Stephen Schwarzman (Pennsylvania, 1947), CEO and co-founder of Blackstone, one of the world's leading investment firms, is an active philanthropist in areas such as education, culture and the arts. He recently published his memoir: "What it Takes". Since his youth, Schwarzman has been a courageous, self-confident man with a spirit of leadership and ambition whilst being careful not to be reckless. With a BA from Yale University and an MBA from Harvard Business School, he is a tireless worker who barely sleeps, knows how to select the best people, listens to and asks for advice and always finds time for a kind word.
Author: Elena Cué
Stephen Schwarzman.
Stephen Schwarzman (Pennsylvania, 1947), CEO and co-founder of Blackstone, one of the world's leading investment firms, is an active philanthropist in areas such as education, culture and the arts. He recently published his memoir: "What it Takes". Since his youth, Schwarzman has been a courageous, self-confident man with a spirit of leadership and ambition whilst being careful not to be reckless. With a BA from Yale University and an MBA from Harvard Business School, he is a tireless worker who barely sleeps, knows how to select the best people, listens to and asks for advice and always finds time for a kind word.
Blackstone, the world’s largest alternative assets management firm, which you co-founded with Peter Peterson in 1985 with $400.000 start-up capital, is now worth $55 billion with $500 billion turnover. What do you think is the key to its success?
To begin, we had a really good strategic plan. One thing I have learned in life is that you need to know where you want to go and you need to have a good plan. You need to do something that nobody else is doing, something you think will become very popular and develop very big ideas. Our strategic plan had three parts. The first was to go into the Merge and Acquisitions Advisory business (M&A). The good thing about this business is you do not need any capital. Large corporations pay you millions of dollars to think and advise them. If they pay you, it is because you are doing it well.
The second part to our strategy was to go into the private equity business which basically consists of buying companies, improving them and making them grow faster, which in turn will make them sell better or go public. They will have more income and therefore double the profit. That way you have transformed the company into a much faster growing business and you will hire more people. It is very beneficial. You can end up making double the profit by investing in the stock market averages. If you double it, a lot of people will want to give you money so they can make double too.
Where does the capital come from?
Generally, we get our money from very big pension funds around the world, but we also receive investments from other institutional or individual investors. We thought this type of business would have explosive growth and it has. The key was finding people with talent in that area, a great investment potential. That was the third part to our strategy.
And how did you become the biggest Real “Landlord” in the world?
At that stage, we could not foresee what the areas of interest would be. Therefore, we had to wait and that is precisely how we ended up in real estate in 1991. We saw an opportunity in the real estate sector during the second US government auction in which a lot of bankrupt savings and loan types from banks were on sale. Now, we are the largest real estate owner in the world. We specialize in buying in places which have had difficulties so the price drops significantly and then with the normal economic recovery comes a large profit.
So they began to grow...
We invested in improving those assets in order to make them more attractive. That is the basis of how we built the firm. In 1986, we started by raising our first fund and now, instead of one, we have 50 funds in 50 different areas. We began in the United States, then expanded to Europe and Asia. We started with the highest returning products and now we have realized that products with less return and less leverage are also attractive.
In the last few years, you have invested €23 billion in our country. What lead you to invest in Spain?
Spain played an important role in Blackstone’s development. Our team discovered Spain was building so many apartment units they could have housed most of Germany and still had units left over. It was easy to predict that the construction sector would end up collapsing. At the same time our team in India informed us that land prices had multiplied by 10 in 18 months. The same was happening in the United States. Therefore, I told my team we had to sell all the assets tied up in residential housing around the world. It was clear what was going to happen.
It seemed like not everyone was aware of it...
Our business consists of gathering information and objectively assessing it. When Spain, as expected, went through a very difficult economic time and nobody in the country was buying real estate, we thought if we could buy properties at a low enough price and invest in improving them, we would achieve excellent results, as was the case in the United States. Indeed, that is what happened. Spain is a strong country despite having gone through a terrible time with the crisis. We believed in Spain and its ability to recover.
How would you evaluate the current economic climate in Spain and in Europe?
Spain has recovered very well. It has a good economy. Europe is experiencing a deceleration in terms of economic growth, as is every country in the world.
Some say another recession is on the horizon.
I am not sure we are going to have a recession in the United States, it is more likely to happen in Europe. The United States is doing better. There is full employment, the best rates since 1969. The American consumer is very strong. Wages are increasing faster than inflation so consumers have more money and they are spending it. That represents 70% of the US economy. That is the base. Even though manufacturing all over the world is decreasing, including in the United States, it only represents 11% of our economy, in comparison to 70% made up by the consumer, which is a vast difference.
Stephen Schwarzman. Photo by Elena Cué
In your book “What it takes” you talk about the mentors who shaped you as a person, such as, your father. Which values laid down the foundation of your career as an entrepreneur?
In the United States it is quite common to help others in their professional career. Most entrepreneurs are not completely alone, they often have partners, particularly in the field of technology, where most of the great companies were formed by various people. I was going to drop out of my MBA program at Harvard. I wrote a letter to the manager of the company I had previously worked for and he responded with six pages about his life. After reading it, I said to myself: “OK, I will continue studying”. That one decision changed the course of my life. There are many times when there is a point of inflection. You talk to other people and if they are intelligent, you listen to what they say and act accordingly. This helped me so now it is my duty to help others.
What are the most relevant attributes a person must have in order to join the Blackstone team?
Blackstone has always been what we call a meritocracy. It means that the people with the best values win; we are looking for born competitors. We keep producing new business lines so everyone can be in charge of something if they are qualified to do so. We are looking for people who are very intelligent, hard-working, non-political and good communicators. People who have a good understanding of what is happening around them and also possess solid analytic skills. Another attribute is they must be good people. When I was at Lehman, there were a lot of employees who left a lot to be desired in that aspect which lead to a very talented group of people suffering.
What would you advise someone who wants to start a business?
You should try to do something that no one else is doing, imagine something that does not yet exist but you think the market will want. If you limit yourself to opening the exact same type of business as others, there is no real reason why anyone should come to you. It becomes much less likely you will be successful, it is not bad, but it is not ideal. You have to time it right, without deviating much from what people want. When Walt Disney created his first theme park, he knew exactly what he wanted to do. No one else had done anything similar until then. There is always a myriad of setbacks, but moving forward and overcoming those problems is not as important as having a clear vision of what you want to do. The creative process is initially abstract; it is just a thought. Then you need to assemble as many financial resources as possible. If you have big dreams, the chance of them coming true is a lot greater.
In the book you explain how President Donald Trump asked you to form and manage a group of talented and knowledgeable individuals, no politics, who could tell him the truth. The Forum was later disbanded. It seemed to be a very good idea for any government…
Everyone who runs an organization should aspire to have as much objective input as possible. When you are the head of something, particularly in politics, you are quite isolated because when people around you criticize you, you usually stop listening to them. Forming a group of people, who are not political, who tell you what you are doing right and wrong, is a great concept. In a democracy, most people are not necessarily experts in everything, yet they are responsible for everything. Would it not be useful to have experts to guide you in the areas you are not familiar with?
You have served your country in many ways, including acting as the intermediate in trade talks between the United States and China. What is your opinion after the United Nations’ last General Assembly?
It is complicated because the Chinese have adopted an emerging market approach to their economy, much like the United States did in the 19th century when it was a developing country. At the time, we relied on significant tariff barriers that allowed us to develop our economy protected by those restrictions. China is experiencing the same process. Forty years ago, the average income in China was only a few hundred US dollars per person, whereas currently it is around $10,000 per person. Today, China is the second biggest economy in the world, after the United States. There is a big gap between China and other countries. Together the United States and China represent somewhere between 35% and 40% of the whole world’s economy, depending on the scale you apply. The United States and the developed world want China to remove some of these restrictions that confers them certain advantages over other developed countries. It is difficult for China because if you have always had an advantage, why would you change? In which case, they haven’t. It is not a coincidence that we have not signed an agreement with them in about 70 years. Now we are taking that very seriously.
The lack of trade agreements for such a long time is surprising. Could you explain some of the causes behind the lack of understanding between the United States and China?
There are two groups in Chinese politics: the reformists who believe China should adjust and change, and the intransigent people who are satisfied with what the country has done and do not want to change it. The reason why trade agreements are so difficult is because it is hard to know which part of China is going to control the country’s demands. At different points of the negotiations, the power shifts back and forth between the reformists and the intransigents. Negotiations between the two countries were about 90% complete in May this year but the Chinese then eliminated about a third of what was agreed and the negotiations collapsed. I think both China and the United States realize that decoupling the two largest economies on the planet is going to slow the world down and not just in the short term. It is probably in the best interest of both economies to establish their objectives.
How did China become important to you?
Actually, it all happened by chance. In 2007, when we went public, the Chinese government approached us to request to buy 3 billion dollars worth of stock, which represented 9.9% of the company. We offered them non-voting stock which meant they would not have a member on the board of directors. It was the first time since 1949, when modern China was founded, that China as a country, had bought a major amount of shares in a foreign company. Blackstone was the first. This had global repercussions because it was a sign that China had started to recycle its huge financial reserves and wanted to participate in the rest of the world. For us it was a complete surprise.
In 2016, you founded and built the Schwarzman Scholars College at Tsinghua University in Beijing, which offers a master’s program helping to build a stronger relationship between China and the rest of the world. What was your motivation?
Current president Xi Jinping and his predecessor studied at Tsinghua University, the biggest politically connected university in China. It has an international advisory board formed by a group of CEOs from different countries, including a lot of prominent Chinese figures such as Jack Ma from Alibaba, Robin Li from Baidu, Pony Ma from Tencent and people from around the world such as Tim Cook from Apple and Mark Zuckerberg from Facebook, amongst others. There are also many senior members of the Chinese government. I could see that things were not going to remain the same between China and the rest of the world after the financial crisis because China continued to grow, whereas European countries and the United States went into a terrible recession and unemployment in Europe is still very high. That situation would lead people in the developed world to feel unhappy, particularly those who earnt between 40% and 50% of the average income and generally, that triggers what is known as “populism”. People in lower income brackets get angry with the wealthy and with business and financial people. Normally, as shown in history, they project their anger onto a foreign devil and I knew, in this case, it would be China because it was very important. China was doing so well both economically and financially. Therefore, I decided I wanted to address this problem of the Western world’s friction with China.
In June, your record donation of £150,000,000 given to the University of Oxford was announced and featured on the front page of all the major media sources. Can you explain the main reason for such a generous donation to the field of ethics in Artificial Intelligence?
Artificial Intelligence is a new technology which will explode all over the world as it can do some incredible things. It can help enormously in the medical sector, in education and in the workplace. It is a revolution. On the other hand, AI can create problems. One area is employment. Machines will replace people, as they already did at the start of the industrial revolution but that took about 100 to 125 years, whereas AI will happen in the next 10 to 20 years. The idea that everything always works out is right but if it happens very quickly, you can have huge dislocations and much larger unemployment than society can absorb. Therefore, Artificial Intelligence ethics is just a code word for trying to figure out how to allow this technology to be introduced to society so we can reap the benefits, whilst maintaining enough control to ensure the disadvantages are reduced. This requires the involvement of governments, companies, research universities and the media so that you can introduce these regulations without eliminating the benefits of the technology which will enormously help all kinds of people. That is why I am supporting this. I chose Oxford which is a unique university in the study of humanities.
With a donation of $350.000.000 you have created a new space in Massachusetts Institute of Technology (MIT) dedicated to the study of Artificial Intelligence and Computing which will be opened this year.
The reason for creating the Schwarzman College of Computing at MIT is to advance in the field of science but also to analyze AI ethics. Oxford is number 1 in humanities in the world, whereas MIT, depending on whose ranking, is number 1 or 2 in technology in the world. I dedicated a lot of time and financial resources into this because I think it is very important for humanity.
What does it mean to you to be the chairman of the John F. Kennedy Center for the Performing Arts in Washington D.C.?
During President John F. Kennedy’s inaugural speech in 1961, he said: “Ask not what your country can do for you but what you can do for your country.” In my generation, we were expected to help our country. When I was asked to take on the Kennedy Center job, I thought it would be a good thing, because I could help. I did not want to go into government full time. I had been asked to do that before but I did not want to.
In addition to the previously mentioned, you have also made other significant donations to the New York Public Library ($150m), Metropolitan Museum and Yale University ($150m), a football stadium... What is your understanding of philanthropy?
I am involved in different types of philanthropy. I like creating very large-scale projects that have never been done before, consistent with my book. I do the same with philanthropy. I ask myself if there is something I can create to help resolve a big problem. Actually, I do not really consider it philanthropy. I start by asking: “What is good for society?” before backing into important financial commitments. Together with my wife, Christine, we have ended up being the largest donors to Catholic schools in the United States. I am not Catholic but the schools are great. Only about 50% of the children who go to these schools are Catholic: 90% are minorities, 70% are on the poverty line or below and 98% of them graduate.
Stephen Schwarzman during the interview with Elena Cué
- Interview with Stephen Schwarzman - - Alejandra de Argos -