THE economic recession saw the fortunes of giants nose-dive, kings becoming paupers in a blink and the common man wrenched the shirt off his back. But there were some smart ones, who survived, even grew bigger.
Blackstone is one such happy-end case, “the greatest untold success story on Wall Street.” Blackstone started with two men and a secretary and went on to become one of Wall Street’s most powerful institutions, leaving its competitors miles behind. In King of Capital: The remarkable rise, fall and rise again of Steve Schwarzman and Blacks tone, David Carey and John E Morris bring alive this fantastic journey, sketching not just the company but the man who made it all happen.
The book begins dramatically enough, giving the stunning details of the party thrown by Schwarzman when he turned 60. How the venue, Park Avenue Armory had been recreated like the living room in Schwarzman’s $30 million apartment, right down to his portrait and the “grandfather clock.” The bash is estimated to have cost $3 million: pocket money for the “brash new king of a new Gilded Age.” The sensational announcement of the company launching IPO came and with it, its balance sheet was revealed.
Blackstone had arrived in the scene of private equity and leverage buyout in 1985. It was a partnership between Steve Schwarzman and Peterson. By 2007, it had become bigger than KKR, a firm playing in the field for 10 years ahead of Blackstone. It controlled $100 billion worth of real estate and oversaw $50 billion invested in other firms’ hedge funds. The book says, “You couldn’t purchase a ticket on Orbitz.com, visit a Madame Tussauds wax museum, or drink an Orangina without lining Blackstone’s pockets.” Blackstone today employs half a million people and generates $ 171 billion every year.
The name Blackstone was chosen by Schwarzman, combining the English equivalent of schwarz, which in German and Yiddish means black and peter, Greek name for stone. As personalities they were poles apart. While for Schwarzman, acquiring and showing off wealth was all important, for Peter, the former was not important and the latter distasteful. What they shared was a deep desire for public recognition. But they set out to work together and made it is huge success. Later on Peter moved out of his majority share.
“Blackstone was a pioneer in a type of investing that became known as real estate private equity: raising funds to buy properties and improve them or ride the market cycle up, and selling them a few years later… The buy-and-sell strategy contrasted with the approach of more traditional property firms, which hold buildings for the long term and manage them to maximize income rather than sell them at a profit,” says the book. What gave Blackstone’s strategy an edge is real estate equity was still a small niche of the investment world and the firm never faced stiff and high biddings which it faced in other businesses.
Things began to go bad with recession. Blackstone was very much in the thick of this falling prices and markets. “Blackstone and other big buyout shops have concluded that the only way they can outperform the stock market over the long haul is to systematically improve the companies they own.” And there started a process of “hands-on’ approach. Schwarzman always liked to tell his troops, “If we don’t reinvent ourselves continually, we’re dead” and that is what he did. In this the Chinese investments came handy. That story is interesting. How Schwarzman used the Chinese capital to come out of the crisis.
The book is an absorbing account of the goings on in the financial market, with Blackstone as the peg. The moves and counter moves, the ups and downs, the falls and rises of firms, the markets and the individuals make it a racy read. The authors – David Carey, a senior writer for The Deal, a news service and magazine and John E Morris, Editor with Dow Jones Investment Banker – are very much part of this world of money and obviously enjoyed writing the book. -RB
(Crown Business, New York)