Key Takeaways
- • Blackstone co-founder Steve Schwarzman, in a Bloomberg Q&A, said the firm's total assets under management of $367 billion are backed by investors who are confident in results, while public shareholders, representing roughly $17 billion or about half the market cap, have kept the stock price flat over a decade.
- • Schwarzman said the stock price is unchanged from the 2007 IPO price, a 6 percent annual dividend yield aside, and that he had expected a higher price despite Blackstone becoming the most profitable money manager in the world in 2014.
- • Blackstone's 2007 purchase of Equity Office Properties Trust for $40 billion, of which $30 billion was sold within five weeks, was described by Schwarzman as seven times larger than any prior single real estate transaction by any firm in a year.
- • Schwarzman credited Blackstone's post-crisis growth to a strategy of advisory, private equity, and opportunistic investing, along with controlling risk across asset classes, while noting Blackstone's specialty-manager model left it four times larger than at its IPO.
- • Schwarzman, who chairs Trump's Strategic and Policy Forum, appeared alongside the president in Saudi Arabia to announce a $100 billion infrastructure effort with $20 billion of equity from Saudi Arabia.
Summary
Blackstone co-founder, chairman and CEO Steve Schwarzman, in a wide-ranging Q&A with Bloomberg, reflected on the decade since Blackstone's 2007 initial public offering, a period he described as turbulent for the financial industry. Schwarzman said regulatory and market reactions to the crisis ultimately benefited Blackstone's bottom line, and that the firm has become the dominant leader in alternative assets, a category spanning private equity, hedge funds, credit and real estate.
The central frustration Schwarzman identified is the share price. He said he did not expect the stock to remain at its IPO level after ten years, and noted that with dividends of roughly 6 percent a year the shareholder return amounts to about a 6 percent appreciation. He acknowledged he had expected a higher valuation, while also noting he had not anticipated the firm would grow as large and as profitable as it has, including being named the most profitable money manager in the world in 2014. He pointed to a gap between the roughly $367 billion in assets under management, supplied by investors he described as confident in results, and public shareholders, whom he said represent about $17 billion, or roughly half the market capitalization.
On strategy, Schwarzman said Blackstone pursued three paths from its early days: an advisory business requiring no capital, the private equity business, and other opportunistic investments. He said the firm was built on continual reinvention, since no competitive advantage in finance lasts indefinitely. He described Blackstone's post-2008 expansion as enabled by platforms already in place, large-scale capital raising, and a risk-control system that spanned asset classes.
In real estate, Schwarzman said Blackstone entered the business after the 1992 real estate collapse and had already been doing the largest deals in the world in 2007. He cited the $40 billion Equity Office Properties Trust purchase, announced in February 2007, of which the firm sold $30 billion within five weeks, a volume he said was seven times what any real estate firm had transacted in a single year before.
Schwarzman also discussed his 2002 decision to bring Tony James in as president to reduce the firm's dependence on him as a risk-control choke point, and said an earlier attempt to hire Jimmy Lee from JPMorgan fell through when Lee declined at the last moment. Schwarzman, who advises President Trump and chairs the Strategic and Policy Forum, said the administration is pro-growth and efficiency-driven, and referenced the Saudi-backed $100 billion infrastructure initiative announced during the president's trip to Saudi Arabia.
The central frustration Schwarzman identified is the share price. He said he did not expect the stock to remain at its IPO level after ten years, and noted that with dividends of roughly 6 percent a year the shareholder return amounts to about a 6 percent appreciation. He acknowledged he had expected a higher valuation, while also noting he had not anticipated the firm would grow as large and as profitable as it has, including being named the most profitable money manager in the world in 2014. He pointed to a gap between the roughly $367 billion in assets under management, supplied by investors he described as confident in results, and public shareholders, whom he said represent about $17 billion, or roughly half the market capitalization.
On strategy, Schwarzman said Blackstone pursued three paths from its early days: an advisory business requiring no capital, the private equity business, and other opportunistic investments. He said the firm was built on continual reinvention, since no competitive advantage in finance lasts indefinitely. He described Blackstone's post-2008 expansion as enabled by platforms already in place, large-scale capital raising, and a risk-control system that spanned asset classes.
In real estate, Schwarzman said Blackstone entered the business after the 1992 real estate collapse and had already been doing the largest deals in the world in 2007. He cited the $40 billion Equity Office Properties Trust purchase, announced in February 2007, of which the firm sold $30 billion within five weeks, a volume he said was seven times what any real estate firm had transacted in a single year before.
Schwarzman also discussed his 2002 decision to bring Tony James in as president to reduce the firm's dependence on him as a risk-control choke point, and said an earlier attempt to hire Jimmy Lee from JPMorgan fell through when Lee declined at the last moment. Schwarzman, who advises President Trump and chairs the Strategic and Policy Forum, said the administration is pro-growth and efficiency-driven, and referenced the Saudi-backed $100 billion infrastructure initiative announced during the president's trip to Saudi Arabia.
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