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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. He

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Speaker 1: is dark in the door. He's a gentleman who always

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Speaker 1: have interest. I'm up to fourteen emails. Ask him about

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Speaker 1: the President. We'll do that later. We'll get to Mr

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Speaker 1: Trump and Mr Schwartzman's support of various those are the

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Speaker 1: political persuasions. Um, I guess the text is good, but

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Speaker 1: what it takes lessons in the pursuit of excellence from s. A. Schwarzman.

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Speaker 1: He works for a shop called Blackstone. Just the photos

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Speaker 1: are outstanding. Congratulations and the courage of showing a younger

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Speaker 1: Steve Schwartzman who put it together. Well, that's certainly different

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Speaker 1: than what I look like in the mirror when I'm

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Speaker 1: shaving in the morning. Tom, if you are, if you

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Speaker 1: are of a certain persuasion, Paul, Paul, you're too young

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Speaker 1: for this. There was a battle in the sixties and

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Speaker 1: this is where your real governance of leadership clicked in

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Speaker 1: you're the one at Yale that got it so the

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Speaker 1: other sex could visit the other sex's dorm rooms. Right, Yes,

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Speaker 1: that was a leadership lesson. Right that was that was

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Speaker 1: give us a vignette of that battle. That was a

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Speaker 1: very popular lesson. Uh and uh. I was dating a

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Speaker 1: local girl, and so I thought more access was was

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Speaker 1: a good idea. Uh and uh. For two hundred and

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Speaker 1: seventy eight years, Yale had a policy that women could

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Speaker 1: not be in the dorms after certain times and for

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Speaker 1: certain days. And uh. So so I thought that needed

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Speaker 1: to be changed. And my view is that perhaps we

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Speaker 1: should get rid of those restrictions. But but I knew

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Speaker 1: if I went to the administration and and sort of

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Speaker 1: asked for that, they if if it had worked one

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Speaker 1: way for two d seventy eight years, was going to

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Speaker 1: continue to be that way, they'd have a series of

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Speaker 1: excuses that you know, we'd be uh interrupting students study,

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Speaker 1: there be music going on in the dorms all the time,

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Speaker 1: and which everybody. So what was what wasn't so hard?

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Speaker 1: Actually I put together a survey of all the possible

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Speaker 1: ways that somebody could object to just abolishing uh, what

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Speaker 1: was called paridal hours uh, and restrictions on pridals. And

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Speaker 1: and I got eleven of my friends to stand outside

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Speaker 1: the dining rooms at Yale. They handed out the form

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Speaker 1: h after the meal it was a dinner. Uh. People

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Speaker 1: put the form in a ask it. They delivered all

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Speaker 1: that forms to me. We tabulated him uh and we

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Speaker 1: found that I think it was like point six off.

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Speaker 1: The students had no problem of any type abolishing there

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Speaker 1: was there. There was a person in my college named

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Speaker 1: n Hunt who ended up as head of the FCC,

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Speaker 1: who was the deputy manager of the l Daily News.

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Speaker 1: And I gave it to read, and I said, why

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Speaker 1: don't we put it on the front page. And we did,

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Speaker 1: listen to you and and four days later the administration

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Speaker 1: dropped all those restricts. There's the governor's lesson by data data,

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Speaker 1: it sounds like I'm Bloomberg. I should mention that Mr

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Speaker 1: Bloomberg is a principal owner of this TV and radio

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Speaker 1: shop as well. Paul, So Steve, what it takes lessons

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Speaker 1: into pursuit of excellence? Give us your thought process behind

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Speaker 1: kind of I want to write this book. This is

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Speaker 1: what I want to put in this book. What were

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Speaker 1: you thinking? About well what what triggered this was a

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Speaker 1: meeting I had with the head of a sovereign wealth

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Speaker 1: fund in the Middle East who was new in his job,

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Speaker 1: and I was supposed to have a five minute handshake. Uh,

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Speaker 1: and he started asking me questions about how do how

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Speaker 1: do how does he make his organization more like ours?

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Speaker 1: In effect? How do how does he make it better?

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Speaker 1: How does he increase the performance? How does he uh

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Speaker 1: look at the type of people to be hiring? Uh?

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Speaker 1: What kind of incentive programs would would you need? Uh?

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Speaker 1: How do you figure out where in the world you

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Speaker 1: should be investing? What type of investments within that should

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Speaker 1: should you be doing? How often should you really look

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Speaker 1: at your assumptions of what's going on in the world.

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Speaker 1: And so it was two and a half hours. All

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Speaker 1: I was trying to do was sell him some Blackstone products. Uh,

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Speaker 1: and he in the middle of it, he said, look,

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Speaker 1: don't don't try and sell me anything. We're going to

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Speaker 1: buy them anyhow. I don't want my time wasted. And

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Speaker 1: so that was sort of interesting. But it's the kind

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Speaker 1: of thing I know because I run a company, so

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Speaker 1: so I know those things. Anyhow, Um, over the next year, Uh,

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Speaker 1: most of my time instead of being able to sell products,

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Speaker 1: was taken up with this type of of advice that

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Speaker 1: people wanted. So I realized I was getting tired doing

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Speaker 1: the same type of of of meeting, and I said,

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Speaker 1: you know, if we write a book, I could just

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Speaker 1: give him the book and they could learn it and

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Speaker 1: then I could have either shorter meetings or different Well,

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Speaker 1: it's a very very well if you're just joining Stephen

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Speaker 1: Schwartzman with this of course chairman, chief executive officer, and

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Speaker 1: with Pete Peterson, the co founders of Blackstone, what it

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Speaker 1: takes lessons in the pursuit of excellence. So it's interesting.

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Speaker 1: I just think of all the alumni coming out of

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Speaker 1: the old Lehman Brothers and it's just experience. Like I'm

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Speaker 1: a Solmer Brothers alum. It's the same type of things.

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Speaker 1: Some of those names. You and Pe Peterson, you when

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Speaker 1: you left Lehman to form black Stone, I can't imagine

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Speaker 1: you thought it would be what it has become black

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Speaker 1: Sun has become. What was your initial goal and ambitions

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Speaker 1: for black Sun? My initial goal, uh, was to have

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Speaker 1: the same feeling as as I had at Lehman, which

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Speaker 1: was being you know, sort of intellectually stimulated all the time,

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Speaker 1: doing a variety of different types of projects. Uh, and

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Speaker 1: I just wanted to recreate that. And uh, indeed we have,

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Speaker 1: but at a scale that was not not particularly contemplated.

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Speaker 1: Exactly when when you started. How many employees do you

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Speaker 1: have now? Well, with with our companies, it's around five

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Speaker 1: hundred thousand. Um, you know, our parent company is roughly

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Speaker 1: on the private act. Because Paul mentioned the transition from Lehman,

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Speaker 1: which I'm gonna suggest was a visible right the Tory entity,

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Speaker 1: to private finance, private equity, maybe on a nineteenth century

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Speaker 1: basis merchant banking. Would you support more scrutiny of activities

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Speaker 1: of someone that controls the employment of five people. Well, uh,

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Speaker 1: we are, we are supervised, We report to the to

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Speaker 1: the SEC. Uh And um, you know, it was fascinating

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Speaker 1: Tom that during the financial crisis, which was somewhat of

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Speaker 1: a proof of concept, Uh, you guys, weren't the ones

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Speaker 1: that caused it. Not only did we not cause it,

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Speaker 1: we basically had almost no problems. Uh. Interestingly, the companies

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Speaker 1: that got in trouble for the most part were the

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Speaker 1: regulatory companies that were controlled by regulators. So this concept

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Speaker 1: of don't you need more regulation? Uh? Having gone through

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Speaker 1: uh the crisis with flying colors, why watching the world

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Speaker 1: around me collapsing? Um. It's hard empirically to make the

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Speaker 1: case that regulation per se is an absolutely good Well,

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Speaker 1: this is a huge deal because it's easy to talk

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Speaker 1: about in two thousand nineteen, I have the clearest memories

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Speaker 1: of oh, five oh six, it's going to be those guys,

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Speaker 1: And it wasn't those guys. It was them guys. That

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Speaker 1: was a huge emotion. There was a deal, There was

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Speaker 1: some bad deals done in two thousand six seven took

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Speaker 1: too much leverage, Steve. One of the things we hear now,

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Speaker 1: you know, we think about nineteen and we had it

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Speaker 1: was supposed to be the great year of the great

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Speaker 1: I p o s. And we've had a lot of

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Speaker 1: disappointments Uber Lift, We've had deals that have been pulled,

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Speaker 1: such as we Work and Endeavor. And it's kind of

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Speaker 1: raising the question private market valuations, public market valuations, who's

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Speaker 1: got it right, who's got it wrong? And people now

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Speaker 1: saying to you, maybe the private market, the venture capital

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Speaker 1: market too much money chasing too few deals, pushing up valuations,

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Speaker 1: and the public market just a buying it what do

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Speaker 1: you how do you kind of react to that theory? Well,

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Speaker 1: I think, um, you're absolutely right as as it pertains

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Speaker 1: to a very narrow group of companies, which are venture

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Speaker 1: capital financed businesses in technology. Uh and UM, this has

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Speaker 1: happened before, as you probably remember, UH in two thousand,

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Speaker 1: we had these sky high valuations that that basically got

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Speaker 1: both in the private market in the public market lead

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Speaker 1: to collapse. And at that point, UH, roughly out of

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Speaker 1: a hundred venture capital deals collapsed in technology. Uh and

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Speaker 1: and so um in the venture world, there's there's a

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Speaker 1: there's an odd phenomena that if you put your money

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Speaker 1: in on a first round and you pay more for

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Speaker 1: the second round, um, Uh, you've made an instant profit

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Speaker 1: on the on the on the on the first round.

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Speaker 1: If there's a third round and you make it go

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Speaker 1: up even more than you make a lot of money

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Speaker 1: from both the first round in the second round. So

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Speaker 1: so there's an incentive perverse incentive if you will that

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Speaker 1: paying higher prices than you would want as long as

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Speaker 1: you were in that investment in the game. Now we're

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Speaker 1: not in that game, and and so what's happened is

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Speaker 1: the values of those type of companies have been bit

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Speaker 1: up by other venture capital companies. When they pop out

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Speaker 1: in the public market, the public market looks at it

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Speaker 1: and said, what have you guys done with these valuations?

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Speaker 1: So Steve Schwartzman with us what it takes as wonderful

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Speaker 1: new book, phenomenal photographs off the chart. Mr Schwartzman said,

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Speaker 1: we're putting all the photos in there. Andy Wilde did that,

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Speaker 1: You're gonna do it to Steave? Okay, so great, Let's

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Speaker 1: cut to the chase. We disaster is out there. They

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Speaker 1: loaded the boat on Lord and Taylor. When you were

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Speaker 1: a kid with a dry goods store, you dreamed of

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Speaker 1: walking in Lord and Taylor. What are you gonna do?

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Speaker 1: Blackstone is gonna pick it up for eighteen cents in

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Speaker 1: the dollar? I mean, are you going to pick up

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Speaker 1: the debris worldwide? Of we dog? Well, what I'd say

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Speaker 1: is our our job in our real estate business is

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Speaker 1: always to buy value. We call it buy it, fix it,

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Speaker 1: sell it. Uh. And if you could buy something at

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Speaker 1: a very reasonable price, uh, and it's susceptible of being fixed,

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Speaker 1: and we do it. Uh. You know that's why we've

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Speaker 1: had sky high returns in real estate for twenty five

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Speaker 1: years and virtually virtually no losses. Well, let me cut

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Speaker 1: to this A serious question is that we company debaccles

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Speaker 1: so tangible it can harm commercial real estate in this nation. Well,

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Speaker 1: I think in certain cities where they've been huge concentrated

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Speaker 1: takers of leases or buyers of buildings, it'll definitely have

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Speaker 1: an effect um because they've gone in very big and

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Speaker 1: relatively few cities. And you would expect when when things

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Speaker 1: you know, sort of wash out for them a bit, uh,

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Speaker 1: there'll be things to buy. So, Steve, we in a

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Speaker 1: financial media here pay a lot of tension what's going

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Speaker 1: on in the trade negotiations, as I'm sure you do

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Speaker 1: in your portfolio companies do as well. We have the

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Speaker 1: Chinese in Washington, d C. Right now. What would you

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Speaker 1: like to really see get solved, if anything can get

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Speaker 1: soft here over the next several days with the Chinese

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Speaker 1: and trade Well, it was it was interesting. I'm I'm

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Speaker 1: sitting in the studio here at Bloomberg and they have

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Speaker 1: television screens up and I just saw a Vice Premier

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Speaker 1: Lou how walking into UH Trade Representatives office with Bob

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Speaker 1: light Kiser, who's the Trade representative of the United States

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Speaker 1: and Steve Manuchin, who's the Treasury Secretary. So so whatever

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Speaker 1: I think actually doesn't really matter because the actions going on, folks,

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Speaker 1: this is the Schwartzman Act that you get. You get

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Speaker 1: this some Davos to the summer place. He's got like

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Speaker 1: eight summer places. It's just me. I'm just Steve Schwartzman.

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Speaker 1: Come on, there's a photo in here of you with

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Speaker 1: Mr g and Mr Trump. You have donated to the

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Speaker 1: Schwartzman scholars which is legitimate Chinese philanthropy. The NBA is

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Speaker 1: dealing with this right now. Have we broken this odd

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Speaker 1: wonderful cultural relationship with China with Mr Trump's trade war?

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Speaker 1: I think we've certainly strained it. Uh and um uh

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Speaker 1: and and that's that's creating a variety of difficulties around

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Speaker 1: the world in terms of manufacturing, which is really um

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Speaker 1: declining virtually every place as a result of knock ons.

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Speaker 1: I think on on the trade war, the trade war

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Speaker 1: wasn't meant to be a war. Uh, the trade war.

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Speaker 1: That's what President Trump told us was wrong. Well, um,

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Speaker 1: I think the objective is to take a system in

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Speaker 1: China that's grown up over forty years that's been astonishingly

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Speaker 1: successful for the Chinese, they've grown three to four times

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Speaker 1: as much as the United States, accumulated a lot of wealth,

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Speaker 1: employed enormous people and a number of people, and radically

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Speaker 1: changed their country from GDP per capital of a few

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Speaker 1: hundred dollars to ten thousand dollars a person. Now. To

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Speaker 1: do that, they went through a classic UH developing world scenario,

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Speaker 1: hiding behind UH tariffs, UM, relatively closed markets, UH, centrally

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Speaker 1: managed UH you know, very light intellectual property protections, and

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Speaker 1: and it reached the point where they're the second biggest

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Speaker 1: economy in the world. Just to give you an idea, UH,

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Speaker 1: the U S and China together, depending upon which set

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Speaker 1: of numbers you use, are between thirty five and of

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Speaker 1: the entire world's economy. This is massively concentrated with these

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Speaker 1: two countries. So when the US asked China to change

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Speaker 1: from being a developing economy to being like UH technology

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Speaker 1: that that the question for on their side is why

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Speaker 1: should I do it? Since since we haven't had a

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Speaker 1: trade agreement with them in seventy years, regardless of what

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Speaker 1: strategy was used by different presidents, UH, that will they change?

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Speaker 1: The answer is yes? But at what speed? UH? And

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Speaker 1: what magnitude of change over time, Steve Schwartz, when they're

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Speaker 1: not going at Trumpian speed. And this is the money

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Speaker 1: question right now. You have an exceptional relationship with the

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Speaker 1: President United States, You've been a great fundraiser, etcetera. Do

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Speaker 1: you perceive all this agony we're living whatever politics is

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Speaker 1: a one off due to the president's one or two terms,

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Speaker 1: or is there a persistency here of a changed world?

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Speaker 1: I think there's a persistency, Tom that comes from the

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Speaker 1: condition of of the workforce in the developed world, in

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Speaker 1: the United States, as you remember, Uh, two years ago,

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Speaker 1: the FED did a study and it said that of

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Speaker 1: Americans can't write a forty four check in an emergency.

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Speaker 1: In other words, of Americans fundamentally have almost nothing in

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Speaker 1: the way of savings. Now, those people are unhappy. Those

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Speaker 1: unhappy people actually ended up electing Donald Trump, which was

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Speaker 1: a surprise to virtually everyone. Uh. And those forty people

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Speaker 1: still are unhappy, as you can tell from the populace.

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Speaker 1: And so for the Chinese, which has been explained to them,

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Speaker 1: UH that that this isn't just Donald Trump phenomena. And

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Speaker 1: I talked to them really in the first right before

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Speaker 1: the inauguration. Uh, and and said, you know, the frustrations

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Speaker 1: uh in the United States and the rest of the

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Speaker 1: developed world are going to be coming at you. And

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Speaker 1: it's not about a person, and it's not about an administration,

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Speaker 1: because we have to make sure these people in the

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Speaker 1: United States on the bottom have a much much better outcome.

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Speaker 1: And with populism, they'll get angry at whoever they're directed

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Speaker 1: to get angry against, whether it's financial companies, whether it's

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Speaker 1: wealthy people, whether it's the business community. And see if

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Speaker 1: I think you your point is very well taken, because

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Speaker 1: we've seen it, not just in the US with Donald

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Speaker 1: Trump's election, but with Brexit obviously, and you know in

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Speaker 1: the Yellow in France. What do you think And as

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Speaker 1: a big macro question might be two foot but income inequality,

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Speaker 1: how would you think US policy should be to try

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Speaker 1: to address that? Is that I know, as you sit

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Speaker 1: down with the administration, maybe have some discussions, what do

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Speaker 1: you think are some of the best ways? Well, I

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Speaker 1: I think it's it's it's really important to address this

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Speaker 1: because it's it's ripping the fabric of the United States

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Speaker 1: apart politically. UH. And the first thing that I think

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Speaker 1: needs to be addressed is the income level for for

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Speaker 1: this group of people. And there are a lot of

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Speaker 1: different policy responses you can have. What I like is

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Speaker 1: increasing the minimum wage and to to fifteen dollars where

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Speaker 1: you could afford that different parts of the country that

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Speaker 1: may be a little bit too high. The reason why

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Speaker 1: I like that is because to get that that wealth transfer,

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Speaker 1: you actually have to work to get it. This isn't passive, uh,

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Speaker 1: And it's about of the people in the country that

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Speaker 1: that would affect. But what happens is that the people

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Speaker 1: who earned more than the minimum wage when you when

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Speaker 1: you get close to doubling a minimum wage, they all

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Speaker 1: have to be increased. So so this would hit somewhere

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Speaker 1: between thirty of Americans. So that's a start. We're running

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Speaker 1: out of time. Very emails and it says, well, yes, Steve,

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Speaker 1: to buy the New York Knicks and fix it. We'll

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Speaker 1: see if that'll happen. I got one more question. It's

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Speaker 1: really really important. I want you to review the future

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Speaker 1: of the New York Public Library. People talk others. Do

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Speaker 1: you took an institution flat on its back? Bezos is

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Speaker 1: making it happen with Kindle and all that talk about

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Speaker 1: why we need a library, and particularly as you have

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Speaker 1: beautified that marble palace downtown. Well, what's fascinating counter to

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Speaker 1: what everybody thought is that attendance and libraries are going up, uh,

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Speaker 1: not down. Uh. I think a lot of people right

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Speaker 1: and and and the reason for that is that a

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Speaker 1: lot of middle class and lower income people don't have

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Speaker 1: access uh to the internet, and libraries have basically dived

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Speaker 1: into uh you know, using digital media. Uh. And so

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Speaker 1: it's a place where if you can't afford some of

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Speaker 1: these devices you can go. Secondly, um, people who want

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Speaker 1: to do well, uh you know, uh, middle middle class

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Speaker 1: people and lower income people. Sometimes they're living in accommodations

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Speaker 1: where it's there are a lot of people packed in

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Speaker 1: their apartments or homes, and it's really noisy, and it's

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Speaker 1: hard to study. Uh. And and what the library provides

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Speaker 1: is not only electronic connections but in digital the digital world,

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Speaker 1: but for vides a place where people could actually study

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Speaker 1: and think, I got five seconds left? Stocks up? Are

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Speaker 1: you long the market? I think his stocks are nervous. Okay,

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Speaker 1: that was It sounds like he's ready for radio s Schwartzman,

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Speaker 1: Thank you so much. What it takes folks are really interesting.

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Speaker 1: It was gonna be eight under pages, and Mr Schwartzman said,

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Speaker 1: caught it down, Stephen, what it takes Lessons in the

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Speaker 1: pursuit of excellence short, sharp, smart, smart smart on lessons

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Speaker 1: learned Stephen Schwartzman, a black Stone. Thanks for listening to

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Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

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Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

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Speaker 1: on Twitter at Tom Keane before the podcast. You can

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Speaker 1: always catch us worldwide. I'm Bloomberg Radio