Power Player on Defending Private Equity

Power Player on Defending Private Equity
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Power Player on Defending Private Equity

“What private equity does is raise money from pension funds — and it invests that money to buy companies,” says Steve Schwarzman, Blackstone Group chairman, CEO & co-founder, explaining the merits of private equity and why the PE industry hasn’t done a better job marketing.


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our guest host is one of the private equities biggest players, steve schwarzman, president and ceo of the blackstone group, here to talk about the economy, europe, a little bit of politics through their various investment vehicles the firm has $190 billion? that’s a lot of money. total. in assets investing for public and corporate pension funds, academic and charitable organizations among others. thank you for being here. a man of your word. we’ve been trying to do this for a long time and we appreciate you being here this morning. glad to be here. there’s a lot to talk about, europe and teconomy. we should do the elephant in the room and talk private equity. i was reading in the new york times about bain. i’m curious why you think the private equity business seems to have done a lousy job and what it can do to market itself better, to make people either understand it better or at least understand what they do and appreciate what you do every single day. well, it’s a little bit of a complex business, which is one reason why perhaps it’s not so easily understood but it’s quite straightforward. wh private equity does is it raises money from pension funds, and these represent policemen, firemen, teachers, corporate executives, state employees, municipal employees, and invest that money to buy companies. but is it an issue that people, do you think the public doesn’t get that or the industry hasn’t projected that properly? what is it? i think the industry’s done a miserable job of marketing for sure. right. this is an industry that creates a lot of return to make pensions safe. the reason that the industry hasn’t communicated this message is somewhat of a mystery to me. there was something yesterday that came out that showed that in the last ten years, the state of oregon, for example, earned 700 basis points more by investing in private equity than in their regular stock portfolio, so this is like $400 million more a year that goes to make pensions more secure for the people in oregon, and that scenario is repeated time after time. i think what creates difficulties is that not every private equity investment is a successful one, and by the way, in the real world, not every company is successful, whether it’s private equity or not. private equity doesn’t have a greater incidence of unsuccessful companies, but for some reason, there has been a focus on the ones that haven’t been successful, so for example, and i can’t speak exactly for bain, i work at blackstone, but the amount of jobs they’ve created, whether they’re nine times what was lost with troubled companies, whether it’s nine times or ten times, on the whole, it’s pretty terrific, for society. what happens, andrew, is that for some reason, we’re just focused on the few that don’t work. the core of your troubles seems to stem from when a company isn’t competitive oftentimes you have to downsize and i think the public struggles with that tradeoff, right? how do you explain that? well, michelle, actually this has been studied by a lot of third parties, you know, harvard’s done a big study, there’s been a big study in europe. one of the studies actually took every buy-out deal done in the united states over 25 years and the way the numbers come out is if you take the whole industry and you take all the deals, the job creation is about the same as a normal company, for whatever the reason, we don’t, we’re trying to hold private equity to a higher standard. mitt romney is running for president and got big bucks coming out to spend against it and targeting private equity. i guess that’s the biggest part of it. is that a frustration for you? well it’s frustrating if you believe the facts, as i know them, which are actually the facts, and ifu can create nine times the amount of jobs that were lost, you know, just to take bain, for example, just a rough calculation, if we d that throughout society, that would be a huge, positive for job creation and for society, at the same time, making pensions safer. steve, i talked to one of your peers last week. you know him well. we won’t name him on the set. he’s a supporter of romney’s and he said romney has on his ticket he said why is he standing up maybe he did or didn’t but he’s saying i’m mr. fix it. we invested money, made money for our investors that’s a better argument. do you agree? it’s a political question and you’ve got eric cantor coming on later and he could probably answer that better than i could. mitt can do a variety of different things. he fixes things generally, just leave aside private equity, whether it’s in olympics, whether it was an almost bankrupt bain consulting, that’s his skill set, and i think that could be marketed quite well. i think the jobs focus is really sharing the interests of society and i think that’s why it’s probably used as a proxy. so here we go, red flag, big, uncomfortable question. article in the new york times about your colleague hosting a fund-raiser for president obama on the same day president obama puts out this campaign that is anti-private equity. right. what did you think internally? does that make you crazy? well it didn’t make me crazy. it was sort of an odd series of events. i’m a great believer in, you know, sort of people should do what they think the right thing is politically, they should express themselves, that’s a good thing, and having an active dialogue is a good thing, and that’s something that, you know, the president of our firm, tony james, wanted to do, and so there it was. exactly why there was a simultaneous sort of ad campaign or whatever chosen that date, i mean personally i don’t think that was the wisest thing, you know, in terms of coordination, but political — smacked of hypocrisy, i’m going to take money from private equity and i’m going to bash them at the same time? i can’t speak to that. what i would say from being around politics a little bit, though i’m not an expert, is that a lot of stuff happens in a somewhat uncoordinated fashion that somebody might wish to do a little differently, and that may be one of those. steve, we’re going to slip in

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