Stephen Schwarzman

of the most powerful people on Wall Street. He was named one of Time Magazine's most Influential People in two thousand seven, and has donated hundreds of millions of dollars to different causes over the years. Schwartzman sat down with David Rubinstein, co founder of the Carlisle Group and host of the Bloomberg television show Peer to Peer Conversations, to discuss starting the firm, surviving the real estate crash of

two thousand seven, and being rejected from Harvard. Before we get into Blackstone, I like to talk about a couple other things. Um, you grew up in a middle class environment in Philadelphia, and now you're one of the wealthiest men in the world. You're one of the biggest philanthropists in the world, and you are an advised with the presidents. The last three presidents have asked your advice on various things.

And you're very close to President Trump. So when you're growing up in Philadelphia, did you ever, in your wildest dreams, imagine this could possibly happen? No? Did you? Are you? Do you pinch yourself every day now you think about where you have achieved your status in life? Yeah, frankly, every day is an adventure. Uh, and every day is a privilege. Now you've come to know President Trump quite well in recent years since he's been president. Did you

know him before he was president? Or know him very well? Then? I knew him before he was president. So when he told you I'm running thinking of running for president, did you tell him you have a good chance? Or do you tell him that's a tough thing to do. I thought that was a veritable impossibility. Okay, So when he got elected, did he say, Steve Um, you were wrong and why don't you come in and serve in the administration? I can't tell you exactly what he said, but it

was very funny. Uh, And uh, you know I I didn't want to be part of, uh the government. I have a wonderful life as it is, and I didn't want to disrupt that. So you've been an advisor off and one for from the beginning administration to president. And he's actually to do a number of assignments. But I've never seen him tweet anything unfavorable about you. So you've managed to stay on his good side. What's the secret to staying on his good side? Well, you tell people

the truth. Uh. You know, I don't work in the administration. I'm an independent person and I give my views. I find that he likes to listen. Uh, and and that's I think a good thing. But I suppose he's reelected and he said, I, Steve like to be Secretary of State, Secretary of Treasury. Would you ever consider that? When I was younger, I would do that, David, I'm at a point in my life now where that that's not where I want to spend my time. Okay, So you have

spent some time recently writing a new book. Um, this is Steve Schwartzman. What it takes Lessons in the Pursuit of Excellence? Well, I read the book and it's quite fascinating. I know you quite well, but I didn't know a lot about your background, and which I found quite interesting. And why don't we start with your back when I take you through the creation of Blackstone. So you grew up in the Philadelphia suburbs, is that right? That's right? And you were from a middle class family. Your father

had a curtain store. Yeah, curtain story sort of would have been a bed bath and beyond the type of store. And it was started by his father, and so he came into the business. And did they say, Steve, you're the oldest of the three sons that he had. Now it's time for you to come into the business. So that was sort of expected. And I found that standing up and waiting on people buying linen handkerchiefs was perhaps

not my highest and best use. But you told your father, according to the book, that maybe he should expand it, do more than one store, and maybe become bead bath and beyond. What did he say to that advice? He said, Steve, that's really interesting. I don't feel like doing that. And I said, Dad, why why don't you want to do? Would we have lots of people in this store. I haven't seen another store like this. I think we could be national and he just said not for him, he said,

I'm just not interested. So I I said, well, why don't we open stores? All over Pennsylvania because I was from Philadelphia. And he said, I don't want to do that. So then I had a third option, which is why don't we open stores all over Philadelphia? And he said I don't want to do that either. I said, Dad, why why don't you want to do this? And he said, I'm happy the way I am. I have a house, I have two cars. I have enough money to send you and your brothers to college, and that's really all

I want. And I shook my head and I went, I don't understand that. I just saw the opportunity to open stores all over the country, and he just didn't want to do it. And surprising to me is he was very very intelligent. When you're saying your book that he was far more intelligent than you, that might be an exaggeration, but he obviously was a very smart person.

That was not an exaggeration because I would talk to him, Uh, when I was starting my career on things, and no matter what I was working on, he could always find the weakness in the argument or in the deal. And what about your mother? What did she do? She she was just aggressive? Uh, she was a housewife. Was the nineteen fifties, uh, and in sixties, and I have twin brothers, and three of us were a handful, and that that

was the paradigm at that time. So, as I said, I've known you for quite a while, but honestly, until I read this book, I did not realize you were a track star. Were there a lot of you know, white Jewish boys on the track team or were you a minority in that regard. I think I was a minority of one. You say in the book, which obviously is true, that you did something that's quite audacious. You applied to Harvard Yale, and I think Princeton and Harvard

did not accept you. So you then got out some coins and called the director of admissions at Harvard and said you made a mistake. What was that? Like? That was frightening? Actually, uh, you know, we didn't have cell phones then, so so I got some quarters, uh, and I found the phone number for the admissions office and some document and and the pay phone was was outside

the gym. Uh, And I stood there and put those quarters on in and you could hear the ringing when they dropped down, and I asked for the dean of admissions, and I was put right through. And so he picks up the phone and I said, Hi, I'm Steve Schwartzman from Abington High School in Abington, Pennsylvania, and I'm on the waiting list and I'd really like to go to Harvard, So why don't you take me off the waiting list? And so he said, how in the world did you

get through to me? He said, you're not allowed to talk to me. I don't talk to applicants. Um And I said, but we're talking and he said yes, he said, he said, you sound like a very nice young man, but unfortunately, we're not going to be taking anyone from the waiting list this year, you know, we are. Yield was was higher than we thought. And where where else were you accepted? I said, well, I've accepted at Yale. And he said, well, you'll have a very good time

at Yale and you'll enjoy it. I said, I'm sure I would. I said, but that wasn't my objective for the phone call. He said, well, I understand that. I'm just so sorry. Did you ever see him again or hear from rom again in life? Ironically, it's really a great story. Uh. The CEO of Mackenzie was in my office twenty five years later, and he was on the Harvard Corporation. Uh and Um I told him this story. So he asked what year. And that dean of admissions

UM was a close friend of his. He said, do you mind if I told him that I ran into you. I said, no, that's fine. Uh. And and so I got a letter two weeks later from that former dean of admissions. Uh. And he said, I remember getting that phone call in sixty four and he said, every time I see you in a newspaper, I realized I blew it. Uh. I wish I made all the right decisions, but as I told you at the time, there were no no beds at the end you Um then went to Harvard

Business School? Yes? And did you enjoy Harvard Business School? Did you want to drop out? Yes? And what kept you from dropping out? I wrote a letter? Uh? There was no internet. Uh. I wrote a letter to Dick Jennerette, who was president of a firm called Donaldson Lufkin Jennerette, which is where I worked a bit right after I graduated, before I went into the army. And I said, Dick,

it's called up here. The classes are highly repetitive. Uh. And I'd like to come back to work, and if you don't want me to d LJ, I'll do something else. What do you think? So, so he wrote me a six page letter and he said, that's just the way I felt in December of my first year, and I was going to transfer uh to to the Economic School and get a PhD. And I didn't drop out, and

you shouldn't either. You should complete what you're doing. And I was so dumbfound that he was so kind and thoughtful and had similar feelings and and basically said, don't you do that. It's the wrong decision that I just listened to him and stay. You stayed. You must have done pretty well because you had lots of offers afterwards. Yes, so you interviewed with number of firms and the one you decided to go with was Lehman Brothers. Yes, why did you pick Lehman Brothers? So? I thought it would

be the most interesting cast of characters. Uh. You know that was before m b a's went to Wall Street, uh and um so, so they just hired at random. And this was the first class of MBA's that Lehman was going to hire, and the people were fascinating you had x CIA agents, you had people who had worked on oil rigs, who who had all kinds of unusual people working at the firm. So I thought, for whatever the reason, it was the right personality fit for me.

And you became a partner at an early age, I think thirty one, something like thirty one, thirty one years old. You're a partner at Lehman Brothers and life was going well. But then there's a problem at Lehman Brothers. And Lehman Brothers ultimately was sold is that right? Yes, that's right. I sold it, uh, and to American Express. And the problem was that in the trading side of the firm

there was a position taken that really went wrong. So you then decided to join somebody who had been previously been the president of Lehman Brothers, but he was eased out. Um, that's Pete Peterson, previously also Secretary of Commerce and the Knick's administration. And you and he decided to start a new firm in Yes, and that firm's name was um Blackstone. So Blackstone starts two people, you and Pete Peterson. Uh. Where did you have to get the money for the firm? Well,

it didn't require much. It was an advisory business, so you talk and people give you money. You each put in two hundred thousand dollars. The strategic plan for the business, which we announced in letter to everyone we knew, was first you know, the m and a advisory business because it required no capital. Right. Uh. The second was going

into the private equity business. And you had never been, you or Pete privately invested before, and Peach that since we haven't been, we'll go out and raise a small fund, fifty million dollar fund. You said, if I recall the book, let's go raise a billion dollars. Billion dollars. So that's fairly audacious. Where were you gonna get a billion dollars? So we went to our top eight team prospects. Everyone said no, except Metropolitan Life in New York Life. One

said I'll give you a fifty million. The other one said, I'll give you twenty five. But I don't want to be, you know, sort of a big part of the things that you have to raise at least five million dollars or else our commitments are worthless. And we had already gone to everybody we knew who was the best targets, and I sort of looked at that and I went,

oh MG, we are going to fail. And we just met one more company is called Prudential Life Insurance Company, which was the number one financier in in those days. And we're over at Newark on a Friday, having uh lunch with the chief investment officer, and he was having a two nail and white bread cut across and I'm busy pitching this private equity fund and you can share

part of our advisory profits as a merchant bank. And he keeps chewing and Adam's apples going up and down, and I keep doing my thing, finishes the first half of the sandwich, gets through the other half halfway, and he looks over at me and he says, I think that's a good idea. Put me down for a hundred and I just I can still remember that moment. Did did he actually say he's going to give us a

hundred million dollars? The number one investor in the world, so if he gives us money, other people will follow him. I realized somehow in Newark on some dreary friday, and he gave us the money. I just didn't want him to choke on the rest of that Sandwich, make sure he lived to give you the money exactly. You did pretty well and your devise, your business is booming. You

decided to get into um other businesses. The first one was ended up is black Rock with Larry Fink, and Larry brought people over and they were called Blackstone Financial, Blackstone Financial. And so you actually owned the firm, or own part of the Okay, so you owned fifty fifty and now black Stone financials now black Rock, which is managing like six trillion dollars I guess or something like that, six and a half six and a half trillion. Okay, So how did they escape from black Stone? Well, they

didn't really escape. Uh. You know, we set up in an economic arrangement which ended up being inappropriate for a business that was growing as rapidly needed to add as many people. Uh. And I made a mistake, you know, I took the original agreement. I didn't want to change it, which was advantageous, uh, you know for my side. Uh. And uh, the black Rock people, Blackstone Pavior, Blackstone Financial people were frustrated with that. And and that was the

the judgment of an amateur me. On two thousand seven, you decide maybe you should take the firm public. It's a private company. Why did you take the firm public? Well, I took a public for a lot of different reasons. I had a sixth sense that something terrible was going to happen in the environment. Money was so available, money was cheap, everybody was doing things, prices were crazy, and I just had a sense this was going to come to a bad ending and we should have a lot

of capital to make sure we were bomb proof. So so that was one reason. A second reason is I thought it would be a great branding event for the firm on a global basis. Everybody would know who we were, and that would make as easier to raise money as as well as to um have people sell us companies and other assets. So ultimately what happened was the China, Chinese sovereign wealth from was the process of being created.

They heard about your going public and they threw an intermediary, Actually somebody working for you said can we buy a big stake in the I p O? And you ultimately decided to let them do that. Right. I PO was going to be four billion dollars. They offered to invest

three billion, which we didn't even ask them. Uh, and I hadn't been to China since, so this was it was shocking because um that China had not invested in another public company since since it was founded in nine So so this was a complete paradigm shift for for China. We were chosen by them. It was pretty heavy stuff. It worked out and UM ultimately you did the I p O and Chinese invested. And then after you did the I p O, let me mention two deals that

you did. One was the biggest real estate deal in history, e OP real estate company built by Sam's l and you did a forty billion dollar buyout and effect is that right? Thirty nine actually? Okay, all right, thirty nine billion dollars. It was a bidding war. You won the bidding war, but the real estate market crumbled right after the deal was done. So how did you survive with that deal? Well, we worried because the same reason we're going public. I since we were in market top for

real estate. So so just buying thirty nine billion dollars of real estate, UM, I thought it was dangerous because you had to pay a pretty good price to get it because it was competitive. So as soon as we decided we were going to actually raise our price enough to be the winner. Um, there were two or three of us sitting around saying, this deal is potentially dangerous. We've got to reduce the leverage, and we've got to take advantage of the crazy prices that people are paying.

So we decided to sell half of what we bought the same day we bought it. So when I told people that, they just sort of looked at me and and said the same day I said, I don't want to take any risk that the world's going to change and we're gonna be stuck with all of this. So we basically had every conference room at the firm active one buying. But then we broke it up into all these pieces. But if you hadn't done that, you would have lost all your money. I think that's probably market creater.

Virtually the next day because most of the people who bought from us basically got into enormous financial trouble or went in solvent. And so after we did that and closed, everybody went home. They've been sleepless. Three days later they came back and we said, let's sell half I've always got left now and be even more conservative. So everybody went back to work. And we ended up with one quarter of what we bought very conservatively priced so we

could survive any kind of nuclear winner. We ended up making three times our money buying this, this giant thing at the top end. And there's never been more than ten billion dollars bought or sold by a group. We

did seventy billion. So you also bought another company before the recession, the hit that was called Hilton, and that was a leverage buy out, some people might say, at the top of the market, and that deal went down in terms of the debt and maybe the equity, but then you ultimately did things that made it the most profitable buy out in the history of buyouts. What did you do, Well, that was pretty easy, actually looked hard, but uh, you know Hilton had not been integrated. They

were running four different headquarters. Uh, and there was a huge modernization and and and and cost take out. Ultimately, you've sold it about a fourteen billion dollar profit. Yes, well, if we had held it, it would have been held it longer, would have been over twenty So so it was a good day because in recent years you become one of the nation's biggest philanthropists. You gave three and fifty million dollars to m I T for a computing center.

And relating to artificial intelligence, you never went to m I T. You had no connection there. How did that come about? Well? That was that was really fascinating. Uh. I'm not a technologist. I had met the president of m I T, Raphael Raefe, and we started talking, uh, and you know, we were concerned that the US was just not investing enough in these technologies. And I said, do you have any interesting ideas? So he came back

with a let's double the computer science faculty. Let's take our established a new department, in effect, a new school, called it a college, which is now going to be the m I T. Schwartzman College of Computing. And let's connect AI to all the other departments at m I T. So m I T will become the first AI enabled university in the world. And I said, now that's a vision I could buy in. On final question, I'd like

to ask you it just deals with this um. If somebody is watching, we're reading your book and they want to be a leader, leader in business or philanthropy or or in government, what do you think is the key quality to be a leader, and what have you seen as your key quality enable you to be a leader. I think to be a leader you have to be a really good listener. Um. You have to understand what's

going on around you. You have to be measured um, and you have to realize that everything you do is amplified in the minds of the people who are listening to you. So so care, nuance uh, kindness uh. But defining a culture, that's what a leader does. Steve, thanks very much for this time. I appreciate it. Thanks David. That's Blackstone Group Chairman and chief executive Officer Steven Schwartzman.