When Stephen Schwarzman originally proposed lunch, he suggested two venues: Claridge’s or St Tropez. Naively, I assumed there was a choice. A rendezvous on the Côte d’Azur, where Schwarzman enjoys one of his many palatial residences, was always a tad risky for a man who loves to control the situation.
Invited for 12.15pm, I spot Schwarzman standing centre stage in The Foyer & Reading Room restaurant. Short and tanned, he’s wearing a lightly pinstriped dark suit with his favourite combination: blue-striped shirt with white collar and purple tie. He’s put on a few pounds since he was a top runner in high school and college, but at 72 he still looks trim.
Encounters with Schwarzman are rarely dull. He’s a combative character who, while outwardly charming, does not take kindly to criticism. We’ve exchanged expletives in Davos and in his luxuriously appointed office at Blackstone, the Wall Street private equity and asset management firm he co-founded 34 years ago. But there have never been any hard feelings.
Schwarzman’s fortune (net worth about $18bn) has bought him power and influence. He’s graduated from being a mega dealmaker to philanthropist, back channel in US-China relations and “Trump whisperer”. I want to explore these multiple roles, but also pin down why the man who has built one of the most successful financial businesses on the planet has never quite received the credit he believes he deserves.
A Wall Street rival offers a clue: “Steve is one of the most honest people I know. Most people lie to your face. He’ll always tell you straight up he’s going to screw you.”
As we study our menus, I raise the character question. His restless, driven nature is legendary. “Yes, it’s true,” he admits. “It goes with the territory, the person.” As if on cue, he announces we’re moving table because of a cold draught, compounded by noisy neighbours.
Schwarzman says, half-joking, that unlike his younger twin brothers he inherited “the right gene mix” from his mother, “a very formidable, strong survivor”. His father by contrast was “a lovely, super-bright but not ambitious person” who ran a linen store in Philadelphia. “We could have been Bed Bath & Beyond. I don’t know why not. That’s the way my mind has always worked, he just had no interest. Fascinating.”
My guest is not given to self-doubt. Accepted at Yale, he phoned the dean of admissions at Harvard to parley his way in. (He was rejected.) After Harvard Business School, he joined Lehman Brothers. He always coveted the top job, but the infighting was murderous and he ended up selling the failing bank to American Express. He struck out on his own, co-founding Blackstone in 1985 with Pete Peterson, the former Lehman chairman and Nixon-era commerce secretary.
Our waiter arrives bearing water. Schwarzman orders tomato and basil soup, followed by poached lobster salad. I choose smoked salmon and grilled Dover sole off the bone. Alcohol is out because I am on dry August and my guest says he only drinks wine sparingly. (Schwarzman takes an anticoagulant pill a day to ward off phlebitis, a vein inflammation that killed his grandfather.)
Blackstone started as a boutique advisory firm, with the goal of making enough money to start its own private equity fund. Private equity has attracted controversy because of alleged asset-stripping: buying companies, loading them with debt (“leverage”) and selling them off at a handsome profit, with favourable tax treatment.
Schwarzman casts himself as a long-term investor, not a scavenger in sheep’s clothing. He recounts with gusto the megadeals and the risk-taking involved in picking the right time to buy and sell assets, ranging from US Steel’s railroad network to the Waldorf hotel.
His skill is market timing. Blackstone has expanded into real estate and hedge funds and other “alternative assets”, with $545bn under management today. Blackstone funds are also the largest owner of real estate in the world. The firm’s rise epitomises the “buy side” revolution that favours asset managers at the expense of traditional banks trading liquid securities.
Schwarzman has written a book, which is part memoir, part Blackstone management primer called What It Takes: Lessons in the Pursuit of Excellence. (A better title would be Whatever It Takes, I suggest.) There are many valuable insights; perhaps the biggest is the list of endorsements featuring Henry Kissinger, Eric Schmidt, the ex-Google chairman, Janet Yellen, the ex-Fed chair, and Mark Carney, governor of the Bank of England.
Peterson and Schwarzman worked together for 33 years, but the father-son relationship fell apart at the end. Peterson felt he had been squeezed out of his fair share of an expanding business. Schwarzman argued that he was the rainmaker, the firm was hiring more people and something had to give. “He had reached a different stage in his career and he volunteered to reduce his interest in the firm and did.”
This is the unsentimental side of Schwarzman. He appears not to care. He prides himself on his intuition (Blackstone went public ahead of the Great Crash in 2008 and, with fresh capital, positioned itself perfectly for the rebound). He also highlights his ability to recruit and retain high-quality executives such as Tony James, his longtime number two, and Jon Gray, the real estate guru, both fellow billionaires.
Blackstone is a meritocracy, he says, where two iron rules apply: no internal politics and do not lose money. “I go from the premise that anybody of talent does not want necessarily to be a private in an army. The lowest they want is to be a lieutenant colonel and preferably they’d all like to be generals.”
Hang on, I say, there’s no mistaking who’s generalissimo at Blackstone. Schwarzman still signs all cheques above $250,000, retains a veto on major decisions and later declares: “I don’t think I’ll ever retire. My grandfather never did.”
Anyway, surely someone loses money some time, I add.
He half-concedes the point: “Every once in a while there’s some weird fucking thing where government does something or there’s a technological breakthrough that’s transformative that a reasonable person couldn’t know what is going to happen. And so that introduces what I call unpredictable risk, and you can get, potentially, picked off by that.”
I ask Schwarzman how his lobster tastes. “Pretty good,” he replies, picking at the pink flesh. My Dover sole is fresh and tasty. So how does Schwarzman assess the state of modern capitalism?
“Well, I would answer that with another question: what’s the state of modern politics?”
The “rejiggering” of governments in the west, he argues, is a legacy of the financial crisis, globalisation and a massive transfer of jobs and wealth to emerging markets such as China. And that’s before the impact of technology. These trends have squeezed the middle class and lower-income groups.
His remedies start with an increase in the minimum wage to about $15, up from single digits. This will destroy some jobs, but it will directly benefit 15 to 20 per cent of the population, with a knock-on effect on compensation for another 20 per cent, he argues.
Schwarzman wants to dramatically improve education levels in the US. He would make teachers tax exempt so as to raise wages and create “a new privileged class”. Two-thirds of America’s workforce went to high school or less, he says. “This is not the workforce of the future.”
Finally, he would encourage the Baby Boom generation that’s retiring to take up jobs as mentors and assistant teachers. (In a pre-lunch gesture, he offered to donate all book proceeds to Lucy Kellaway’s like-minded charity, Now Teach. The offer was accepted.)
How about the mega rich paying more taxes? Schwarzman looks incredulous. “Taxes on the wealthy?”
Well, why not?
“The tax system in the US is extremely progressive . . . it’s a reverse pyramid. The top 10 per cent pays 70 per cent [of the tax take]. The top 1 per cent pays 38 to 40. I pay around 48 to 47 per cent tax rate.” (He later clarifies this is a “blended rate” covering ordinary income, capital gains and dividends.)
Schwarzman can be tin-eared. He once compared a proposal to tax private equity executives selling their publicly listed stock as ordinary income to Hitler invading Poland. He says it was a private conversation, but does not deny railing against the “semi-socialist” Obama administration. Today, socialism is no longer a dirty word in the Democratic party. Is he worried about the 2020 presidential election?
“The politics of anger and free things is a powerful potential elector,” he says, adding that the US is more polarised than ever in his lifetime. “Vietnam was about one issue. This is much more intense, much more far-reaching.”
The gravity of the conversation demands light relief, happily provided by the waiter, who congratulates Schwarzman on his choice of the upside down strawberry tart as dessert.
Waiter: “It’s the new style.”
LB: “New style?”
Waiter: “Yes sir.”
LB: “What’s the old style?
Waiter: “A regular strawberry tart.”
Schwarzman won’t talk on the record about Donald Trump, a wearily familiar response from chief executives, even billionaires. Yet as chairman and chief executive of Blackstone, he’s running the firm while also advising Trump. He says the potential conflicts of interest are manageable, but there have been awkward moments, especially after he had to disband the chief executive panel advising Trump in the wake of far-right violence in Charlottesville in 2017.
Did Trump equivocate about the far-right? “Most of us had no idea there were Nazis in America. That may mean we’re naive . . . We also had no idea there was something called anti-fascistas who also used violence. The whole thing was completely disorienting.”
Trump, he concludes, did not get his words right first time. The second time, it “looked right”. By the third time, the US had experienced “a society-galvanising moment”.
Schwarzman has been accused of wearing too many hats. In China, where Blackstone has important business, he’s tried to be a bridge builder; but he agrees that relations between Beijing and the US are at a low point.
“China has enjoyed the most stunning transformation in the past 40 years of any country, most probably, in world history. It did it through a variety of mechanisms that are not consistent with the rules and regulations of the developed world.”
Now, in effect, the US is asking Beijing to adopt western practices. This, he admits, is very difficult. But, he suggests, the Chinese leadership has been told that however difficult they think Trump is, the Democrats could be far worse in terms of trade protectionism.
We turn to Schwarzman’s generous philanthropy. In recent years, he has donated $100m to the New York Public Library, $150m to Yale, £150m to Oxford university, $350m to MIT. He’s also set up the Schwarzman scholars, a one-year masters programme on global affairs for top international students to study at Tsinghua University in Beijing. (Full disclosure: I have served on the 200-strong panel of judges for the past four years.)
Schwarzman says he only wants to donate to causes that are “paradigm shifting”, such as the artificial intelligence lab at MIT. But he is a hard-boiled negotiator when it comes to disbursing money and naming rights. The New York Public Library became so frustrated that they proposed putting his name on the roof (that way his name would be seen by every plane flying over Manhattan to La Guardia). The funds came through. (Schwarzman’s name is now on every entrance to its main building.)
The ego has landed in many other prestigious locations. His 60th birthday party in 2007, featuring Rod Stewart in Manhattan’s Armory, was reported to have closed Park Avenue (“It was only one lane,” he protests). His 70th was an equally extravagant affair with an ancient Silk Road theme held at a five-star hotel near President Trump’s Mar-a-Lago estate in Florida.
Why is glitz and showiness so integral to Steve Schwarzman?
“That’s a good question,” he says, attributing his aesthetic taste partly to his second wife, Christine. “I like generally doing things that nobody has done. I also like to do things that are beautiful.”
He points to the striking glass sculpture in the Foyer, with writhing snakes hanging like a chandelier. This was part of the refurbishment of Claridge’s, a trophy picked up when Blackstone bought the Savoy Group 21 years ago. “I actually went out to the state of Washington and met with the sculptor Dale Chihuly to check it out.”
Schwarzman wonders aloud how lucky he has been — a rare moment when the scrappy self-made man lets himself go. I note that we are meeting on the 100th anniversary of the death of Andrew Carnegie, the Scottish-born steel magnate, one of the world’s greatest philanthropists who gave away his entire fortune (about $300bn at today’s prices).
“Do you agree with Carnegie when he said: he who dies rich dies disgraced?”
Schwarzman offers a rambling answer about America’s “tax infrastructure”. So will he follow Warren Buffett’s rallying call to the rich to donate more than 50 per cent of their fortune to charity? (Buffett himself has gone higher, to 99 per cent). “Maybe I will, maybe I won’t, but to me that’s not relevant . . . obviously I’ve given it a lot of thought and the vast amount will go to charity.”
Two and a half hours have passed. I switch off the tape recorder. Schwarzman looks slightly relieved.
Just as I’m preparing to settle the bill, Wall Street’s arch dealmaker pulls out a copy of the FT and points to an ad highlighting the longlist of the McKinsey-FT business book of the year.
“What It Takes did not make the list. Is it really too late?”
Whatever it takes.
Lionel Barber is editor of the FT