The Carlyle Group

[reprehensor]

Carlyle's Way

GNN: What is the Carlyle Group and how did it start?

Briody: The Carlyle Group gets its name from the Carlyle Hotel in New York City. The founders believed that the name Carlyle portrayed some kind of blue blood, silk stocking air of an old-school kind of investment house and so the Carlyle Group was born from the Carlyle Hotel in New York.

The Carlyle Group actually started through a tax loophole - something called the Great Eskimo Tax Scam, that's what the company calls it today. The Tax Scam was essentially that Eskimo owned companies in Alaska were allowed to sell their losses to profitable companies in exchange for cash. The profitable companies would buy these losses then write them off their taxes and give a fraction of those losses to the Eskimo-owned companies who obviously needed cash. So a guy named Stephen Norris was a tax accountant essentially at Marriott Corporation, looking to exploit this tax loophole for Marriott and in so doing, he needed to find someone who could hook him up with Eskimos - Native Americans in Alaska, and he was able to find a guy by the name of David Rubinstein who was an aide in the Carter administration and who was renowned for his bulky rolodex.

If you needed to find someone or know someone, David Rubinstein was the guy to go to. So Stephen Norris and David Rubinstein hooked up and worked a deal for Marriott and Stephen Norris realized that this was a serious money making opportunity and that he was going to go into working this tax loophole full time, which he did, along with David Rubinstein, and they probably put close to a billion dollars through this tax loophole and took a 1% cut on all the transactions and were able to make a nice little cottage industry out of this tax loophole. The two of them used to meet often at the Carlyle Hotel here in New York and when they decided to incorporate, Norris wanted the company to have a sort of silk stocking air to it. He wanted to have a very blue blood feel to their private equity firm and since they met at the Carlyle Hotel a lot, he decided that should be the new name of the company and then the Carlyle Group was born…

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