At a towering 6-foot-4, with a black belt in karate, Harvey Schwartz cuts an imposing figure. But it’s his self-deprecating humor, people skills, and likeability—in a domain where most are quite buttoned-up—that has always struck Colleen Foster, a retired Goldman Partner who has known Schwartz for over two decades. She recalls how, as global cohead of Goldman’s securities division during the financial crisis, he navigated a delicate dispute involving a client who was concerned about potential risk from the troubled insurance giant AIG, but also protected Goldman’s business with AIG. The fact that AIG remained a Goldman client once the financial crisis ended was testament to the fact that Schwartz showed “incredible finesse managing client relationships,” Foster says. (Goldman and AIG declined comment.)
Schwartz will need to draw upon those considerable relationship-building skills—and quite possibly a fierce roundhouse kick—as he takes over one of the most powerful and closely watched jobs on Wall Street: CEO of Carlyle Group. He’ll start the job Feb. 15. Carlyle, the alternative asset management firm founded 35 years ago, has churned through three would-be leaders in recent years, but Foster for one thinks Schwartz has the leadership style that is critical for organizations in transition. Schwartz is demanding but fair, and will tell employees his views in a way that is clear and precise, Foster notes. “I found that to be much more helpful and not political,” she says.
William Conway, a Carlyle cofounder who has served as interim chief executive since August, said he was incredibly pleased that Schwartz, former president and co–chief operating officer of Goldman Sachs, has taken the job. Schwartz is a respected business builder with significant leadership experience in a high-performing, highly competitive global financial institution, Conway said on a conference call Tuesday discussing Carlyle’s fourth quarter results. The former Goldman executive is “a seasoned operator with a proven record of leading and developing a wide range of businesses and a demonstrated ability to invest in and develop the talent and organizational structure to manage and support these businesses,” Conway said, according to a transcript of the call.
Carlyle launched its search for a new CEO in August of 2022 after Kewsong Lee abruptly left. In early August, Lee was informed that Carlyle’s cofounders planned to become more involved with the company and its strategy, which Lee found unacceptable, according to the New York Times. For its new CEO, Carlyle wanted someone with a proven track record and experience building businesses, who could also manage, recruit, and train talent while working in a collaborative environment, Conway said Tuesday. “We were looking for somebody who could relate to people like you in Wall Street and tell our story, a wide range of skills. And frankly, there aren’t a lot of people who have all those skills,” Conway said on the call.
Schwartz is well known on Wall Street. He was a contender to take over for Lloyd Blankfein, Goldman’s longtime CEO who stepped down in 2018. David Solomon, who competed against Schwartz for the position, succeeded Blankfein as chairman and CEO. On Tuesday, Conway reminded analysts that Schwartz helped govern Goldman during the global financial crisis of 2008. Schwartz spent two decades at Goldman, including holding roles as CFO, as well as president and co–chief operating officer. Schwartz had “to deal with situations that were risky and yet had great opportunity,” Conway said.
On Tuesday, Carlyle reported distributable earnings of $433 million in the fourth quarter, less than half of the $902.8 million it posted for the same time period in 2021. Total assets under management grew 24% to $373 billion as of Dec. 31. On Thursday, the stock lost more than 3% to end at $34.33.
One thing Schwartz will focus on is boosting Carlyle’s lagging stock price, Conway said. A broad market contraction, along with recession fears, rising interest rates, and inflation have caused the shares of many public alternative managers to decline last year. Carlyle’s stock is one of the worst performing, falling more than 27% over the past 12 months. By comparison, Blackstone’s shares were down about 26% for the 52 weeks, while KKR was off by more than 8%. Apollo Global Management, meanwhile, was up 4% for the time period.
Carlyle’s stock actually performed well under Lee, gaining 63% during his tenure, according to a Fortune analysis. Before that, the stock floundered. Carlyle went public at $22 a share in 2012 and ended Dec. 29, 2017, the Friday before Lee and Glenn Youngkin took over, at $22.90—meaning Carlyle’s stock gained a mere 90 cents as a public company led by the founders.
One reason Carlyle has lagged the other public alt managers is its AUM, or assets under management. From 2012 to 2017, when the firm was controlled by its founders, Carlyle‘s AUM grew a mere 15% to $195 billion as of Dec. 31, 2017, according to regulatory filings. This lackluster AUM added to the perception that Carlyle was a slow-growing public alts business, according to one analyst who declined to speak on the record.
Carlyle’s AUM only really gained momentum when Lee was in control, increasing 22% to $301 billion in 2021 and 24% to $373 billion in 2022. This compares to other public alt managers like Blackstone, whose AUM more than doubled between 2012 and 2017. Since 2017, Blackstone’s assets under management have increased 124% to its current $974.7 billion, according to its Q4 2022 earnings announcement. Some of Lee’s earlier efforts to diversify Carlyle’s business also appear to be bearing fruit. About 44% of Carlyle’s $373 billion in assets under management came from global private equity in Q4 of 2022, down from 54% in the same quarter a year earlier. Credit doubled to $146 billion, and now accounts for 39% of Carlyle’s AUM, up from about 24%. Global investment solutions, which includes private equity asset manager AlpInvest, dropped 5% to 17% of Carlyle’s AUM. Curt Buser, Carlyle’s interim CFO, said he was really proud of “the diversification across the platform and deployment.”
Fixing Carlyle’s stock price is a major factor in Schwartz’s hefty pay package. Once he takes charge in mid-February, the CEO’s annual base salary will be $1 million with a target annual bonus opportunity of $3 million. He has a five-year stock incentive package that is valued at more than $180 million, according to an SEC filing. This includes $108 million in performance-based restricted stock units, or PSUs, and $72 million in time-based restricted stock units that vest in five equal tranches between 2024 and 2028. (Schwartz’s $180 million pay package is less than the $300 million that Lee was seeking.)
But to earn the full $108 million in PSUs, Schwartz must get Carlyle’s stock price to increase by set amounts each year for the next five years. For example, Carlyle’s stock price must grow by 25% from the so-called starting share price, which hasn’t been determined yet, in 2024. The next year, Carlyle’s stock price must increase by 50% from the starting share price, and then by 70% in 2026. By the end of the vesting period, in 2028, Carlyle’s stock price must have increased by 110%, according to the regulatory filing.
“We’ve got a great investment track record that doesn’t show up in our stock price,” Conway said on the call. And his mandate for Schwartz was clear: “We have to grow our business. We have to grow our business.” Conway, however, didn’t provide much guidance on how the new CEO should go about boosting shares. Schwartz has yet to take office and needs time to settle in, a person familiar with the situation said.
Succession has always been a big issue for private equity firms, with the aging founders of some firms refusing to hand over the reins to a younger generation. Carlyle was one of the first of the major public firms to set out succession plans but has had problems retaining its chosen leaders. First, there was Michael Cavanagh, former cohead of investment banking at JPMorgan Chase and a top Jamie Dimon lieutenant, who joined Carlyle in March of 2014. Cavanagh was named copresident with Glenn Youngkin, then a 19-year Carlyle veteran; the two execs were anointed the future of Carlyle. Cavanagh lasted a little over a year before he left Carlyle in May 2015 to become CFO of Comcast. He was named president of Comcast in October.
Carlyle in 2017 then named Kewsong Lee and Youngkin as co-CEOs. Lee, at the time, was a relative newcomer to Carlyle, joining the firm in 2013 as deputy chief investment officer for corporate private equity. In 2016, Lee took on leadership of global credit and added the title. But Youngkin retired from Carlyle in 2020 and, a year later, was elected governor of Virginia. This left Lee as sole CEO of Carlyle. His tenure was also short, and Carlyle announced Lee’s departure in August.
Carlyle was looking for a strong-willed, but reasonable executive to replace Lee, whose “sharp elbows” sometimes ruffled feathers, Fortune has reported. Schwartz also has a very direct approach and is very detail oriented, two people who have worked with him said. The former Goldman executive focuses more on performance from his employees and “does not take playing politics well,” one of the people said. Schwartz was also inclusive of women at Goldman during a time on Wall Street when many investment banks were not, the retired Goldman partner Colleen Foster noted. He continues to maintain close relationships with many former Goldman female partners, she added.
Since leaving Goldman, Schwartz was rumored in 2019 to be eyeing the top job at Wells Fargo, which is based in San Francisco, but he didn’t want to move. Schwartz will remain in New York as Carlyle’s leader but will travel often to the firm’s headquarters in Washington, D.C., as well as other offices, the person familiar with the situation said. (Kewsong Lee, Carlyle’s last CEO, also stayed in New York.) He currently serves as group chairperson and nonexecutive director of The Bank of London, a clearing and payments bank, and is on the board of fintech SoFi Technologies and One Mind, a nonprofit.
One issue Schwartz will face is how to handle Carlyle’s cofounders: Bill Conway, David Rubenstein, and Daniel D’Aniello. All three executives sit on the Carlyle board and collectively own 26% of the firm. Lee, during his tenure, sought to diversify Carlyle’s business mix beyond private equity, which angered the cofounders, who felt that they hadn’t been adequately consulted, Reuters reported. “His biggest challenge is that the three founders still try to pull the strings,” one private equity executive said.
Conway, during the Tuesday conference call, tried to allay fears that the cofounders would meddle. “[Schwartz] will be CEO of the company. And I’m going to do everything I can to help him be successful and—including staying out of his way, if that’s the right part of the solution. I can’t tell you how happy I am that he’s here,” Conway said.
Interestingly, Conway noted that Schwartz was Carlyle’s first choice and that he was “unanimously chosen by the board.” Carlyle reached out to several Wall Street executives to fill the position including Gary Cohn, a former president of Goldman, and Mary Erdoes of JPMorgan Chase, who is seen as a possible successor to CEO Jamie Dimon, the New York Times reported. Fortune reported in October that Peter Clare, Carlyle chief investment officer for corporate private equity and chairman of Americas private equity, and Mark Jenkins, head of global credit, were two internal candidates vying for the CEO position. (Clare also sits on Carlyle’s board but doesn’t appear to have hard feelings. On Wednesday, Clare led a call to Carlyle’s 500 investors and was “super excited and happy” for Schwartz, the person said.)
While Carlyle may have found its new CEO, the future for former CEO Kewsong Lee is unclear. The executive’s noncompete agreement with Carlyle ended Dec. 31, which means Lee is now free to fundraise—or enjoy retirement.
Correction: This story has been updated with the correct percentages Carlyle’s stock must rise in order for Schwartz to maximize his pay package.
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