Stephen A. Schwarzman, co-founder, chair and CEO of big private equity firm Blackstone, has just released an autobiography, "What It Takes: Lessons in the Pursuit of Excellence" (Avid Reader/Simon & Schuster-Sept. 17).
An apt subtitle also would be "Lessons in the Pursuit of Deal-making."
The sometimes controversial investment manager reveals how he rose from his first job, at Donaldson, Lufkin & Jenrette — at which he "would cower in [his] office hoping no one noticed [him]," he writes — to building Blackstone, the world's largest alternative asset manager. It boasts assets under management of $545 billion.
In an interview with ThinkAdvisor, Schwarzman, 72, discusses his method of finding investment opportunities, where he sees a market bubble right now and whether he forecasts a recession on the horizon. He was an early detector, in 2006, of big trouble in the housing market.
Schwarzman turned down President Donald Trump's 2017 offer to join his administration but has since counseled him and chaired the president's short-lived Strategic and Policy Forum of business leaders.
Last year the manager, who founded a fellowship program in Beijing, made eight trips to China on behalf of the White House. In the interview, he explains Trump's U.S.-China trade objective.
At 10, Schwarzman was working for pay in his family's linen store. Then it was on to Yale University and Harvard Business School. Following his Wall Street initiation at DLJ, in 1972 the investment banker moved to Lehman Bros.
Thirteen years later he and Peter Peterson, previously chair-CEO of Lehman when Schwarzman was there, co-founded Blackstone with $400,000 in startup capital. Peterson retired from the firm in 2008.
Blackstone's clients include large institutional investors, pension funds and insurance companies, as well as individual investors.
Schwarzman, who is worth $18.3 billion, according to Forbes, is a notable philanthropist who has given billions to Yale, the Massachusetts Institute of Technology, the University of Oxford and the New York Public Library, among other institutions.
ThinkAdvisor recently interviewed the Philadelphia native, who spoke by phone from his New York City office. He took the opportunity to point out that by reading his book, "financial advisors could learn how their clients are thinking. It can teach advisors to be more effective in relating to their customers." Indeed, he stresses what he claims has been one of his most important strengths: being a good listener.
Here are highlights of our conversation:
THINKADVISOR: You made eight trips to China on behalf of the Trump administration in 2018, assuring officials that the president "was not looking for a trade war," you write. Please elaborate.
STEPHEN SCHWARZMAN: I think he wasn't.
What was he looking for?
A rebalancing of the relationship. That rebalancing didn't occur through regular negotiation. As a result, the tariffs started. The objective is to have a much more balanced and open market system with similar tariffs going both ways at, hopefully, much, much lower levels so that the best products and services from each country prevail.
How would that happen?
You can't make somebody win or lose. That's up to the goodness of the products and the prices. The objective was, over time, to have that normalized and be much closer to even between the two countries, [with] equal market access and intellectual property retention.
Some experts are predicting that a U.S. recession is imminent. Are you of that mind?
If I remember correctly, they said the exact same thing last December! And we didn't see it. Now, we do see the economy slowing, [but] we still have 70% of the economy in the consumer area, which is quite strong. So it doesn't seem likely that any type of recession will happen in the short term. You would need something that really shakes confidence. Typically, those are geopolitical things rather than just an economic cycle. So I don't think [a recession] is going to happen, in the United States, at least.
You write that when a market bottoms, people should invest only when values have recovered at least 10% from their lows. Why wait?
When you're in a really deep recession, the problem usually is that you buy too early — you buy on the way down because you think that's the bottom. So there's that problem. Then, when you're actually on a bottom, often people won't sell you things — they'll sell you stocks but typically won't sell you companies because everything has lost so much of its value that if they don't have to sell, they won't. And sometimes, if you do buy something, it could stay at that bottom for a few years. This is like money that's making nothing.
So, if you wait, what's the biggest benefit?
If you wait till the economy starts recovering and markets start recovering as a confirmation, then you really can load the boat. You may miss the first 10% or 20% of the economic recovery, but you've got 80% left. That's enough. And you're catching things as they're happening rather than hoping they'll happen.
You write that the notion "no one can see bubbles" isn't true. Do you see a bubble now?
Certain types of privately owned tech companies are clearly bubbles. Look at what happened at Uber and WeWork. Those are the fruits of a bubble. This is where you have very interesting ideas or companies providing a service at very big financial losses. Because Amazon managed to do that successfully, everyone assumes that every other [such company] will do the same. I don't know if that will turn out to be true. What people will pay at the top of that cycle ends up, retrospectively, being quite unrealistic.
In 2006, you saw — early on — many problems in housing and a crisis on the horizon. What were the signs you observed?
AIl of a sudden, in a very short period of time, we had three big suppliers to housing show up saying they wanted to sell their family companies. Why are they all showing up in a month and a half? What do they know? And then, as we were trying to buy real estate, we saw [housing troubles], first in our private equity business and then in real estate itself.
What did you note specifically?
We could see, sort of, huge valuations for raw land in India; we could see huge oversupply in Spain and 25% increases in housing prices in Palm Beach. You put all that together, and it's pretty clear that you've got some kind of residential housing excess going on. So, all you needed was knowledge of what was happening. It was pretty easy to see. We didn't get hurt like most other financial institutions as a result of housing.
Nonetheless, in February 2009, Blackstone's share price dropped from $31 at the time of your June 2007 IPO to $3.55.
After the global financial crisis, the average stock of a financial institution went down 85%. We were an outperformer — we went down 90%! But since our IPO, we've outperformed the S&P by 1.8 times. We also grew the firm six times in size since the crisis. Almost every other financial institution has shrunk.
What's the secret to Blackstone's success?
