Carlyle Group, the Washington-based private equity firm with a reputation for hiring political heavyweights, snagged an industrial celebrity yesterday when it announced that former IBM chief executive Louis V. Gerstner Jr. will become its chairman.
Gerstner will succeed Reagan administration defense secretary Frank C. Carlucci on Jan. 7, and Carlucci will become chairman emeritus.
Credited with restoring International Business Machines Corp. to its position as an icon of American business, Gerstner, 60, retired as chief executive of IBM in March.
He was "a once-in-a-lifetime figure" to bring to Carlyle, said Carlyle co-founder David M. Rubenstein.
He is also a change for a 15-year-old firm that gained fame through its association with major political figures: Former president George H.W. Bush is a senior adviser to Carlyle, and former British prime minister John Major heads its European arm. Other luminaries in various roles include former secretary of state James A. Baker III, former Securities and Exchange Commission chairman Arthur Levitt Jr., former White House budget chief Richard Darman and former FCC chairman William E. Kennard.
Putting Gerstner at the head of the table "certainly distances them a little more from their image as some sort of quasi-political institution," said David Snow, editor in chief of PrivateEquityCentral.net, an online newsletter that tracks buyout firms.
Carlyle, founded in Washington in 1987, has charted an eccentric course to become one of the nation's largest merchant banks, buying and selling companies around the world.
It stayed apart from the New York financial scene and used the access and knowledge of its political heavyweights to sniff out good business deals -- usually in regulated industries such as defense and telecommunications.
By running its companies for only a few years and then selling them at a profit, the firm has a 36 percent rate of return.
Today Carlyle manages about $13.9 billion for private investors.
Carlyle officials resent being viewed as a stud farm for statesmen, siring fortunes merely through political connections.
"We would like to get away from the distractions of people sort of using that as an old chestnut that keeps on coming up," one Carlyle source said, acknowledging that Gerstner's presence ought to help reshape public perception.
But it's more than image that Gerstner brings to the firm. As he details in the recently published book "Who Says Elephants Can't Dance?," Gerstner spent nine years leading IBM and rescued it from the brink of collapse.
He retired in March as chief executive and will step down at the end of this year as chairman of IBM's board.
Gerstner has said in interviews that he retired early because he wanted to do other things in life, including studying Chinese history at Cambridge University.
Gerstner has agreed to commit about 20 percent of his time to Carlyle, the company said in a news release.
"This is an exciting time to be in private equity, and I look forward to sharing my perspective and experiences with Carlyle and, most importantly, helping to grow its already successful business," Gerstner said in the release.
His personal connections will give the firm access to "a tremendous amount of people in the business world, especially in the big Fortune 100 companies, which are currently in the process of shedding divisions" that Carlyle might want to buy, Snow said.
He added that Gerstner, who before going to IBM spent four years running RJR Nabisco Inc., will also supply valuable expertise in streamlining the companies that Carlyle purchases.
Carlucci, 72, who joined Carlyle in 1989 and became chairman in 1993, led the firm through a lucrative run buying defense companies and expects to remain in an active role, sources said.