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Blackstone Billionaire Steve Schwarzman: Insights on Investing and Life

Steve Schwarzman’s core principle has consistently been to “think big,” and even with Blackstone surpassing $1 trillion in assets, his ambition remains undiminished.

By , Forbes Staff

The 77-year-old founder and CEO of Blackstone hails from a Philadelphia suburb. His entrepreneurial journey commenced at the age of ten, assisting at his father’s textiles store. By 14, he managed his lawn mowing enterprise, focusing on expanding clientele while his younger twin siblings handled the mowing. His drive for success ignited early on. In his book “What It Takes” (Avid Reader Press:2019), he recounts urging his father to expand their prosperous fabric business nationally (“We could be like Sears”) or at least within Pennsylvania. However, his father, content with their current lifestyle, declined, stating, “I’m a very happy man. We have a nice house. We have two cars. I have enough money to send you and your brothers to college. What more do I need?”

Schwarzman, an alumnus of Yale University, compensated for his father’s restrained aspirations. Since establishing Blackstone in 1985 alongside the late Pete Petersen, the firm has emerged as the world’s largest alternative asset manager, boasting over \(1 trillion in assets. Forbes estimates Schwarzman’s net worth at \)39 billion, with Blackstone fostering numerous billionaires, including current president Jonathan Gray, valued at \(7.6 billion. While Blackstone initially focused on traditional leveraged buyouts, it has transitioned into a buy-and-build model, incorporating innovative financing methods that perpetually extend fund durations, rendering the traditionally exclusive industry more accessible to retail investors. Real estate constitutes a substantial segment of Blackstone’s operations, encompassing a \)300 billion commercial real estate portfolio with ownership of 12,000+ properties. In Europe, it stands as the primary proprietor of warehouses and logistics facilities. [For further insights on the firm, please refer to ”]. Forbes: How did you embark on your investment career?

Schwarzman: My foray into private equity investment commenced by representing nascent firms entering the sector. During that era, private equity comprised merely eight to ten entities. While overseeing the M&A division at Lehman Brothers, where I spent a total of 13 years and ascended to managing director, I advised on private equity transactions. The individuals in this burgeoning private equity realm—then denoted as leveraged buyouts—were predominantly my contemporaries, fostering social acquaintanceships. Given the prevailing hesitance to represent them due to the modest scale of their deals and the novelty of the concept, it naturally fell to me, given my familiarity with the players. This exposure enabled me to grasp the deal structuring dynamics, as I was actively engaged in advisory capacities. Subsequently, in 1982, I endeavored to steer Lehman Brothers into private equity, envisaging enhanced fundraising potential as one of the globe’s premier investment firms. Regrettably, Lehman’s executive committee rebuffed this venture into private equity—an omission I perceive as costly on their part.

“Encompass yourself with astute individuals and establish a system yielding extensive proprietary data. Exercise patience. Refrain from hastening investment decisions—commit solely when profoundly convinced of a venture’s viability.”

Forbes: How has your investment strategy evolved throughout your career?

Schwarzman: The investment landscape has undergone profound transformations since our inception in 1985. Presently, private equity transcends its conventional boundaries, branching into diverse sub-asset classes. Pioneering firms like ours diversified into alternative asset realms such as real estate, hedge funds, and credit, augmenting our repertoire to encompass 72 distinct investment strategies. Contrastingly, during our nascent phase, a singular strategy prevailed. As the economic milieu evolved, diversification and incorporation of novel strategies became imperative. However, our approach wasn’t predicated on diversification per se; rather, it entailed venturing into cyclically undervalued domains that would lucratively complement our existing product portfolio. Despite external perceptions of diversification, our strategic forays were meticulously calibrated to capitalize on undervalued sectors, thereby fortifying our appeal to initial clients. This strategic acumen underpinned our multifaceted success, diverging from imitators who ventured into overvalued sectors or failed to attract top-tier domain experts.

Forbes: Could you pinpoint one of your firm’s most triumphant investments to date?

Schwarzman: A standout success story was our venture into Hilton in early July 2007, coinciding with the zenith of equity valuations. Despite the premium price tag, we discerned two pivotal avenues for augmenting Hilton’s profitability. Firstly, Hilton had refrained from international expansion for over two decades, despite wielding preeminent global brand recognition. By aggressively spearheading international hotel expansions under a management-centric model, coupled with external capital infusion, we anticipated a \(500 million annual profit surge solely from this initiative. Secondly, Hilton’s operational inefficiencies, typified by tripartite headquarters and staff redundancies, presented an additional \)500 million cost-saving opportunity. Despite the initial hefty investment, we deemed it judicious, cognizant of the attainable milestones. Subsequently, the global financial downturn curtailed earnings by \(500 million, necessitating additional capital infusion to safeguard the investment. However, the organic economic recovery, coupled with operational enhancements and sustained portfolio growth, culminated in a \)14 billion total profit, underscoring the venture’s resounding success.

Forbes: Conversely, could you share an investment setback from which you gleaned valuable lessons?

Schwarzman: Undoubtedly, the Edgcomb Steel debacle, our third investment in 1989, epitomized a calamitous misstep rather than mere disappointment. Engaged in steel distribution, the deal unraveled catastrophically. Our investment thesis proved fallacious, premised on erroneous assumptions regarding profit generation from inventory fluctuations—a model unsustainable amidst plummeting steel prices. As earnings nosedived and debt obligations loomed insurmountable, we infused additional capital in a bid to salvage the sinking enterprise. Ultimately, divestiture emerged as the sole recourse, culminating in a 100% loss on the initial investment. Albeit salvaging the subsequent capital infusion, the episode was profoundly traumatic. Acknowledging the imperative of institutionalizing decision-making processes, we transitioned from a personalized to a collective decision framework. Every decision necessitated comprehensive partner involvement, entailing meticulous risk assessment and deliberation. This transformation engendered a culture of prudence, mandating exhaustive risk evaluation and fostering a nuanced understanding of potential pitfalls—an invaluable lesson catalyzed by the Edgcomb Steel debacle.

Forbes: In your capacity as an investor, what metrics do you deem paramount? Which factors, be they macro or micro, command your utmost attention?

Schwarzman: A comprehensive grasp of the macroeconomic landscape is pivotal, influencing pricing dynamics and shaping micro-level performance expectations. Primarily, we assess the fundamental drivers underpinning a company’s success, seeking out lucrative industry niches characterized by sustained growth trajectories impervious to economic vicissitudes. An illustrative instance is the AI domain, particularly data centers, where we command a leading market share globally. Anticipating this trend three years prior to ChatGPT’s emergence, our acquisition of QTS—a data center lessor—has yielded a sixfold growth, culminating in a $10 billion acquisition, marking the largest data center transaction historically. Geographic expansion potential represents another pivotal criterion, a facet exemplified by ongoing data center proliferation. Ergo, our investment calculus emphasizes growth trajectories at both the company and industry levels, underpinned by geographic diversification imperatives.

Forbes: If you could dispense advice to your 20-year-old self regarding investment practices, what would it entail?

Schwarzman: Surround yourself with erudite individuals and institute a data-centric framework yielding proprietary insights. Exercise patience, refraining from precipitous investment decisions and committing solely when unequivocally convinced of a venture’s viability. Personally, I assimilate copious contemporaneous information to discern trends and patterns, underscoring the indispensability of data in facilitating informed decision-making. While some individuals excel in solitary contemplation, I thrive on data immersion, enabling pattern recognition and trend identification—a modus operandi predicated on data-driven insights.

Forbes: Are there any prevailing investment ideas or themes you deem particularly salient for contemporary investors?

Schwarzman: Credit remains a highly lucrative domain from a risk-reward standpoint. Real estate is poised for an economic cycle shift, precipitated by a pronounced downturn in construction activities across diverse asset classes. Concurrently, private equity is poised for heightened activity as interest rates are anticipated to decline, potentially as early as Q3 or Q4, heralding a surge in investment prospects.

Forbes: In your assessment, what are the primary risks confronting investors presently, whether from a strategic or environmental vantage point?

Schwarzman: Foremost among the risks is the prevailing geopolitical milieu, compounded by regulatory apprehensions and political uncertainties. The regulatory landscape has witnessed a marked escalation under the current administration, exerting a dampening effect on economic growth trajectories.

Forbes: Could you recommend a book that every investor should peruse?

Schwarzman: My book, What It Takes, has garnered substantial acclaim, resonating with readers globally. While my professional commitments curtail my engagement with business literature, Phil Knight’s memoir, Shoe Dog, chronicling Nike’s inception, offers a compelling narrative on entrepreneurial perseverance. Personally, I maintain an eclectic reading regimen, concurrently exploring diverse literary works.

Forbes: Thank you, Steve.