80 Business The EconomistSeptember 21st 2019
A
s a child growing up in Philadelphia, Stephen Schwarzman
had a part-time job selling handkerchiefs to old ladies at his fa-
ther’s shop, Schwarzman’s Curtains and Linens. He hated it. His
main consolation was imagining how the firm could expand
across post-war America, like Sears. But his father was not inter-
ested. He was happy with a house, two cars and some money. He
was no entrepreneur. The younger Mr Schwarzman, who went on
to co-found Blackstone, the world’s largest alternative-asset man-
ager, and become an Olympian of modern-day capitalism worth
$18bn, recounts that story at the start of his memoir, “What It
Takes”. It is one of the few times a mere mortal appears in his ac-
count—only to be swiftly shunted aside.
Mr Schwarzman has little time in the book for the little guy.
Other financiers wring their hands over the wealth gap between
bosses and workers. Not him. He was a rare executive in America’s
Business Roundtable not to sign a charter last month calling for an
end to the shareholder-led model of capitalism. His private life ap-
pears to be one of lavish parties and glamorous schmoozing. Ac-
knowledgments in the book stretch to 14 pages and he name-drops
five American presidents, four French ones and China’s Xi Jinping.
Yet Mr Schwarzman avoids footling with life’s foot-soldiers for
a reason. The book has a higher purpose. Many will read it for in-
sights on how to become a master of the universe. The subtext is
how to build a legacy: a quest that at 72, he looks hellbent on. That
means giving away chunks of his fortune so that the Schwarzman
name is inscribed, Rockefeller-like, on libraries, universities and
scholarship programmes. It also means building a firm that out-
lasts him as J.P. Morgan has outlasted John Pierpont. Indeed, Mr
Schwarzman’s 25 “Rules for Work and Life” can be boiled down to
one: how to create a corporate culture that persists.
Contrary to its barbarian image, the world of finance is not cul-
ture-free. Yes, employees at Lehman Brothers, where Mr Schwarz-
man once worked, famously had a reputation for not stabbing peo-
ple in the back—but walking right up and stabbing them in the
front. And Blackstone is sometimes similarly portrayed as a deal-
making war machine, with Mr Schwarzman as the merciless field-
marshal; not for him hard-to-measure pieties about the purpose of
business. But his company does have purpose, he feels: to generatehealthy profits for investors, which include pension funds, while
providing 500,000 jobs in the firms in which Blackstone invests.
Peer beneath Blackstone’s armour and clear values emerge. The
interplay between three in particular—ruthless ambition, unex-
pected humility and fierce loyalty—is the backbone of Mr
Schwarzman’s book. It also lies at the core of his company.
Start with ambition. Blackstone is steeped in unabashed elit-
ism. Mr Schwarzman makes no bones about his own desire to be
bigger than the rest. After he co-founded Blackstone with
$400,000 in 1985, he set out to raise more money from investors
than any upstart fund before it. Now it has $545bn under manage-
ment—this year it has raised the world’s biggest-ever private-equ-
ity and property funds. When he launched Blackstone’s initial
public offering in 2007, he wanted it to be the first private-equity
ipo. Blackstone was pipped to the post by a smaller rival but it was
still one of Wall Street’s landmark listings. This year it scrapped its
partnership structure to become a corporation, raising its market
value above $60bn—not far from that of BlackRock, which split
from Blackstone in the mid-1990s to become a powerhouse in its
own right, and with which Mr Schwarzman has a respectful rivalry.
When hiring, he aims to recruit only “tens”. As he puts it: “You have
two options: either run a middling company going nowhere or
clear out the mediocrity.” His philanthropy focuses on the elites of
tomorrow—by sending American scholars to China, for instance.
This competitive streak is balanced by surprising humbleness.
Blackstone readily learns from its mistakes. Mr Schwarzman owns
up to several. The most painful came in 1989, when he backed a
new employee’s gamble on a steel firm, Edgcomb, despite opposi-
tion from more experienced colleagues. It went spectacularly
wrong. Since then, he ordained, investment decisions must al-
ways be made collectively. The meetings, robust affairs where par-
ticipants compete to pick holes in each other’s ideas, reflect the
premium Blackstone affords ambition. But focusing on downside
risks rather than upside potential promotes prudence. When
Blackstone bought Equity Office Properties, a real-estate trust, for
$39bn on the eve of the financial crisis in 2007, it recouped more
than half what it had paid at a profit within a day in order to turn a
huge risk into a manageable one.
The third value is loyalty. When Blackstone’s share price tum-
bled during the financial crisis, Mr Schwarzman listened to board
members urging him to maintain its dividend, to spare the blush-
es of the Chinese sovereign-wealth fund, which had taken a huge
punt on the ipo. As he told Jimmy Cayne, the boss of Bear Stearns,
as the investment bank stared into the abyss: “There are times
when you just have to stand up and write a cheque.” In other words,
safeguard your reputation by making good those whose money
you are responsible for. Mr Cayne did not listen.Sweat equity
The book has flaws, as does its author. He describes his early career
in humorous detail: as a fresh-faced financier, “I must have been
the biggest buyer of antiperspirant on the East Side of Manhattan.”
By the end, he mainly brags. Blackstone is less prudent than he lets
on. Buying Hilton, a hotel chain, for $26bn amid the financial cri-
sis turned a huge profit—but was reckless in the extreme at the
time. He glosses over the incestuous relationship between Wall
Street and Washington. That said, his defence of capitalism at its
red-blooded best is refreshing. If Blackstone’s mix of dynamism
and integrity lives up to this paragon, Mr Schwarzman’s firm de-
serves to last. 7Schumpeter The lessons of Stephen Schwarzman
How to build a legacy