The Hindu Business Line : Investment Nuggets

The stock of private equity giant, Blackstone, may be struggling to retain its listing gains following a $4.13 billion IPO earlier in June, but the listing of the buyout firm has certainly turned the spotlight on the rising clout and the stellar growth prospects for buyout firms in the global finance arena. For a firm founded barely two decades ago in 1985, Blackstone has certainly blazed a scorching trail, growing from the initial investment of $400,000, to reach current assets under management of close to $90 billion and a market valuation of over $ 30 billion. The firm’s high visibility on listing has turned the spotlight on Stephen Schwarzman, the firm’s CEO and co-founder (along with the legendary Pete Peterson).

Starting out at Lehman Brothers and specialising in mergers and acquisitions, Mr Schwarzman was elected Managing Director of Lehman Brothers in 1985 while he was still in his early 30s. He is an alumnus of Yale and Harvard Business School. Blackstone started out as a firm specialised in restructuring ailing businesses (it was among the firms roped in for unraveling Enron’s financial quagmire after it went bust). But under Schwarzman’s stewardship, it has subsequently diversified into businesses such as hedge funds, corporate debt and real estate where the firm’s expertise in M&A and turnaround situations has been leveraged to drive Blackstone’s growth into a higher trajectory.

“Returns in private equity are basically keyed to a spread over S&P…When the returns on S&P were for five years compounding around 18 per cent, the return on private equity went up to a huge spread. Most good firms were making 40-50 per cent compounded on a gross basis. If the S&P is flat, to be earning 1000 basis points over would be a 10 per cent return and you’d say that is gravely diminished. So I think people who believe that private equity is an absolute return business per se are wrong. As much as they would like to be right, they are wrong.”

“Academically my strongest memories were how little I knew about accounting and how much I enjoyed production…I enjoyed understanding the ways in which businesses would marshal resources. I went into finance but basically didn&# 8217;t follow up that interest. But since we own so many businesses, I always take an interest in how they work.”

In an interview to Harbus, the student weekly of Harvard Business School in 2003.

“I think it’s pretty clear it is a real brake on American public companies, and Sarbanes Oxley needs to be modified, whether it is through legislation or regulation or both. And what Sarbanes has done is put a lot of regulatory burden on companies, but the impact of that has been to change the risk/reward ratio that CEOs use and companies use to expand. It has made America in that sense less competitive and it has also had a terrible impact on non-US companies wanting to list their stocks in the US. Sarbanes, and regulatory enforcements generally, is one of the things that companies that we deal with abroad cite first as reasons they just simply don’t want to do business here in the US. So trying to run a modified going-out-of-business sale strikes me as an odd national policy. I think it’s an unintended national policy, and that’s why it needs to be modified.”

Speaking to Financial Times in 2006, on the impact of the Sarbanes-Oxley Act on American public companies.

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