(Bloomberg) -- By Glenn Youngkin’s account, Virginia and its economy are “in the ditch.” So much so that he gave up his dream job atop Carlyle Group Inc. to get the state back on track.
The Republican nominee for governor is now ubiquitous on TV and the internet, driving home the opening pitch of his candidacy: “I’ve spent the last 30 years building business and creating jobs, leading a team of nearly 2,000 people who trusted me to get things done.”
Yet people close to the private-equity firm have been chafing over the picture Youngkin paints of his investing acumen and the circumstances of his departure. In his final decade there, he shepherded several bets and strategies that chalked up losses, and some of them are still being unwound.
After Carlyle’s founders gave him a shot at co-running the firm in 2018, he flamed out. In an industry where leadership teams work together for decades, his co-CEO quickly established dominance, diminishing Youngkin’s clout.
Youngkin, 54, exited Carlyle in September and quickly became a name in conservative politics, railing against abortion and critical race theory, and vowing to stand up for the Second Amendment and election security. His take on Virginia’s economy is dire, faulting Democrats for raising taxes and overzealously restricting commerce to fight Covid-19.
“You know Tucker, this is why I quit my job last summer,” Youngkin told Fox News host Tucker Carlson in May. “I actually could not recognize my home state of Virginia.”
But at Carlyle the circumstances of his exit aren’t really a secret: He retired after a power struggle that left him in charge of more modest businesses. Current and former employees, asking not to be identified discussing internal business, describe a checkered record at odds with his campaign’s portrayal.
In the past decade, Youngkin was responsible for troubled forays into hedge funds and energy investments, they said. He also oversaw a push into infrastructure projects that dogged him, as a $2.2 billion fund for clients struggled to make deals.
Former colleagues have been bracing for his run to not only spotlight Carlyle’s past controversies -- akin to what Mitt Romney’s presidential run did to Bain Capital -- but for it to also dredge up missteps by Youngkin and managers he oversaw.
A company spokeswoman declined to comment for this story.
Early last week, Bloomberg sent a list of dealings described in this article to Youngkin’s campaign, which offered a broad response.
“No investment Glenn Youngkin ever led as the key Carlyle principal ever lost money, and many of them are among Carlyle’s best investments,” said Devin O’Malley, a campaign spokesman.
“In the race to be Virginia’s next governor, there is only one candidate that worked his way up to the top of a company and helped grow it into a hugely successful enterprise that turned good businesses into great businesses, helped create tens of thousands of jobs and funded the retirement pension of police officers, firefighters and teachers, and that candidate is Glenn Youngkin,” O’Malley said.
That pitch helped Youngkin rise to the top of Virginia’s Republican primary this year. Heading toward November’s election, polls show he’s in a competitive race with his opponent, former Governor Terry McAuliffe.
Democrats have sought to use Youngkin’s tenure at Carlyle against him, assailing businesses practices such as its willingness to invest in China, to make the case that his campaign rhetoric doesn’t reflect his past. He has tried to minimize the scale of those dealings. Recently, McAuliffe focused on tying Youngkin to former President Donald Trump, who lost the state by 10 points in 2020.Trump endorsed Youngkin last month in a news release: “Glenn has been an incredible success and will truly make Virginia great again.”
By one measure, Youngkin’s success is hard to argue. His net worth stands at more than $500 million, according to the Bloomberg Billionaires Index, which analyzed his earnings after Carlyle’s 2012 initial public offering. A filing shows he owns 1.9% of the company’s stock. The stake accounts for the bulk of his estimated wealth.
Youngkin couldn’t have timed his arrival at Carlyle better: The former college basketball player and Harvard Business School alumnus was still in his 20s when he joined in the mid-1990s as the firm was getting traction. That enabled him to share in the collective gains of Carlyle’s private-equity funds over three decades. It’s possible he amassed significantly more wealth outside of public view in the 17 years before the IPO.
The firm’s founders -- Daniel D’Aniello, David Rubenstein and Bill Conway -- created something of an oddity in the Wall Street-centric world of private equity: A Washington-based firm with connections across the political spectrum. Executives have long set aside partisanship in the mutual pursuit of profit. In interviews, colleagues who agreed and disagreed with Youngkin’s conservative views shared similar assessments of his tenure.
He wasn’t seen as a natural dealmaker, but he had the capacity to absorb an immense amount of information and speak about it coherently. People close to Youngkin say he was process-oriented, having studied engineering. So as he climbed the management ranks, much of his attention was on day-to-day operations.
He typically didn’t lead blockbuster transactions, such as the takeover of doughnut giant Dunkin’ Brands Group Inc., focusing instead on other investments and growth initiatives.
One of his biggest deals for Carlyle was 15 years ago, when he handled its participation in the more-than $20 billion buyout of pipeline company Kinder Morgan Inc. The purchase -- drawing on a consortium of investing titans assembled by Goldman Sachs Group Inc. -- almost tripled Carlyle’s money in half a decade.
“He was an extremely capable businessman, providing real service to me as a trusted adviser,” company founder Rich Kinder said of that era.
In 2014, Youngkin rose to co-president, taking the lead on new efforts to expand beyond Carlyle’s core private-equity franchise. Rivals such as Blackstone Group Inc. and Apollo Global Management Inc. already were moving aggressively into new businesses like real estate and insurance.
As part of Carlyle’s expansion, Youngkin oversaw tie-ups with two fund-of-fund businesses.
The more successful one was AlpInvest, which customizes private-equity investments in separately managed accounts. AlpInvest’s assets under management climbed 39% to $61 billion by the end of this year’s first quarter from when Carlyle acquired a stake in 2011. It’s the key piece of the investment solutions group, a segment contributing a relatively modest stream of earnings -- just over 5% of the firm’s total last year.
The other initiative -- the $49 million purchase of hedge fund allocator Diversified Global Asset Management -- turned into a dud. After about two years, with assets down more than 30%, it was shuttered. Carlyle ended up writing off the holding.
Youngkin also oversaw Carlyle’s roughly half-billion-dollar stake in NGP Energy Capital, a Texas-based investment firm. The initial $393 million holding started under Youngkin in 2012 and later grew, giving Carlyle around half of NGP’s management fees, and an option to take a similar share of performance fees, known as carried interest, on the company’s new and future funds.
Carlyle spent $61 million to exercise that option for NGP’s 10th fund in 2014, a move that quickly proved costly. By the end of that year, the bet on NGP’s prowess had taken a $39 million bite out of Carlyle’s fee income -- enough that executives had to forfeit compensation they were previously awarded. That rankled the firm’s insiders.Things didn’t improve. NGP’s assets declined by more than $2 billion. By the end of last year, Carlyle had yet to reap carried interest from the NGP funds. NGP’s first nine funds, before Carlyle invested, had all generated those fees.
Carlyle’s founders, meanwhile, were having trouble finding a new leadership team to take over as they stepped back. A number of potential candidates -- such as prominent JPMorgan Chase & Co. executive Michael Cavanagh -- came and went.
Youngkin figured into the discussions: He’d grown up inside the firm, helped it expand to Europe and was uniquely steeped in Carlyle’s operations and culture. Yet the founders recognized they needed someone with strong investing chops who could ensure big returns.
They ultimately paired him with Kewsong Lee, a sharp-elbowed and decisive dealmaker who quickly became more dominant. He took control of the firm’s most prominent businesses, including private equity and credit investments. Youngkin was left with smaller lines, such as European real estate. A number of groups under him struggled, and some longtime employees who ran them left to pursue other opportunities.
The infrastructure push haunted Youngkin. The fund that Carlyle raised in 2018 struggled to move large deals forward, such as the redevelopment of Terminal One at New York’s John F. Kennedy Airport. According to Carlyle, the fund had invested just $466 million as of last December, when a new head was brought in.
One customer, the Teacher Retirement System of Texas, said it was told the fund had a negative return of 51% at the end of 2020.
That year, Youngkin confided in colleagues that he felt he had little choice but to leave as co-CEO Lee continued to strengthen his grip. When announcing his departure, he told employees that he wasn’t sure what he would do next.
Youngkin’s decision to run for governor wasn’t a surprise to those who know him. Before Carlyle’s founders decided to give him a chance as co-CEO, he spent months meeting with advisers and business leaders in Virginia to explore the possibility of entering politics. But he dropped that when he got the promotion.
As the pandemic took root last year, Youngkin and his wife, Sue, founded a nonprofit focused on helping unemployed Virginians find work.Their family lives in a seven-bedroom home purchased for $1.7 million in Great Falls, an affluent suburb near Washington. The couple founded a local church, Holy Trinity. They donated $11 million in property to their personal foundation, which in turn rents to the church for $1 a year, according to filings.An additional $11.7 million of property in Virginia was donated through the foundation in 2016, and is home to Meadowkirk at Delta Farm, a retreat space “guided by Christian principles and biblical calls to action to serve.”Youngkin is expected to spend millions of his own dollars on the governor’s race. The election will decide whether he moves into a different mansion or McAuliffe becomes the first governor to be relected since 1974 in a state that doesn’t allow consecutive terms.
“Virginia is being tested,” Youngkin said in a campaign video as he emphasized his business credentials. “What we need isn’t a politician.”
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