Stephen A. Schwarzman, Chairman, CEO & Co-Founder, The Blackstone Group L.P.

[Music] okay so we're very honored to have Steve schwarzman here as I uh indicated at the beginning he is the co-founder the chairman and the CEO of the Blackstone Group which is now the largest alternative asset management firm in the world it's a firm that today manages about $333 billion of assets under management it's a firm that uh it has about $82 billion as of the end of the second quarter of dry powder which means money to invest has a market capitalization of about $42 billion and uh in the last 12 months gave back to

its investors about $60 billion in distributions and to its public unit holders over last year about 4.2 billion dollar Steve started this company with Pete Peterson in 1985 prior to starting the company Steve was the head of global uh mergers and Acquisitions at Leman Brothers a firm he had joined after graduating from from Harvard Business School in 1972 um he was one of the youngest Partners ever at Leman Brothers became a partner at the age of 31 prior to Harvard Business School Steve was a graduate of Yale graduated class of 69 and before that he

had grown up in Philadelphia graduated from the U uh Abington High School in the Philadelphia area um Steve is very involved in philanthropy many people in the Washington area know that he served for six years as the chairman of the Kenny Center and was extremely generous in that time to the Kenny Center and is still very generous to the Kenny Center uh but he's also made three other gifts that I think gotten worldwide attention let me just mention them one is most recently he gave $150 million to Yale his alamada to create a kind of

cultural Student Center uh which is going to reform the kind of the way that uh and improve the way that the Yale students undergraduates react together and and gather and also kind of learn more about the Arts and Performing Arts and I think it transformative uh at Yale um he also gave earlier uh $100 million to the New York public uh library and that in his honor the New York Public Library main building uh has been named in his honor and uh and in terms of things around the world Steve has given $100 million as

part of a $400 million gift uh he's raised the other $300 million to create the schwarzman scholars program at chingua University which is a leading University in China where students from around the world will get scholarship become schwarzman scholar similar to the road scholar program and that program is now underway so that's pretty uh good for that's good for an intro my mother would have been very happy with that so uh so um when you grew up you're growing up in Philadelphia and you came from uh middle class background would you say yeah yeah my

my dad and his father owned a retail store that sort of looked a little like Bed Bath and Beyond except it was drama atically smaller and uh I used to I guess we we all started somewhere around seven or 8 years old marking merchandise and you know smelling dust uh and uh so that that sort of makes you want to do nothing tangible uh and and that that's how both my myself and and my two brothers ended up in finance so um did you ever give your father ideas of how to improve Pro the business

and did he ever accept any of them yeah it was interesting um when I was 14 I said you know there are a lot of people in this store maybe we can expand it nationally and my father looked at me he said I I don't know whether that's a good idea so I said well well let's at least expand it throughout Pennsylvania and uh he said I I don't I don't like that I said well how about the Philadelphia area we put a bunch of units all over Philadelphia and he said no I don't want

to do that so I said dad you have all these people in this store you've obviously got a good concept why don't you want to do this uh and he said because I'm happy the way I am he said I've got enough money to retire to send all of you to college and graduate school uh I've got two cars and a nice house in the suburbs he said what more could anybody want I said well how about a unit everywhere in America I mean and uh so I I decided that maybe working at schwarzman curtains

and linens was not my future uh right but but had we done that you know I think we would have been Bed Bath and Beyond because that was like 19 but then there would 60 something then there wouldn't be Blackstone now yes this is also true then I'd be I'd be fixing up towels which was my job at the time so um when you went to Yale did you think you would go into business for sure or did you no I I had no idea um what what I do after Yale and um um it

was it was a bit of a mystery I mean I just went to become educated apparently that was like a full-time job uh from wherever I started uh and really changed uh changed my life and uh I I had a variety of unsuccess job interviews uh they'd send these people to campus and and um I had one company and they said well what do you want to do uh basically when you grow up I said I I want to be a telephone switchboard and the person looked at me they said what are you talking about

I said well I want to get all these feeds that come in from The Real World and then I want to twirl them around and something will come out and they'll root the right way and he said I don't think you're for us so so that that was sort of a failure then they had the Pan-American people come up and that was a very high Prestige uh uh company at that time with those powder blue outfits and everything and um so I I was just meeting with the guy and I said you know you you

should really um go into Freight he said Freight we carry people I said well you know there's like a war on Vietnam and they obviously need stuff and planes are sort of like just planes and why don't you fill them up with something else and maybe you can make a lot more money he said well we're we're PanAm we don't do things like that and I said to myself now here's a company that's going to go busted this is their representative right some narrow-minded have you seen any of these people since you interviewed with them

uh they have a no but their their companies mostly don't exist now David uh so this so you graduated from from Harvard Business School in 1972 Y and then you went to Leman brothers and those days Leman Brothers was privately owned by the partnership I guess it was sure so um did you decide you wanted to be an m&a adviser and how did you decide what you wanted to do at Leman Brothers well m&a didn't exist uh in 1972 it it existed in the60s when everybody was was basically buying everything that was a you know

conglomerate era where the more you bought the higher your PE multiple was the more it enabled you to buy something that was cheaper and be earning accretive so that was like a game that that formed the great uh conglomerates of of that era whether it was it or Len whatever and that all collapsed uh and then the stocks all went down so they couldn't do that anymore and the m&a business stopped and so I was very very lucky that uh at that point Investment Banking was like miniature uh and we didn't have Specialists so you

basically it was like an old Apprentice business where you did everything if you were in corporate fance so you were doing underwritings you were doing private placements you were doing rating agency uh presentations you were doing Road shows you were you were um analyzing which financings people should do and um and and so you had to do everything My Generation which I guess is sort of moving off the scene uh except for a few of us hanging on you know one of those uh you know we all know that stuff and it helps you uh

uh uh stay out of trouble but in the merger business I I got in it by accident I I had visited a company um for some reason that I can't even remember called Tropicana so if you if you like orange juice this is your place and um so I was in um Chicago uh working uh on something with a company called UOP uh which was in the refining business and additives and I got a phone call it was on a Friday night uh at the end of the day it wasn't Friday night was around 2

3:00 in the afternoon Chicago time from the president of Tropicana uh saying he wanted to hire uh me to advise them on the sale of their company which was happening over the weekend so I guess there were only a few problems one I didn't have a ticket to you know like wherever Bradon Florida but secondly uh I had never done a merger so we shouldn't let this stand in the way uh of of what became the second biggest merger in the world in 1977 so so I didn't arrive at this place until like 4 in

the morning and then I didn't real I didn't realize that you should have gone to a different city there were no taxi cabs I I was like waiting an hour for taxi and you know I finally got to a place didn't sleep changed my clothes went to the company and they gave me three different structures of an offer for I think at that point it was like $88 uh million which tells you how the world changes and he said the board meeting will be in a half an hour uh and you're going to tell us

what to do and if you have ever really been frightened I I I encourage you to like have this experience to be more frightened you know I wasn't a partner I was just like I don't know 28 29 years old and there was nobody else there except me and uh I had never been to a board meet of anything okay uh so I go into this board meet what I did is I frantically tried to call somebody who knew what they were doing uh at the firm I mean you know this is like liability uh

and and I realized Iz what was it it was the the phone is always on the wife's side of the bed cuz I was like waking people up at 7:00 in the morning after they gave me this thing and it was always the wife you know to hand it to the husband I explain what's going on the partner of the firm saying what the hell do I do with this thing so they gave me a little coaching and I went into the room and there's a bunch of somber people and um two tape recorders and

a stenographer I mean this is like really horrible and and so you know then I started talking to him about which alternative would make sense what the advantages were whatever and the guy says something like thanks for the lesson what do you think we should do uh and so I told him which way to go and then we had to negotiate a merger agreement I'd never seen a merger agreement so so you know I'm like locked up and I I I got home at was the same snowstorm that was delaying me going to Florida I

got home at like 3:00 in the morning I was like completely traumatized we we signed this thing right and you know it was like some huge thing there was nobody else involved really except me uh from from our firm and I remember I I don't drink but I I I I put a fire on in the fireplace and you know this is like out of a bad Saturday Night Live sket right I I had a a brandy snifter of corvoisier and I had this and I was sitting there looking at the fire and I put

the bgs on a Saturday you know says Saturday night you know Saturday Night Fever album number one seller uh and I just sat there and saying what the hell did I just do what the hell just happened to me and you know that was sort of I guess the sort of we all have these like mini launches of our respective careers some good piece of lock worked out it sort of worked out yeah it worked out so you became like the John Travolta for your firm he must have been a rock star with got the

deal done right well but but I didn't have the paint canned so you know so um so you you're doing m&a you become the global head of m&a for Leman brothers and then in 1985 you decideed with uh Pete Peterson to leave why did you decide to leave and what what kind of firm did you think of well it became easier Pete was thrown out so uh that that he he left in ' 84 uh and then the firm uh it's a good lesson to everybody you know had a had a control problem and and

there was some stuff going on uh that was was not uh according to risk uh tolerances and the firm was basically busted and so I uh uh I I sold the firm uh over the weekend to my next door neighbor uh who who was in charge of a firm called sherson you sold Lan to sherson yeah and um you know that was owned by American Express so so that was an across the driveway uh deal it was a really traumatic thing for a company that was 150 years old just to like you know we would

have opened and there would have been no net worth right if on a mark to Market basis so the question was could you keep that secret for a day or two and get a deal done so uh was a ridiculous uh outcome for a great great uh so you left the firm then so no I left a year later uh and uh we started Blackstone and where did the name Blackstone come from uh my ex-father-in-law uh who was a talmudic scholar uh and we were really struggling with the name it was really hard I don't

know why uh and you didn't want to try Peterson schwarzman or schwarzman Peterson or he didn't want to do that uh because he had started some other business that didn't work out so he didn't want his name like that and he said he said what we ought to do is get an impersonal kind of name where we don't have to worry like a law firm when the next party partner joins where you end up with 15 names uh on the door and if somebody doesn't get their name on the door they don't join or they're

angry or whatever you got two classes of citizens so he said let's just have a generic name so we sort of struggled on that and um um uh uh Pete's wife uh Joan Cooney is a very gifted uh person and uh so Joan said look this name thing is really you guys are ridiculous and and she said we struggled on a name too and when I started my company and so I came up with this unbelievably stupid meaningless name uh called Sesame Street uh and it means nothing until you're successful so he said she said

here's the deal pick a name any name uh if you're successful everybody will know it if you're not successful everyone will forget it so don't agonize over it just do something and so U I was talking to my uh stepfather in-law actually and he said well look why don't you take you know the German of of your last name Schwarz in German means uh black and your partner is Greek and Petros means rock or stone and his original name was uh petropolis uh not his his father's uh and and he said just put them together

uh so I said okay what the hell so that's what we did uh the only people who figured this out interesting ly uh are all from Oxford um apparently they really study languages and they haven't so sometimes though I've probably had seven people who figured it out so you got the name and how much money did you have to capitalize the firm uh 200,000 from me 200,000 from uh from P 400,000 yeah and your business was to advise companies or to make principal Investments we we had um for those of you who were in the

business community Community which are a bunch out here I think um if you want to have a successful business I I think what I call it you you you you need a worthy fantasy in other words you're not supposed to be doing what somebody else is doing there's no they're already doing it the world doesn't need you you think they need you they don't need you right you've got to do something different uh not just a me too thing so so we struggled for you know sort of probably four or five months uh every day

we'd sit around this is very hard work it's like being in Hollywood or something coming up with a script uh and we basically said okay we want to do three things first we want to go in the m&a business because we know it needs no Capital big cash flow we use the money to do other things uh secondly we want to be in the private Equity business is now called private Equity it used to be called lbos why because it's a wonderful business right you can aggregate a lot of capital you have management fees so

you don't have to worry about that your year is going to end uh unfortunately like in the m&a business if you don't get anybody to hire you you don't have anything happen there's nothing to eat uh and then third Finance was evolving uh little companies like Leman Brothers uh which when I joined had 550 people when it died uh in 2008 had 30,000 so the difference in working at a company of 550 where you know everybody basically by sight and 30,000 is like so like different that I like the smaller feeling uh and the communication

and the partnership uh uh feeling uh and and so uh we basically said what we do as our third uh part of our company is wait for some amazing opportunities and go into those businesses if we can make a lot of money for customers give them a great experience and then to do that we had two other rules first you had to attract uh someone to run that business who was a 10 on a scale of 10 nine is not good enough and eights which you know most people think eights are good you eights are

just serviceable in our industry uh and tens they just make things happen if the world's bad they find a way to make money if the world is good they make a fortune they're charismatic they hire people they got great taste got high ethics that so you need a 10 and the third piece uh is uh uh to uh have whatever new business you start generate intellectual Capital so that your first business or your second business is stronger with the addition of this new business so that was a letter that we sent out to everybody saying

hi it's us here's our wonderful plan you should really do business with us so this was really a fantastic strategy and after we sent out the letters nothing happened so you went into the business of raising a fund you tried to raise a first fund how hard was it to raise your first private Equity Fund uh I think if you like pain and suffering it was really terrific uh now imagine this couldn't happen today there two individuals neither of whom had ever made an investment announced that they wanted to raise the third biggest uh uh

private firm in history and massively larger than any other firsttime fund so only two demented people would actually think they'd get a good reception right so we just started out we made an announcement that that's what we were doing uh and then we went out uh into the world of uh endless rejection uh and I encourage you to do that sometimes because if you ever had an ego it's like you know the Sandpaper it's you have nothing left by the end and you make every Elementary mistake you can make which is you start with your

closest relationships first where you barely even know what you're marketing and you go to them and say oh please rescue me and they say well what's the answer to these 15 questions you don't even know the answers and so then they reject you so you burn up everybody who you might have gotten because you're so stupid uh that they go away uh and it it took till our 18th person we mailed 488 uh documents um it took till number 18 until we got uh you ultimately raised $750 million uh your first fund no uh was

uh 850 850 okay and we we said we were going to raise a billion dare to be great uh and and then one of those investors came back a year later gave us another 100 million so I sort of felt you know it's not a perfect grade but 950 for people who really don't know what they're doing but you know sort of so at that point you were in the private Equity business but that's your firm now i''s say has four parts private Equity Credit y um hedge fund of funds and fund of funds and

and real assets or real estate yeah so let's talk about each of them for a moment uh you are the biggest owner of real estate Assets Now Blackstone is in the world you built a very big business how did you go from no real estate expertise uh to the biggest real estate owner and manager in the world well it's interesting uh it came out of Washington there was a guy here who many many people will know uh named Joe Robert uh whose real character Joe's passed away unfortunately but he came uh to visit us he

knew one of our partners uh this is after the RTC was created and real estate had collapsed in 1990 91 so so Joe comes in the office office and uh sort of a tall guy and you know sort of assertive uh and and you know I said well what do you do and he said well I'm a consultant for the RTC uh and um uh what I'm doing is I'm selling real estate I I said well I don't know much about real estate but I've read in the newspaper nobody's buying any real estate there's no

credit it's it's all the whole country stops he said well that's interesting I I'm actually sell in it and I would know if I were selling it cuz I'm selling it uh and I said well what are you selling he said I'm selling um you know sort of5 to10 million properties to doctors and dentists all over the country and they have the credibility to go to their bank and borrow the money and so I'm moving a lot of stuff I said really and um so uh uh I said so why are you here he said

well I'd like to buy the stuff I'm selling in effect and I don't have any money I said well I've got money but I have no knowledge or expertise so maybe we're a perfect match uh and so he said well let's let's bid on the second RTC auction which was a bunch of Garden Apartments in Little Rock Arkansas uh and um uh so okay so the stuff comes in and and these apartment buildings are uh less than 5 years old uh and they're 80% occupied and they have a certain cash flow coming off of them

so uh so I was faced with a problem of what do you pay for Real Estate which I had no idea of so I said okay well if I can get a 16% unleveraged yield off of this real estate that sounds pretty good to me that's a in in our trade that's like six times EB less capex cash flow less your Capital expenditures so I said 16% that sounds good I like 16% we put some leverage on it we' make it 23 uh percent so that 23 is better than 16 and then when you come

out of a recession those other 20% of the vacant units will get filled and then that's like a 45% compound return and then rents will go up so that'll make it 55% compounded so I sort of looked at this and we that's what we bid and we won okay we won this thing pretty frightening so so so then I realized there was a whole country full that you could buy because there were no other buyers because everybody in the real estate business was hated by their Banks because they were losing money from them so so

we started buying and you know we have a terrific group of people we hired uh a fellow named John shriber who's uh you know I'm I'm a little older than David actually I'm a bunch older than David although my hair is not quite that white but um he may have a little more uh I may have a little more tribes is a terrific guy he was probably the best buyer uh of real estate in the 1980s he picked the top he sold out and um you know so we we spent a year because Joe was

stolen by Goldman Sachs who brought a table today uh you know so he went to work and we had nobody and then we found uh so your business is booming in real estate let's talk about another business you are the largest operator of what's called a hedge fund of funds in the world explain what a hedge fund of funds is and how you got into that kind of through a cir um back door you might say your money you know Finance doesn't require you know like enormous Innovation uh so what happened is when we got

that extra hundred million uh which from this Japanese investor they wanted it paid back in seven years so we had money for 7 years so the problem with having it for seven years with a maturity is you actually do have to pay it back which means you can't lose it right so we wanted that money uh to uh uh to generate um uh uh uh uh earnings so we could expand the firm um so so the same fellow who found Joe Robert came into my office and he said I've got a interesting thing we can

do with the money since we didn't know what to do with the money but we wanted to earn a lot he said there's a friend of mine you ought to meet uh named Julian Robertson uh and I didn't know who Julian Robertson was but as it works out he was the best hedge fund manager in the world for about 20 years so this was a good person to meet so he came in and he's from I think North Carolina and he's got this charm and you know he's so smart and this and that I just

gave them all the money uh and uh so so much for finance where you're told to diversify risk and do all this stuff I mean you know the guy's had the best record in the world I mean how bad can he be so so he was great uh and that generated its money then what happened is and this is the Innovation part of Finance somebody says to you who's a client what do you do with your money you seem to work 14 hours a day do you have any time to invest your money he say

of course not we just put it in this thing like with Julian and then we Diversified away from Julian and they said well can we give you money too this is innovation when you basically say when people offer you money it's usually a good thing to take it uh and you figure out what you could do with it right so so we said sure we'll take your money and we built a whole business and that it's now the biggest in the world it's about 65 billion where we give money uh out to other managers we

also do some directly ourselves uh and we we we have different packages uh you know if you want to be in you know sort of energy stuff we can do a special energy thing we can do uh sort of a more General uh long short Equity stuff we can do Bond stuff so we create a family of things to suit the needs of in the private Equity world let's what is your the deal you did that um you're the most proud of and what is the deal that got away that you wish you had done

well uh since I'm in Washington we can we can we can get a Washington story um uh it was our first deal uh actually uh before we even raised our first fund um actually no it was with the first fund um and we bought a set of assets uh from uh USX uh was was called United States Steel uh all their railroads and uh uh barge laines and so forth is very stable business it doesn't matter what the price of steel is a steel company will always produce to cover its uh overheads if it could

and we bought it right in the middle of a stripe nobody in the world wanted this thing we almost couldn't get it financed cuz they just assumed if if the earnings went down cuz there was a strike the strike would never be settled people can be very stupid you know uh you know like us steel number one company's never going to settle a strike I looked at it and said yeah of course they're going to settle a strike I don't know when but it doesn't matter particularly uh and then when they finish the strike the

the production will go up and this business just made money based on production so uh we had made one other investment before uh we sold a company to a guy named Mitt Romney you may have heard of him uh and uh after the deal was closed I I asked the chairman whether we could invest in that deal was that a problem for him from a conflict point of view because we had no discussions about it I just saw that it would be a good thing so he said no I don't have a problem so we

made 16 times our money on the Mitt Romney deal so I felt uh I owed mid so I invited him into our us steel deal which was 24 times your money and that's how I ended up on the Mitt Romney finance committee right I thought the deal you were you know this is like these are like this has got good karma right 16 times 24 times and you know uh those are good deals but there's one I thought you would mention that actually became the most profitable buy out of all time called Hilton that's also

Washington uh describe how you bought it then you fixed it a bit and then It ultimately turned out to be a profit of 10 to 13 million something Hilton was uh uh was a company that actually was taken apart uh you know um uh we we bought it what five years ago we actually we bought it uh we committed on the deal I think it was U uh July 7th uh uh 2007 uh was when we committed right before credit started uh constricting and and before that probably 20 years before that they separated their international

business and it was completely independent company in London and they forgot to expand I don't know how you forget to expand a company but apparently these people decided let's never expand very interesting strategy which resulted in a very low stock price not not a surprise uh and so uh I guess it was a year or two before we looked at buying Hilton they put these two big companies together so um we paid a high price uh knowingly uh for the the business um I think it was $27 billion uh and the business was making at

that time $1.7 billion of profit and um um but but we looked at it not as if it had 1.7 I we thought it had 2. .7 uh and the reason we thought it had 2.7 is because they were running their us business which is in four different lines with like huge overhead uh uh duplication they had never Consolidated the business and in terms of expansion they had never expanded internationally they had a great name number one name in consumer recognition no new hotels so we realized we could generate $500 million from from the consolidation

another 500 just by opening some hotels and being managers so this was like we were buying 2.7 so so so when the recession came we our 1.7 had already grown to 1.9 and it went down to 1.4 and the whole world thought we were going to go bankrupt I couldn't understand it because I knew we were really earning 2.7 you just couldn't see it yet and and so you know we ended up buying some debt in and stuff when it got low and then of course you know it's back to our original numbers and I

guess we've made like 12 billion uh so that was good um there aren't that many buyouts that make1 12 billion that was a good but the one that I missed this is the real Bozo uh element and David and I uh make mistakes um and financial accounting uh Works incorrectly uh as as Warren Buffett would say they only measure what you do they don't measure what you could have done that you didn't do that that's the real way to measure success so so you know David's missed one or two big ones and this one was

like really retrospectively so stupid but I would have unfortunately made the same decision that's what makes it so terrible but I was approached by a guy you may have heard of uh named Mike Bloomberg uh when he had a little company uh and he needed a100 million to expand the business and Mike had one outside director who uh was sort of like my mentor at Leman brothers and you know a guy I talk to every night at home he was so brilliant so brilliant I mean he he saw everything differently there was always we all

had the same facts he could get one piece of it and look at it a different way it was really fantastic so so Mike said uh he should get the money from us from me uh because Steve thought I was gifted which means Steve isn't perfect so so Mike comes up over and he says you know I've got this company and you know how would you like to put in you know like a 100 million I think it was for 20% of the company and I said sounds like a great idea you know I knew

Mike a bit socially and he's very talented and driven and creative and he's the Mike Bloomberg right I we all know know now who Mike Bloomberg is so I said yeah I'm good to go with this this sounds like a great idea he said look there's only one catch uh he said I want want you to be my partner but I want you to really be my partner I said what does that mean he says well you can't like sell this cuz I'm never going to sell my company I said well I I I'm I'm

managing money and the problem is I you know the terms of it is that we raise These funds and then we have to sell it and give people their profits and give their money back then it's sort of a silly structure you go back to the same people they give you the same money again and you know all you do is you learn how to be a mendicant uh but but he said well that doesn't work for me I'm I'm not in the business of giving you liquidity I'm in the business of building my company

and I don't want to start thinking about you leaving when I just said hello he said that doesn't work for me I said well it really doesn't work for me but I I've got these restrictions I can't just wait and then see if you change your mind he said well really that's that's just like he said just doesn't work and so Mike left okay fast forward right that 100 million would today be probably 8 billion right so if you want to make mistakes right this is this is how you make them so Steve you your

company is doing very well um and all of a sudden you decide to take it public most people had said private Equity firms um should stay private because might be a conflict between investors in the funds and shareholders why did you decide to take the public and you have any regrets uh well we we took it public I had a partner who was 21 years older than me was getting old and if if if we didn't he would have been redeemed that uh Book value which was nothing uh and as it worked out he got

a few billion dollars so so this is like a moral thing uh you know we started the business together and and so there should be a way for him uh to uh benefit uh from that um uh secondly I had this bad sense about where we were at that time in history and I had this desire for permanent capital I just felt something bad was going to happen actually was on a panel with Bill Conway I think in this room uh and we were both talking about how how we had a lower cost of capital

than AAA companies well you know something's wrong with that that that that can't be uh and and so the markets were peaking and I I just wanted to be prepared for the nuclear winner uh I just wanted to have loads of money uh you know to take us through anything that was happening uh I I I also um thought uh it would it would be good for my children and grandchildren uh right so that's a good thing uh for them you have seven grandchildren now yeah you got to work harder uh and um so you

took it public it went very well also one other thing David I thought it would be a great branding uh moment uh uh for the firm make people want to do more business with us whether it's investors or not and then I thought there would be an X Factor some crazy thing that would happen I didn't know what it was found out there were a number of crazy things but one of the good crazy things is we got a phone call that that two people from China wanted to meet with one of my partners and

you know I barely knew my guy in China we just hired him three months earlier and uh Anthony Lee Young who's a terrific guy and used to be the financial Secretary of Hong Kong which is their treasury secretary and so they they had a meeting with Anthony and they offered us $3 billion uh to be U to be in the IPO well this was China China had never given money to anybody since World War II for Equity outside of China they had state owned Enterprises in China but they didn't do this stuff outside so we

I I was watching Law and Order and and reading my stuff which is what I do at night when we're not out someplace my wife and I are out and I sort of was only half listing I said $3 billion Okay so he said yes three billion so I said well well who are these people he said they're both unemployed I I said really I said where did they make their money he said well they were government officials I said I said two government officials who were unemployed are giving us $3 billion I said how

does that work I said where did they used to work he said well one of them was the deputy head of the Central Bank and the other one was the deputy Finance Minister I said so why did they lose their jobs um he said well they're they're being reassigned I said reassigned to what he said well the rumor is they're going to start a sovereign Fund in China and these two people are going to be in charge of it so you know I talked about you know so I said let me think about this so

um I I went to back to work I talked to my my partner Tony James who's president of the firm I said Tony what do you think we ought to do with this strange call he said take the money uh and I said I said said well we don't really need that much money he said well we can split it up we'll do some more secondary we'll put more in the farm and U I said well I don't know who these people are and it makes me nervous so so why don't we go back and

and tell them that um that uh um you know we they have to vote with us I don't know I don't want to have people who strangers uh and um uh you know if they want to sell the stock they own so much make them wait you know like 5 years and then they can sell it a third a third a thirdd so we went back to Anthony who was dealing with these people and the next night I'm still watching Law and Order you could do that the rest of your life by the way I

mean there so many reruns uh and and uh you know they said uh they don't want to do five years they want to do three years uh but they really don't want to vote with us it's a little cumbersome why don't they just not vote so then I realized I like these people it's like good I like you know in Washington people vote a lot you know I I don't like that in in our little world you know these people not voting worked out they came in yeah they came in and by the way because

number of people here touch government we did this whole negotiation with that guy who was dealing with the premier of the country uh we we negotiated and signed it in 10 days for those of you have ever been in government government the idea that anything happens in 10 days is like a mystery right this is from first Contact to sign deal I mean this is like when these people want to do something get out of the way they know how to do it it's very and when they don't want to do something of course then

you experience reality but um reallyy amazing very happy you went public though at one point their stock went way down and now it's come back a fair bit yep it's no fun when these things go down it's much better when they go up so you you have been very vocal on saying that the valuation given to private Equity firms is lower than the valuation given to regular Asset Management firms and could you explain what you mean by that that's because David and I are bad salespeople right apparently uh for some reason um the what happens

in our uh type of business is is you buy something say you buy a company you buy real estate something and you you you always have a plan to fix it up so you fix it up uh and then it grows faster than regular companies our companies now just on that side of our business are growing about 50% faster than the economy so this is would be viewed as a good thing right and and then you put some uh borrowings against it so so the price earnings multiple usually goes up when you grow faster uh

and then if you have debt on top of it you've invested less Equity than you would have so that little third grade numerical equation creates a higher rate of return and then you pick the time you sell it and so you make very high Returns on these types of Investments with almost no losses sort of amazing business for some reason the fact that you only sell when it's a good time to sell instead of like you know sort of selling to make the earnings flow even uh you know some people say say well gez that

magic trick will never happen again and and that's ridiculous it's only been happening for 30 years right why is it going to stop this week because somebody's writing a magazine article or something they they don't understand we explain it it keeps happening and because of that uh and and the cash flow not being exactly the same all the time uh you know your your you know our investments is is hard to believe right um they're they're sort of we we grow it like double the stock market that's that's what we deliver this this is why

people give you money some people try and get money anyhow but if you grow at Double the stock market for 30 years this like so it's like a good thing I don't understand why why markets uh David uh maybe you I should ask you the question David why do you think I don't know the answer but tell me this Steve um in the time we have left a couple questions one um now that you have reached the Pinnacle of the financial world you are obviously very successful your company's extremely successful you have made a great

deal of wealth what is it that you want to to do with this great wealth you've obviously given away a lot of money do you have plans to do other things how does somebody get a $100 million out of you've made 300 million plus gifts I assume you've got some more coming um maybe you want to announce some today but um next week next week okay so how do you decide everybody must be calling you saying well you just gave 100 million here why don't give 100 million and how do you decide what to do

with your money and what kind of Legacy would you like in the philanthropic world and the business World well that's those are great questions and and you only get them when you're older typically uh and uh David faces the same question and really does an amazing job uh you know in terms of uh uh sort of supporting the not just the Washington Community in all kinds of ways but but doing things all over the country and uh has made it a huge huge impact uh uh you know around the United States and shairing organizations and

not just giving his own money but uh you know getting other people to do things it's really uh you know I I I don't I I don't know when this man sleeps I mean I sleep 5 hours a night but he must be down to three uh so so it's why my hair is so white yes I see uh what are you going to do with all this money and what's your legacy going to be but you know the I I think some of this stuff is it's it's evolving in other words um if I

saw a survey on uh either you know one of these lists of there was a Forbes 400 list or something and and uh I think it was 85 or 90% of the people are self-made on that list and and 85% of them still think they're middle class uh in other words the that that's why they keep uh going they they don't realize there's been some you know shift uh at least to the outside world uh and and so uh you know that that's the majority of Americans who were successful like that and and so it

takes a while to realize that you actually have you know really large Surplus uh uh assets and and because your job is still to build them I mean you know if you're in the business world you're trying to make your company good and what comes along on with that is is is the concept of you know you more happens for your shareholders if you're a shareholder which I am a substantial size then than there's more so so I I I think um like a lot of life it's it's a function of what interests you uh

I believe uh that uh with without the kind of educational intervention that happened in my life whether it was my high school whether it was Yale whether it was Harvard Business School you know I I'd probably have a really great uh uh uh group of you know hair salons or something like that and you know I would have been successful on one level but not what I did so so the richness of my life in the in the broadest sense not financially uh was really fashioned uh by whatever I brought to the table but by

all these wonderful external uh influences and and so I have real interest in helping other people get those opportunities uh because if you don't get them particularly in a globalized world um you don't have a really good opportunity or you have a you have a much more modest opportunity to to do well so I I like supporting educational things uh um I also like uh making change uh you know it's and that's a problem for me because the schwarzman SC dollar thing I mean it's it's it's I mean forget the money I mean the amount

of time I spend to make this wonderful uh and make it the best program that you could do in the world and because when I do something I'm all in I'm not a diversified kind of person like that and so I've taken this on and and and you know raising another few hundred million or you know sort of person by person uh that's not the easiest thing to do I'm used to getting Almost 100% sales response at Blackstone uh this is you know philanthropic and some people don't care about China and some people don't care

about you know the safety of the world and you know so so I'm busy doing that uh but that takes a lot of time so one of the challenges for me is to figure out over time how many major things can I take on to build and change as opposed to just giving somebody money who's doing something I I I tend to like creating things point in your life you're like your father you've you've reached happiness you're really happy yeah I'm really happy absolutely uh I still have enormous Drive I mean I love what I

do and I love our you're going to stay at Blackstone you're not going to government you're not going to go do anything else this is what you're going to be doing for the next well I I I I like uh and respect what the people in government do and any way that I can be helpful you know to to the United States and and to help helping the country get on the right track I mean that's really a core motive that I have I I don't have you know sort of some kind of narcissistic need

uh for for for doing something um and um you know I I like being helpful in crises I mean I helped Hank out a lot uh during the financial crisis boy that was really fun uh if you're a financial person I mean the idea of trying to help you know like intervene to come up with Solutions to save the world wow what a test how terrific and there was a great team in the government working on it there were a number of kibitzers on the outside coming up with ideas I mean that was like a

moment uh I was just in China talking to their people uh two weeks ago uh you know things haven't gone exactly as anticipated there uh and so when when you can intervene and help people uh like this uh you know I I mean I'm I'm not trying to be anything David I'm I'm like just trying to be helpful that's all right well you've done a great job and I want to thank you for coming this afternoon and for your success thank you let me give you a gift I give you a gift by the way

before they cut my mic off you this is the map of the original map of the District of Columbia well that's that's very nice I was looking for the Magna Carta but you know still uh uh thank you you know one one one thing I I I'd say you know I was I was chairman of the Kennedy Center and we we had a pick a successor and and and David was among those candidates and the same way David says I'm I'm going to a Carlile meeting after this what am I doing interviewing Steve schwarzman when

when there was a choice to pick somebody David was the obvious choice and I did that uh with enormous enthusiasm because he's got so much energy so much Drive good intention and he doesn't like failing and I thought the Kennedy Center would be in great hands with uh David in charge and look how it's worked out it's magnificent so my hat is off to David he has done a marvelous job thanks very much we'll send this to your office