San Francisco Chronicle
Sunday, December 2, 2001
CalPERS, Carlyle profit from Afghan war
As America's military involvement abroad deepens, profits are increasing for the Carlyle Group -- and, it turns out, for thousands of California civil servants.
The Carlyle who, you ask?
The Carlyle Group, as in a secretive Washington, D.C., investment firm managing some $14 billion in assets, including stakes in a number of defense- related companies.
Carlyle counts among its chieftains former Defense Secretary (and deputy CIA Director) Frank Carlucci, former Secretary of State James Baker and, most notably, former President George Bush.
Until October, the Carlyle Group also maintained financial ties with none other than the family of Osama bin Laden, but those links were severed when it was agreed that the relationship was becoming a tad embarrassing for all concerned.
What is not well known is that Carlyle's profits also benefit the 1.2 million members of the California Public Employees Retirement System, or CalPERS, the largest public pension fund in the United States.
CalPERS has about $730 million invested in Carlyle itself and in various Carlyle funds. It owns 5.5 percent of the Carlyle Group in a minority equity stake and has an option to double that holding during the next two years.
"We're not too keen on discussing anything related to the political nature of the people at Carlyle," said Pat Macht, a spokeswoman for the fund. But she noted that "Carlyle is among the top five largest private equity partners of CalPERS."
Senior Carlyle officials are scheduled to brief CalPERS' investment committee later this month in Sacramento on the performance of the company's assets.
The Carlyle Group has cultivated and enjoyed a decidedly low profile for the past 14 years. Yet it has succeeded in attracting to its ranks not just a who's who of Republican bigwigs but also a dazzling array of international politicos.
John Major, the former British prime minister, is a Carlyle adviser, as are former Philippine President Fidel Ramos and former Thai Premier Anand Panyarachun. So is a former president of Germany's Bundesbank and a former head of the U.S. Securities and Exchange Commission.
Connected? That's an understatement where Carlyle is concerned.
And because the Carlyle Group remains privately held, it is not required to disclose details of its investments or business activities. It is commonly known, though, that the firm favors the defense and aerospace sectors, with a wide array of investments in Pentagon affiliates.
"Their defense holdings are quite extensive," said Tom Fitton, president of Judicial Watch, a Washington public interest law firm. "Because of their investments, they are a major contractor for the Pentagon."
Among Carlyle's holdings is United Defense Industries, a maker of armed vehicles and weapons, which filed in October to raise up to $300 million in an initial public offering of its shares.
Judicial Watch filed suit last week to obtain documents shedding light on Carlyle business activities undertaken by President Bush's father, who reportedly met with bin Laden's family in Saudi Arabia at least twice prior to the Sept. 11 attacks. He also has had dealings with a variety of foreign governments.
"The appearance is awful," Fitton said. "For the father of our current president to be doing business with foreign governments, there is a clear conflict of interest."
Carlyle spokesman Chris Ullman said the elder Bush does little more than give speeches on Carlyle's behalf when abroad and does not call up his son to lobby for Carlyle's business interests.
Ullman also said there is nothing improper about the Carlyle Group's phenomenal political connections throughout the world.
"These are all former government officials who have chosen to team with us in various capacities," he said. "I stress the fact that they are former government officials."
Critics of the Carlyle Group have grown increasingly vocal in recent weeks, particularly over the perception that a private organization with unmistakable links to the White House is benefiting from America's military action in Afghanistan.
Because the Carlyle Group is partly owned by CalPERS, the company's fortunes are shared not just by the political elite -- is there really such a thing as a former politician? -- but also by hundreds of thousands of California bureaucrats and school officials.
CalPERS' investment in Carlyle has steadily earned between 20 and 30 percent per year in returns -- not too shabby considering the recent performance of publicly listed companies.
On the other hand, CalPERS is watching closely now that the Carlyle Group has quietly become a player in Bay Area real estate circles -- a move that could cost the company a bundle following the implosion of commercial property values.
In San Francisco, Carlyle bought and subsequently sold a 25-story office tower at 180 Montgomery St. The company also bought and rapidly discarded office space in Pleasanton and Redwood City, and recently acquired additional office space in Sunnyvale, San Jose, Brisbane and Mountain View.
"We've been pretty busy," Ullman said of Carlyle's Bay Area real estate deals.
As for CalPERS, he said the Carlyle Group values its relationship with its California co-owners.
"Their participation is very important to us," Ullman said. "They're an important part of our team. We're going to do our best to make sure their money is invested wisely."
And in light of current events, CalPERS has every reason to expect the returns to be enormous.