The Last Word: David Rubenstein; New Breed of Barbarian.(Interview)

Byline: Emily Flynn Vencat

The so-called barbarians--private-equity firms with their eyes on big targets--are no longer at the gates. They're knocking them down. Last month, Blackstone bought out New York real-estate group Equity Office for $39 billion in the biggest private-equity deal in history. Soon after, KKR and Texas Pacific Group shattered that record with a $45 billion takeover of Texas energy firm TXU. Recent aggressive deals have prompted outcries--last week British union leaders branded private-equity firms "immoral asset strippers." To get a sense of the industry's future, NEWSWEEK's Emily Flynn Vencat spoke to David Rubenstein, a founding partner of the Carlyle Group, one of the elite private-equity firms. Excerpts:

FLYNN VENCAT: Private equity has a slash-and-burn reputation. But the TXU deal is quite green--the consortium is going to scrap plans for 11 new coal plants and invest in wind power. Is the industry changing?

RUBENSTEIN: I don't think it's fair to say that this was ever a slash-and-burn industry. In the very early years, we didn't pay as much attention to the way the public viewed us as we should have, and so we just got that reputation. Private-equity people spend most of their time building companies and improving efficiency. The fact that the TXU deal involves working with the environmentalists isn't unusual. Often private-equity people work with those constituencies that are important to a company. It's more of surprise to the media world than to the private-equity world.

Private equity is in the spotlight now. People all over the world are focused on us. We are under a microscope, and anything we do that might be seen as inappropriate or politically controversial will get enormous scrutiny. So, we're letting people know what we actually do. We're trying to be less mysterious and more transparent. We're involving environmental [and] labor groups. We're not interested in destroying companies or hurting reputations or communities. We're simply not that type of people.

Moves into countries like China and South Korea are met with fierce resistance.

Whenever private equity shows up, there are always some concerns about motives. When the companies see what we can do to help our investors and improve employment, some of that concern goes away.