Steve Schwarzman is co-founder of the successful Blackstone money management firm. This piece from Fortune details his rise to prominence and the workings of his firm:
FORTUNE -- The last time Blackstone's Steve Schwarzman was featured in the pages of Fortune, it was March 2007, and private equity firms were reveling in their moment of maximum glory. A frenzy of buying and bidding was pushing takeover deals into the tens of billions. Blackstone's founders, Schwarzman and Pete Peterson, already zillionaires, had taken home hundreds of millions more as the firm held a richly priced initial public offering. The $3 million party that Schwarzman threw for himself on his 60th birthday earned him notoriety as a tuxedo-wearing symbol of excess. This magazine crowned him "The New King of Wall Street."
In that 2007 article, a former Blackstone employee sounded a cautionary note about Schwarzman and his firm: "Never be the poster boy. The era changes, and the poster boy gets ripped off the wall." Well, the era certainly changed. The financial crisis and the grinding slowdown that followed have humbled even the buyout princes. Cerberus's audacious buyout of Chrysler and Apollo's acquisition of Linens 'n Things both ended with humiliating trips to bankruptcy court. Blackstone's top competitors, KKR (KKR) and Carlyle Group, had to repeatedly postpone IPO plans. And Carlyle was forced to close a hedge fund that it had launched to take advantage of the boom.
For all the turmoil, though, the poster boy didn't get ripped from the wall. Today Blackstone (BX) is bigger than ever. The firm had $157.7 billion in assets under management as of Sept. 30, up from $88.4 billion in May 2007. With Blackstone earning a steady 2% management fee on the vast majority of those dollars, the firm has seen its fee revenue rise 60%. So prosperous is Blackstone that average compensation was about $810,000 per employee in 2010. By comparison, the staff at Goldman Sachs (GS) had to get by on a relatively paltry $430,000 per head.
You wouldn't know those gaudy numbers if you read Blackstone's public filings, which the firm has released since going public in 2007. Those filings have consistently shown losses. That's because Blackstone is a partnership, and its goal is to generate cash for its partners rather than reporting earnings.
The firm is now more diverse than ever. Its private equity business, which oversees $43 billion, accounts for just over a quarter of the assets the firm manages, and Blackstone has three other lines of comparable scale. Its real estate and hedge fund businesses (the latter creates individualized funds of funds for clients and invests in startup hedge funds) manage $41 billion and $40 billion, respectively. Its credit unit, which buys pieces of loans and distressed debt, oversees $34 billion. Blackstone's fifth line, its advisory group, has become a top choice for complex deals and restructurings.
Returns for all of Blackstone's funds consistently rank in the top quartile of their peer groups, according to data firm Preqin. Blackstone's private equity funds, for example, have averaged 22% annual returns to investors, after fees, since the first buyout fund was raised in 1987.
Though it suffered large writedowns in 2008, Blackstone avoided a cataclysm. That's largely because Schwarzman has always been obsessed with being "alert to danger," as he puts it, instilling a caution that borders on paranoia. Blackstone anticipated the mortgage meltdown, the fall in equities prices, and the end of easy credit, and pushed hard for an IPO before the collapse. (That was good for Blackstone -- not so good for its shareholders.) Blackstone's hedge fund group wisely directed some of the hedge fund managers it worked with to bet against subprime mortgages. And in 2006 and 2007, Blackstone sold 81% of its private equity portfolio as prices were rising. Those decisions left the firm awash in cash when opportunities emerged in 2009.
Another key reason Blackstone has been able to grow: its chief operating officer, Tony James. Though overshadowed by Schwarzman, James is an adroit manager who has insulated his staff from Schwarzman's perfectionism and relentless demands, positioning Blackstone to be that rare Wall Street creature: a firm that can thrive even after its founders (eventually) depart.
Link to remainder of article:
http://finance.fortune.cnn.com/2011/12/20/blackstone-steve-schwarzman/
FORTUNE -- The last time Blackstone's Steve Schwarzman was featured in the pages of Fortune, it was March 2007, and private equity firms were reveling in their moment of maximum glory. A frenzy of buying and bidding was pushing takeover deals into the tens of billions. Blackstone's founders, Schwarzman and Pete Peterson, already zillionaires, had taken home hundreds of millions more as the firm held a richly priced initial public offering. The $3 million party that Schwarzman threw for himself on his 60th birthday earned him notoriety as a tuxedo-wearing symbol of excess. This magazine crowned him "The New King of Wall Street."
In that 2007 article, a former Blackstone employee sounded a cautionary note about Schwarzman and his firm: "Never be the poster boy. The era changes, and the poster boy gets ripped off the wall." Well, the era certainly changed. The financial crisis and the grinding slowdown that followed have humbled even the buyout princes. Cerberus's audacious buyout of Chrysler and Apollo's acquisition of Linens 'n Things both ended with humiliating trips to bankruptcy court. Blackstone's top competitors, KKR (KKR) and Carlyle Group, had to repeatedly postpone IPO plans. And Carlyle was forced to close a hedge fund that it had launched to take advantage of the boom.
For all the turmoil, though, the poster boy didn't get ripped from the wall. Today Blackstone (BX) is bigger than ever. The firm had $157.7 billion in assets under management as of Sept. 30, up from $88.4 billion in May 2007. With Blackstone earning a steady 2% management fee on the vast majority of those dollars, the firm has seen its fee revenue rise 60%. So prosperous is Blackstone that average compensation was about $810,000 per employee in 2010. By comparison, the staff at Goldman Sachs (GS) had to get by on a relatively paltry $430,000 per head.
You wouldn't know those gaudy numbers if you read Blackstone's public filings, which the firm has released since going public in 2007. Those filings have consistently shown losses. That's because Blackstone is a partnership, and its goal is to generate cash for its partners rather than reporting earnings.
The firm is now more diverse than ever. Its private equity business, which oversees $43 billion, accounts for just over a quarter of the assets the firm manages, and Blackstone has three other lines of comparable scale. Its real estate and hedge fund businesses (the latter creates individualized funds of funds for clients and invests in startup hedge funds) manage $41 billion and $40 billion, respectively. Its credit unit, which buys pieces of loans and distressed debt, oversees $34 billion. Blackstone's fifth line, its advisory group, has become a top choice for complex deals and restructurings.
Returns for all of Blackstone's funds consistently rank in the top quartile of their peer groups, according to data firm Preqin. Blackstone's private equity funds, for example, have averaged 22% annual returns to investors, after fees, since the first buyout fund was raised in 1987.
Though it suffered large writedowns in 2008, Blackstone avoided a cataclysm. That's largely because Schwarzman has always been obsessed with being "alert to danger," as he puts it, instilling a caution that borders on paranoia. Blackstone anticipated the mortgage meltdown, the fall in equities prices, and the end of easy credit, and pushed hard for an IPO before the collapse. (That was good for Blackstone -- not so good for its shareholders.) Blackstone's hedge fund group wisely directed some of the hedge fund managers it worked with to bet against subprime mortgages. And in 2006 and 2007, Blackstone sold 81% of its private equity portfolio as prices were rising. Those decisions left the firm awash in cash when opportunities emerged in 2009.
Another key reason Blackstone has been able to grow: its chief operating officer, Tony James. Though overshadowed by Schwarzman, James is an adroit manager who has insulated his staff from Schwarzman's perfectionism and relentless demands, positioning Blackstone to be that rare Wall Street creature: a firm that can thrive even after its founders (eventually) depart.
Link to remainder of article:
http://finance.fortune.cnn.com/2011/12/20/blackstone-steve-schwarzman/
