Schwarzman: PE Industry Is Relatively Miserable At Marketing Themselves
Blackstone Chairman & CEO Steve Schwarzman said XX on Bloomberg Television's "Market Makers" today. Speaking with Erik Schatzker and Stephanie Ruhle, Schwarzman said that Blackstone has "aggressive plans" for further diversifying its operations and growing assets under management.
Schwarzman said, "We've expanded our business significantly. That was highly unusual during the financial crisis, when almost all financial institutions where pretty much shrinking." Schwarzman also said, "the private equity industry generally is relatively miserable at marketing themselves to the public."
Schwarzman on why private equity has a bad reputation:
"Nothing works out your way all the time. That is not the way the world is. I think that the private equity industry generally is relatively miserable at marketing themselves to the public, but the fact of the matter is that the industry itself improves companies and creates a lot of jobs and the returns that people say go to the industry really are not going to individuals, per se, they are going to the pension funds, they are going to universities and foundations, which is where those returns go. Our job, consistent with doing the right things in society, is to provide retirement benefits. You are seeing now, discussions where pension funds are having trouble paying these benefits. Our job is to make sure that they earn a lot of money so that the people who are the ultimate beneficiaries, the people who are hard-working people who are ready to retire that they have money, and we do that by producing much higher returns."
On how much it matters when someone like Jon Stewart says that Blackstone is evil:
"No one would ever like anything like that. Unfortunately I missed his show, but I think there was a misunderstanding on the transaction that he was explaining, where we actually saved the company in Spain by investing in it, which would have been liquidated. They do not have the same bankruptcy code that we do. Had we not put money into this business, there would have been a lot of unemployed people. I think that now people in the financial community, generally, are pretty much targets. That goes with the territory. What is most important is that you behave in a transparent, straightforward, ethical way and things work out."
On how Blackstone has continued to reinvent itself and what its next big thing is:
"We have a number of really aggressive plans, but if we told you two the problem is everyone else would know. In finance, imitation is the highest form of flattery and we do not have patented trademarks and intellectual property. So, I'm not going to share with you, but I can ensure you that we have a whole variety of things."
"The way we are organized, our basic businesses are continuing to grow. We fine allied types of areas to go into, whether it is geographic or with new products. Part of the reason that is important is to give our star younger people something to run. This way, we can keep growing and we do not lose people. We develop areas with high returns for our limited partners. The world is a big place. Globalization has opened a lot of opportunities for firms like ours. We regularly take advantage of those."
On Hilton and whether we'll see more of Blackstone repositioning and growing a company:
"This is basically what we do in private equity, we are somewhat mischaracterized, but this was a situation where we bought this company at an admittedly high price at that point in the cycle, there was a lot of consolidation to do, they were running as three or four separate businesses. There was a great opportunity to expand outside the United States as well as continuing inside. Hilton was a merger of two companies. The foreign company had not aggressively expanded at all. Our plan called for opening a lot of units and we have accomplished that type of execution."
On whether it helps to leave people with a better view of what Blackstone is and the good work it does, include growing businesses:
"In terms of what we do, we have a clear idea of what we are trying to do, which is add value and grow our businesses and create jobs. And we do that. Statistics on the industry have been well studied and are apparently not repeated by other people, they just go ahead with whatever they feel like saying. But it is pretty clear."
"It is unfair, but life is somewhat unfair. We have to make our case not that we are inventing reality, but just putting it out there. We are proud of what we do is affirmed. Our people are proud. The people who give us large amounts of money are very happy with our performance. We have placed a big emphasis on green investments, especially in the energy area. Even with our companies in terms of preserving energy, you know, we have a very large footprint, if you will, just in our private equity business, which is one of our seven business lines, we have $120 billion of revenue, 80 companies, 740,000 people. This is not a few people doing some deals. This is like a major industrial global enterprise. We operate with best practices because that is good business. It is the right thing to be doing and it is certainly working out for our investors."
On the budget deal in Washington:
"It is a good thing. I guess it was two weeks ago that I ran into Paul Ryan and Patty Murray and they were both very careful about talking about how they were keeping secret, what they were doing, and that they were working hard and that they wanted to get something done. And they will. it is not a big deal in numbers, but it is good to sort of change that pattern and dialogue."
On whether the gesture is big enough:
"As I said, it is not a big financial deal, but I think that there was a desire in Washington -- the system was clearly not working. Every poll that comes out, from every network and every pollster, shows that both the Congress and the executive branch are really suffering. If 70% to 78% depend on the poll in America believes that we are on the wrong track, let's assume that that is the case. Either the people in the government are going to change it, or the American people are going to make some changes."
On whether this is a Republican Party he can get behind:
"I am not the world's expert, but I think that from looking around the world, whenever there are big moves, either to the right or to the left, you tend to get a counterbalance move on the other side. You get a society that politically that does not work as well. I think there will be adjustments that occur because the public wants those adjustments. They want a government that functions correctly and accomplishes business on behalf of people. You cannot leave the country with a perception, which is true, actually, that we are on the wrong track. It will be corrected. Americans are practical. They will make certain decisions to ensure that we have a normal functioning government."
On whether he has a presidential candidate in mind that can fix a dysfunctional Washington:
"I think it is early. America is a pretty volatile place. A lot of people over the last decade have been announced as being the next president who, in fact, are not, or were not. So, I think you have to get closer to that period to figure out what America is really looking for."
On his relationship with the White House:
"They made a big effort over the last year or two. I see the president actually with reasonable frequency, through either organizations I belong to or meetings at the White House. They are trying to get behind some things that are important. I can always support things that are important."
On where he and President Obama see eye to eye:
"The whole concept of immigration reform is something we really need to do. The idea that we educate, for example, foreigners, give them PHD's at our best schools, and then do not allow them to stay here anymore and ship them back where they go into competition with us, combined with the fact that we leave our money offshore , and discourage companies for bringing it back to expand with capital that should be coming back here, with workers that have been trained in the United States? It is almost deranged. So, things like this need to be fixed, because it is good for America. On the issues like that, I look at my role sort of as someone in the business community who says if the president thinks that is a good thing to be focused on, I happen to think it is a good thing to be focused on. Some of the details are up to political people to fight about on the margin. That is not my fight. But accomplishing it and being positive on things like that is good for America."
On how Blackstone's growing focus on retail investors is going:
"It's working pretty well. We basically offer the same kinds of products that we do to institutions and we have had rapid growth in that area. In the last year we have raised about $7 billion from retail investors."
On how small these investors have to be:
"They can buy our stock, which is a separate thing, but usually we have some restrictions of size, though there have been changes in the laws to break into small pieces, down to 50,000. We do not specialize in that kind of size, but we have grown from roughly $600 million a year in 2009 from retail to $7 billion. This is another one of these massive scale ups that we are doing."
On how big a deal retail investors can be in Blackstone's funding mix:
"Retail investors are way under allocated to alternative investment products. A large institution would be 15%, sometimes 20% in alternative products, which historically have averaged for firms like ours, somewhere around 1000 basis points over the stock market. If you get an extra 10% return, you would want to put more money in these types of products if in the future we do what we did in the past. Retail investors, typically, are only one percent to two percent of their total portfolio invested in alternatives. So, it makes sense for them."
On whether they need to be comfortable with illiquidity:
"Illiquidity is not a bad thing. Liquidity, is, in effect overrated. The premium in terms of return for illiquidity is so much higher. No one needs 100% liquidity, typically."
On how often he needs to explain that:
"You do because investors do not always do the right thing for themselves. One of the advantages of being in effect locked up in our types of investments is that you can take investments that go down abnormally in times like that and stay in them so that they go up. Hilton is one example of that type of approach and many investments are like that. People tend to panic near bottoms and be overly enthusiastic at tops. What we do for them is make sure that that does not happen."