‘Street fighter’ Harvey Schwartz takes the helm at rudderless Carlyle

During his two-decade tenure at Goldman Sachs, Harvey Schwartz was known as an exacting and intimidating leader. After concluding that a colleague was not up to the task, he would remind them they were in the “major leagues” and there was no room on the team for underperformers, according to people who recall those conversations.

That uncompromising style will now be put to the test at US buyout group Carlyle, which named Schwartz as its new chief executive this week. He is taking the helm of a firm contending with an identity crisis following a protracted period of turmoil during which it has fallen far behind its rivals.

“He is a demanding boss who expects high performance and real commitment to the job,” said one person who worked for Schwartz at Goldman. Another described Schwartz as a “street fighter” who was quick to sideline or cut loose those he decided were not up to snuff.

Schwartz must decide what Carlyle’s strengths are after years of lacklustre performance and management unrest, most recently exemplified by the unceremonious and abrupt exit of his predecessor Kewsong Lee. Lee left last summer after losing a messy power struggle with the firm’s co-founders, David Rubenstein and William Conway, whose influence will loom large over Schwartz too.

The long search for Lee’s replacement took several twists and turns. Over the past six months, Carlyle reached out to several Wall Street executives before deciding on Schwartz on Sunday, just days before its fourth-quarter earnings release.

Those results revealed the damage done by a long stretch without a leader. Carlyle raised just $4.9bn of new investments for its funds, a fraction of the amount that its rivals pulled in.

Schwartz brings significant Wall Street experience to the job — he left Goldman after losing out in the contest to become chief executive — but people close to Carlyle acknowledge his task will be complicated by his relative lack of experience in private equity.

“For Harvey, it will be really key to understand the strengths and opportunities for Carlyle, especially relative to its peers,” said Michael Brown, an analyst with Keefe, Bruyette & Woods.

Many of Schwartz’s former colleagues insist he is up to the task, sketching a picture of an operator who is smart and ruthless but with a common touch derived from a background that can seem unpolished when compared with other Wall Street executives. He almost forwent university before eventually securing a place at Rutgers in New Jersey, where he graduated with an economics degree before getting an MBA from Columbia.

Schwartz joined Goldman in 1997 in its money-spinning commodities sales and trading team. He charted an unusual rise within the storied investment bank, moving from sales to becoming a co-head of its vaunted trading operation and then a top executive.

During the 2008 financial crisis, he steered Goldman’s juggernaut trading division through the market upheaval. He was then promoted to chief financial officer and was considered a candidate to lead the firm after the retirement of Lloyd Blankfein.

“Harvey is a detail-oriented, hands-on risk manager,” Blankfein told the Financial Times. “He looks around corners and anticipates things that could go wrong. As CFO he had great relationships with shareholders, regulators and the firm’s risk takers.”

After four years as chief financial officer, Schwartz was promoted in 2017 to be Goldman’s co-president alongside David Solomon, positioning the two men as contenders to succeed Blankfein. Blankfein ended up picking Solomon for the job in 2018 and Schwartz retired at the age of 58. Schwartz has harboured hopes of becoming a chief executive ever since, according to people who know him.

Despite his unforgiving style, colleagues say he did not seek out conflict for the sake of it. “There was ample opportunity for me to sense politics between him and I . . . but it was never the case,” said Pablo Salame, who co-headed Goldman’s trading operations alongside Schwartz and is now co-chief investment officer of Citadel. That was relatively rare “in a hard-charging place like Goldman”, Salame added.

Such politicking has dogged Carlyle for years, where co-heads of divisions often ended up fighting each other in simmering turf wars. Chief among these battles was a clash between Lee and Glenn Youngkin after the pair were named co-chief executives in 2017. Lee won that round in 2020, when Youngkin retired before going on to launch a successful campaign to become the Republican governor of Virginia.

But Lee’s victory was shortlived. He won the confidence of shareholders during his almost two-year stretch as sole chief executive, as he pared back inefficient parts of the business that had humdrum margins while expanding quickly into credit and insurance-based investments. But the pace of change proved controversial internally and he was unable to keep the firm’s founders onside.

If Schwartz is to succeed he will have to win the backing of the founders, who have paid lip service to giving him full autonomy but continue to retain huge influence as co-chairs and large shareholders. On a call with investors in its funds on Wednesday, Conway promised to give the new chief executive the space he needs to plot a new strategy, according to people briefed on his remarks.

Those close to the firm say Schwartz will have to decide between the businesses he believes can be grown and those that may need to be jettisoned or pared back.

Carlyle’s credit investment operations have grown at a rapid pace under Mark Jenkins, whom Lee brought to Carlyle during his turnround effort. Its infrastructure and “investment solutions” businesses have grown at a slower pace, leading some to question whether they should be divested in the future. Schwartz will also be tasked with further streamlining Carlyle’s costs and inefficient back office to maximise profits.

He will also need to win the support of the two unsuccessful internal candidates for chief executive: Peter Clare, chief investment officer of Carlyle’s private equity operations, and Jenkins, its head of credit. Complicating matters is Clare’s role as a board director. But Clare and Jenkins vowed to investors during the call on Wednesday that Schwartz had their support, according to people who heard the remarks.

One source of firepower is the billions of dollars of cash sitting on Carlyle’s balance sheet, which Conway this week indicated could be used by Schwartz for acquisitions that might revive the firm’s fortunes more quickly.

If Schwartz is successful, he stands to make a fortune: up to $180mn over the next five years if he can push the share price above demanding thresholds, or if the firm is sold to a competitor.

“It is a big number,” Brown, the analyst with Keefe, Bruyette & Woods, said of the compensation arrangement, “but if he delivers, shareholders will have been richly rewarded”.