Sarkozy Discusses Carlyle Move
The banking star's move to private equity comes amid a shakeup in the financial services space - an upheaval that Sarkozy believes presents an opportunity for investors
April 2008
Olivier Sarkozy's move to The Carlyle Group from UBS contains a hint of irony. On April 1, he'll be joining a team that includes FIG banking star Keith Taylor, the former Goldman Sachs and JPMorgan banker, who joined Carlyle late last year. Sarkozy had worked with Taylor on SunTrust Bank's $7 billion acquisition of National Commerce Financial, and thought enough of him to try to recruit Taylor to work for him at UBS. In his pitch, Sarkozy says, he wanted to "convince him to stay in investment banking."
Of course, he didn't realize at the time that he'd soon be following Taylor to private equity, and more specifically, working with him in the same group at Carlyle. "He proved himself to be smarter than me," Sarkozy says with a laugh.
Appointed as a co-head of Carlyle's recently formed financial services investment group, Sarkozy will work out of the private equity firm's New York office and work closely with David Zwiener, the global financial services group's other co-head. Carlyle formed the team, now comprised of nine professionals, in June 2007. Besides Sarkozy and Zwiener, the division includes David Moffett, who used to be vice chairman and chief financial officer of U.S. Bancorp; Randal Quarles, a former U.S. Treasury undersecretary for domestic finance; and John Redett, with whom Sarkozy worked at Credit Suisse First Boston.
To Sarkozy, it doesn't feel like a fledgling effort. "I feel extremely comfortable with the people Carlyle has and I think we'll be able to hit the ground running without having to be distracted by building a team or infrastructure," he says. "Depending on the size of the opportunities that ultimately manifest themselves, we may need to selectively add to the team, but I view that as a small part of what we have to do."
At UBS, Sarkozy was joint global head of FIG investment banking. He is maintaining his affiliation with the Swiss bank through an advisory role.
UBS has strong ties to Carlyle, in part because its wealth management division is one of the largest distributors of Carlyle's feeder funds. Despite Carlyle's relationship with UBS, Sarkozy says he only began closely interacting with co-founder David Rubenstein and other senior partners just weeks ahead of their recruitment.
"Historically, private equity just wasn't that prevalent a component of what we did here in FIG because the environment wasn't conducive to it," he says. The situation is changing, however, and that metamorphosis is one of the reasons Sarkozy decided to make the leap to Carlyle.
Sarkozy describes that the asset class has only recently started to target assets in the space, representing a marked shift versus past years. Indeed, a number of Carlyle's competitors have pursued deals in the sector. Blackstone Group, for instance, acquired Alliant Insurance Services last August in a $1.17 billion deal. The firm also lured former Deutsche Bank managing director Vikrant Sawhney to spearhead its efforts in the FIG segment. Kohlberg Kravis Roberts, meanwhile, hired former HSBC Holdings chairman Sir John Bond as a senior adviser to augment its activity, and recently invested $1.25 billion in Legg Mason through a purchase of 2.5% convertible notes.
Sarkozy believes the demand for private equity capital will only grow as the financial services industry continues its shakeout following the collapse of the subprime market.
"Private equity is going to have a role to play in the recapitalization and restructuring of this industry," he says. In the past, financial institutions were not common targets for buyout shops due to regulatory restrictions and because they did not lend themselves to additional leverage.
Today, though, issues surrounding the industry relate directly to an excess of leverage, whether it's subprime or not, and Sarkozy believes "there are going to be attractive risk-adjusted returns that can be garnered here, without bringing more leverage to bear."
As for regulatory limitations, he concedes that "this industry is in a crisis." But Sarkozy believes that the regulatory agencies will look at private equity to help address some of the issues.
"There's a demonstrated need for expertise in how these investments ought to be priced and structured, given that many of the recaps undertaken to date haven't worked out quite as well as the investors would have liked," Sarkozy says, adding, "For all those reasons, I felt this was a unique time and a unique opportunity as I thought through my alternatives."
An internal UBS memo dated March 3, states Sarkozy will run Carlyle's first FIG-dedicated fund, although he declined to comment on the memo's contents or about any related fundraising efforts.
Sarkozy was an established star at UBS (and made the "40 Under 40" list in the December issue of sister publication Investment Dealers' Digest). His mandates there include the recaps of Sallie Mae and Charles Schwab, Mellon's merger with The Bank of New York and Associated Banc-Corp's stock buyback.
"I'm proudest of those situations where we've been able to advise companies over extended periods of time, like Schwab, Mellon or Associated," Sarkozy says, perhaps signaling an early affinity for private equity's relatively longer-term mindset.
He also brings an international perspective to his work. The half-brother of French President Nicolas Sarkozy, he was born in France but schooled in the U.K., Egypt, Zambia and India due to his stepfather's position as a diplomat in the U.S. Foreign Service.
He and his wife Charlotte, a children's book author, make their home on Manhattan's Upper East Side with their two children.
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