Steve Schwarzman - The Most Powerful Man on Wall Street | A Documentary

i put the television on uh it was left on cnbc evidently i was eating my dinner on a tray and and then i came up and i was looking at myself i was completely exhausted and i said this is like surreal we were on almost the whole day it was blackstone day on television and it ended up being the second largest ipo of the decade [Music] [Music] ultimately all journeys are alone it's great to have support you go forward and say your job is to make something work and that's your number one priority to make it work you know it's like super human effort people don't come become successful as part-time workers it doesn't work that way steve schwartzman was called the king of wall street i think it's fitting not because the business is so big and influential but because he built it from the ground up in 1985 the internal power struggle at lehman brothers forced stephen schwarzman to leave the company as a senior partner when lehman brothers was blowing up i saw a lot of behavior that i didn't like and i didn't want to be with the people while still in his 30s schwartzman has made enough money to retire for life but that is not the life he wanted ever since he was a child schwartzman always tried to do the impossible you have to a dream and imagine a perfect vision of what you want to be creating uh and then you have to live in that world before it exists now he dreams of building his own financial empire bigger than lehman brothers his dream seems impossible but schwarzman has been beating the odds his entire life after world war ii philadelphia was teaming with business opportunities even as a teenager schwartzman was immersed in the world of business by working for his family's furniture store which has made them very wealthy when i was 14 i had started working at my dad's retail store it was looks a little like a bed bath and beyond except there was no bed bath and beyond this is when his ambition started to show he wanted his family to take the furniture store and build it to become a national brand like bed bath and beyond when i was 14 i said to my dad hey dad why why don't we take this thing national and he looked at me and he said i don't think that's a good idea i said dad why don't you want to do this this is going to be really successful he said i'm i'm a happy person he said he said the store makes enough money i can send you and your brothers to college i really don't aspire to uh so i i've always been motivated by seeing something that you know doesn't exist but seeing the opportunity and and realizing on it making it as wonderful as it could be there's just something that you know is is part of my dna that when i see something that works the first thing i say is how big can it be how powerful is this idea not only did schwartzman excel academically but he was also part of the track and field team in his high school that eventually won the state championship i was an athlete uh all my life and in in high school uh you know i did a few sports including uh track and field i was a sprinter uh our team won the state championship you know we sort of traveled around the country we were i think fourth in the aau championships we were pretty hot steve schwartzman is a soft-spoken guy you know seemed very personable but he's also very competitive i think this athletic experience has shaped his personality making him always want to be number one [Music] however steve schwartzman's outstanding performance in classrooms could not get him into his dream college [Music] harvard a result in 1965 he became a freshman at yale university but steve schwartzman had a rough start at yale feeling isolated he decided he should do something extraordinary to impress everyone around that time there was no girls at his school he then comes up with the idea to bring ballerinas to perform for yale's man steve schwartzman's bolt actions got him noticed by a mysterious group of people a yale skull and bones impressed by his abilities this exclusive club invited him to become a member one thing is certain a secret society is about elevating members above others us versus them in the ivy league secret societies are the elite among the elite and members often become world leaders armed with a prestigious degree and invaluable social connections steve schwarzman knows it is only a matter of time until he reaches the top of the world but he soon found out the real world was much tougher than he thought [Music] in the late 70s the investment banking industry started to grow rapidly i had a friend who was a bond trader at merrill lynch in the 1970s he had a job as a trained conductor at night because he had three kids and couldn't support them on what a bond trader made by 1986 he was making millions of dollars this growth attracted a lot of ambitious young men to join the industry among them was steve schwartzman who took on a job at lehman brothers which was the star of the investment banking industry at the time investment banks are not really banks they raise money for companies in the event of a merger acquisition or going public [Music] he said i got your paper there's a typo on page 43 bang and i had really like struggled what kind of crazy world am i in what is this about steve schwartzman quickly adapted to the high moving culture on wall street and excelled at his job in a few short years he raised a better part of 100 million dollars for his clients but his real break comes when he orchestrated a deal worth 488 million dollars remember homemade orange juice things back now remember all those fresh juicy bits of orange dancing in your class on your tongue introducing new propaganda home style orange juice started as a family company tropicana became one of the most well-known juice brands when the company was offered to be acquired the owners failed it was time to cash out steve schwartzman successfully made the deal happen which secured him the partner status at lehman brothers at the tender age of 35. as i say it was the second biggest deal in the world and i wasn't a partner i was just sort of a worker so that was sort of i guess what you'd say was a a bit of a breakout moment for me what is next becoming a ceo of the most powerful investment bank is not just a dream anymore steve schwartzman feels he's on the trajectory to become a titan on wall street but to his dismay in just over a few years he was forced to leave lehman brothers louis glucksman was a hard-hitting trader who was known to throw his phone at a wall when provoked after he became the ceo of lehman the culture started to become increasingly toxic lehman ran into a lot of trouble as a result of a change in ceo uh my former partner pete peterson was forced out of the firm uh and blue blacksmith was put in and through a variety of decisions that turned out to be unfortunate the firm found itself in a situation with a giant uh trading position that went wrong uh the net worth of the firm basically marked a market with zero it's just a question whether somebody would figure it out if they did uh you know that comes to a very violent ending in finance seeing that no one was willing to do what was necessary steve schwartzman started a coupe he then successfully ousted glocksman and sold lehman brothers to american express and exited the company with millions of dollars to his name i was asked to sell the firm in two or three days which i did i was quite happy doing the kind of work that i was doing but i didn't think that just morally ethically i could be in the same place when you see people under enormous stress doing things that go against your values you basically don't have a choice steve schwarzman is at a crucial point in life when he could just retire and live out the rest of his life as a wealthy businessman or he could start again this time he will build something that was never built before [Music] without hesitation steve schwartzman decided to start his own business with his previous boss pete peterson the only problem is they don't know what businesses start for several months we had breakfast every day at the mayfair region at 66th and park we're the first people there the last to leave and we said what would make us unique what would be different uh because we wanted to to be successful it's better to be different than like everybody else eventually they decided to step into the thriving industry of private equity we came up with a with a good strategic plan to do uh advisory work to pay the rent uh to go into the buyout business because it looked like a pretty uh easy way frankly to make money in the mid 80s steve schwartzman is a risk-averse entrepreneur he wanted to have a steady stream of income first before building the greatest private equity in the world this idea that entrepreneurs are are risk takers is complete bs they're risk takers from the perspective of people who are watching them not from them themselves people who are entrepreneurs just see the the same facts uh differently or they s or they actually obtain different facts putting down 200 000 each they open their business at the sea grand building just north of grand central station both schwarzman and peterson were highly respected professionals in finance possessing wide connections raising capital for their private equity fund should be easy for them at least that's what they thought we sent 600 letters out to people announced our our new business and i expected the firm phone to be ringing so i don't know how often you like to be rejected but try it that many times my math skills aren't that good but it's got to be somewhere around 350 something 450 something rejections fortunately there was enough cash flow from their consulting business to keep them going more determined than ever steve schwartzman vowed that he would never stop until he raises one billion dollars for his company raising capital is a confidence game don't overestimate how smart these investors are because sometimes they exhibit hurt behavior i think that is why bernie madoff was able to raise so much money from these so-called sophisticated investors after endured countless rejections steve schwartzman finally raised 100 million dollars from an insurance company prudential they're with their chief investment officer uh garnett keith i'd never met him before you know i was doing my presentation of private equity fund and and you know getting a piece of our fees from our m a business so we're starting a merchant bank and he looks over to me and he says that's very interesting why don't you put me down for a hundred million dollars and i couldn't believe what i was hearing because at that time the prudential was the largest investor and the most prestigious investor in the world in private equity and 100 million in 1986 for a fund that was first time funded two people never made an investment this was like getting 500 million dollars once the first investor put down 100 million dollars it instills a great deal of confidence to other potential investors we ended up raising the biggest first-time fund in history with two people who'd never made an investment just by force of will so it does show you that force of will counts it counts with that willpower they raise a total of 1 billion dollars to start blackstone trusted with such a large amount of money steve schwarzman knows failure is not an option his first investment is going to be the deal breaker his years of experience has shown him that high risks don't always equal to height rewards he wanted height rewards without the risk right away he found a great company to buy u.s steel was the company created in 1901 by j.p morgan when he bought the carnegie steel from andrew carnegie steel production was vulnerable to the sharp rices and falls in commodity prices and fluctuating demand from customers by 1987 a labor struct paralyzed its plants and carl icahn a corporator has bought enough shears to launch a proxy action for hostile takeover to raise the great mail money they plan to sell the railroads and barges divesting them into a separate company this potential new company is a great candidate for a leveraged buyout to make an lbo work blackstone has to borrow a large amount of money to finance the deal since they were a new player in town no major banks would want to lend them money but there was one bank that decided to take a bet with blackstone new york has always had more different kinds of people than any place else but they have one similarity they all think there aren't enough hours in the day that's why in 1969 chemical introduced the first cash machine and now we've brought 24-hour banking home with people you can call anytime any day it turned out to be the best thing to happen to blackstone this chemical bank will later grow to be an unstoppable force in finance eventually devouring banks like chase manhattan [Music] subsequently blackstone put in 13.4 million dollars in equity while borrowed 636 636.6 million dollars from chemical banks and the bunk market blackstone's first deal turned out to be a great success as predicted the steel market recovered and the transport business was booming blackstone's investment improved the company's cash flow and in four years their equity quadrupled by the time they sold the business in 2003 this one investment achieved an annualized return of 130 percent however finance is a fragile business one mistake can spell the end edgecomb based in philadelphia another steel plant manufactures parts for cars trucks and airplanes [Music] once again steve schwartzman made a boat bed in the company with around 300 million dollars a month after deal was closed the steel prize started tumbling down and edgecomb was imploding this was truly terrible this was our third deal and you know i had one of our partners we had no processes i had never made an investment before one partner thought this deal was a good thing and another one heard we were looking at it and he came in to see me and he said it was going to go bankrupt because it was just making inventory profits disguised as real profits and that when steel's steel distribution business when steel prices went down as much as we were earning we would lose that more uh on the way down and the company would go bankrupt so and within six months we couldn't pay our interest on the debt and ultimately we lost all of our money and this was this was beyond dramatic i don't like failure i'm not used to it we all have it humiliated steve schwartzman vows to never make the same mistakes again he was going to build a robust decision-making system that prevents failures like this this is not a normal thing and what we do when we fail is we spend enormous time thinking through what did we do wrong you know failure is a how you manage failure is very important and some people manage failure by making pretend it didn't happen and they just go about their jobs and people don't pay attention oh we lost money on that one i don't believe in that i i like to learn after that blackstone rarely had an investment that lost money there's an argument saying that finance doesn't really create value it's just people exchanging money but i do believe that blackstone genuinely created value for the companies by offering capitals expertise talents or management the incredible track record has fueled the unstoppable growth of blackstone to get even more prominent they decided to expand into the real estate market however by 2006 steve schwartzman sensed a storm is coming goldman sachs stearns lehman brothers merrill lynch were all in on this the subprime lending alone increased from 30 billion a year in funding to over 600 billion a year blackstone was among the participants of this real estate boom but they had an insight that put in one step ahead of the market public companies containing lots of real estate properties were frequently valued at less than some of their parts blackstone could take their real estates off their hands fix them up and resell to other buyers by this time blackstone has established itself as a force to fear in a private equity business with size comes competition while eyeing his next game-changing real estate deal steve schwartzman realized he must act quicker than before because there are more competitions now equityoffice was a real estate investment company that owns hundreds of office properties comprising tens and millions of square feet on november 2nd 2006 they offered a premium of 8.5 percent over the market price and eop opened their books to blackstone this move attracted a bunch of competitors in the industry to join the bid not willing to lost the bid steve schwartzman raised their offer to nine percent at 52 a share to his surprise vornado a real estate investment company outbided blackstone schwarzman was furious and raised his bid to 55.5 dollars 24 higher than a market price and that is their final offer which is all cash while his main competitor vornado offered part cash and part stock this has sealed the deal for blackstone they won what steve schwartzman did next shocked everyone realizing that he may have overpaid putting his investment at a risky level schwarzman decided he will sell half the company to take media profit since we were a market top for real estate so just buying 39 billion dollars of real estate i i thought was dangerous uh because you had to pay a pretty good price to get it because it was competitive so as as soon as we decided we were going to actually raise our price enough to be be the winner there were two or three of us sitting around saying this deal is potentially dangerous we've got to reduce the leverage and we've got to take advantage of the crazy prices that people are paying so we decided to sell half of what we bought the same day we bought it so when i told people that they just sort of looked at me and and said the same day i said i don't want to take any risk closing the largest real estate deal steve schwartzman turned 60 years old in 2006. however instead of thinking about retirement steve schwartzman was thinking about his next big move by 2007 the market was still hot but schwartzman sensed there's a storm coming maybe there's still a chance for a massive expansion of assets before the storm hits that is to go public on july 24 2007 blackstone raised seven billion dollars the second largest ipo after google by 2021 at the age of 74 steve schwartzman is still the chairman and ceo of the blackstone group which is now more massive than what lehman ever was steve schwartzman he's the new king of the world right leonardo craft beer will play him in the movie report today says they have 78.7 billion under management mr schwartzman's firm has had a return on private equity investments of 23 percent a year for the last on average for the last 20 years in the real estate group at blackstone they've had 30 a year for the last 15 years and this is after keys once anybody decides to do something particularly with their life um it's it's a must do i mean you you can't fail and you try and think really carefully before you do something and if it's well conceived then it's not working it just means you have to move it around or you know maybe you're too early the world isn't ready for you and so you just suck it up and go back again and you can never give up once you make that commitment [Music] [Music] you

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Length: 26min 56sec (1616 seconds)

Published: Thu May 13 2021