Exclusive / ‘Washington is the center of it all’: Carlyle embraces its roots

Carlyle was founded in 1987 in Washington as the sole buyout shop in a town that regarded finance as something that happened in New York, where Henry Kravis and Stephen Schwarzman were becoming stars. David Rubenstein had left the Carter White House and, finding life as a lobbyist humiliating, teamed up with Bill Conway, a former executive at telecom giant MCI, and Daniel D’Aniello, a dealmaker at Marriott, to launch a buyout firm.

Carlyle’s DC origin story has been slightly flattened by time. Its name was inspired by the New York hotel, deemed venerable enough to give the new outfit some heft, and its first swing at a leveraged buyout was for Chi-Chi’s, the Mexican restaurant chain, in 1987. But by the early 1990s, it had seized on a defense industry in chaos. Pressure from the Pentagon was forcing a wave of consolidation and asset sales. Carlyle pitched itself as a local hero in contrast to New York hustlers and greenmailers, replacing its backing from Drexel Burnham’s junk-bond king, Michael Milken, with money from blue-chip names like the Mellon family.

Aided by the connections of former Defense Secretary Frank Carlucci, who joined Carlyle in 1989, the firm snapped up pieces of Ford Aerospace, General Dynamics, and electronics giant Philips. Those deals performed far better than Carlyle’s early bets on real estate, radio stations, and, memorably, an airline-services company called Caterair whose subsequent debt default gave it the nickname across Wall Street of “Craterair.”

Carlyle leaned into that success and within a few years was among the 25 largest defense contractors in the world, Michael Lewis wrote in a 1993 profile titled “The Access Capitalists.” That same year it took up office space on Pennsylvania Avenue, a few blocks from the White House, which it still occupies, and hired political heavyweights including former Treasury Sec. James Baker and George H.W. Bush as advisers. The younger Bush served on the board of a portfolio company, as did Robert Gates between his stints as CIA director and defense secretary. Jerome Powell, who was until May chair of the Federal Reserve, and former Virginia Gov. Glenn Youngkin both worked at Carlyle. Colin Powell flirted but never joined. It parlayed its success in defense to other industries that either benefited from, or answered to, the federal government, like healthcare and contracting consultants.

But by the 2010s, private equity was globalizing and supersizing. Carlyle went public in 2012, following Blackstone and KKR. IPOs brought new pressures: to keep shareholders happy, asset managers needed to be big, global, and active in investment strategies far from their roots in corporate takeovers. Shareholders judged them against each other, encouraging a kind of sameness as the business model shifted from niche specialties to running investing superstores.

Apollo had pioneered a new credit and insurance business that was quickly overshadowing its LBO business. Blackstone was the first to push into retail as a new way to raise money. KKR had done a bit of both, and Carlyle risked losing its place in the industry’s top tier.

Enter Lee, who became Carlyle’s co-CEO in 2018 and took the full reins after Youngkin launched his campaign for Virginia governor. He turned Carlyle into the world’s largest manager of CLOs, securities made from bundled loans, and copied Apollo’s move into insurance with the acquisition of Fortitude Re.

Lee saw the firm’s Washington roots as a provincial ankle weight to competing in this new world, according to executives who worked closely with him. It was a running tension with the firm’s cofounders — one that Lee put a defiant exclamation point on by moving Carlyle to Manhattan’s One Vanderbilt tower, then the most expensive and luxurious commercial address in the city.

Carlyle insists the firm’s operations never changed much under Lee. Defense companies have accounted for about 15% of its US buyouts for years, a spokeswoman said. But its public identity had shifted north. Lee, who left in an acrimonious split in 2022, declined to comment.

Schwartz took over in 2023 and axed any business in which Carlyle wasn’t or couldn’t be top-three. That included retail buyouts, where it had made big investments but scant profits in beauty, pet care and software. Defense — and DC — were obvious places to double down.

In addition to its DC hires, it is raising its first defense fund focused on midsized companies, targeting up to $3 billion, people familiar with the matter said. It brought on Bryan Fenton, the former head of US Special Operations Command, and last month it struck its first deal from that effort. The firm is busy scouting for companies positioned to benefit from the Pentagon’s keenness to boost defense spending and find new ways to pay for it.

“There are times you just know the government’s ears are pinned back,” said Brian Bernasek, Carlyle’s co-head of private equity and head of its Washington office. “You can feel it here [in Washington], you see it real time and that will inform how we invest.”

Ian Fujiyama, Carlyle’s head of aerospace and defense, added: “We’ve never seen this force of will we’re seeing now” to change the way America pays for war. “There’s a real role for private capital to play.”

That’s been an advantage in dealmaking. Carlyle wasn’t the highest bid for Exiger, which maps global supply chains, in 2023, but won the acquisition with a better plan for using its Washington network to grow the company, a person familiar with the matter said.

“They understand government purchasing and procurement, funding cycles and licensing cycles,” Exiger CEO Brandon Daniels said, declining to comment on the sale process. “Not only do they understand it, but they know they can make money understanding it better than others.”

Daniels credits Carlyle’s connections with his being invited to Trump’s 2025 trip to the UAE and Qatar, alongside executives from Microsoft, Google, and other US corporate titans. “We wouldn’t have been a part of that if it wasn’t for Carlyle,” he said.

He’s fuzzier, citing national security, on exactly how Exiger became a key player in the US’ efforts to one-up China and protect American companies’ supply chains for critical inputs. But he showed up late to a dinner Schwartz was hosting last summer with a good excuse: He’d spent the day in the Situation Room, helping administration officials respond to China’s threat to withhold rare-earth minerals.

Carlyle’s pivot back to Washington has come with none of the star-spangled, MAGA-tinged moves of companies like Meta and Amazon to boost their DC cred. It didn’t write a check to Trump’s inauguration festivities or ballroom, and its most public gesture toward the 250th anniversary was Rubenstein acting as tour guide for guests of the new Lincoln Memorial Museum, to which he donated $18.5 million. (His name also adorns wings at the National Archives and the Library of Congress, as well as the National Zoo’s panda habitat — which features occasionally in the newsletter he started writing in 2025, part of Schwartz’s push to boost the Washington fixture as an ambassador for the firm. Rubenstein is an investor in Semafor.)

Fujiyama spent a chunk of our interview talking up investments in Europe’s defense sector, where Carlyle sees a €9 trillion opportunity. That’s a potentially lucrative space as Europe ramps up military spending, but not one engineered for fawning praise from the White House.

“We’re trying to invest for decades-long themes, as opposed to just capitalizing on what any one administration is doing right now,” said Steve Wise, Carlyle’s co-head of private equity.

That partisan restraint will look smart when the political pendulum swings, whether at the midterms or in 2028. Democrats have pledged to investigate companies that have tried to curry favor with the Trump administration, and some of corporate America’s cringier pivots will not age well.