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First on CNBC: CNBC Transcript: David Rubenstein, The Carlyle Group Co-Founder & Co-CEO Speaks with CNBC's "Closing Bell" Today

WHEN: Today, Monday, June 30th at 4pm ET

WHERE: CNBC's "Closing Bell"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with The Carlyle Group Co-Founder & Co-CEO David Rubenstein today on "Closing Bell" (M-F, 3PM-5PM ET).

All references must be sourced to CNBC.

KELLY EVANS: David Rubenstein is cofounder of the Carlyle Group. He joins me now at the Aspen Ideas Festival. David, it's great to see you.

DAVID RUBENSTEIN: My pleasure to be here.

KELLY EVANS: I want to just start with the big news of the moment, The Wall Street Journal reporting that Blackstone is going to launch some aggressive bets akin to launching a hedge fund. What do you think of this move? Is it something that you think the industry will follow?

DAVID RUBENSTEIN: Well, as you might not be surprised to hear Blackstone hasn't confided in me about their plans. So I'd read the article, but I don't really know more than was in the article. Clearly hedge funds have come back from the Great Recession and while they went down a fair bit after the Great Recession in terms of dollar volume and their ability to track capital, it's now come back.

And I'd say private equity and hedge funds are both very attractive to investors now because they're looking for higher returns. Blackstone has done very well in its hedge fund-of-funds business and I think they're now going to try to leverage that credibility into a hedge fund itself.

KELLY EVANS: But it's becoming conventional wisdom these days that the fund-of-funds business has no future, that the fees are too high, and it's been lagging in terms of performance. I mean, you guys operate a ton of these fund of funds. Is there a future for this business?

DAVID RUBENSTEIN: Well, John Kenneth Galbraith once said that conventional wisdom is almost always wrong. And so it might be wrong here as well. The fund-of-funds business has been declared dead several times over the last several decades. But it's always come back because some investors really feel comfortable having a very smart investor managing many different investments for them.

So I don't think it's dead. There has been some pressure perhaps, but I don't think it's dead. Blackstone runs a very large hedge fund-of-funds business. We run a very large private equity fund-of-funds business and both of them are doing pretty well, I think.

KELLY EVANS: The reason I asked you about what your competitors are up to is that in the past -- you know, private equity had the advantage of being a new model, coming into a space, disrupting corporate America, and getting massive returns because of that.

Today is a crowded space, it seems like there are, you know, the valuations of some of these companies are so high. How were you able to generate high returns, justify the fees in this business when there are so many other ways that investors can look for returns? And that, corporate America, by the way, has learned from the very tactics that you guys once pioneered.

DAVID RUBENSTEIN: Well, it's not as if we're putting anybody-- a gun to anybody's head and saying, "You have to invest with us." People are deciding to invest because the returns are pretty good. Even if returns are not 40% per annum as they might have been in the early days of private equity, they're still very attractive compared to anything else you can do with your money legally, you're probably going to do better in an alternate fund like a private-equity fund that's well run or a very good hedge fund.

So investors are really running with their money to private equity and hedge funds now in part because the last couple years, returns have been very, very good. And we suspect, while it's challenging to invest now, returns will probably be pretty good. And returns may come down but -- and it's not easy to make the money as high a return as we would like, but still, I think the returns are going to be pretty good.

KELLY EVANS: Well, certainly-Carlyle did well on the Beats deal. An 80%, I think rate of return for that investment. And Apple, of course, coming in to swoop it up. Do you think more tech deals is the future here? Because look, there's plenty of venture capital firms out there. What role can private equity play?

DAVID RUBENSTEIN: Well, that particular deal, it was not quite a venture capital deal. It was more of a late-stage growth capital deal. And it was a very large investment. I think we invested about $500 million of equity. So it's not a small venture capital deal. It turned out to be a very good deal for everybody. And we're very pleased with it.

We will be doing more growth-capital deals like those and we've done a fair amount already and we have funds to do that. So I think we will be doing a fair number of those around the world, not just the United States. We see a lot of opportunity in Europe and in Asia to those kind of growth-capital deals as well.

KELLY EVANS: Yeah, to what extent, as you guys look to become almost a minority partner in some businesses, Warburg, another competitor is practically seeding and starting businesses of its own. This is quite different from the days of taking companies over and buying them, you know, whole hog.

DAVID RUBENSTEIN: Well, we still do--

KELLY EVANS: Is this the future?

DAVID RUBENSTEIN: Well, we still do a lot of that. But there's many different ways to make money. Warburg has done that almost from the beginning. They've always been an early-stage investor in much of what they've done. We have done that as well, but we do a lot of larger and mid-sized buyouts as well.

So investors are happy to pick a partner who knows what they're doing in given areas. We've been able to do many different things. And I think other private-equity firms like ours have been able to do so as well. So I don't think you can say there's only one area or one way in private equity to make money.

KELLY EVANS: Uh-huh. Your colleague recently mentioned, Bill Conway, that credit markets are "ebullient." Do you think credit markets are ebullient still today? Has it gotten worse since he made those comments last quarter? And how worried should both the Federal Reserve be about this and just the rest of us generally about a credit cycle that could rival the last one that we just lived through?

DAVID RUBENSTEIN: Well, what Bill was saying is that the markets are relatively inexpensive right now for people like us to borrow money. But therefore you have to wonder whether this can continue that way. And people are giving us lots of money to borrow. In other words, we can borrow more money than we really need or want to take because the markets are really liking the kind of returns that we give to investors in these high-yield funds.

I don't know how much longer it can continue. The Fed will finish its tapering probably by the end of this year. And I suspect as the Fed has said by the middle of next year they might, if the unemployment rate is okay, increase interest rates. I suspect at some point-- we probably won't see as ebullient and debt market, but right now, it's pretty attractive and it's very difficult to resist taking some of the money on recently-attractive terms that's now being offered.

KELLY EVANS: What keeps you up at night?

DAVID RUBENSTEIN: Well everything. You know, at night you worry about everything. But right now, I do worry about what's going on in the Middle East like everybody. We have a lot of uncertainty there right now in Iraq and other parts of the Middle East. So I wish those things would be resolved more favorably. I wish that the Congress and the administration would be able to find ways to work together better. That would be good.

I think regulatory certainty in Washington would be very good for people like us. But I also worry about the fact that we haven't had a slowdown, the economy, for a while. Remember the Great Recession was about-- began about seven years ago. We do have recessions more or less every seven or eight years. I don't see any evidence of this. But right now, we should recognize in a couple years or so, there probably will be some slowdown. Right now though, I think we're feeling it's a pretty good time to invest. But you've got to be cautious about prices. Prices are not cheap.

KELLY EVANS: That's exactly the point though. So where -- if your business is predicated on finding those undervalued parts of the market to invest – look, you guys just raised a big fund to go after financial firms. Is that right?

DAVID RUBENSTEIN: Correct.

KELLY EVANS: You see an opportunity in that space?

DAVID RUBENSTEIN: We do think financial service space is very attractive. It's one of the largest parts of the U.S. economy. It has more money invested in it than many other parts of the economy, but it doesn't have as much private equity money invested in it. So there's a lot of private-equity opportunities there.

The most important point though is that you can't get high returns all the time of 20%, 25%. But investors are happy with returns if they can get them at 18% or 19% or 20%. So if we can get returns of 18%, 19%, 20% net to the investor, that's still pretty good. And we think we can do that.

KELLY EVANS: Can you get those kinds of returns without using leverage? In other words, without piling a lot of debt on companies, because this is what the public and what companies themselves have learned from the last couple cycles. You got to avoid getting into this trouble down the road.

DAVID RUBENSTEIN: But by definition, a buyout uses leverage.

KELLY EVANS: Right.

DAVID RUBENSTEIN: But a deal like Beats didn't really use leverage. We put in $500 million. And while there was some leverage there, we didn't really use leverage to enhance the return on that investment. So you can make fairly good returns. Mostly in the emerging markets, for example, virtually all the investments do not have leverage. They're typically minority-state transactions.

So you don't need leverage. In a classic buyout, leverage does enhance the returns. But if you're cautious, you know what you're doing, you don't borrow too much, and you're very attentive to the management of the company, you can do well.

KELLY EVANS: It goes back to this question about whether private equity should exist. Do you only exist because of the current tax code that allows for, and to some extent, incentivizes companies to take on debt and the investors who help them do that?

DAVID RUBENSTEIN: Well, the U.S. government incensed many different businesses. If the U.S. government changed the rule in virtually every industry, it would be a problem for every industry. Everybody is enhanced in some way, by the industry in some way, or what the U.S. government does.

We are not really advantaged particularly by the U.S. government. We have seen what the rules are. We've adapted to them. But I don't think we're made possible only because the U.S. government rules. And remember private equity exists around the world. It's not just the U.S. government that's favoring this kind of industry.

KELLY EVANS: Great point. You guys are also active around the world, Europe in particular. A lot of banks are getting rid of a lot of assets over there. Is Europe now the big opportunity where the U.S. again might've been in the past?

DAVID RUBENSTEIN: Yes. We think Europe is among the most attractive places in the world to invest now. One, corporate assets are trading about 20% discount to comparable assets in the United States. Secondly, banks do have very large assets they need to sell and de-lever, and they're beginning to do so.

Third, a lot of the people who were in Europe before have pulled out of Europe, so there's less competition for people like us than there was before. And Europe is actually coming back. The euro has not gone out of existence. The growth rate will be lower than the United States, but it's not going to be negative.

And I think the European Union has really resolved some of the problems they had before. So I think it's a pretty safe and pretty attractive place to invest. But I'm hesitant to say that because I don't want my competition showing up. So please ignore what I just said.

KELLY EVANS: You know, one place that could certainly use investment right now is America's public sector. They can't get a highway bill passed, the roads are crumbling, potholes are everywhere. We know how things have gotten, the point at which they've gotten to today. So, you know, your big thing is patriotic philanthropy. You helped fund the renovation of the Washington Monument. Is there a bigger role that either you personally, that philanthropy can play or that private equity can play here in partnering with the government or in helping to make some of these infrastructure improvements happen that everybody says they want to have happen but just never seem to quite get there?

DAVID RUBENSTEIN: It's a very good point. Infrastructure in the United States needs more capital. We are way under-invested in infrastructure compared to other countries now. If you go to the China or you go to Hong Kong, you go to Singapore, you go to certain countries in the Middle East, their airports, their highways are much better than ours.

And their infrastructure for telephones and telephony, wireless telephony is much better. We need to do more. I think public/private partnerships would help. We don't have enough money in the private sector to do everything. We need the government's help. But the government could use the private sector to help in certain areas, incenting the private sector would be a good thing.

KELLY EVANS: Last question. Is your goal to make Carlyle one of the biggest financial firms in this country?

DAVID RUBENSTEIN: Well, we're already one of the largest alternative investment firms. And we will stay as a large alternative investment firm. We hope to be global, we hope to be one of the best. We're very happy with our position. But if you, you know, feel like you're happy and you're just sitting on your laurels, you're in trouble. So you always have to worry about somebody disrupting you. And you have to keep working hard every day so we're not sitting on our laurels. But we're very happy with our position today.

KELLY EVANS: What do you think is the potential biggest disruptor?

DAVID RUBENSTEIN: Biggest disruptor to private equity?

KELLY EVANS: Uh-huh.

DAVID RUBENSTEIN: Well, the biggest disruptor to private equity would be if investors begin to say, "We don't want higher rates of return." If all of a sudden they say, "We want low rates of return," that would be a problem. I hope that won't happen.

KELLY EVANS: Or if they settle for low rates of return.

DAVID RUBENSTEIN: They settle for low rates of return, and people say, "I don't really want 19%, 20% rates of return, I want 3% and 4% rates returned." That would be a disruptor.

KELLY EVANS: Well, I don't think we have to worry about that just yet.

DAVID RUBENSTEIN: I hope not.

KELLY EVANS: David Rubenstein, it's great to see you out here.

DAVID RUBENSTEIN: My pleasure.

KELLY EVANS: Thanks very much.

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