The Compound and Friends - Ladies and Gentlemen, Mr. Harvey Schwartz

Episode Date: December 27, 2024

On episode 171 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Harvey Schwartz, CEO of Carlyle and former president of Goldman Sachs to discuss Harvey's remarkable journey through the financial industry. In this episode, Harvey tells us about his early career as a fitness instructor and cold-caller, lessons learned during the 2008 financial crisis, saving Goldman during the financial crisis, Carlyles current momentum, and the rise of private equity and private credit. This episode is sponsored by Van Eck and Public. To learn more about Van Eck's Uranium and Nuclear ETF, visit: http://vaneck.com/NLR Lock in a 6% or higher yield with a Public Bond Account. Learn more at: https://public.com/compound Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. As of 9/26/24, the average, annualized yield to worst (YTW) across the Bond Account is greater than 6%. A bond’s yield is a function of its market price, which can fluctuate; therefore, a bond’s YTW is not “locked in” until the bond is purchased, and your yield at time of purchase may be different from the yield shown here. The “locked in” YTW is not guaranteed; you may receive less than the YTW of the bonds in the Bond Account if you sell any of the bonds before maturity or if the issuer defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. See https://public.com/disclosures/bond-account to learn more. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

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What are you on, your fucking emails? It's over. Brought to you by public investing member FINRA and SIPC as of 9-26-24, the average annualized yield to worse It's over. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of RIDHOLT's Wealth Management may maintain positions in the securities discussed

in this podcast. Ladies and gentlemen, welcome to a special edition of the Compound and Friends. My name is Josh Brown here with my co-host as always, Michael Batnick. Michael, say hello. Hello, hello. We have an incredibly special guest today. We are so excited to be able to bring you this conversation with Harvey Schwartz.

Harvey, before I do your full official introduction, I just want to tell you, you're to me, an icon on the street, somebody that I've always wanted to talk to. I have a million questions for you. We won't do a million today, but just thank you so much for being a part of this. We appreciate it.

Well, Josh, it's fantastic to be here. Michael, great to see you. I like the attire. Josh, I'm a little concerned you didn't wear the vest, but it's fine. We can go with it. I thought it would look crazy if we're both wearing the vest talking to Carla. Okay. We should have gotten you a hat or a tie or something.

Let me do the official intro. For those of you who don't know, Harvey Schwartz is the chief executive officer at Carlisle and a member of the board of directors Carlisle is a global publicly traded investment firm with over $447 billion in assets under management It's telling me to call you. Mr. Schwartz Harvey formerly worked at Goldman Sachs from 1997 to 2018 I went to public school. With his last position as president and co-chief operating officer at Goldman. This is, from my perspective, the first time that we're talking to a CEO of a publicly

traded financial company. We talked to a lot of chief investment officers, talked to a lot of chief strategists, but I think this is a first for us. I wanted to start by just talking a little bit about the early part of your career that I'm going to get into Carlisle today. Sound good? Fantastic. And really, well, first of all, being the first, it's an honor for me to be here.

Love your show. Love what you guys do. Thank you. And we should have a fun conversation. And I think it's my first podcast as a CEO of Carlisle. So first for both of us. Okay, very cool. You started JB Hanauer in 1987. What is that? It's a bond shop or you say it like you don't know. They don't know. So, so I graduated from Rutgers University in 87. Rutgers certainly back then didn't really have a path

to what you might think of as conventional Wall Street. I didn't know there was a Goldman Sachs, I didn't even know there was a JP Morgan, I was a kid from New Jersey, and it was a bumpy ride coming out of college. It took me a couple months to figure out what I wanted to do. I knew a friend who said, hey, I think you'd be a pretty good salesperson.

He worked at this Muni Bond shop in Livingston, New Jersey. You took a gap year. Well, that, yeah. I would say there was a gap in my years, but we can come back to that. But you weren't hard charging like, I got to be on Wall Street. It just kind of happened. No. I would say to say I was an under performer in high school

would be a real exaggeration of my performance. Okay, I had a lot of challenges in high school. I didn't apply to any colleges. The fact that I ended up at Rutgers is sort of a miracle story where an angel intervened and got me into Rutgers. But when I came out, I started a JB Hanauer, which was a municipal bond firm, small shop. There are a million of them back in the day in Levinson, New Jersey. Okay.

And you're basically calling people and saying, here's the rate and it's tax free and so I'm going to kind of put you down for it. Back then, you could cold call. Yeah. So you sat there all day long, you had, you know, there was like a rubber thing, people you have to really. I did it. Who are you calling?

Is this retail investors? No, it's munis. So it's like high net worth. Yeah, it's like a rubber thing people you have to really like. I did it. Who are you calling? Is this a retail investors? No, it's Muni. So it's like high net worth. Yeah, it's like high net worth clients. Old people. But they give you, back then I think it was Dun & Bradstreet cards. You'd come in, you'd have 500 in front of you. You'd make as many phone calls as you could.

They'd say, hi, I'm Harvey Schwartz. They'd hang up immediately. One out of 50 might pick up the phone. I did that 10 years later, but with blue chip stocks. But the same exact thing. Dun & Bradstreet index cards. Yeah. So these were high net worth individuals who likely were already owners of municipal bonds.

And you would say, hey, I'm offering 12% tax-free. By the way, I'm not just picking that number, you could actually get 10, 11, 12% tax-free back in the day because 1987 and the whole rate environment was completely different. Okay. So you're doing that and very quickly into your tenure as a cold caller at the Munibond shop, the stock market has a crash. We were talking about this off camera for a moment, but it's October of 1987, the market crash is 22% in a day. You end up moving to Citigroup, but you're still early enough in your career that you're

not exactly sure what you're going to do. But what's the lesson in that tenure at Citigroup for you? What do you take away from that experience? Well, that whole journey was, that was a complicated time for me. Yeah. So it actually was my first day on the Munibond trading floor, which is, you know, this is a not big Wall Street trading floor. So there's like a couple hundred people in seats. That was the day the stock market crashed. It was the first day I was cold calling.

So of 500 people, I cold called that day. I had that 499 of them hung up on me. Like, hey kid, what are you talking about? So that day specifically, what I remember is, I didn't really understand what was going on. I was just a kid. I remember at the end of the day, when it calmed down, I turned around

and across this little trading floor, there was a gentleman with his head in his hands, and he looked up and he was crying. And he was probably in his 40s. And I said to someone, hey, why is he crying? He said, oh, well, he manages a lot of his family's wealth. They lost a lot of their wealth today. That was a profoundly important experience for me,

because I remember thinking, without understanding anything, but the visceral energy of that was, markets are very volatile, something I didn't understand. They don't teach you in school really. They teach it more now, but they didn't then. Markets are volatile. You can have personal vulnerability,

and you have to be really thoughtful about how you approach this whole engagement. It was more impressionistic because of that visceral fear. I turned out to be exceptionally bad at this job. I didn't really build a book of business, you probably did. Eventually I left, I tried to start a couple businesses that didn't work out. And when I was pretty close to filing personal bankruptcy, a friend of mine intervened and got me a job as a temp in the back office at

Citibank. That's what they called it. And that's how I got to Citibank a couple years later. But that's so that's like your so that's like your entree to Big Bank, Big Wall Street. Okay. And I joined Citibank at a really pivotal time in Citibank's history because I was part of the cost cutting teams. But I was hired as a temp. I managed to convert myself to a full time employee. And then someone else intervened, gave me a shot at becoming a credit analyst. I went through that full training program. Citibank ran an amazing training program. Truly amazing.

Six months, very intense. And I came out of that and that is really, took me years, but that was really where I'd say my more conventional journey on Wall Street started. It seems like there's a recurring through line to all this, which is that people are recognizing something in you. You keep saying they intervene. It's probably in their own best interest. They probably see you as somebody who can help them too.

Or do you think it's just people being nice? Like what is it about you do you think that attracts the attention of people who can help you get ahead or get to the next rung? I think they're pretty special individuals. Okay. What I'm talking about. So you got fortunate. I don't think this was self-interest in the slightest.

Okay. To the extent to which it was self-interest, I think it's because they're good people and that's what they do. Okay. You know, for example, with Rutgers, I hadn't applied to any universities. I applied to Rutgers because it was the least expensive.

It was the cheapest. And it was the closest to where I lived. This is back in the day when you didn't find out online that you were actually going to be admitted. So I waited for the envelope. The envelope came. There was nothing in it, so I barely needed to open it. I knew I didn't get in.

But I was working at a health club, which is probably hard for you to imagine, but I was the instructor. So you have to picture me thinner hair, more fit. And there was a woman that used to come through, her name is Linda, and she was a Rutgers graduate. And she constantly asked me, hey, have you heard from Rutgers? I said, finally, yes. She said, this is ridiculous.

She wasn't like an influential alumni. She wasn't someone like you, who people call and they know. And she called up and she basically pushed the university and said, listen, you've made a mistake here. You have to interview this kid. They asked me to write an essay about why I had so poorly performed in high school. And I went, no, and I went and I had the interview and I remember thinking, I don't know how to dress for an interview. Yeah.

And I was bouncing at a bar in New Jersey. And there's this one guy that used to come in wearing a sport coat and cowboy boots. And I thought, okay, he looks pretty good. So I went out and I bought a sport coat and cowboy boots. That's how I showed it for my interview. And I got in. So I don't think there's any self-interest in that.

I think it's a miracle it occurred. So I think there's mentors in life and there's angels. She's an angel. There's another guy at Citibank who really intervened and I won't bore you with these stories, but he really intervened to get me into that training program. I was not a natural choice for that training program. What made you say, now is the time to actually

get serious about my education. You go back, you get an MBA from Columbia. Yeah. Did somebody tell you to do that? Or did like instinct just say all the people that I emulate seem like they have these advanced degrees, I should go do it. So I grew up in a bit of an unusual environment. Both my parents were super well educated.

My father had a PhD in chemistry at a time when PhD wasn't as common. My mother had a master's in education, so super, very well educated people. Unfortunately, they suffered both very severe mental illness. So my mother suffered from what you would call today bipolar disorder, and my father suffered from schizophrenia. Back then in the day, the medication wasn't as good, the treatment protocols weren't as good, so they suffered quite significantly. And as a result, that in a big way,

contributed to my significant underperformance in high school. But education was always imprinted on me as a very important thing. So after not applying to colleges, and I saw all my friends go off to schools like University of Maryland and other schools, I thought, hey, I should do this.

So it was always in me to do it, but I had to mobilize. And when I went to Rutgers, the one fear I had was I didn't have the capability to perform as a student. And I had to prove to myself. And what I learned at Rutgers was I was actually capable of performing. But more importantly, I think it was the first time in my life I realized I liked learning. And my first class was economics. That was just part of the curriculum and I loved it.

I loved everything about it and that kind of triggered me along the way. Okay, so then you get your MBA and you end up at Goldman. And I guess, what are you late 20s at this point? So I go to Goldman when I'm 33. Was that an intervention or did you make that one happen? That like a lot of things on Wall Street, one of the people on the training desk. So at Citibank, I went from being a temp to being hired into the back office. A guy by the name

of Glenn intervenes. That's another angel story. He gets me into the training program. I did really well in the training program, which was kind of a surprise to people because I was the kid from Rutgers from the back office. Then I go from there to being a credit analyst to the trading floor to do structured derivatives in the mid-90s. One of the gentlemen from the training floor went to Goldman Sachs, brought somebody over. They brought me over. The guy who originally brought me over ended up being one of my co-heads. We ran the trading businesses during the financial crisis. So it all links together that way. And you end up at J. Aaron, which is the commodity shop within Goldman. I think Lloyd Blankfein came through also.

Yeah, purchased in 1981. Okay. Long before I got there was considered the worst acquisition Goldman Sachs ever made. The purchase of J. Aaron? Correct. Okay. And then ended up being a fantastic contributor to the firm's success, profitability, redefined the fixed income business. Lloyd Blankfein came from J. Aaron, Gary Cohn, lots of other really notable people. What do you think it is about the prevalence of commodity guys making it into the top ranks

at Goldman? Is it like a understanding risk thing or what is it about that particular aspect of Goldman makes those people so highly valued later? I think over that period of time, the evolution in trading and what was happening in markets was so dynamic. You know, you're talking about a period from 97, let's say, up through 2008, where all trading markets were evolving as fast as they've ever evolved, whether it was equities or fixed income.

Yeah, it was an extraordinary period in technological evolution. You had the launch of credit derivatives, really electronic trading. You had rules that changed all of equity trading and drove commissions from a couple of pennies down to zero. And so all of that required a certain dynamic way of responding to markets that I think was just part of the culture. Okay. And they also came from a very demanding, disciplined, financially-focused orientation that just along with those markets was a real chemistry for success. Okay. I wanted to get into a little bit about your rise at Goldman

because it's pretty remarkable the timing. You end up effectively being one of the top people at the firm at a time that probably is, in hindsight, Goldman's most challenging moment, the 2008 crisis, and you're on the front lines in a lot of different ways, you hold a bunch of different titles. But I guess when you're going through it, it's like another day of work. But when you look back on it now, different day, yeah, we look back on it now... Different day. But yeah.

When you look back on it now, I mean, Goldman's one of the firms that comes out best as a result of surviving the crisis. And you're a big part of the reason why. And I think everybody acknowledges that. But what are some of your reflections from that period of time? Well, when you think about... So I was at the Federal Reserve the weekend that there were a handful of us that were at the Federal Reserve the weekend that Lehman Brothers went out of business. And you can reflect on a lot of things, a lot of pride in the way that Goldman Sachs came together, my co-eds came together.

We were running the largest portion, the most dynamic portion of Goldman Sachs. It's really where the epicenter of activity was. The entire trading environment across equities, commodities, and fixed income in 2009 to that point in time was the firm's most profitable year coming out of the crisis. But I think in terms of most memorable components, I would say you have to be really connected to the vulnerability of the financial system and truly how close we came as an economic society and as a society to kind of losing control of it and really reflecting

back on it, what are the things about systemic risk, connectivity, leverage that really contributed to that because obviously 2008 happens because you have 10, 15, 20 years of built up. And I think when I think about it, the lessons I learned from a risk perspective are many, but there was a lot in there for all of us that have responsibility for financial institutions and politicians and regulators. But a lot of it brought us there. But I think understanding, again, the vulnerability, it goes back to what we were talking about before the show, like I had my 1987 moment, you had your moment after you guys started. These moments are incredible points for all of us to pause and say, hey, what brought us here? We have the best capital markets in the world in the United States. Not perfect. I don't think we should try and make them perfect.

We try and make them perfect, we have a zero defect policy, well, then you don't get growth. But at each one of these inflection points, 87, 94, 98, 2000, 2008, what do we learn from the pandemic? All these things, these are really, really important moments in time for us all to learn as individuals, professionals, and obviously, more broadly across the whole system. Harvey, as you look back at that period of time, was there a moment when you said, it's time for us all to learn as individuals, professionals, and obviously more broadly across the whole system. Harvey, as you look back at that period of time, was there a moment when you said, it's over, we're going to be okay?

Or was it like more gradual than that? Like when did the crisis feel like it ended to you? I would say there were two critical points. Well, three, I think TARP was quite significant because it was a recognition from the politicians that they needed to demonstrate some stability to the broader public. So two weeks after Lehman ish October, that was one. Okay.

When Morgan Stanley and Goldman Sachs became banks, basically overnight on a Sunday, that was less about Goldman to me. But again, it was more about the system saying, okay, we're going to change the system in terms of who's thought of as a as a banking entity. Okay. And then I think more subtle, but in the spring of 09, when the Federal Reserve came out with bank stress testing and quantitative easing, which were really very two powerful signals, partially understood by the market

in C-Card and stress testing and all of that. And I think that quantitative easing at the time, wildly misunderstood, then really understood we could spend a whole podcast talking about quantitative easing. One of the things that happened in the spring of 2009 that put a bottom in the stock market was the repeal of an accounting standard that was forcing banks to continue to mark down their holdings week after week after week. Suspending that gave people the breathing room to say, okay, the marks are going to slow down.

We can actually focus on what we own and what we still want to own. We don't have to just dump things because it's being marked down. That actually coincided almost to the day with the bottom for the S&P 500. You also have to remember, obviously, the environment was very different back then. I think if you had social media now, the instantaneous communication, I think you maybe don't have the time because the things I described happened over many months. I mean bottoms happen quicker today.

I think information transfers so fast, the market participants, regulators, policy have very little time to react. You think about Silicon Valley Bank. Well that opened on a Thursday. So imagine what happens in Alemanman Brothers. Right. Overnight. Where you don't have weeks. Right. So there's not the call on a Wednesday that we should get everybody together.

The Friday night phone call that we should meet at the Fed on Saturday. There's the call on Wednesday night and by Thursday morning if you don't have a solution. Right now. And so the instantaneous nature of markets creates a certain degree of fragility, but of course, markets are much more sound and I think structurally in a better place, but it doesn't mean there's not fragility. So as we look back on the seeds that were planted in the aftermath of the crisis, maybe the roots were ripped out actually, forget about seeds being planted, and all of the

reforms that came into the banking sector really paved the way and gave rise to the giant alternative asset managers, the car laws of the world that exist today. Because previous to that, it would have just been the banks doing all this business. I think to some degree, that's a big contributor. I think one of the fascinating things about our industry, for me as someone who has the privilege of leading people and mobilizing the organization and working with clients all around the world, I think the ecosystem of finance is fantastic because it's constantly reinventing itself, constantly.

If you just think about the time period we're talking about from 87 to now, it's almost not recognizable. What you all do in your business didn't exist in the way it does today. And you're inventing as you go. Wealth management was stockbrokering. Wealth management was a kid from New Jersey learning about muni bonds for two weeks, picking up the phone, talking to people,

trying to build a business. It was product sales, it was transactional, it was commissions. So now CFP taking is at an all time high and CFA taking is at an all time low. So the business of wealth management completely flipped. Correct. And the ecosystem of finance has evolved for many, many reasons.

One of them, of course, and a lot of them are linked to the financial crisis. But part of it is regulation and the way the banking environment has shifted their focus. Part of it is about having a period of zero interest rates. But all these things are linked to the financial crisis because you didn't have quantitative easing before. Globalization and communication is a big part of it because there's just awareness now. In private equity and credits, Michael's point specifically, you must see

when the banks were told, we don't want you risking your balance sheet anymore, we don't want you participating in all of these deals. That's for somebody else to do. There were a lot of private equity firms that looked at that and said, okay, we'll be the someone else. We'll be counterparty, we'll be in on the deal, we'll take balance sheet risk because we're not banks, we can do it.

Yeah, I think it's just, that's 100% right. It literally is as simple as, businesses don't change, businesses need capital. Capital is what allows businesses to grow. Human capital and financial capital, that's it. Let's just simplify it and talk first principles. You need to have human capital, financial capital, and the financial capital will find its way.

And this was a natural evolution. Look, if you go back 30 years, 35 years, beginning of private equity, you really in private markets only had private equity and venture capital. What's happened systematically over 30 years is you've had a filling out of people who can provide that capital. So that's why IPOs have systematically declined since 2000. I think there's like half the IPOs now that there were 20 years ago. It's not because people don't wanna go public. It's because there's other alternatives of the capital

that prevent them from making that choice to go public. Can wait a long time. That's right. And they can keep building their businesses. There are other sources of capital. Wealth is a huge new lane that's opened up that is providing capital. And of course, firms like ourselves

have been doing this for a very long time, you know, at nearly 450 billion of assets, you know, 25 years ago, it was all about private equity. But our biggest business now is credit insurance, our solutions business, our real estate business, private equity is still incredibly important here. But we provide that capital systematically to anyone who needs it. And it's a very competitive environment, but banks are less relevant in that particular space than they were pre the crisis. So I want to just circle back quickly to how you get into private equity.

So you're at Goldman, you're the head of all these committees, you're part of the Federation. Can you talk to what the Federation was? That sounded so administrative the way you described it. I liked it more when you talked about being dynamic and I was part of the team that led the crisis. We were. But now in your mind, I'm running a lot of committees. Well, you're a risk guy. So I moved from running trading to being the CFO and I was a CFO from 2012 to 2017.

I was super reluctant to take that responsibility. It was a huge shift in how I had to think my responsibility for the firm and it was quite a challenge. I loved learning. It was a very hard time because of all the implementation of the regulation, how to think about risk capital. I was gonna say more public scrutiny on Goldman Sachs than ever from people that had never even heard of Goldman Sachs a few years prior.

Correct. It went really mainstream right away. Yeah. So we dealt with all that. I think when I look back on my career, when you talk to young people today, they'll say, hey, how do you think I should think about the next 10, 20 years of my career? I think it's phenomenal that people have been asked that question.

I think it's super healthy. I think young people probably put too much pressure on themselves with that. If I had asked myself that question, I would have asked it like, geez, how do I get out of debt and what do I do for the next six months? So like my perspective on career was like so short, Josh.

And I just got very, very fortunate that over my 20 plus years at Goldman Sachs and my eight or nine years at Citibank prior, I just got exposed to a lot of different things. I moved around a lot. You know, I looked back after I left Goldman 2018 and I had never held a role for more than five years. So it positioned me with a lot of different experiences from working in operations to

running the balance sheet at Goldman, to being in trading, to working in commodities and derivatives. And when Carlisle called, I had been really spending my time doing private investing philanthropy and passion projects. Right. So you leave Goldman, you don't 100% know what you want to do next. No, I knew 100%. I didn't want to do anything next.

By that I mean, I actively made a decision that I thought is such a unique point in my life that I could sit back and really take the opportunity to think about what I wanted to do, where I could have the greatest impact. And I was totally comfortable with that. I felt no pressure. Not a lot of people get that opportunity. No, especially not a kid. Hey, look, Josh, let's just level set.

I got promoted at Goldman Sachs at some point in time. I maybe was trading. There was something in the Wall Street Journal. Subsequent to that, someone sent me an email that they ended up linking into is two people I went to high school with. And one guy says to the other guy, says, hey, I think Harvey Schwartz was in the Wall Street Journal, he's over at Goldman Sachs. The other guy writes back, that's physically impossible. I'm pretty sure he dropped out of high school in his senior year. So that's, so again, personal perspective is super important.

I have huge gratitude for the fact that I'm even here. Yeah. I constantly try and remind myself of that. And so I get this point in my life where I have that freedom and nothing I ever expected. And so when I had that point, I thought, okay, and I still didn't think five, 10 years. When people leave big, visible roles now, people will come up and say, hey, this is what I'm thinking about doing next. And my advice is always you can do something next, or you can take your time. If you're one of the people that's lucky enough to have a luxury to do that. For me,

I just kind of let it unfold. Okay. And I was super fortunate. I have a nice resume. People would call me. They'd say, hey, we want to talk to you about this opportunity or that opportunity. And none of them felt right until Carlisle called. And then it felt right. Okay. Why? Super simple.

Carlisle, I knew the firm, iconic brand, super important. Had you interacted with Carlisle, at Goldman? All of these firms were my client. Yeah. So I know their souls. That's important though. Yeah. You know what you're dealing with.

Because when you're committing billions of capital to companies, you understand them. So who calls you? Does Rubenstein call you or is it like a headhunter? Yeah, you get like a search firm. Well, first other people reach out to you and they say, hey, would you want the phone call? There's like a whole orchestration. You say, yeah, I'm open to the phone call. And then somebody calls you and then you start meeting. But there were really three fundamental things to simplify. First was Carlisle. I knew the brand I knew their place in kind of like financial history. Right? Yeah. To the industry. I did a lot of work on the industry. I knew where the industry was headed, some of the dynamics you're talking about.

I knew the lane was important to people. I knew about the growth of wealth. I knew about the trends in insurance. I knew about the importance of the capital and our clients. And then founders, time with the founders. I spent a lot of time with the founders. There's three founders. They named it, they met at the Carlisle Hotel and that's how they named the firm, which a lot of people don't know that. Yeah. There's no Carlisle time with the founders. So there's three founders. They named it, they met at the Carlisle Hotel, and that's how they named the firm, which

a lot of people don't know that. Yeah. There's no Carlisle working at the firm. There's no Carlisle. They didn't know what they were going to do to make up the name. And then I think it was David that said, why don't we call it Carlisle? Okay. Famously, the outgoing CEO, there was, let's call it non-consensus with the founders and

some of the important stakeholders at the firm about some decisions that were being made. And that doesn't go well when the big shareholders are like, we don't, we don't agree with your approach. So that ends consensus building becomes an important trait in whoever's going to come in next. Um, and you kind of fit the bill for that. You had a reputation on the street already as somebody who listens to everyone, gets a consensus, and it seemed like they were looking for you.

Maybe they didn't know it, but they were looking for somebody like you who could come in and do that. It's not the easiest thing in the world to do. I knew the fundamentals of what was important. I knew you needed an alignment with the largest shareholders. They own about 30% of the firm. Yeah. But it went beyond that. So with David, it was interesting because in my first conversation with David, he said, Hey, we don't want you to think we're going to micromanage you. Right. And I said they will say that. Yeah. No, no, he meant it.

Yeah. David's that kind of guy. And I said, yeah, David, that's not my concern. I said, I'm fine with micromanagement. I grew up with some of the greatest micromanagers of all time. I've been accused of that myself. So I said, no, David, that's not my concern. My concern is you're doing podcasts, TV shows, books. I knew his institutional history with the firm,

his importance to the firm. I said, I need to know you're gonna make your time available. And with Bill, the conversation was really one about intensity and I don't know what the language restrictions are on the podcast or anything like that. Let it fly. What was that? Let it fly.

So this is really not that flying. But I said to Bill in one of our first conversations, I said, hey Bill, what reservations do you have about me? And he said, we've heard you could be a bit of a hard ass. And I said- Too intense in other words, you're saying. Hard ass, whatever that meant. So I said, I prefer the word intense.

Actually, you're funny you say that. And he said, I think we need it. Now, that's not all the way I've approached this. I've approached it because you can't come in unknown other than, hey, you're some dude from Goldman Sachs. You have to come in and you have to build rapport with the people internally who are working hard, who have been here for decades. Right, it has no effect otherwise. If you walk in and you're hard ass day one, it's

like you just got here. No, and what do you know? Right, you need people to respect that you know what you're talking about first And so you've been you've been in for a year and a half. How would you grade yourself so far? On the hard-ass scale how hard? I think I've been a very delicate version of myself. Yeah, I think we've been able to Accomplish a lot when I look back over it I just met with one of our largest shareholders which is why I was a few minutes late for you guys. And he was listing out all the things we've done from addressing all the

pillars that would make a firm like this successful. So mobilizing teams into business growth, mobilizing the whole effort into growing our wealth franchise given we have one of the most recognized brands in the world, you know, working on driving and changing the incentive system, which is a very, very complicated thing to do in terms of aligning all of the capital commanders and the investors with our clients. So we've changed the carry protocols.

We've elevated people, new CFO, new heads of teams. I think that the positioning of the firm today is fantastic. I'm super proud of all the work that's been done. I'm really grateful for the founder's engagement. David's been all over the world with us. Bill and- You have his attention when you need him. Big client, big deal.

David, we need you in the room for this. Yeah, yeah, yeah. He's a huge shareholder of the firm and he loves doing it. I mean, the guy's indefatigable. I don't even really understand it. He, it's embarrassing, you know, like I'm 60 and he's 75 and like we'll be somewhere. And first of all, I don't understand how he stops and signs every autograph of where he goes. And then like we get to a staircase, I have a bad knee. He runs up the staircase. I think he's doing it just to set an example, which is, you know, but you want,

but the main thing you want from him in a professional sense is you want him to keep being him because he's an incredible emblem for the firm. Everywhere he goes, people love to hear from him and the connections, the contacts. Like you have to balance how many meetings do you really want him in versus don't you want him at Davos or whatever? So the good news is on the balance question, he'll do it all. So I have to spend a lot of time balancing it.

It's better with David in the room. I love it. I love it. And he brings a huge- Michael says that about me very often. No, no, no, no, no. I could see because he was self-reflecting there for a moment.

You didn't see his face. You might want to watch it on the show. No, I think that, hey, they're fantastic partners to work with. We're wholly focused on mobilizing this enterprise. And it's not just for them about the economics. These are super successful gentlemen. They created this thing. They are the largest shareholders. As I said, they own about 30% of the firm. But it you can say it's about legacy.

It's what they care about. I mean, they have huge interest. They're some of the most philanthropic people in the world. But their focus in helping me make our firm as great as it can be is, I'm really grateful for it. And they're fun to work with. And they're smart. I love learning.

You can learn. If you're on a plane with David Yeah. And they're smart. Like, I love learning you can learn you know, if you're on a plane with David and you want to know everything about the history of baseball, I don't think you know any about baseball and for both the both more or else but he knows everything about baseball now. Yeah. And so fantastic partners and friends. Can we talk about the fundraising environment? So $40 billion raised by Carlisle, you can correct me if I'm wrong over

the last 12 months. And this a little more, but good. Okay. So the source, the sources of capital, um, historically private investments have been for large institutional investors, sovereign wealth funds, and diamonds foundations, like large pools of capital. And that story has gradually shifted. It seems like it's reached a fever pitch, particularly this year. If you look at my inbox, the wealth channel, that is where a lot of the efforts are and attention is being paid. So can you talk about the transition from institutional investors to maybe where we're going,

where we are today? Sure, so of the many significant trends that will drive the evolution of capital formation, let's say for the next 10 or 20 years, this is probably the most significant. So, and a bit of this gets back to this transfer significant in terms of alternatives, if you want to call them alternatives,

they won't be called alternatives. Whatever we come up with name is the right name. It'll just be credit. It'll just be equity. And as a wealth client around the world, you will be selecting between various pockets of equity, various pockets of credit. And this evolution is very early days.

Top of the first. But the most significant trend affecting capital formation, I think for the next 10 or 20 years. So like I said, my inbox was fluxed out. And the story that I see, and correct me if I'm wrong, is that the institutional investors are there. If you have 40% of your portfolio in alternatives and private investments, whatever you want to call it, a lot of the juice has been squeezed. There also has been a lack of investment returned back to them over the past couple of years.

The environment for that has been very difficult. Now you see, holy cow, there's this $15 trillion pile of money that advisors manage or whatever. The number is, it's large and they're at zero effectively. It rounds down to zero. So the opportunity of the runway is very clear where this is going and I think you're right that it is just getting started. Even though it seems like oh my god there's a fever pitch. It seems like the tracks are being laid right now. Correct. This is like the early days of ETFs. And it will be as significant. We could also round and predict on exactly where it heads, how the capital formulates, when is it part of retirement plans, but all these things are likely quite

inevitable. But the big thing I think that gets lost in these discussions is it very often gets described as a US centric event. It's very much a global event, whether we're partners with someone in Korea or Japan or in the Middle East. And as you said, in some cases it's top of the first, some cases this is like pre-season. As I said, it's very difficult to predict 10, 20 year trends. This is a 10 or 20 year trend that's super powerful.

One of the things about wealth management in the modern era, I wouldn't call it a dirty little secret, but it's a little secret. People don't actually end up spending their money. They just keep it invested forever. They borrow against it before they'll spend it. And so as a result, there's a lot more room for illiquid investments in wealth management slash retirement accounts than maybe we had thought there was 15 years ago, 20 years ago. So if you think about the household wealth in this country

making record highs, the RIA channel alone is 7 trillion. Let's say the Wirehouse channel is closer to 5 or 6 trillion, just wealth management assets. Most of that money is not going to be spent down within the lifespan of the people who own it. It's inheritance, it's legacy. In that context, a 10% sleeve in illiquid assets, private assets, venture assets makes a lot more sense to people than it used to. And I think that's a really big part of why the trend is now becoming so apparent to everyone. So when I got here, I knew how important wealth was.

Carlisle hadn't prioritized it as its highest strategic priority. So we immediately flipped that. I know the Carlisle brand, one of the most recognizable in the world. I know the teams. We had a credit solution called SeaTac, which is the best of Carlisle credit in the marketplace, which is growing very, very quickly. Last year we launched Cap-M, which is a solutions product around secondaries, Co-Invest,

which has had very, very rapid adoption also. But for myself, I thought I should get close to this. So we have teams of people in the building that are actually calling the wirehouses, calling the RRAs and representing Carlisle. So I said, I want to cold call some of these people myself, which by the way, was super informative and kind of fun. Because when the 25 year old kid picks up the phone, I said, Hey, listen, I'm not kidding. I am the CEO. No, it was fantastic. Because you know, of course, they think I'm punking them.

Well, so who are you calling at the Wirehouse in that situation, for example, at somebody working on a team of advisors doing portfolio stuff? Correct. Okay. And that's the Michael Batnik of that team. So I would go and I would talk to them, should have called you, I'd talk to them and I would say, hey, tell me about how you think. I didn't really want to know about Carlisle yet.

I want to know how do you think about alternatives with your clients? And then I want to know what are your challenges, who's most effective with you? I walked into an office in California, wearing a sweatshirt and a pair of shorts. I walked up to the assistant, I said, it was a Morgan Stanley office.

I said, hey, is the manager here? I'd like to talk to the manager. She looked me up and down and said about what I said on the CEO of Carlisle. Do you know what Carlisle is? No. She said, hold on a second. He eventually came out. And he's like, what are you doing here? And I said, that was he holding the golf putter when he came out of his office? Or did he put that down? He's a actually a guy from New Jersey and probably golf. He had a

great life story. All about JB Hanner. It's amazing how many people know about these firms, by the way, in the industry. But in those conversations, what I really wanted to get to was understanding how they have to think about their client. Because a lot of what happens in our industry and a lot of the mistakes in our industry go back to product proliferation first,

then go to the client. And I really want to understand, how do, when you talk to your clients, to your point, the clients, the classic 60-40 portfolio can be in very liquid assets, often should be, but the allocation to a less liquid bucket at the margin, less liquid, makes a ton of sense on any mathematical expression. Having said that, what's right for an individual client is what I was trying to get at and

how could we be most helpful? I learned a ton through that and it was fun. So allow me to, if you would, look at this through the lens of a little bit of a skeptical eye. So back in the 80s and 90s when these private markets were being formed and there was very few players and the multiples that these businesses were required for were often single digits. You throw on some leverage and you're looking at really fantastic returns. Now, obviously, it looks a lot different. It's very competitive. The multiples for some of these companies is not too far from

where liquid private public markets are and all of the capital coming in has to push return expectations down a little bit compared to the returns that we've enjoyed over the last or institutional investors have enjoyed over the last three decades. When you hear that, because I'm sure you've heard this a million times, what's your reaction? I think absolutes are difficult to wed themselves to, but I think there's threads of truth in that for sure. Okay, so let's talk about why I think you're right. I think markets are ultimately always becoming more efficient. This is in the best interest of all market participants. Okay, because of all the things we talked about, the speed of communication, excess alpha is hard to sustain for a long period of time in any segment, any industry,

because things converge too quickly. So the question is, back to the way you described it, Josh, for an advisor working with a client who's accumulated a certain amount of wealth, whether they're thinking of a 10-year horizon, a 20-year horizon, or a 30-year horizon, the real question for them is, how do I compound those dollars over a period of time in a way that most suits the client, this will not be right for all clients. Many clients would just say, hey, I need the equity at all times just because it makes me sleep better at night.

And others might say, well, geez, that's a bad portfolio construction. When I almost, I thought about filing for bankruptcy when my daughter was two, I remember thinking I never want to have debt again. It took me a long time to get out of debt. A lot of people would tell me, if you looked at my portfolio, you'd say, you should have more debt, Harvey. Don't make a joke, you wouldn't.

So when you talk to the advisors, it's not about having the single best outperformance in an asset class. It's about having steady performance in a diversified way. And I think, again, back to the absolute nature of what you said, Michael, in 1998, when long-term capital happens, someone I have a huge amount of respect for was walking past me on the trading floor of Goldman Sachs and said, that's it, the hedge fund industry is over, no one's going to make any more money than hedge funds. By the way, it made sense to me. OK, 1999 to 2007 may be the most prolific growth

of hedge funds in history time, and they play a super important role in people's portfolios, but it's always competitive. So again, this is a case of what role should this play, flip it back to putting the client at the center of the discussion. Who should be themselves available to this? How should it fit into a portfolio construction?

How do you think about, and that's what advisors are doing. I've had many advisors say to me, Who should be themselves available to this? How should it fit into a portfolio construction? How do you think about it? And that's what advisors are doing. I've had many advisors say to me, I'm skeptical in the asset class. I like to keep my people in high yield bonds versus more private credit. And I've had many say this is so important to my clients that I have to have it as part of the toolkit. And I think that's totally reasonable.

I think a lot of clients, if I could push back against myself, push it back against you, a lot of clients would say, You lost me on the pushing. I like the illiquidity. Even if I'm, if I only- Is it behavioral benefit to not being able to raid your own account? If I only match public markets, but I don't have to see the marks and I can't do anything to shoot myself in the foot,

I'll pay for that happily. Oh, interesting. Yeah, I haven't thought about it that way. I think the marks and the transparency are really critical that clients understand that and have full transparency into their portfolios. But I do think there's, I'm certain there's a segment of those clients who say, listen, by putting something in a longer term asset class that at the margin is less liquid, that's really a robust enhancement of my portfolio and I want part of that. They're coming to 401Ks. I mean, I'm sure you guys are thinking about that. That's going to be a trillion, multi-trillion dollar unlock. It's going to happen. All that happened,

because it should happen, because why, if you're the largest pension fund in the world, the largest sovereign wealth fund in the world, should you have the flexibility across that spectrum? Sovereign wealth funds are doing it on behalf of their countries, pension funds are doing it on behalf of their beneficiaries. Why wouldn't an investor, an individual investor have the same flexibility to have that portfolio construction? Especially if it's long-term money anyway.

You're not accessing your 401k for 35 years in some cases. Makes a huge amount of sense for the client in the 401k portfolio. And it actually makes a huge amount of sense for those people who want long-term capital that we're providing capital to. So I'm being told, I'm being told we have time for one more. I just want to, I want to, I want to spend a second just looking at some of the superlatives of Carisle today and then just have you react to this.

I think we should take our time to go through this. I think we need to wrap it up. Okay. You guys, I mean, you guys are on fire. $447 billion, as we mentioned at the top. That's a 17% increase year over year. There's a metric, FRE, fee-related earnings, a record, $1.1 billion over the last 12 months. All time high.

That's a 33% gain. FRE margin is 47%. It's an 1100 basis point improvement. You guys have raised, we have 43 billion. Maybe that's not the exact number. 85 billion in dry powder, which is up 20% year over year. I have some investment ideas for you. Performance revenue up 30%. That's a

reflection of how well you're doing for your LPs, for your investors. Teams doing a great job. And then just generally speaking, it's a bull market for your asset class, but the resurgence of Carlyle even within that bull market is probably the most interesting story. You look at the publicly traded comps, everybody knows Blackstone at record highs has a bigger market cap today than BlackRock, which I think would be surprising to a lot of people. KKR edits the S&P 500. There's like a lot of great headlines about the space. I think you guys coming along and taking the storied brand and bringing it to wealth and globalizing it, etc.

It's pretty exciting. Yeah, well, I appreciate that. It's going to be a lot of fun for you to be in the... No, no, no, it's fantastic. The team's amazing. Being part of this, you know, the whole team coming together has been really fantastic and repositioning the firm for growth. Yeah.

And what you're starting to see of course is the numbers follow the performance and what the team is doing. I'm super proud of what they're doing. And I think it should continue to be reflected in the stock price because as this math translates into the marketplace, but it's a real privilege for me to be part of it.

And it's certainly been fun to be on the show with you guys, you're the best. Harvey, this has been one of the highlights for me personally of the year. I know Michael would agree with that. And I think our audience, if they could be here today, they would all say they appreciate hearing from you. Thank you so much for doing this.

Love to come back. Absolutely. What are you doing tomorrow? Josh, thanks very much. Tomorrow I'm working. Ellen, is he good tomorrow? Yeah. Thank you. Thank you very much. Thanks, Josh.

Michael, great to see you. Thank you. Thank you very much. Thanks, Josh. Michael, great to see you. Thank you. Thanks so much. Appreciate it.