Blackstone CEO Steve Schwarzman appeared on Bloomberg TV with Betty Liu and Erik Schatzker to discuss the firm’s earnings, saying: “You can be a buyer and a seller at almost the same time and do well doing both…The firm keeps growing at a really good clip.”
Schwarzman said: “I think that the world is going to recognize that we have a really differentiated model. We are really more like a great branded company…We dominate our market. We are more like an Apple, a Google, a Boeing, a CAT, an Hermes. We have customers who need us, just like those companies do.”
On whether he worries about BlackRock going into Blackstone’s businesses, Schwarzman responded: “I worry about everything. You can’t be a good CEO or even an adequate one if you don’t worry about everything. And Larry [Fink] is smart to do that. There are moats around a business like ours.”
Steve Schwarzman Says Fundraising Environment Is ‘Remarkable’
BETTY LIU, BLOOMBERG NEWS: Okay, with us now is Blackstone cofounder and CEO, Steve Schwarzman, also “Market Makers” anchor, Erik Schatzker, joining me as well for a treat. He covers high finance for us. Thank you, Steve, for joining us, and thanks to Erik for joining as well.
ERIK SCHATZKER, BLOOMBERG NEWS: Of course. Good morning, Steve.
LIU: And, Steve, you guys are on a roll, right? I mean you said you are an earnings machine. So you’ve got assets now at $300 billion. I mean can you keep this pace going? How are you going to keep this momentum going?
STEVE SCHWARZMAN, CEO, BLACKSTONE: Well I think we’ve been keeping our momentum going for a long time. Over the last five years our earnings have been compounding at 46 percent. In the latest quarter we raised $30 billion of new money for our products, and that is more money than any alternative manager other than ourselves has raised for entire year. We are in a simple business. And we have been in it for 30 years.
And our job is basically just to earn very high returns with very low risk. And we have been compounding around ten percent, or 1,000 basis points, more than the stock market. So if we can do something like that over a 30-year period in a world of very low interest rates that if you’re a large pool of capital or if you’re just a person, you can use that type of return. And that is the business that we are in, doing it with safety.
LIU: What is — what is the fundraising environment like right now?
STEVE SCHWARZMAN: Well the fundraising environment for us is — is pretty remarkable. And it’s — it’s remarkable. We’re the only firm of our type in the world. No one else is in all the different alternative asset classes. And — and our stock market value is probably six times what the other competitors are who — who compete with us. And when institutions are looking for different types of products because ours have all performed well over decades, then they — they go to us. They need these high returns, whether they’re to pay their pensioners or to keep their endowments growing, all those types of good things that we provide. We’ve become a required course for these institutions. And they’re also limiting the number of managers they’re taking on. So if they want to move large amounts of money at very high returns, we’ve become like a mandatory stop.
SCHATZKER: So size begets size?
STEVE SCHWARZMAN: Well size —
SCHATZKER: You guys are growing by the equivalent of a TPG, right, or if you take the run rate, $30 billion a quarter. You are raising more money over the course of 12 months than KKR is large.
STEVE SCHWARZMAN: Well —
SCHATZKER: How sustainable is that?
STEVE SCHWARZMAN: I — I don’t think we can keep raising $30 billion a quarter.
SCHATZKER: No, why not?
STEVE SCHWARZMAN: Because — because that — we can’t deploy the amount of money that you would have if you had sort of $120 billion of alternative asset money right into us. We have $311 billion right now. And this year we’ve invested $26 billion. And — and the firm keeps growing at a really good, a good clip. And as we grow we invest more and more money. If we earn the same return our earnings just keep going up, and our distributions go up.
LIU: Right. But is there a point where the size becomes a challenge, right, where you have — and I know you look at me, but does it get to a point, Steve, where you have so much money that it gets harder and harder to deploy that to move the needle then?
STEVE SCHWARZMAN: Well —
SCHATZKER: Well on an aggregate basis, on a fund by fund or business by business basis.
STEVE SCHWARZMAN: Well it’s a good question. It’s a fair question. And I been asked that question since 1992 when we did our second fund. And it’s turned out to be wrong. And the reason it turns out to be wrong is we are not trying to take just one fund, one strategy and build it so big that it can’t do anything. We are not in the Magellan kind of business. So when we see something interesting we create a new pool of capital to do that. And we basically cap out the size, more or less, of existing ones.
And so we grow only when we see a terrific opportunity for our customer, only if we can attract somebody who is a ten out of ten to run that business, and only if going into that business creates intellectual capital that we can use to make our existing businesses stronger. So our model can be expanded geographically. It can be expanded in terms of different asset classes. It can be expanded in terms of different parts of the capital structure. So we’re not through all of that. And every year each of our big groups, private equity, real estate, and credit and hedge funds presents three expansion ideas. And we pick one. And we do that. And we only pick it if it has got great returns for our investors.
SCHATZKER: So what’s the one that you’ve picked right now?
STEVE SCHWARZMAN: Well we have got European lending, for example, for our —
SCHATZKER: That’s where your focus is?
STEVE SCHWARZMAN: Yes. Well that’s for GSO as well as — as energy, because that’s had a lot of interesting dislocation in real estate. It’s — it’s European real estate, which we have been the largest purchaser of the world for the last several years. And that looks like Europe is wheeling around and it’s going to do a little better. So there is something interesting typically all over the world. And each of our businesses doesn’t have to invest at all. And that’s part of an answer to Betty’s question.
STEVE SCHWARZMAN: We are like a basketball team without a 24-second clock. We don’t have