Stephen A. Schwarzman, Chairman, CEO & Co-Founder, The Blackstone Group L.P.

okay so we're very honored to have Steve Schwarzman here as I indicate at the beginning he is the co-founder the chairman and the CEO of Blackstone Group which is now the largest alternative asset management firm in the world it's a firm that today manages about three hundred and thirty three billion dollars of assets under management it's a firm that has about eighty two billion dollars as of the end of the second quarter of dry powder which means money to invest as a market capitalization of about forty two billion dollars and in the last 12 months gave back to its investors about sixty billion dollars in distributions and to its public unit holders or last year about 4.2 billion dollars Steve started this company with Pete Peterson in 1985 prior to starting the company Steve was the head of global mergers and acquisitions at Lehman Brothers a firm he had joined after graduating from Harvard Business School in 1972 he was one of the youngest partners ever at the Lehman Brothers it became a partner at the age of 31 prior to Harvard Business School Steve was a graduate of Yale graduated class of 69 and before that he had grown up in Philadelphia graduated from the Abington High School in the Philadelphia area Steve is very involved in philanthropy many people in the Washington area know that he served for six years as the chairman of the Kenny Center and was extremely generous in that time to the Kennedy Center and is still very generous the Kennedy Center but he's also made three other gifts that I think got worldwide attention let me just mention them one is most recently he gave 150 million dollars to Yale his alma mater to create a kind of cultural Student Center which is going to reform the kind of the way that and improve the way that this Yale students undergraduates react together and gather and also kind of learn more about the arts and performing arts and I think it'd be transformative at Yale he also gave earlier a hundred million dollars to the New York Public Library and that in his honor the New York Public Library main building has been named in his honor and and in terms of things around the world Steve has given a hundred million dollars as part of a four hundred million dollar gift he's raised the other 300 million dollars to create the Schwartzman Scholars Program at Ching hua University this is a leading University in China where students from around the world will get scholarship become Schwartzman scholars similar to the Rhodes Scholar Program and that program is now underway so that's pretty good for that's good for an intro my mother would have been very happy with that so when you grew up you're growing up in Philadelphia and you came from middle-class background would you say oh yeah my dad and his father owned a retail store that sort of looked a little like Bed Bath & Beyond except it was dramatically smaller and I used to I guess we all started somewhere around seven or eight years old marking merchandise and you know smelling dust and so that that sort of makes you want to do nothing tangible and that that's how both myself and and my two brothers ended up in finance so did you ever give your father ideas on how to improve the business and did he ever accept any of them yeah it was interesting when I was 14 I said you know there are a lot of people in this store maybe we can expand it nationally and my father looked at me said I I don't know whether that's a good idea so I said well well let's at least expand it throughout Pennsylvania and he said I don't I don't like that I said well how about the Philadelphia area we can put a bunch of units all over Philadelphia and he said no I don't want to do that so I said dad you have all these people in this store you've obviously got a good concept why don't you want to do this and he said because I'm happy the way I am he said I've got enough money to retire to send all of you to college and graduate school I've got two cars and a nice house in the suburbs he said what more could any I said well how about a unit everywhere in America I mean and so I decided that maybe working at Schwartzman's curtains and linens was not my future right but but had we done that you know I think we would have been bad bad thing young because that was like 19 but then there was 60 something then there wouldn't be Blackstone though yes this is also true though then I'd be home I'd be fixing up towels which was my job at the time so when you went to Yale did you think you would go into business for sure or did you know I had no idea of what what I do after Yale and it was it was a bit of a mystery I mean I just went to become educated apparently that was like a full-time job from wherever I started and really changed changed my life and I had a variety of unsuccessful job interviews they'd send these people to campus and and I had one company and they said well what do you want to do basically when you grow up I said I want to be a telephone switchboard and the person looked at me they said what are you talking about I said well I want to get all these feeds that come in from the real world and then I want to twirl them around and something will come out you know route the right way and he said I don't think you're for us so so that way that was sort of a failure then they had the pan-american people come up and that was a very high prestige company at that time with those powder blue outfits and everything and and so I I was just meeting with the guy and I said you know you you should really go into Freight he said Freight we carry people I said well you know there's like a war on Vietnam and they obviously need stuff and planes are sort of like just planes and why don't you fill them up with something else and maybe you can make a lot more money he said well we're we're paying am we don't do things like that and I said to myself now here's a company that's going to go busted this is their representative right some narrow-minded have you seen any of these people since you interviewed well we know but their jobs their companies mostly don't exist now David so this so you graduated from Harvard Business School in 1972 yeah and then you went to Lehman Brothers and those days Lehman Brothers was privately owned by the partnership yes it was sure though did you decide you wanted to be an M&A adviser and how did you decide what you wanted to do at Lehman Brothers well M&A didn't exist in 1972 it existed in the 60s when everybody was basically buying everything that was a you know conglomerate era where the more you bought the higher your P multiple was the more enabled you to buy something that was cheaper and be earnings accretive so that was like a game that that formed the great conglomerates of that era whether it was ITT or Lydon whatever and that all collapsed and then the stocks all went down so they couldn't do that anymore and the M&A business stopped and so I was very very lucky that at that point Investment Banking was like miniature and we didn't have specialists so you basically was like an old apprentice business where you did everything if you were in corporate finance so you were doing under writings you were doing private placements you were doing rating agency presentations you were doing road shows you were you were analyzing which financings people should do and and and so you had to do everything and my generation which I guess is sort of moving off the scene except for a few of us hanging on you're not one of those you know we all know that stuff and it helps you stay out of trouble but in the merger business I got didn't by accident I had visited a company for some reason that I can't even remember called Tropicana so if you if you like orange juice this is your place and so I was in Chicago working on something with a company called UOP which was in the refining business and additives and I got a phone call was on a Friday night at the end of the day wasn't Friday night was around to three o'clock in the afternoon Chicago time from the president of Tropicana saying he wanted to hire me to advise them on the sale of their company which was happening over the weekend so I guess there were only a few problems one I didn't have a ticket to you know like where ever Bradenton Florida but secondly I had never done a merger so we shouldn't let this stand in the way of what became the second biggest merger in the world in 1977 so so I didn't arrive at this place until like 4:00 in the morning and then I didn't really I didn't realize that you should have gone to a different City there were no taxicabs I he days I was like waiting an hour for taxi and you know I finally got to a place didn't sleep change my clothes went to the company they gave me three different structures of an offer for I think at that point it was like 488 million dollars which tells you how the world changes and he said the board meeting will be in a half an hour and you're going to tell us what to do and if you have ever really been frightened I I I encourage you to like have this experience to be more frightened you know I wasn't a partner I was just like I don't know 28 29 years old and there was nobody else there except me and I had never been to aboard me of anything okay all right so I go into this board me what I did is I frantically tried to call somebody who knew what they were doing at the firm I mean you know it's just like liability and and I realized what was it it was that the phone is always on the wife side of the bed because I was like waking people up at 7:00 in the morning if they gave me this thing and it was always the website you know it hand it to the husband I'd explain what's going on the partner of the firm saying what the hell do I do with this thing so they gave me a little coaching and I went into the room and there's a bunch of somber people and two tape recorders and a stenographer I mean this is like really horrible and and so you know then I started talking to about which alternative would make sense what the advantages were whatever and the guy says something like thanks for the lesson what do you think we should do and so I told them which way to go and then we had a negotiated a merger agreement I've never seen a merger dream so so you know I'm like locked up and I I got home it was the same snowstorm that was delaying me going to Florida I got home it like 3:00 in the morning I was like completely traumatized we we signed this thing right and you know was like some huge thing there is nobody else involved really except me from from our firm and I remember I don't drink but I put a fire on in the fireplace and you know this is like out of a bad Saturday Night Live sketch right night I had a brandy snifter of Cour voici a and I had this and I was sitting there looking at the fire and I put the Bee Gees on a Saturday you know says Saturday night you know Saturday Night Fever album number one seller and I just sat there and saying what the hell did I just do what the hell just happened to me and you know that was sort of I guess this sort of we all have these like many launches of our respective careers some good piece of log the deal well it sort of worked out yeah worked out so you became like the John Travolta for you affirm you must have been a rock star well I deal done right but but I didn't have the paint camp and so yes oh I'm sorry you're doing MA you become the global head of MA for Lehman Brothers and then in 1985 you decide with Pete Peterson to leave why did you decide to leave and what what kind of firm did you think of well became easier Pete was thrown out so that he left at 84 and then the firm it's a good lesson to everybody you know how to had a control problem and there was some stuff going on that was was not according to risk tolerances and the firm was basically busted and so I I sold the firm over the weekend to my next-door neighbor who was in charge of a firm called Shearson Soleiman de Shearson yeah and you know that was owned by American Express so so that was an across the driveway deal it was a really traumatic thing for a company that was a hundred and fifty years old just to like you know we would have opened and there would have been no net worth right if on a mark-to-market basis so the question was could you keep that secret for a day or two and get a deal done so it was a ridiculous outcome for a great great you left the firm then so no I left a year later and we started Lexton and where did the name Blackstone come from my ex-father-in-law who was a Talmudic scholar and we were really struggling with the name it was really hard I don't know why and it want to try heaters and schwartzman or Schwartzman Peter Center he didn't want to do that because he had started some other business that didn't work out so he didn't want his name like that and he said he said what we ought to do is get an impersonal kind of name where we don't have to worry like a law firm when the next partner joins where you end up with 15 names on the door and if somebody doesn't get their name on the door they don't join or they're angry or whatever you got two classes of citizens she says let's just have a generic name so we sort of struggled on that and Pete's wife Joan Cooney is a very gifted person and so Joan said look this name thing is really you guys are ridiculous and she said we struggled on a name too and when I started my company and so I came up with this unbelievably stupid meaningless name called Sesame Street and it means nothing until you're successful so he said she said here's the deal pick a name any name if you're successful everybody will know it if you're not successful everyone will forget it so don't agonize over it just do something and so I was talking to my stepfather in law actually and he said well look why don't you take you know the German of your last name Schwarz and German means black and your partner's Greek and Petros means rock or stone and his original name was Petropolis not his his father's and and he said just put them together so I said okay what the hell so that's what we did the only people who figured this out interestingly are all from Oxford apparently they really study languages and they haven't so sometimes though I've probably had seven people who figured it out you got the name how much money that you have to capitalize the firm two hundred thousand from me two hundred thousand from from people or hundred thousand yeah and your business was to advise companies or to make principal investments we we had but for those of you who were in the business community which are a bunch out here I think if you want to have a successful business I think what would I call it you you need to award the fantasy in other words you're not supposed to be doing what somebody else is doing there's no they're already doing it yet world doesn't need you you think they need that you they don't need you right you've got to do something different not just a meet two things so so we struggled for you know sort of probably four or five months every day we'd sit around hard work it's like being in Hollywood or something coming up with a script and we basically said okay we want to do three things first we want to go in the M&A business because we know it needs no capital big cash flow use the money to do other things secondly we want to be in the private equity business is now called private equity it used to be called LBOs why because it's a wonderful business right you can aggregate a lot of capital you have management fees so you don't have to worry about that your year is going to end unfortunately like in the M&A business if you don't get anybody to hire you don't have anything happen there's nothing to eat and then third finance was evolving little companies like Lehman Brothers which when I joined had 550 people when it died in 2008 had 30,000 so the difference in working at a company of 550 where you know everybody basically by sight and 30,000 it's like so like different that I like the smaller feel and the communication and the partnership feeling and and so we basically said what we do is our third part of our company is wait for some amazing opportunities and go into those businesses if we can make a lot of money for customers give them a great experience and then to do that we had two other rules first you had to attract someone to run that business who was a 10 on a scale of ten nine is not good enough and eights which you know most people think eights are good you know eights are just serviceable in our industry and tens they just make things happen if the world is bad they find a way to make money if the world is good they make a fortune they're charismatic they hire people they got great taste at high ethics but so you need a ten and the third piece is to have whatever new business you start generate intellectual capital so that your first business or your second business is stronger with the addition of this new business so that was a letter that we sent out to everybody saying hi it's us here's our wonderful plan you should really do business with us so this was really a fantastic strategy and after we sent out the letters nothing happened so you went into the business of raising of fun you tried to raise our first fun how hard was it to raise your first private equity fund I think if you like pain and suffering it was really terrific now imagine this couldn't happen today in two individuals and either of whom had ever made an investment announced that they wanted to raise the third biggest private equity firm in history and massively larger than any other first time fund so only to demented people would actually think they'd get a good reception right so we just started out we made an announcement that that's what we were doing and then we went out into the world of endless rejection and I encourage you to do that sometimes because if you ever had an ego it's like you know the sand paper it's you have nothing left by the end and you make every elementary mistake you can make which is you start with your closest relationships first where you barely even know what you're marketing and you go to them and say oh please rescue me and they say well what's the answer to these 15 questions you don't even know the answers and so then they reject you so you burn up everybody who you might have gotten because you're so stupid that they go away and it took till our 18th person we mailed 488 documents it took till number 18 until we got ultimately raised 750 million dollars Merson know was 850 850 okay and we we said we were going to raise a billion dare to be great and and then one of those investors came back a year later gave us another hundred million so I sort of felt you know it's not a perfect grade but 950 for people who really don't know what they're doing but you know sort of so at that point you were in the private equity business that's your firm now I'd say has four parts private equity I'm credit yeah hedge fund of funds and fund of funds and real assets or real estate yeah so let's talk about each of them for a moment sure you are the biggest owner of real estate assets now Blackstone is in the world you've built a very big business how did you go from no real estate expertise to the biggest real estate owner and manager in the world what is interesting it came out of Washington there was a guy here who many many people will know named Joe Robert whose real character Jose passed away unfortunately but he came to visit us he knew one of our partners this is after the RTC was created and real estate had collapsed in 1990-91 so Joe comes in the office and sort of a tall guy and you know sort of assertive and and you know I said well what do you do he said well I'm a consultant for the RTC and what I'm doing is I'm selling real estate I said well I don't know much about real estate but I've read in the newspaper nobody's buying any real estate there's no credit that's it so the whole country stopped he said well that's interesting I'm actually selling it and I would know if I were selling it because I'm selling it and I said well what are you selling he said I'm selling you know sort of five to ten million dollar properties to doctors and dentists all over the country and they have the credibility to go to their bank and borrow the money and so I'm moving a lot of stuff I said really and so I said so why are you here he said well I'd like to buy this stuff I'm selling in fact and I don't have any money I said well I've got money but I have no knowledge or expertise so maybe we're a perfect match and so he said well let's let's bid on the second RTC auction which was a bunch of garden apartments in Little Rock Arkansas and so okay so the stuff comes in and these apartment buildings are less than five years old and they're 80% occupied and they have a certain cash flow coming off of them so so I was faced with a problem of what do you pay for real estate which I had no idea so I said okay well if I can get a 16% unlevered yield off of this real estate that sounds pretty good to me that's a in our trade that's like six times EBD less capex cash flow less your capital expenditures so I said 16% that sounds good I like 16% we put some leverage on it with make it 23 percent so that 23 is better than 16 and then when you come out of recession those other 20% of the vacant units will get filled and then that's like a 45% compound return and then rents will go up so that'll make it 55 percent compounded so I sort of looked at this and we that's what we bid and we won okay we won this thing free frightening so so so then I realized there was a whole country full that you could buy because there were no other buyers because everybody in the real estate business was hated by their banks because they were losing money from her so so we started buying and you know we have a terrific group of people we hired of a fellow named John Schreiber who's you know I'm a little older than David actually have a bunch older than david although my hair is not quite that wide but he may have a little more I may have a little more on by the tribes is terrific guy he was probably the best buyer of real estate in the 1980s he picked the top he sold out and you know so we spent a year because Joe was stolen by goldman sachs who brought a table today they you know so he went to work and we had nobody and then we found so your business is booming in real estate let's talk about another business you are the largest operator of what's called a hedge fund of funds yeah explain what a hedge fund of funds is and how you got into that kind of through assert backdoor you might say you're you know finance doesn't require you know like enormous innovation so what happened is when we got that extra hundred million dollars which from this Japanese investor they wanted it paid back in seven years so we had money for seven years so the problem with having it for seven years with the maturities you actually do have to pay it back which means you can't lose it right so we wanted that money to to generate earnings so we could expand the firm so the same fellow who found Joe Robert came into my office and he said I've got a interesting thing we can do with the money since we didn't know what to do with the money but we wanted to turn a lot he said there's a friend of mine you ought to meet named Julian Robertson and I didn't know who Julian Robertson was but as it works out he was the best hedge fund manager in the world for about 20 years so this was a good person to me so he came in and his from I think North Carolina and he's got this charm and you know he's so smart and this and that I just gave him all the money and so so much for finance where you're told to diversify risk and do all this stuff I mean you know the guys had the best record in the world I mean how bad can he be so so he was great and that generated its money then what happened is and this is the innovation part of finance somebody says to you who's a client what do you do with your money you seem to work 14 hours a day do you have any time to invest your money you said of course not we just put it in this thing like with Julian and then we diversified away from Julian and they said well can we give you money too this is innovation when you basically say when people offer you money it's usually good thing to take it and you figure out what you could do with it right so so we said sure we'll take your money and we built a whole business and that it's now the biggest in the world is about sixty five billion dollars where we give money out to other managers we also do some directly ourselves and we we have different packages you know if you want to be in you know sort of energy stuff we can do a special energy thing we can do sort of a more general long/short equity stuff we can do bond stuff so we create a family of things to suit the needs of those Oh in the private equity world but what what is your the deal you did that you're the most proud of and what is the deal that got away that you wish you had done well this is since I'm in Washington we can we can get a Washington story it was our first deal actually before we even raised our first fund actually note was with the first fund and we bought a set of asset from us X was what's called the United States steal all their railroads and barge lawns and so forth is very stable business it doesn't matter what the price of steel is steel company will always produce to cover its overheads if it could and we bought it right in the middle of a strike nobody in the world wanted this thing we almost couldn't get it financed because they just assumed if if the earnings went down because there was a strike the strike would never be settled people can be very stupid you know I you know like US Steel number one companies never going to settle a strike I looked at it and said yeah of course they're going to settle a strike I don't know when but it doesn't matter particularly and then when they finished the strike the production will go up and this business just made money based on production so we had made one other investment before we sold a company to a guy named Mitt Romney you may have heard of him and after the deal was closed I asked the Chairman whether we could invest in that deal was that a problem for him from a conflict point of view because we had no discussions about it I just saw that would be a good thing so he said not to have a problem so we made 16 times our money on the MIT Romney deal so I felt I owed mitt so I invited them into our u.s. steel deal which was 24 times your money and that's how I ended up on the MIT Romney Finance Committee right I thought the deal you know this is like these are like this is got good karma right 16 times 24 times and you know those are good deals but there's one I thought you would mention that actually became the most profitable buyout of all time called Hilton that's also Washington describe how you bought it then you fixed it a bit and then it ultimately turned out to be a profit of 10 that their Hilton was was a company that actually was taken apart you know we bought it what five years ago we actually we bought it we committed on the deal I think it was July 7th 2007 it's when we committed right before credit started constricting and and before that probably 20 years before that they separated their international business and it was completely independent company in London and they forgot to expand I don't know how you forget to expand a company but apparently these people decided let's never expand very interesting strategy which resulted in a very low stock price not a surprise and so I guess it was a year or two before we looked at buying Hilton they put these two big companies together so we paid a high price knowingly for the business I think it was twenty seven billion dollars and the business was making at that time 1.7 billion dollars of profit and but but we looked at it not as if it had 1.7 I thought it had 2.7 and the reason we thought it had 2.7 is because they were running their us business which is in four different lines with like huge overhead duplication they had never consolidated the business and in terms of expansion they had never expanded internationally they had a great name number one name and consumer recognition no new hotels so we realized we could generate 500 million dollars from from the consolidation another 500 just by opening some hotels and being managers so this was like we were buying 2.7 so so so when the recession came our 1.7 had already grown to 1.9 it went down to 1.4 and the whole world thought we were going bankrupt I couldn't understand it because I knew we were really earning 2.7 you just couldn't see it yeah and and so you know we ended up buying some dead end stuff when it got low and then of course you know it's back to our original numbers and I guess we've made like 12 billion dollars so that was good there aren't that many buy also make 12 billion was a good one that missed this is the real bozo element and David and I make mistakes and financial accounting works incorrectly as as Warren Buffett would say they only measure what you do they don't measure what you could have done that you didn't do that's the real way to measure success so so you know David's missed one or two big ones and this one was like really retrospectively so stupid but I would have unfortunately made the same decision that's what makes it so terrible but I was approached by a guy you may have heard of named Mike Bloomberg when he had a little company and he needed a hundred million dollars to expand the business and Mike had one outside director who was sort of like my mentor at Lehman Brothers and you know a guy I talked to every night at home he is so brilliant so brilliant I mean he saw everything differently there was always he we all had the same facts he could get one piece of it and look at it a different way he was really fantastic so so Mike said he should get the money from us from me because Steve thought I was gifted which means Steve isn't perfect so so Mike comes over and he says you know I've got this company and you know how would you like to put in you know like a hundred million I think it was for 20% of the company and I said sounds like a great idea you know I I knew Mike a bit socially and he's very talented and driven and creative and he's the Mike Bloomberg right I mean we all now know now who Mike Bloomberg is so I said yeah I'm good to go with this sounds like a great idea he said look there's only one catch he said I want you to be my partner but I want you to really be my partner I said what does that mean he says well you can't like sell this because I'm never going to sell my company I said well I I'm managing money and the problem is I you know the terms of it is that we raise these funds and then we have to Selin give people their profits and give their money back then it's sort of a silly structure and you go back to the same people they give you the same money again and you know all you do is you learn how to be a mendicant but but he said well that doesn't work for me I'm not in the business of giving you liquidity I'm in the business of building my company and I don't want to start thinking about you leaving when I just said hello he said that doesn't work for me I said well it really doesn't work for me but I I've got these restrictions I can't just wait and then see if you change your mind he said well really that's that's just like he said just doesn't work and so Mike left okay fast forward right that hundred million would today be probably eight billion so if you want to make mistakes this is this is how you make them so Steve you her company is doing very well and all of a sudden you decide to take it public most people had said private equity firms should stay private then because there might be a conflict between investors in the funds and shareholders why did you decide to take the public and you have any regrets all right well we took a public I had a partner who was 21 years older than me was getting old and if if if we didn't he would have been redeemed at Book value which was nothing and as it worked out he got a few billion dollars so so this is like a moral thing you know we started the business together and and so there should be a way for him to benefit from that secondly I had this bad sense about where we were at that time in history and I had this desire for permanent capital I just felt something bad was going to happen actually I was on a panel with Bill Conway I think in this room and we were both talking about how how we had a lower cost of capital than triple-a companies well you know something's wrong with that that can't be and and so the markets were peaking and I just wanted to be prepared for the nuclear winter I just wanted to have loads of money you know to take us through anything that was happening I also thought it would be good for my children and grandchildren I right - that's a good thing for them seven grandchildren now yeah I got to work harder and so you took a public it went very well also one other thing David I thought it would be a great branding moment for the firm make people want to do more business with us whether it's investors or not and then I thought there would be an X Factor some crazy thing that would happen I didn't know what it was found out there were a number of crazy things but one of the good crazy things is we got a phone call that that two people from China wanted to meet with one of my partners and you know I barely knew my guy in China we just hired him three months earlier and Anthony Lee Young who's terrific I and used to be the financial secretary of Hong Kong which is their Treasury secretary and so they they had a meeting with Anthony and they offered us three billion dollars to be to be in the IPO well this was China China never given money to anybody since World War two for equity outside of China they had state-owned enterprises in China but they didn't do this stuff outside so we know I was watching Law & Order and I'm reading my stuff which is what I do at night when I'm we're not out someplace wife and I are out and I sort of was only half listing I said three billion dollars okay so he said yes three billion so I said well well who are these people he said they're both unemployed I said really I said where did they make their money he said well they were government officials I said I said to govern officials who are unemployed or giving us three billion dollars I said how does that work I said where'd they used to work he said well one of them was the deputy head of the central bank and the other one was the deputy finance minister I said so why did they lose their jobs he said well they're they're being reassigned I said reassigned to what he said well the rumor is they're going to start a sovereign fund in China and these two people are going to be in charge of it so I you know I talked about you know so I said let me think about this so um I I went to him back to work I talked to my my partner Tony James who's president of the firm I said Tony what do you think we ought to do with this strange call he said take the money and I said I said well we don't really need that much money he said well we can split it up we'll do some more secondary we'll put more in the phone and I said well I don't know who these people are and it makes me nervous so so what why don't we go back and tell them that that you know we they have to vote with us I don't know I don't want to have people who's strangers and you know that if they want to sell the stock they own so much make them wait you know like five years and then they can sell it a third of their to third so we went back to Anthony who was dealing with these people and the next night I'm still watching Law & Order you could do that the rest of your life by the way there's so many reruns and and you know they said they don't want to do five years they want to do three years but they really don't want to vote with us it's a little cumbersome why don't they just not vote so then I realized I like these people it's like good I like you know in Washington people vote a lot you know I don't like that in our little world you know these people not voting well they came in yeah they came in and by the way because number of people here touch government we did this whole negotiation with that guy who was dealing with the premier of the country we we negotiated and signed it in ten days for those of you have ever been in government the idea that anything happens in ten days is like a mystery right this is from first contact to sign deal I mean this is like when these people want to do something get out of the way they know how to do it it's very younger they don't want to do something of course then you experience reality but so it's really and you feel very happy you went public though what that white their stock went way down and now it's come back a fair bit yeah it's no fun when these things go down it's much better when they go up so you have been very vocal in saying that the valuation given to private equity firms is lower than the valuation given to regular asset management firms and could you explain what you mean by that that's because David and I are bad salespeople apparently for some reason that what happens in our type of businesses is you buy something so you buy a company by real estate something and you you always have a plan to fix it up so you fix it up and then it grows faster than regular companies our companies now just on that side of our business they are growing about 50 percent faster than the economy so this is would be viewed as a good thing right and then you put some borrowings against it so so the price earnings multiple usually goes up when you grow faster and then if you have debt on top of it you've invested less equity than you would have so that little third grade numerical equation creates a higher rate of return and then you pick the time you sell it until you make very high returns on these types of investments with almost no losses sort of amazing business for some reason the fact that you only sell when it's a good time to sell instead of like you know sort of selling to make the earnings flow even you know some people say well geez that magic trick will never happen again and that's ridiculous it's only been happening for thirty years why is it going to stop this week because somebody is writing a magazine article or something they don't understand we explained it it keeps happening and because of that and and the cash flow not being exactly the same all the time you know your you know our our investments is is hard to believe right there's sort of we grow it like double the stock market that's that's what we deliver this this is why people give you money some people try and get money anyhow but if you grow it double the stock market for 30 years it's like so it's like a good thing I don't understand why why markets David maybe I should ask you the question David and why do you think I don't know the answer but tell me this Steve and the time we have left a couple questions one well now that you have reached the pinnacle of the financial world you are obviously very successful your company is extremely successful you have made a great deal of wealth what is it that you want to do with this great wealth you've obviously given away a lot of money you have plans to do other things how does somebody get 100 million dollars out of you've made 300 million plus gifts I assume you've got some more coming maybe you want to noun some today but next week next week okay so how do you decide everybody must be calling you saying well you just gave under million here why don't give me 100 million and how do you decide what to do with your money and what kind of legacy would you like in the philanthropic world and the business world that's those are great questions and and you only get them when you're older typically and David faces the same question and really does an amazing job you know in terms of sort of supporting though not just the Washington community in all kinds of ways but but doing things all over the country and has made a huge huge impact you know around the United States and chairing organizations and not just giving his own money but you know getting other people to do things it's really you know I don't I don't know when this man sleeps I mean I sleep five hours a night but he must be down to three so so it's what my hair is so white yes I see oh all right what are you going to do with all this money and what's your legacy gonna be but you know the like I think some of this stuff is it's it's evolving in other words if I saw a survey on either you know one of these lists of there was a Forbes 400 list or something and and I think it was 85 or 90% of the people are self-made on that list and and 85% of them still think they're middle-class in other words the that's why they keep going and they don't realize there's been some you know shift at least to the outside world and and so I you know that that's the majority of Americans who were successful like that and and so it takes a while to realize that you actually have you know really large surplus assets and and because your job is still to build them I mean that you know if you're in the business world you're trying to make your company good and what comes along with that is is is the concept of you know you more happens for your shareholders if you're a shareholder which I am of substantial size than then there's more so so I I think like a lot of life it's a function of what interests you I believe that with without the kind of educational intervention that happened in my life whether it was my high school whether it was Yale or was Harvard Business School you know I I'd probably have a really great group of you know hair salons or something like that and you know I would have been successful on one level but not what I did so so the richness of my life in the in the broadest sense not financially it was really fashioned by whatever I brought to the table but by all these wonderful external influences and and so I have real interest in helping other people get those opportunities because if you don't get them particularly in a globalized world you don't have a really good opportunity or you have a you have a much more modest opportunity to to do well so I like supporting educational things I also like making change you know it's and that's a problem for me because the Schwartzman Scholars thing I mean it's it's it's I mean forget the money I mean the amount of time I spend to make this wonderful and make it the best program that you could do in the world and because when I do something I'm all-in I'm not a diversified kind of person like that and so I've taken this on and and and you know raising another few hundred million or you know sort of person by person that's not the easiest thing to do I'm used to getting almost 100 percent sales response at Blackstone this is you know philanthropic and some people don't care about China and some people don't care about you know the safety of the world and you know so so I'm busy doing that but that takes a lot of time so one of the challenges for me is to figure out over time how many major things can I take on to build and change as opposed to just giving somebody money who's doing something I I I tend to like creating links in your life you're like your father you've reached happiness you're really happy yeah I'm really happy absolutely I still have enormous Drive I mean I love what I do and I love our for going to stay at Blackstone you're not going to government you're not going to go do anything else this is what you're going to be doing further well I like and respect what the people in government do and any way that I can be helpful you know to the United States and to help helping the country get on the right track I mean that's really a core motive that I have I don't have you know sort of some kind of narcissistic need for doing something and you know I like being helpful in crises I mean I helped Hank out a lot during the financial crisis boy that was really fun if you're a financial person I mean the idea of trying to help you know like intervene to come up with solutions to save the world wow what a test how terrific and there was a great team in the government working on it there were a number of kibitzers on the outside coming up with ideas I mean that was like a moment I was just in China talking to their people two weeks ago you know things haven't gone exactly as anticipated there and so when when you can intervene and help people like this up you know I you know I'm not trying to be anything David I'm like just trying to be helpful that's all right well you've done a great job and I want to thank you for coming this afternoon and for your success Plus either way before they cut my mic off yes map of the original map of the District of Columbia well that's that's very nice I was looking for the Magna Carta but I know still you know what one fit one thing I I'd say you know I was chairman of the Kennedy Center and we had to pick a successor and and and David was among those candidates and the same way David says I'm going to a Carlisle meeting after this what am i doing interviewing Steve schwarzy when when there was a choice to pick somebody David was the obvious choice and I did that with enormous enthusiasm because he's got so much energy so much Drive good intention and he doesn't like failing and I thought the Kennedy Center would be in great hands with David in charge and look how it's worked out it's magnificent so my hat is off to David you got a marvelous job thanks very much we'll send this to your wife you

Channel: The Economic Club of Washington, D.C.

Views: 218,793

Rating: 4.8190632 out of 5

Keywords: 2014 - 2015 Speaker Series, Stephen A. Schwarzman, Blackstone Group L.P., David M. Rubenstein

Id: 7kThTbLUQdU

Length: 53min 50sec (3230 seconds)

Published: Tue Sep 15 2015

Reddit Comments

[u/Dovakeeeeeen]

Thanks for posting this. The backstories of all these guys are fascinating to listen to.