In a recent video filmed as part of the Howard Marks Investor Series at The Wharton School, Blackstone founder Stephen Schwarzman sits down with his friend and colleague Howard Marks to discuss a wide range of topics. Mr. Schwarzman, who joined Lehman Brothers in 1972 and founded Blackstone in 1985, served in the military with Mr. Marks, the co-founder of Oak Tree Capital Management.
Given his experience with investment banking, why did Schwarzman choose to start an asset-management firm when he went his own way in 1985? He says he spent three months coming up with a strategic plan that involved doing what everybody else wasn’t doing. This included establishing a clear vision for the firm, as well as a meritocratic environment.
Blackstone started as a corporate advisor, dealing with companies too small for existing players. Later, the firm helped pioneer leveraged buyouts (“LBOs”), and it was well-positioned for the industry’s revolutionary changes, which led to much bigger firms. As evidence, Schwarzman says Lehman Brothers had 550 employees when he started there, and 30,000 by the time the firm collapsed a quarter-century later. This, in his view, was due to these “May Day” commissions reforms.
The subject matter shifts to China late in the video. When Chinese investors took a stake in Blackstone, a “senior political figure” in the U.S. publicly complained that China was “taking over” the company. In response, Schwarzman notified the politician that the Chinese investors had no voting shares and no board members, to which the politician replied: “I don’t care what the truth is – I just hate these people.” This, in Schwarzman’s view, is “not a good way to have a safe world.”
So what can be done? Schwarzman says that foreigners educated in the U.S. help moderate anti-U.S. hostility in their home countries, and the same could be true of Americans educated in China. Thus, his Schwarzman Scholar’s program, which is supported by Mark Zuckerberg, Jack Ma, and Tim Cook, among others.
Schwarzman cites a Harvard study that found there have been 15 times since 1500 that a “challenger country” has challenged an “incumbent” for global supremacy, and 12 of those 15 instances have resulted in war. Schwarzman wants to avoid this, and he is hopeful, thanks to the progress of economic reform in China. Today, many of the country’s leaders come out of its early reform years, including the nation’s leader Xi Jinping.
Click here to watch the video: The Howard Marks Investor Series at The Wharton School: A Conversation with Stephen A. Schwarzman
Jason Seagraves contributed to this article.