up. Humility to me allows for the opportunity of only good things. Learning, teamwork, a willingness to ask questions like the best investors in the world have many defeats and have many investments that don't go well. But if you're humble about it, you're willing to learn from it. If you can learn from it, become a better investor. So I think being humble in all regards allows for learning and growth and opens up all sorts of opportunities. I think arrogance shuts all those doors.
- [01:07]
B
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world. Giving you, our listeners, the edge of the the Master Investor Podcast is sponsored by Interactive Brokers. Please do remember the views expressed in this podcast are for general informational purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today runs one of the most important private equity companies in the world. Harvey Schwartz took the reins of Carlyle Group nearly three years ago and now oversees over $450 billion in assets across private equity, credit, property and infrastructure. And that came after two decades at Goldman Sachs where he rose to be co president and co CEO having previously been cfo. Harvey, it is a treat to have you with us here on the Master Investor Podcast. Welcome.
- [02:10]
A
Yeah, well great to see you again and great to be here in London.
- [02:14]
B
Great. Always to catch up, particularly in person. And we first met with when I just moved to the U.S. i was leading the coverage of the banks for CNBC. You were CFO at Goldman Sachs and I had an off the record with you which took me which apparently is.
- [02:28]
A
Going on the record now.
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B
It's going on the record now, exactly. And it took me up to the 40th floor. What was the executive floor?
- [02:34]
A
Probably 40, 41.
- [02:35]
B
41 maybe, which is quite a daunting kind of place to go. Goldman Sachs executive floor off the record with the cfo and I remember it very clearly because I had quite a few off the records with big bank executives at that time, and I remember you immediately put me at ease. Your cfo, you were, I could tell straight away, like, fiercely, fiercely intelligent, but not necessarily imposing in the same way as many others. And as I prepared for this interview, I didn't know this back then. I've learned that actually, growing up, you were very insecure. This is something you've started to talk about much more recently, and that really surprised me.
- [03:17]
A
Yeah. So, well, again, great to see you. I remember catching up with you then.
- [03:22]
B
Then we had some more heated exchanges on the record in the months that followed, but there we go.
- [03:27]
A
Well, that's the nature. That's the nature of things. But, yeah, I've often said my core competency is insecurity. And part of this is I don't know what language people usually say. They'll say, well, I had a bit of an unconventional path. I don't think much of stereotypes, but there are stereotypes for people in my industry. And generally it's a sort of very stable childhood, followed by an experience at an Ivy League school, followed by a traditional analyst program. And then the next thing you know, you're sitting here with Wolf. Mine was different. I have spoken about it a lot, really started in 2017, but both my parents suffered quite severe mental illness. My father suffered from schizophrenia. My mother suffered from what we now call bipolar disorder, but he didn't even call it that back then. And it led to a whole bunch of challenges for my sister and myself, who's six years older than me. My mother passed away when I was 14. And I think the quick summary is by the time I was, I don't know, 17, a senior in high school in the States, I would say I was a bit of a feral kid. I barely got out of high school. I did not immediately go to college. I then applied to college when I was 18. The year after, I could only go to one school. I went to Rutgers State University in New Jersey. It was the only place I could afford. It's an extraordinary institution, does a lot of great things for kids that come from challenged backgrounds or first time ever to go to school, university and their family. And I didn't get in. And then a friend intervened, communicated with the university and said, listen, I think you made a mistake with this young person. And they asked me to write an essay, which really I interpreted at the time of, why were you such a failure in high school? Because I felt that way. And, yeah, they interviewed me and they changed their mind. They let me in. And it was a long path where along the way Until I was really in university, but really many, many years later, probably in my 30s, I grew up sort of feeling like underperforming and failure with the expected outcome. And that's difficult for any young person. You know, if you don't have evidence of success by the time you're 18 or 19, it can really stick with you a fair bit. I think it stuck with me for quite a long time. And so, yeah, now I think I ultimately figured out how to harness that insecurity, and it played to my advantage. But I think mostly I was super fortunate that people intervened in my life, friends, family, coworkers, colleagues, mentors, which gave me the opportunity to excel when I probably had no expectation of that starting out.
- [06:04]
B
There are so many things that I could pick up on that. And I think the thing that jumps out to me is that, again, Citi, Goldman Sachs, Carlyle Group CEO, you wouldn't expect Mr. Wall street to be open about those sorts of challenges. And I guess not only are you open about it yourself, which I'm sure resonates with lots of people who struggle in the same way, but you've particularly in those years as well, between Goldman and Carlyle, which we'll come to, you've thrown a lot at it in your philanthropy. And my question on this is, not only was it hard to get over that initial, very understandable insecurity, was it hard to talk about it and to be upfront about it a decade or so before other people have done so in that Wall street environment? Did that take extra courage, I guess, to say to your fellow kind of very overconfident Wall street cohort? Actually, guys, we have to look. We're leaders now, and we have to look out for this in our firm.
- [07:05]
A
So it was sort of an accidental evolution when I was a young boy. I can't remember how young. My sister's fine with me talking about this. My sister suffered very intense anorexia. And the compensating, this happens in families with eating disorders. The compensating factor for that is I ended up being very obese as a young person. That was part of the feeling of failure. And the teasing was brutal. I can only be thankful there wasn't social media back then and things like SNAP and an ability for kids to use technology as a way of teasing people, because I felt like I was teased most of my young adolescents. But there was a rule in my family and the stigma around mental health is still quite significant. But back then, we're Talking the early 70s, there was no acceptance of a willingness to talk about mental health issues. And again, the stigma exists today. No one should think it's improved or gone away. But the stigma was very intense. So there was a rule in my family that you were not to talk about the illness in the family. Family rule. My mother was very severe about this. So I sort of grew up that way. So I grew up not talking about it. I just carried on not talking about it. Now, to get to the heart of your question, I know you had Ray Dalio on the show. Yeah, and I interviewed Ray Dalio, I think, in 2017, and we were catching up in advance, and we started talking about brain health. And I said, oh, I know a lot about this stuff. And I told him about my upbringing, and he said, do you ever talk about it publicly? And I said, no. He said, oh, you should. I said, okay, we're talking about it today. So it's about, I don't know, 3,000 people out there. And I do this interview with Ray, and it comes up, and I must have talked about it for 60 seconds. I think I made a comment that my parents had attempted to take their own lives and die by suicide. And after the interview with Ray, a bunch of people came up to me, Wilf. And it was a real learning moment for me. A bunch of people come to me and they said, thank you for talking about the mental health issues. And I sort of thought, why are you whispering? I myself didn't really understand. Somehow, just by talking about it, there was no mobilization of resources or trying to convene people around the topic. Literally, the topic was still so stigmatized that just by talking about it, somehow some air came into the room that I didn't even know the room needed. And so it really impacted me. And subsequent to that, I made it a point to talk about it more. I did it at a whole bunch of different venues. Then, after leaving Goldman Sachs, I investigated it from a philanthropic perspective, Got attached to some organizations, and there's some amazing work being done. But that's. That was sort of, I hate to say it a little bit accidental, but I didn't know that there was any benefit that I was offering by talking about it. But I'm completely comfortable talking about it. It's life. It's the way we grew up. It was complicated, but a lot of people have it way worse. And I've just been the fortunate beneficiary of a lot of people. I mean, I could give you story after story of people intervening in my lives when they didn't have to to enable me to have an opportunity that otherwise wouldn't have been afforded to me. So I have huge gratitude for all those. You know, there's mentors in life. And I think I've had angels. If you're lucky enough to have an angel in your life, I've had many. You're pretty fortunate.
- [10:37]
B
Well, it's a testament to you that you give back in that regard. You said there was lots of amazing organizations and you've done a lot for them. And I'm very fortunate. I haven't experienced some of the stuff. But nonetheless, thank you on behalf of all those that. That do need that help.
- [10:51]
A
And thanks for asking about it.
- [10:53]
B
Well, no, it's fascinating. The rest of this won't be as interesting as that, but. But it's still going to be pretty interesting. Now, I mentioned some of the background of the career. You left Rutgers, you joined J.B. hanauer. It's a bond trading company. I actually didn't know you started in bond trading. Obviously a period at Citi, nearly a decade and then two decades at Goldman. And in particular Goldman started in the commodities business. Jay Aaron, which I was fully aware of, rose to be cfo, then president and coo, and obviously now CEO of Carlyle. What I think the first thing that comes to mind for me, that you are uniquely placed with amazing experience of both public markets and private markets. And private markets have grown unbelievably fast. I think more every two years. I think it's going to top out. It's going to top out and it hasn't. And it's been a really, really steady growth over the last sort of 15 years since I graduated in 2008. And I guess my big question to start this off is why has that growth been so consistent relative to public markets? I guess the first people assume, oh, there's so much regulation post 2008 that hit the banks more than the private markets. Is it as simple as that or is it more nuanced?
- [12:09]
A
I think it's more nuanced. There's a component of that, but it's a small component. I think you really have to go back and look through it through a longer lens of history. So when David Rubenstein, Bill Conway and Dan Daniel formed Carlyle, private equity didn't even exist. There was basically leverage buyout, that's what they called it. And there was venture capital, and that was the available pool of private capital. So let's think about it. They were pioneers of the industry, formed in D.C. it was 1987. So we're talking about an exceptionally young industry. Now if you. Well, let's take for example, the Wilshire 5000. The Wilshire 5000 was put together in the 70s. Actually the number of companies in the Wilshire 5000 peaked in the late 90s at about 7500. From that period to today, there's something like 3300, 3400 companies in the Wilshire 5000.
- [13:04]
B
This is publicly listed US companies.
- [13:05]
A
Publicly listed US companies. So what you saw from 2000 is this systematic decline. So why does that systematic decline exist? It's not regulation in 2000 that starts. This regulation really picks up 2010, 2011, 2012. What really drove this decline systematically is the availability of private capital. So as that industry matures, all that's happening. Because from my perspective, and as you pointed out, I spent most of my life managing trading floors, being the CFO of Goldman Sachs, running a 1.1, $1.2 trillion balance sheet. That is, to me it's just capital. And what CFOs, CEOs, treasurers all around the world every day do is they're just looking for the most efficient form of capital. So as private capital grows and matures as an industry, they just have different opportunities to select from the menu of capital choices. So private credit comes along, direct lending comes along close, really grow in size, which helps facilitate capital transformation. And so asset backed finance vehicles which are now, now some of these things are regulatory choices, some of these things are direct output of the financial crisis of 2008 because the liability structures we work with are much longer term. And so an ability to provide that capital on a duration needed basis we can do versus bank capital. And so I just view it as capital and the natural maturation of this industry. Now there's a whole bunch of factors that would lead companies stay private longer. But you know, the length that a company stays private has doubled from 5 or 6 years up to 7, 8, 9, 10, 12 years often and will likely continue to extend. I personally think, and I'm kind of hoping we're at the bottom of losing public companies because I, I don't think losing that many public companies is good. But there's a lot of factors in here, ETFs versus fund managers making idiosyncratic selections around which companies to take public and what do they want to buy. ETFs don't buy public companies. So there's a lot of forces that converged all at the same time. But it's just capital and people running companies make the choice. And so if the best choice of capital is bank capital, they'll pick it. The best choice of option going public is the best choice of monetizing an asset. They'll go public. We did some of the largest IPOs out of private company space last year. We did the largest ever owned private company in Japan. We did the largest ever owned private company in India. We did one of the largest IPOs in the United States. And these are in very different industries. So the public markets are available. But the trend and the breadth of capital selection is really what's driving this.
- [15:46]
B
What I think so striking to me is America has whatever option to fund your business that you want with great depth, which I didn't. Coming from London to the US in 2016, I didn't quite fully appreciate that. And obviously you have a big business here in Europe as well, across all of Europe, including London. Is that a key differentiator? I mean, even though you guys can bring capital from all around the world to a business, if you want to buy one here, is the US Capital market something that just puts it on a different keel to any other economy around the world, or is it other factors?
- [16:23]
A
No, I think there's two questions in there. One is the way you describe the capital choices. I do think that it has been for a very long time the deepest, most efficient capital markets in the world. The United States capital markets, just like the United States, has been a leader in technology out of Silicon Valley, really been a leader out of finance in terms of finance evolution, being the largest economy in the world and having sort of that entrepreneurial spirit. Now, having said that, London has for a very long period of time been the center of finance globally for people who want to trade 24 hours a day. And these things shift and move in time. But I think there's. There's a reason that is historically embedded in the depth of the US Capital markets that allows for creative evolution of finance. We are making decisions very often on committing capital that may go on for three, five, seven years. And so we don't seek to avoid risk in public markets. Very often you might say, oh, this market doesn't feel bad. Or there's something in the marketplace that triggers noise and you pull away from risk. We seek to price risk correctly at the margin on any given day. People that are deploying credit might be saying to themselves, geez, the risk return looks better in Europe than it does in the United States because it's crowded. Or our industrial team may say, wow, there's really a need for industrialization of Europe. And the capital demand will be higher there than the United States. We have this concept of a One Carl transaction and you know, we're only 2,500 people at Carlo, so there's a very tight knit group of very high performing, high caring people. But around the globe we have companies that employ over 700,000 people. So the responsibility is great, but it's about that micro deployment of capital, where we make a difference on behalf of our investors and how we generate returns.
- [18:23]
B
I want to get to the insights that you can draw from that huge global footprint, particularly in the US in a second. But just one further follow up specifically on, on the UK I guess, and through your decades in banking as well, as you alluded to, you know, London as a financial center, you know the UK well. Do you think the long term outlook is as good as it's always been? Or in the short term, is it, is it depressed? I mean we've got the budget coming up in 10 days. A year ago the Chancellor put up taxes. It's inevitable. They're going up again next week. Does that start to be a problem or are these small cyclical changes?
- [19:00]
A
So I think this is not a UK phenomenon necessarily. Why do I say that? You know, I'm a fair bit older than you, I'm 61. I think in my lifetime there have been some very, very powerful trends which have driven global growth. Billions of people came out of poverty and they include declining interest rates, really very little inflation. The end of the Cold War, Berlin Wall came down, globalization and then a rise, incredible impact on the efficiencies driven by technology. I think if you just step back and you think of those, just those trends, they're all either slowing or reversing other than technology, which is accelerating. And so we've now moved into an environment globally where there's more nationalism or onshoring, if you want to think of it that way. Inflation's been more persistent, there's been more changes in velocity and political leadership. I don't want to say instability, but the patience that citizens have and their politicians to fix things is slow because prices are high and affordability and the cost of living is high in many locations. And they're not seeing the world as being particularly fair. Whereas when things were sort of straight lining for many, many years, I think it was easier. And of course, obviously we have the big impact of Russia going into the Ukraine, which is a global phenomenon, but very locally here has impacted priorities of how to think about energy security and, and sources of energy and impacting local economies quite severely. So there's a lot of things under the hood. I'm always a pretty cautious optimist, but I think I fall pretty much into the optimist camp generally. And I'm pretty optimistic for Europe and I'm pretty optimistic for the uk. And it's not about next week's event or two weeks events after that. I think that there's a when I talk to officials, prime ministers, ambassadors, and as you can imagine, there's a lot of that in this role, particularly given that we're based in dc, There is a desire for economic growth. Economic growth heals all issues. Stagnant economic growth leads to much more difficult outcomes. And so the desire to create economic growth, wealth accumulation across all bands of society is uniformly desired everywhere in the world. And so I do think there'll be competition for capital. I think the demands for private capital, getting back to your earlier point, is secular because countries have the fiscal burden of the deficits being too high. Banks can only provide so much capital, but they're in incredibly important part of economic growth. The rest of it will come from private capital and the demands are enormous, whether it's infrastructure, revitalizing industries, focusing on energy, real estate, all the things that will require massive investment. And I think countries will compete on different grounds. But you know, this notion of nationalism and onshoring and deglobalization is really about a competition for economic growth. Simplified. It's much more than that, but overly simplified. It's a competition for economic growth. Capital is the blood flow of economic growth. And so I'm pretty optimistic notwithstanding the day to day noise.
- [22:37]
B
Well, good to hear and I agree long term, always a bull on on on the uk even if it's challenging in the short term. This podcast is sponsored by Interactive Brokers. Building wealth starts with the right broker. Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com masterinvestor let's talk about the US and a quick sort of economic outlook if you will. From your unique position, as you alluded to of all the companies you're gathering data from, any expectation of a recession in the next couple of years or not?
- [23:32]
A
I would say that if you look across our portfolio, EBITDA cash flow as a proxy has been growing 8, 9, 10% across the board. Companies are doing very well. Inflation is definitively sticky. Employment growth at the margin has been slowing but not degrading notwithstanding some of the headlines of big layoffs in the United States. And so I would say overall, the economy feels quite resilient. The consumer feels quite resilient. I would say broadly around the globe, there are pockets obviously of economies that are struggling, but that is a general reflection of what's happening across the globe now. Growth is slower here, inflation might be a little higher here, but I would say that is generally certainly the backdrop in the United States. It feels pretty good.
- [24:19]
B
What about markets? A couple of your peers, various Big Bank CEOs, have expressed caution of late that things look overvalued. You know, you used to run the trading desk at Goldman. Do you think that's a legitimate concern or is it impossible to call the top in these things?
- [24:37]
A
Well, you made it easy because you gave me an answer that I could brace. But I won't answer. I won't say, yes, it's impossible. But I, I would say the following anytime you have eight companies that represent 40% of the S&P 500 market cap, and those eight companies represent roughly 26%, I think, of the MSCI Global 5000. So you're talking about such a dominant leadership in market cap and such an acceleration of market cap growth that it would almost be unreasonable not to question the sustained momentum and capability of that cohort to drive markets higher. That's a technical question, I think, about a particular cohort that could drive the markets higher. I would go back to fundamentals, the fundamentals, at least as far as we can see them. And so those KPIs that I went through, that we look at, they're pretty good forecaster of sort of three, six months, no guarantee, but that gives you a pretty good visual into the US economy for the next three or six months. And so we have a resilient consumer, decent economic activity. We have a Fed that's leaning towards being more relaxed and has already cut twice. So I would say is it natural to expect some pullback when you have a market that feels somewhat naturally extended? The real fundamental question is, is that just about risk and profit taking or is there some weakness in the economy which would lead to something much more sustained or fragility in the economy right now that does not appear to be on the horizon. That's not in the expectation of how companies are performing, Employment's at a good level. Sure, there's lots of political debate back and forth and lots of discourse in the United States, but you have to look through all that noise and ask yourself, is the economy pretty good or not? And the answer is pretty good. And if earnings hold up, the markets will hold up.
- [26:32]
B
What about if you step back and answer that question as a sort of student of financial history, which I know you are, as someone who is literally in the room alongside your then CEO Lloyd Blankvine at the Fed the weekend that Lehman Brothers went bust, you could argue, I mean, yes, we've had Covid, but that we haven't really had a proper recession since 2008. And if they have, it's been short. We've papered over the cracks quite quickly with monetary policy or fiscal policy responses. Is that sustainable? Is it possible that we get to the end of this decade and that hasn't happened again?
- [27:11]
A
So I think what's the statistic? Recessions typically on average are every seven or eight years. But there's not a rule that a recession has to show up every seven or eight years. It's not like they arrive on schedule. If they arrived on schedule, it'd be quite convenient. I think you have to step back and say, okay, in typical economic cycles of expansion and contraction, why have we had recessions on average every seven years? And there's a whole host of factors to that. Sometimes it can be an external shock, like the oil shock, it can be the fact that that triggered inflation. It could be a whole host of reasons why one would go through a recession. You touched on a lot of very important facts just now. So 2008, in the financial crisis, massive fiscal stimulus, massive monetary stimulus. We adopt quantitative easing as a global monetary tool, which I thought actually at the time was quite brilliant. I thought Bernanke and all the leadership of the Fed did a quite brilliant job of doing everything they could to reassure the marketplace, stimulate economic activity. So then you had this combination of fiscal and monetary policy, sort of both guns blazing. Actually, it sort of stayed that way for a while, which is why we had this enormous buildup in a US Deficit. Then of course you get Covid. What does Covid give you? Covid gives you massive stimulus. Both fiscal and monetary policy rates go to zero. So against that backdrop for regardless the reasons why you had those two big installments of fiscal and monetary stimulus, is it surprising, like if I asked the question differently, if I said, hey, we know nothing about recessions, you and I sit down with a piece of paper and we say, hey, look, in 2008, you're going to get this much capital trillions. In 2020, you're going to get this much capital trillions and this much money. And rates are going to essentially be at Zero for an extended period of time, do you think there'd be a recession? I think the answer would be no. So then the question is, is it surprising? No. In retrospect, not compared to history. Yes. I think a lot of this will depend on how we navigate a lot of the political outcomes, monetary policy around the world, and whether or not at some point inflation really is a problem. If inflation doesn't stay steady or continue to reverse, then you're going to have to see more aggressive monetary policy. And that, unfortunately, will lead to demand destruction. But I do think it's. Notwithstanding everything I just said, looking backward, it is quite remarkable. And the economy's been very resilient. Part of this because we know more about policy. Part of that is because consumers in the marketplace have more confidence, notwithstanding all the events that have occurred. And, you know, the greatest, the greatest economic elixir is confidence. And if people have confidence, they will spend. If they feel good about the political framework, they'll feel confident about their jobs. Insecurity is in part underlies what happens in a recession. If you go way back to, you know, the Great Depression, United States, a lot of it is about the reverse flywheel effect of confidence eroding completely in financial institutions, et cetera, and that gave rise to a lot of reform. I think, again, anything can happen. That is the nature of markets. But right now, I don't think it's surprising. We have in a recession, and just because we haven't had one doesn't mean we should have one immediately.
- [30:50]
B
Yeah, that's really interesting. By the way, looking back at 1929, we had Andrew Ross Sorkin on the other week with his book on 1929. The other big difference, of course, was there wasn't a significant step in from the Fed, which.
- [31:01]
A
No, quite the opposite.
- [31:02]
B
Yeah. Which is exactly why.
- [31:03]
A
Lessons learned.
- [31:04]
B
Yeah. Which is a big reason why it kind of cemented things. Quite a few questions I want to race through in our remaining time. One, quickly, on that point about interest rates, I think clearly people were hoping rates would continue to come down, whether or not quickly or not. Is it fair to say if that doesn't happen, if indeed inflation's more persistent, it possibly goes back up. That's a risk to the private credit markets. Is there a chance there'll be more little blowups across the sector? Not necessarily at Carlyle, if rates surprise and go up again?
- [31:33]
A
Two different questions, I think. One, I actually have no idea why everybody roots for lower rates. When I was growing up, lower rates were a sign of slowing economic Growth, a need for the Federal Reserve to step in. I do think we now have a generation of people who believe zero is.
- [31:50]
B
Normal, particularly people who graduated like me in 2008. Yeah, it's always been zero pretty much correct.
- [31:56]
A
And so I think that that is not the market clearing normal cost of capital. That's a highly manipulated cost of capital designed to provide stimulus to the economy which they needed and the economy needed. So I'm not questioning it. But it's not a normal cost of clearing capital. We just need a regular market clearing cost of capital because it defines capital being deployed at the right price efficiently around the world. And you know, so we could spend a lot of time on that. But I think that that would be a big digression and probably not great for your show or your view.
- [32:30]
B
No, I find it fascinating, but we.
- [32:32]
A
Could talk about it afterwards. But anyway, so we need a clearing cost of capital that is market defined, not manipulated by central banks, even though they needed to do it. But it's not normal. Zero is not normal either. Was the inflation enhanced level of going into the 70s when Volcker had to come in and really crack the markets. And so this is, I think rooting for zero is just rooting for easy money. I think the reason we ended up at zero is you had a 2008 and I don't think we should be rooting for a slowing economy. And now that is a real debate. Is the economy slowing? Is it not? I think what the Federal Reserve has said is we're watching it carefully, we need more data. And we need more data because we're coming out of a period of COVID of big stimulus. We just came off a massive inflation pop and unemployment is at a reasonable level. But now payroll seem to be softening a bit and they're trying to figure out how to adjust to the dual mandate as they get more information. But I think this rooting uniformly for zero, if someone came out and said, wow, the economy's really robust, we're keeping rates flat, I think we should generally celebrate that. Now this is a market environment that's very attuned to zero and they want free money, but I don't think it's a good thing. Now on your question of private markets, as I said systematically, I think over the next five, ten years the uniform demand for capital around the world doesn't matter. Wherever I go here, Europe, Middle East, Asia, United States, Canada, everyone wants to invest and they have long duration needs for capital. And so the demand for that capital will keep going up very Narrowly, because you touched on it. In terms of things like private credit, the incidents we've seen in credit are actually not private credit. Most of them have been in banks. But let's not let a narrow get away in the facts. But credit is just credit. And this notion that private credit's at odds with public credit, credit is just credit. It's the extension is what my team says all the time. It's just the extension of credit and it's the vehicle that it goes in, but the vehicle is just credit. And sometimes, as I said earlier, a company will choose bank debt, it'll choose public debt markets, it'll choose private debt markets. But most of the instances we've seen of fraud, unfortunately have been in bank led portfolios. But I do think it's a bit of a heads up in terms of we haven't had a credit cycle, we haven't had a recession. And as you get longer away and deeper into cycles, you can see things like this. And that I don't think is surprising. But we shouldn't let a handful of credit events have the kind of stir up the debate. And again, I come from the bank world and now I'm in the private markets world. To me, when I it's just capital.
- [35:29]
B
As we start to wrap up and we're nearly out of time, I wanted to come back to your story arc, Harvey, and as we started with, got to know each other very well when you were CFO of Goldman, then you became president and COO, co president and COO underneath Lloyd Blankvine. And in 2017, the bank picked David Solomon to be CEO. Five or so years later you've become CEO of Carlyle Group.
- [35:56]
A
Yeah.
- [35:56]
B
You talked earlier about insecurities as a young man. I wonder if in between those two moments that came back at all and put it a different way, does it feel all the more rewarding to sit as you are today overseeing $475 billion of assets and to be CEO of one of the finest private capital markets companies in the world? When you have had challenges, when there have been moments in your life or career that didn't go immediately to plan, is it very rewarding?
- [36:35]
A
When you went through that quick march earlier in the conversation you said you were at JB Hannah and then you were at Citibank and then you were at. When you describe it that way, even that sounds kind of neat and orderly. It was much messier than that, I would say. It wasn't really until I was in my 30s at Goldman Sachs where I felt, oh, I'M okay at this. And I once looked up imposter syndrome. And imposter syndrome basically says something to the effect of a lack of confidence despite significant evidence of success. And so I think by the time I was in my 30s, I was confident in my ability to lead, bring people together, kind of know what I didn't know. And that's when I was able to harness my insecurity in a way, I think that was actually quite effective, but at the same time, feeling confident. And so, no, I don't. I don't know. I just. Maybe it's just not the way I'm wired, you know? After I left Goldman Sachs, I really had desired not to work. I'd worked my whole life. I had. I never imagined having the financial flexibility. I almost filed for bankruptcy when I was 25, before I ended up at Citibank. So I didn't even know what bankruptcy was, but I knew it was a thing I might have to do. And so I think that. I think I just feel super fortunate and that five years off, I couldn't even believe I didn't have to work. I'd worked my whole life. And so I just was going to experience life the way I could. And then this incredibly unique opportunity came across from Carlyle. The ability to lead and work with extraordinary people and the founders and their wisdom and their experience in an iconic firm like Carlyle and was just a real surprise. And that was a compelling reason to get back in the game. I don't know if you want to put it that way, but now I don't. There's no vindication or anything. I think I still sort of pinch myself every day and think, jesus, how did I get here?
- [38:52]
B
Well, you're a more gracious man, I think, than many of us to frame it that way. And obviously it's been a great couple of years. I think the share price is up sort of 80% over the last two. The share price year to date is in positive territory, whereas the peer group isn't. So congrats on everything, Harvey.
- [39:09]
A
That's an extraordinary effort by the team. I think they've done a remarkable job deploying capital, monetizing capital. They bucked all the trends in both private equity or credit or our solutions business. I'm really proud of everything they've done.
- [39:24]
B
Well, there's that graciousness again. To wrap things up, we ask the same question to everyone. I mean, oddly, we sometimes frame it as investing advice or leadership advice. You're qualified to answer both, but it is what is the overriding piece of investment advice or leadership advice that you have for our listeners.
- [39:42]
A
Okay, so this may sound somewhat consistent with the earlier part of our conversation, but I think humility, humility to me allows for the opportunity of only good things. Learning, teamwork, a willingness to ask questions, bringing people together. You know, these are super complex problems that our clients have to solve and our companies have to solve and our teams have to solve and you know, they're not one person kind of things. And I think humility also allows you to, you know, if you're investing and look, investing is Investing is not 100% winning game like the best investors in the world have many defeats and have many investments that don't go well. But if you're humble about it, you're willing to learn from it. If you can learn from it, you become a better investor. So I think being humble in all regards allows for learning and growth and opens up all sorts of opportunities. I think arrogance shuts all those doors. And so I would encourage everybody to be humble, which really just means be open to learning, I think, and all good things should flow from that.
- [40:56]
B
Harvey, it's a great lesson to end on. It's been a great conversation. Thank you so much for joining us.
- [41:00]
A
It's great to see you and great to be here again. I appreciate you taking the time.
- [41:03]
B
Harvey Schwartz, the CEO of Carlyle, joining us there on the Master Investor Podcast. And if you've enjoyed the conversation, please do subscribe and leave us a five star review. Next week we'll be joined by Jason Pidcott, the manager of the the Jupiter Asian Income Fund. Harvey, once again, thank you so much.
- [41:21]
A
Great. Thank you so much. Thanks everyone.
- [41:23]
B
The Master Investor Podcast is sponsored by Interactive Brokers. Please do remember the views expressed in this podcast are for general informational purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show. Notes. This podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.