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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  December 1, 2019 10:00am-10:30am EST

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david: you went to harvard business school. steve: yes. david: and did you enjoy harvard business school? steve: no. david: did you want to drop out? steve: yes. david: you went out to raise a fund, and was that easy to do? steve: i sort of looked at that and went omg, we are going to fail. david: in 2007, you decide maybe you should take the firm public. steve: i took it public for a lot of different reasons. i had a sixth sense that something terrible was going to happen in the environment. >> would you fix your tie? david: well, people would not recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪
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david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer, even though i had a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? before we get into blackstone, i would like to talk about a couple of other things. you grew up in a middle-class environment in philadelphia, and now you are one of the wealthiest men in the world, one of the biggest philanthropists in the world, and you are an advisor to presidents, the last three presidents have asked your advice on things. and you are very close to president trump. when you were growing up in philadelphia, did you ever in your wildest dreams imagine this could happen? steve: no. dave: do you pinch yourself every day now that you think about where you have achieved your status in life? steve: frankly, every day is an
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adventure, and every day is a privilege. david: you have come to know president trump quite well in recent years since he has been president. did you know him before he was president, or know him very well then? steve: i knew him before he was president. david: so when he told you i am thinking of running for president, did you tell him he had a chance or that is a tough thing to do? steve: i thought that was a veritable impossibility. david: when he got elected, did he say steve, you are wrong, why don't you serve in the administration? steve: i can't tell you exactly what he said. but it was very funny. i did not want to be a part of the government. i have a wonderful life as it is. i did not want to disrupt that. david: you have been an advisor off and on from the beginning of the administration. he has asked you to do a number of assignments. i have never seen him tweet anything unfavorable about you. you have managed to stay on his good side. what is the secret? steve: you tell people the
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truth. i don't work for the -- in the administration. i am an independent person. i give my views. i find that he likes to listen. that is, i think, a good thing. david: let us suppose he is reelected and said, i would like you to be secretary of state, secretary of treasury, would you consider that? steve: when i was younger, i would do that. i am at a point in my life where that is not where i want to spend time. david: you have spent some time recently writing a new book. steve schwarzman, what it takes, lessons in the pursuit of excellence. i read the book, and it is quite fascinating. i know you quite well, but i did not know a lot about your background, which i found quite interesting. why don't we start with your background and take you through the creation of blackstone. you grew up in the suburbs of philadelphia. is that right? steve: that's right. david: you are from a middle-class family. your father had a curtain store.
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steve: yeah, a curtain store. it would have been a bed, bath & beyond type of store. david: it was started by his father. steve: that's right. david: so he came into the business. did he say, steve, you are the oldest of the three sons, now, it is time for you to come into the business? steve: that was expected. i found that standing up and waiting on people buying linen handkerchiefs was perhaps not my highest and best use. david: but you told your father according to the book that maybe he should expand it and do more than one store, maybe become bed, bath & beyond. what did he say to that advice? steve: he said steve, that is interesting. i don't feel like doing that. i said, dad, why don't you want to do it? we have lots of people in the store, and i haven't seen another store like this and i think we could be national. david: he just said not for him? steve: he just said i'm not interested. so i said, why don't we open stores all over pennsylvania? because we were from
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philadelphia. he said, i don't want to do that very so then i had a third option, which is, why don't we open stores all over philadelphia? he said, i don't want to do that either. i said, dad, why don't you want to do this? he said, i am happy the way i am. i have a house. i have two cars. i have enough money to send you and your brothers to college, and that is really all i want. i shook my head, and i went, i don't understand that. i just saw the opportunity to open stores all over the country. and he just did not want to do it. what was surprising to me is he was very, very intelligent. david: you say in your book that he was far more intelligent than you. that might be an exaggeration, but he obviously was a smart person. steve: that was not an exaggeration. because i would talk to him when i was starting my career on things. no matter what i was working on, he could always find the weakness in the argument or the deal.
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david: what about your mother? what did she do? steve: she was just aggressive. she was a housewife. it was the 1950's and 1960's. i have twin brothers. the three of us were a handful. that was the paradigm at that time. david: as i said, i have known you for quite a while but until i read the book, i did not realize you were a track star. were there a lot of white jewish boys on the track team? or were you a minority in that regard? steve: i think i was a minority of one. david: you say in the book, which is obviously true, that you did something quite audacious. you applied to harvard, yale, and princeton. harvard did not accept you. so you then got out some coins and called the director of admissions at harvard and said you made a mistake. what was that like? steve: that was frightening. we did not have cell phones then. so i got some quarters, and i
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found the phone number for the admissions office. the payphone was outside the gym. and i stood there, and put those quarters in and you could hear the ringing when they dropped down. and i asked for the dean of admissions, and i was put right through. he picks up the phone and i said hi, i'm steve schwarzman from avington high school in pennsylvania. i am on the waiting list. and, i would really like to go to harvard. so why don't you take me off the waiting list? he said, how in the world did you get through to me? you are not allowed to talk to me. i don't talk to applicants. and i said, but we are talking. he said yes. he said you sound like a very nice young man, but unfortunately, we are not going to be taking anyone from the
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waiting list this year. our yield was higher than we thought. where else were you accepted? i said i was accepted at yale. he said you will have a very good time at yale, and you will enjoy it. i said i am sure that i would, but that was not my objective. -- objective for the phone call. he said i understand that, but i'm just so sorry. david: did you ever see him? or hear from him again? steve: ironically, it is really a great story. the ceo of mckinsey was in my office, 25 years later. he was on the harvard corporation. i told him the story. he asked what year. and that dean of admissions was a close friend of his. he said, do you mind if i told him that i ran into you? i said, no, that's fine. i got a letter two weeks later from that former dean of
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admissions. he said, i remember getting that phone call in 1964. he said that every time i see you in the newspaper, i realize i'd blew it. i wish i made all the right decisions, but as i told you at the time, there were no beds at the inn. david: you interviewed with a number of firms, and the one you decided to go with was lehman brothers. steve: yes. the people were fascinating. you had ex cia agents and people who had worked on oil rigs. ♪
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david: you then went to harvard business school. steve: yes. david: did you enjoy harvard business school? steve: no. david: did you want to drop out? steve: yes. david: what kept you from dropping out? steve: i wrote a letter -- there was no internet -- i wrote a letter to the president of the firm which is where i worked a bit right after i graduated and before i went into the army. i said, dick, it is cold up here. the classes are highly repetitive. and i would like to come back to
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work. if you don't want me to, i will do something else. what do you think? he wrote me a six-page letter and he said, that is just the way i felt in december of my first year. i was going to transfer to get the economics school and get a phd. i did not drop out and neither should you. you should complete what you are doing. and i was so dumbfounded that he was so kind and thoughtful and had similar feelings and basically said, don't you do that. it's the wrong decision. i just listened to him and stayed. david: you stayed. you must've done well because you had lots of offers afterwards. steve: yes. david: you interviewed with a number of firms. the one you decided to go with was lehman brothers. steve: yes. david: why did you go with lehman brothers? steve: i thought it was the most interesting cast of characters. that was before mbas went to wall street.
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they just hired at random. this was the first class of mbas that lehman was going to hire. and the people were fascinating. you had ex-cia agents. you had people that had worked on oil rigs. you had all kinds of unusual people working at the firm. i thought, for whatever the reason, that it was the right personality fit for me. david: you became a partner at an early age, i think 31. steve: 31. david: so at 31 years old you are a partner at lehman brothers, and life is going well. then, there is a problem at lehman brothers, and they were ultimately sold. is that right? steve: that is right. i sold it to american express. the problem was that in the trading side of the firm, there was a position taken that really went wrong. david: you decided to join someone who had previously been the president of lehman brothers.
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he was eased out. that was pete peterson. previously also the secretary of commerce in the nixon administration. you and he decided to start a new firm in 1985. steve: that is right. david: the firm's name was? blackstone. 1985, blackstone starts. two people, you and pete peterson. where did you get the money? steve: it did not require much. it was an advisory business. you talk and people give you money. david: you each put in $200,000. steve: the strategic plan for the business, which we announced in a letter to everyone we knew, was first, the m&a advisory business. it required no capital. the second was going into the private equity business. david: you had never been a private equity investor before. pete said, since we haven't been, we will go out and raise a small fund, a $50 million fund. you said, let's raise $1
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billion. that is fairly audacious. where were you going to get $1 billion? steve: we went to our top 18 prospects. everyone said no except for metropolitan life and new york life. one said i will give you $50 million and one said $25 million. but, i do not be a big part of the things. you have to raise $500 million or our commitment is worthless. -- commitments are worthless. we had already gone to everybody who we knew were the best targets. i looked at that, and i went, "omg, we are going to fail." and we just met one more company. it was called prudential life insurance company. it was the number one financier in those days. we were over at newark on a friday, having lunch with the chief investment officer. he was having tuna on white bread, cut across, and i'm busy pitching this private equity fund, and you can share part of our advisory profits as a merchant bank. he keeps chewing, and his adam's apple is going up and down.
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i keep doing my thing. he finishes the first half of the sandwich. he gets through the other half halfway and he looks over at me and he says, i think that is a good idea. put me down for 100. and i just -- i can still remember that moment. did he actually say he is going to give us $100 million? the number one investor in the world. if he gives us money, other people will follow him. i realized, somehow, in newark, on some dreary friday, he gave us the money. i just did not want him to choke on the rest of the sandwich. david: make sure he lived to give you the money. steve: exactly. david: you did very well and your advisory business was booming. you decided to get into other
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businesses? steve: the first one ended up as blackrock. with larry fink. larry brought people over and they were called blackstone financial. david: blackstone financial. i'm so you actually owned -- and so you actually owned the firm? or part of the firm? steve: 50-50. david: 50-50. ok. so you own 50-50. now, blackstone financial is now blackrock, which is managing $6 trillion or something like that. steve: $6.5 trillion. david: 6.5 trillion dollars, ok. -- $6.5 trillion, ok. how did they escape from blackstone? steve: they did not really escape. you know, we set up an economic arrangement which ended up being inappropriate for a business that was growing as rapidly, needed to add as many people. and i made a mistake. i took the original agreement, i did not want to change it, which was advantageous for my side. the blackrock people, the blackstone financial people were
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frustrated with that, and that was the judgment of an amateur, me. marketthe real estate crumbled after the deal was done, so how did you survive with that deal? steve: just buying $39 billion of real estate. -- real estate i thought was dangerous. ♪
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david: in 2007, you decide maybe you should take the firm public. it was a private company. why did you take the firm public? steve: well, i took it public for a lot of different reasons.
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i had a sixth sense that something terrible was going to happen in the environment. money was so available, money was cheap, everyone was doing things, prices were crazy, and i just had a sense this was going to come to a bad ending and we should have a lot of capital to make sure we were bombproof. so that was one reason. thoughtnd reason is, i it would be a great branding event for the firm on a global basis. everybody would know who we were and that would make it easier to as well as to have people tell us companies and other assets. david: ultimately, what happened was the chinese sovereign wealth fund was in the process of being created, they heard about you going public, and they, through an intermediary, they said, can we buy a big stake in the ipo and you ultimately decided to let them do that. steve: the ipo was going to be $4 billion. they offered to invest $3 billion. we did not even ask them.
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i hadn't been to china since 1990. this was shocking because china had not invested in another public company since it was founded in 1949. this was a complete paradigm shift for china, and we were chosen by them. it was pretty heady stuff. david: it worked out. and you ultimately did the ipo and the chinese invested. after you did the ipo, let me mention two deals that you did. one was the biggest real estate deal in history. eop, a real estate company built by sam zell. you did a $49 billion -- $40 billion buyout, is that right? steve: $39 billion, actually. david: $39 billion. you won the bidding war, but the real estate market crumbled right after the deal was done. how did you survive with that deal? steve: we worried. the same reason we were going public, i sensed that we were in market top for real estate.
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so, just buying $39 billion of real estate, i thought was dangerous. you had to pay a pretty good price to get it. because it was competitive. so as soon as we decided we were going to actually raise our price enough to be the winner, there were two or three of us sitting around saying, this deal is potentially dangerous. we have to reduce the leverage, and we got to take advantage of the crazy prices people are paying. we decided to sell half of what we bought the same day we bought it. when i told people that, they looked at me and said, the same day? i said, i don't want to take any risk that the world is going to
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change and we are going to be stuck with all this. we basically had every conference room at the firm active one buying and then we broke it up into all of these pieces. dave: if you had not done that, you would have lost all of your money? steve: i think that is probably the case. david: the real estate market cratered virtually the next day. steve: most of the people who bought from us got into enormous financial trouble or went insolvent. and so after we did that and closed, everybody went home. they had been sleepless. three days later, they came back, and we said, let's sell half of what we have left now and be even more conservative. everybody went back to work, and we ended up with one quarter of what we bought, very conservatively priced so that we
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could survive any kind of nuclear winter. we ended up making three times our money, buying this giant thing at the top. and, there has never been more than $10 billion bought or sold by a group. we did $70 billion. david: you also bought another company before the recession really hit. that was called hilton. that was a leveraged buyout. some people might say at the top of the market. and that deal went down, in terms of the debt and the equity, but then you ultimately did things that made it the most profitable buyout in the history of buyouts. what did you do? steve: that was pretty easy, actually. it looked hard, but hilton had not been integrated. they were running four different headquarters, and there was a huge modernization and cost take-out. david: ultimately, you sold it at a $14 billion profit. steve: yes. well, if we had held it longer, it would have been over $20 billion, so it was a good day.
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that is $14 billion. david: in recent years, you have become one of the nation's biggest philanthropists. you gave $350 million to m.i.t. for a computing center. relating to artificial intelligence. you never went to m.i.t. you had no connection there. how did that come about? steve: that was really fascinating. i am not a technologist. i had met the president of m.i.t., and we started talking. we were concerned that the u.s. was just not investing enough in these technologies. i said, do you have any interesting ideas? he came back with, let's double the computer science faculty. let's take our -- establish a new department, in effect, a new school, called it a college, which is now going to be called the m.i.t. schwarzman college of computing, and let's connect ai
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with all of the other departments at m.i.t. so m.i.t. will become the first ai-enabled university in the world. i said, that is a vision i could buy in on. david: final question i would like to ask you. it deals with this. if somebody is watching or reading your book and they want to be a leader, a leader in business, philanthropy, or government, what do you think is the key quality to be a leader? what have you seen as the key quality that enabled you to be a leader? steve: i think, to be a leader, you have to be a really good listener. you have to understand what is going on around you. we should take you have to be measured, and you have to realize that everything you do is amplified in the minds of the people who are listening to you. so care, nuance, kindness. but, defining a culture is what
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a leader does. david: steve, thank you for this time. i appreciate it. steve: thanks, david. ♪
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francine: how do you breathe life into one of europe's biggest lenders? let's ask jean pierre mustier. the frenchman has led italy's biggest bank since 2016. under his leadership, it has posted higher earnings and stronger capital. it's also changing the way it is run, down to making fiat the ride of choice instead of luxury cars. today on "leaders with lacqua," we meet jean pierre mustier, the chief executive of unicredit. jean pierre mustier, thank you so much for joining us. what does it mean i a


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