Surveillance Special: Schwarzman On "What It Takes"

political persuasions. Um, I guess the text is good, but what it takes lessons in the pursuit of excellence from s. A. Schwarzman. He works for a shop called Blackstone. Just the photos are outstanding. Congratulations and the courage of showing a younger Steve Schwartzman who put it together. Well, that's certainly different than what I look like in the mirror when I'm shaving in the morning. Tom, if you are, if you are of a certain persuasion, Paul, Paul, you're too young

for this. There was a battle in the sixties and this is where your real governance of leadership clicked in you're the one at Yale that got it so the other sex could visit the other sex's dorm rooms. Right, Yes, that was a leadership lesson. Right that was that was give us a vignette of that battle. That was a very popular lesson. Uh and uh. I was dating a local girl, and so I thought more access was was

a good idea. Uh and uh. For two hundred and seventy eight years, Yale had a policy that women could not be in the dorms after certain times and for certain days. And uh. So so I thought that needed to be changed. And my view is that perhaps we

should get rid of those restrictions. But but I knew if I went to the administration and and sort of asked for that, they if if it had worked one way for two d seventy eight years, was going to continue to be that way, they'd have a series of excuses that you know, we'd be uh interrupting students study, there be music going on in the dorms all the time, and which everybody. So what was what wasn't so hard?

Actually I put together a survey of all the possible ways that somebody could object to just abolishing uh, what was called paridal hours uh, and restrictions on pridals. And and I got eleven of my friends to stand outside the dining rooms at Yale. They handed out the form h after the meal it was a dinner. Uh. People put the form in a ask it. They delivered all that forms to me. We tabulated him uh and we found that I think it was like point six off.

The students had no problem of any type abolishing there was there. There was a person in my college named n Hunt who ended up as head of the FCC, who was the deputy manager of the l Daily News. And I gave it to read, and I said, why don't we put it on the front page. And we did, listen to you and and four days later the administration dropped all those restricts. There's the governor's lesson by data data,

it sounds like I'm Bloomberg. I should mention that Mr Bloomberg is a principal owner of this TV and radio shop as well. Paul, So Steve, what it takes lessons into pursuit of excellence? Give us your thought process behind kind of I want to write this book. This is what I want to put in this book. What were you thinking? About well what what triggered this was a meeting I had with the head of a sovereign wealth fund in the Middle East who was new in his job,

and I was supposed to have a five minute handshake. Uh, and he started asking me questions about how do how do how does he make his organization more like ours? In effect? How do how does he make it better? How does he increase the performance? How does he uh look at the type of people to be hiring? Uh? What kind of incentive programs would would you need? Uh? How do you figure out where in the world you should be investing? What type of investments within that should

should you be doing? How often should you really look at your assumptions of what's going on in the world. And so it was two and a half hours. All I was trying to do was sell him some Blackstone products. Uh, and he in the middle of it, he said, look, don't don't try and sell me anything. We're going to buy them anyhow. I don't want my time wasted. And so that was sort of interesting. But it's the kind of thing I know because I run a company, so

so I know those things. Anyhow, Um, over the next year, Uh, most of my time instead of being able to sell products, was taken up with this type of of advice that

people wanted. So I realized I was getting tired doing the same type of of of meeting, and I said, you know, if we write a book, I could just give him the book and they could learn it and then I could have either shorter meetings or different Well, it's a very very well if you're just joining Stephen Schwartzman with this of course chairman, chief executive officer, and with Pete Peterson, the co founders of Blackstone, what it takes lessons in the pursuit of excellence. So it's interesting.

I just think of all the alumni coming out of the old Lehman Brothers and it's just experience. Like I'm a Solmer Brothers alum. It's the same type of things. Some of those names. You and Pe Peterson, you when you left Lehman to form black Stone, I can't imagine you thought it would be what it has become black Sun has become. What was your initial goal and ambitions

for black Sun? My initial goal, uh, was to have the same feeling as as I had at Lehman, which was being you know, sort of intellectually stimulated all the time, doing a variety of different types of projects. Uh, and I just wanted to recreate that. And uh, indeed we have, but at a scale that was not not particularly contemplated. Exactly when when you started. How many employees do you have now? Well, with with our companies, it's around five

hundred thousand. Um, you know, our parent company is roughly on the private act. Because Paul mentioned the transition from Lehman, which I'm gonna suggest was a visible right the Tory entity, to private finance, private equity, maybe on a nineteenth century basis merchant banking. Would you support more scrutiny of activities of someone that controls the employment of five people. Well, uh, we are, we are supervised, We report to the to

the SEC. Uh And um, you know, it was fascinating Tom that during the financial crisis, which was somewhat of a proof of concept, Uh, you guys, weren't the ones that caused it. Not only did we not cause it, we basically had almost no problems. Uh. Interestingly, the companies that got in trouble for the most part were the regulatory companies that were controlled by regulators. So this concept

of don't you need more regulation? Uh? Having gone through uh the crisis with flying colors, why watching the world around me collapsing? Um. It's hard empirically to make the case that regulation per se is an absolutely good Well, this is a huge deal because it's easy to talk about in two thousand nineteen, I have the clearest memories of oh, five oh six, it's going to be those guys, And it wasn't those guys. It was them guys. That

was a huge emotion. There was a deal, There was some bad deals done in two thousand six seven took too much leverage, Steve. One of the things we hear now, you know, we think about nineteen and we had it was supposed to be the great year of the great I p o s. And we've had a lot of disappointments Uber Lift, We've had deals that have been pulled, such as we Work and Endeavor. And it's kind of raising the question private market valuations, public market valuations, who's

got it right, who's got it wrong? And people now saying to you, maybe the private market, the venture capital market too much money chasing too few deals, pushing up valuations, and the public market just a buying it what do you how do you kind of react to that theory? Well, I think, um, you're absolutely right as as it pertains to a very narrow group of companies, which are venture

capital financed businesses in technology. Uh and UM, this has happened before, as you probably remember, UH in two thousand, we had these sky high valuations that that basically got both in the private market in the public market lead to collapse. And at that point, UH, roughly out of

a hundred venture capital deals collapsed in technology. Uh and and so um in the venture world, there's there's a there's an odd phenomena that if you put your money in on a first round and you pay more for the second round, um, Uh, you've made an instant profit on the on the on the on the first round. If there's a third round and you make it go up even more than you make a lot of money

from both the first round in the second round. So so there's an incentive perverse incentive if you will that paying higher prices than you would want as long as you were in that investment in the game. Now we're not in that game, and and so what's happened is the values of those type of companies have been bit up by other venture capital companies. When they pop out in the public market, the public market looks at it and said, what have you guys done with these valuations?

So Steve Schwartzman with us what it takes as wonderful new book, phenomenal photographs off the chart. Mr Schwartzman said, we're putting all the photos in there. Andy Wilde did that, You're gonna do it to Steave? Okay, so great, Let's cut to the chase. We disaster is out there. They loaded the boat on Lord and Taylor. When you were a kid with a dry goods store, you dreamed of walking in Lord and Taylor. What are you gonna do? Blackstone is gonna pick it up for eighteen cents in

the dollar? I mean, are you going to pick up the debris worldwide? Of we dog? Well, what I'd say is our our job in our real estate business is always to buy value. We call it buy it, fix it, sell it. Uh. And if you could buy something at a very reasonable price, uh, and it's susceptible of being fixed, and we do it. Uh. You know that's why we've had sky high returns in real estate for twenty five

years and virtually virtually no losses. Well, let me cut to this A serious question is that we company debaccles so tangible it can harm commercial real estate in this nation. Well, I think in certain cities where they've been huge concentrated takers of leases or buyers of buildings, it'll definitely have an effect um because they've gone in very big and relatively few cities. And you would expect when when things you know, sort of wash out for them a bit, uh,

there'll be things to buy. So, Steve, we in a financial media here pay a lot of tension what's going on in the trade negotiations, as I'm sure you do in your portfolio companies do as well. We have the Chinese in Washington, d C. Right now. What would you like to really see get solved, if anything can get soft here over the next several days with the Chinese

and trade Well, it was it was interesting. I'm I'm sitting in the studio here at Bloomberg and they have television screens up and I just saw a Vice Premier Lou how walking into UH Trade Representatives office with Bob light Kiser, who's the Trade representative of the United States and Steve Manuchin, who's the Treasury Secretary. So so whatever I think actually doesn't really matter because the actions going on, folks, this is the Schwartzman Act that you get. You get

this some Davos to the summer place. He's got like eight summer places. It's just me. I'm just Steve Schwartzman. Come on, there's a photo in here of you with Mr g and Mr Trump. You have donated to the Schwartzman scholars which is legitimate Chinese philanthropy. The NBA is dealing with this right now. Have we broken this odd wonderful cultural relationship with China with Mr Trump's trade war?

I think we've certainly strained it. Uh and um uh and and that's that's creating a variety of difficulties around the world in terms of manufacturing, which is really um declining virtually every place as a result of knock ons. I think on on the trade war, the trade war wasn't meant to be a war. Uh, the trade war.

That's what President Trump told us was wrong. Well, um, I think the objective is to take a system in China that's grown up over forty years that's been astonishingly successful for the Chinese, they've grown three to four times as much as the United States, accumulated a lot of wealth, employed enormous people and a number of people, and radically changed their country from GDP per capital of a few

hundred dollars to ten thousand dollars a person. Now. To do that, they went through a classic UH developing world scenario, hiding behind UH tariffs, UM, relatively closed markets, UH, centrally managed UH you know, very light intellectual property protections, and and it reached the point where they're the second biggest economy in the world. Just to give you an idea, UH, the U S and China together, depending upon which set of numbers you use, are between thirty five and of

the entire world's economy. This is massively concentrated with these two countries. So when the US asked China to change from being a developing economy to being like UH technology that that the question for on their side is why should I do it? Since since we haven't had a trade agreement with them in seventy years, regardless of what strategy was used by different presidents, UH, that will they change?

The answer is yes? But at what speed? UH? And what magnitude of change over time, Steve Schwartz, when they're not going at Trumpian speed. And this is the money question right now. You have an exceptional relationship with the President United States, You've been a great fundraiser, etcetera. Do you perceive all this agony we're living whatever politics is a one off due to the president's one or two terms, or is there a persistency here of a changed world?

I think there's a persistency, Tom that comes from the condition of of the workforce in the developed world, in the United States, as you remember, Uh, two years ago, the FED did a study and it said that of Americans can't write a forty four check in an emergency. In other words, of Americans fundamentally have almost nothing in the way of savings. Now, those people are unhappy. Those unhappy people actually ended up electing Donald Trump, which was

a surprise to virtually everyone. Uh. And those forty people still are unhappy, as you can tell from the populace. And so for the Chinese, which has been explained to them, UH that that this isn't just Donald Trump phenomena. And I talked to them really in the first right before the inauguration. Uh, and and said, you know, the frustrations uh in the United States and the rest of the

developed world are going to be coming at you. And it's not about a person, and it's not about an administration, because we have to make sure these people in the United States on the bottom have a much much better outcome. And with populism, they'll get angry at whoever they're directed to get angry against, whether it's financial companies, whether it's

wealthy people, whether it's the business community. And see if I think you your point is very well taken, because we've seen it, not just in the US with Donald Trump's election, but with Brexit obviously, and you know in the Yellow in France. What do you think And as a big macro question might be two foot but income inequality, how would you think US policy should be to try to address that? Is that I know, as you sit down with the administration, maybe have some discussions, what do

you think are some of the best ways? Well, I I think it's it's it's really important to address this because it's it's ripping the fabric of the United States apart politically. UH. And the first thing that I think needs to be addressed is the income level for for this group of people. And there are a lot of different policy responses you can have. What I like is increasing the minimum wage and to to fifteen dollars where you could afford that different parts of the country that

may be a little bit too high. The reason why I like that is because to get that that wealth transfer, you actually have to work to get it. This isn't passive, uh, And it's about of the people in the country that that would affect. But what happens is that the people who earned more than the minimum wage when you when you get close to doubling a minimum wage, they all have to be increased. So so this would hit somewhere between thirty of Americans. So that's a start. We're running

out of time. Very emails and it says, well, yes, Steve, to buy the New York Knicks and fix it. We'll see if that'll happen. I got one more question. It's really really important. I want you to review the future of the New York Public Library. People talk others. Do you took an institution flat on its back? Bezos is making it happen with Kindle and all that talk about why we need a library, and particularly as you have

beautified that marble palace downtown. Well, what's fascinating counter to what everybody thought is that attendance and libraries are going up, uh, not down. Uh. I think a lot of people right and and and the reason for that is that a lot of middle class and lower income people don't have access uh to the internet, and libraries have basically dived into uh you know, using digital media. Uh. And so it's a place where if you can't afford some of

these devices you can go. Secondly, um, people who want to do well, uh you know, uh, middle middle class people and lower income people. Sometimes they're living in accommodations where it's there are a lot of people packed in their apartments or homes, and it's really noisy, and it's hard to study. Uh. And and what the library provides is not only electronic connections but in digital the digital world, but for vides a place where people could actually study

and think, I got five seconds left? Stocks up? Are you long the market? I think his stocks are nervous. Okay, that was It sounds like he's ready for radio s Schwartzman, Thank you so much. What it takes folks are really interesting. It was gonna be eight under pages, and Mr Schwartzman said, caught it down, Stephen, what it takes Lessons in the pursuit of excellence short, sharp, smart, smart smart on lessons learned Stephen Schwartzman, a black Stone. Thanks for listening to

the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio