Blackstone CEO Explains Purchase Of Versace [TRANSCRIPT]

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The Blackstone Group L.P. (NYSE:BX) Chairman and CEO Stephen Schwarzman spoke with FOX Business Network’s (FBN) Maria Bartiromo today during her inaugural week of Opening Bell with Maria Bartiromo. He spoke about Blackstone’s recent decision to take a 20% stake in Versace, saying, “From our perspective, if we can help them expand around the world, which is sort of a familiar type of thing for us, and introduce certain types of new product line extensions and other things, we think that this could be really a terrific financial success.” Schwarzman went on to say, “We are pretty optimistic that there is a lot of white space” for Versace to grow.  When asked about Blackstone’s low market multiple Schwarzman said, “It’s a mystery. To me, the only reason I can even rationally come up with is that we’re complicated.”  Schwarzman also commented on Blackstone’s growth saying, “we’re in a really marvelous position and I don’t worry about growth.  It’s just coming at us.”

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Stephen Schwarzman on Blackstone taking a 20% stake in Versace:

“The opportunity for Versace is a very interesting one.  Versace has a huge brand name recognition around the world, particularly in places like China. But its business itself is much smaller than its recognition.  And it provides the opportunity for really major expansion of the company, company’s been growing quite well over the last few years.  It had difficulty during the financial crisis.  They’ve got a new CEO, and the business is leaping forward. So from our perspective, if we can help them expand around the world, which is sort of a familiar type of thing for us and introduce certain types of new product line extensions and other things, we think that this could be really a terrific financial success, and it is also interesting being in the creative side of the business world.”

Stephen Schwarzman on whether Versace will do well in China:

“There are certain parts of Asia like Macau where there is a lot of gambling, many times the size of Las Vegas, for example, where a brand like Versace does exceptionally well, very strong, much, much bigger than larger fashion companies. So there are some places around the world that could be built on, expanded on.  I think that Donatella, who is, sort of the head designer and major owner, it is a family business.  And we work with family businesses is quite successfully, that Donatella and the rest of the family, particularly her daughter, Allegra, are committed to maximizing what can be done with the company.  And that is the type of situation that we like.  And it is where we can bring value added.   But the company already is doing very well.  There are good opportunities for them to employ more capital to grow businesses and so forth within the Versace brand.   So we are pretty optimistic that there is a lot of white space for them to grow.  And it’s interesting always dealing with family businesses and, you know, Italy isn’t the most uncomplex place in the world, as you would know, perhaps… we have a great relationship with the people in the family.  Because you need that kind of connection for people to work together.”    

Stephen Schwarzman on Blackstone’s low market multiple:

“It’s a mystery.  To me, the only reason I can even rationally come up with is that we’re complicated.  So that makes it a little different for people to understand. But just a few facts.  In the last three years, our revenues have grown about four times faster than a traditional asset managers.  A traditional asset managers trades about 15.5 times P/E, and we trade at like 10.5.  And we’ve grown to where we are actually the largest earning asset manager in the world.  And we’ve done this with 25-30 percent type growth over decades.”

Stephen Schwarzman on what’s wrong with Blackstone’s stock:

“It’s that people don’t really understand how the company is, how rapidly we’ve been growing, and they keep thinking this is some temporary moment.  I’ve been doing this for 28 years.  We’ve been growing coincidentally, revenues at 28 percent a year.”

Stephen Schwarzman on Blackstone’s growth outlook:

“What we are trying to do is produce investment products that hit the ball out of the park for our investors.  And our investors are the largest institutions in the world, and to a smaller degree, getting involved with retail investors.  So the way we look at our business, we’re not managing to targets, we’re managing to opportunity.  Because the way you grow a business to a large size is to produce terrific returns.  So our products over time have provided in private equity between 800 and 1,000 basis points over the stock market, in real-estate, 1200.  Now if you can earn that much more money, and our credit products also have huge premiums, as does our hedge fund solution products.  So if you will offer something to customers that give them way more than they can get almost any place in the world, with safety, then you will accumulate more assets and you will grow.  And we’re constantly looking for ways that come up with products of that type that satisfy our limited partners.  And we found it to be not that hard as they get larger.  Our returns still stay terrific, just the opposite of what people said would happen with growth. So as we take that model and translate that, a lot of ways to grow and it’s important for us to grow – not just for public shareholders, but it’s important for our internal people, because if you’re younger and you’re a terrific professional, when you get a little older, you want to be sort of like a general too.  You don’t want to stay as a private, or a corporal, or a sergeant… we’re in a really marvelous position and I don’t worry about growth.  It’s just coming at us.  I worry about delivering great investment products for investors. And if you do that all the time, and you do it at scale, good things will happen to you.”

Stephen Schwarzman on Dodd-Frank:


“We like a healthy banking system, because we’re major users of that system.  And without a healthy banking system to extend credit or capital markets that could do it, your economy can’t grow.  Shrinking banks, shrinking extension of credit creates enormous headwinds for economic growth and job creation.  So what we’re seeing is there is a certain amount of need for credit.  We’ve made certain regulatory exchanges as a result of reaction to the financial crisis which have constrained normal lending financial institutions.  And it’s a difficult discussion in a way because you need adequate regulation and no one knows what that is.  We know we didn’t have it going into the crisis but we don’t know if we’re doing too much to the patient now in the balance of the growing economy. So because a lot of these traditional sources of capital are under some level of constraint, the demand still exists.  And so we’re getting the advantage as a firm that could raise outside money and then put it back into the economy to encourage growth.  Now we’re not a bank.  We don’t take deposits.  We don’t have anything guaranteed by the federal government.  We don’t have access to the Federal Reserve.”

Stephen Schwarzman on whether Blackstone is benefiting from Dodd-Frank:

“We’ve been independent like this for 28 years. We lived through the financial crisis with barely a blip.  Our credit lending businesses were almost not affected at all.  And we’re set up to be prudent.   Part of the problem with a banking system is a bit of a mismatch where you take in deposits but then you lend to companies or people on a longer-term basis.  In effect, if everybody wants their money back from their deposits, it’s very hard to be able to liquidate all of that, which is one reason why the Fed exists as a lender of last resort.  It makes sense.  It’s why it was set up in like 1914. We get money from large institutions that basically can’t ask for their money back.  So we don’t have the problem of this mismatch.  And we have a lot of time to figure out whether something makes sense.  And as a result of that, we have found historically we’ve had virtually no risk.  And so we view taking a slightly different role but quite consistent with what we’ve done in the past – lending to companies that have credit need in certain types of complex situations.  We’re not as interested as an alternative manager of just doing normal types of loans, nor have we.  So our business is really a bit evolutionary.  It is not revolutionary.  We’re not going into areas that we haven’t done before.  The size of what we are doing has grown because we can produce higher returns with enormous safety as measured by what’s happened in periods of enormous risk of other types of solutions.   So we think what we do is very safe.  We give higher returns to the people who give us money, and we keep other businesses alive and healthy and able to grow.  So it’s a really good thing for our business, but what’s important is we’re providing an essential role to the rest of the economy or else the economy will grow slower.”

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