Transcription
It's my pleasure to welcome everybody here. It's your third day, so obviously you know everything. It's also my pleasure to introduce somebody who actually needs no introduction, and that's Steve Schwarzman, 40th anniversary of Blackstone this year. So you'll learn a lot about what he's achieved and what we've achieved as a firm. So welcome.
Well, welcome to a class with no grade. It doesn't get easier than this. So I want to congratulate all of you. I thought I'd talk a little bit about Blackstone. And you know, when I was your age, I, I didn't even know there was something called stock. The whole thing was an utter unknown and you've got such massive advantages compared to, you know, when I started, where we had to learn things into much more primitive, you now, we didn't have an internet and so you couldn't learn things very easily. And you have all those abilities plus you're unbelievably smart. I appreciate who you are and you're going to have a great time here at Blackstone.
Don't think when you go into finance, it's just about numbers. I didn't even make it, you know, to calculus. I basically capped out in the third grade with Mrs. Ashford's flashcards. Add, subtract, multiply, and divide. And my advanced math was learning how to move a decimal point. So I look like I'm you know, sort of quite functional. But trigonometry was, I mean, I'm still wondering about isosceles, you know sort of triangles. And why did they want me to know that stuff? And my brothers say to me, Steve, it's like a joke. How did you become so successful? You know, your math skills are really very primitive. I said, because finance is not about math. Right, all these models and that kind of stuff that has precision are based on assumptions. To figure out what the right assumptions are is the whole game. Actually putting it in a wrapper and throwing it into, you know, some device with semiconductors that give you an outcome is, you know, you can almost do that after a while, you know, it's just in your head. It's really figuring out what makes sense. If a company is going to grow, why? It's not the numbers that come from it. It's the why. Why is that happening? Is that going to continue to happen? Is it going to get better or is it going get worse? Right? This isn't a financial skill per se. Right? It's judgment. It involves understanding in a general sense. And it's figuring out what seems reasonable. And finance has a lot to do with assessing people. That's one reason why I love it, because I meet new people all the time. Whether we're thinking about buying a company or, you know, when we're trying to sell something to somebody, what are they thinking? Is there an overlap between what I want them to do and what might motivate them? And so this is like a, I guess they call this EQ.
I worked briefly at a firm called Donaldson, Lufkin & Jenrette. They were in the securities business. I had an experience that was just the opposite of yours. You know, I somehow managed to convince the guy who was the founding partner to hire me. Unfortunately, I didn't know anything. The definition of knowing nothing is I didn't really know there was stock, bonds. I never had an economics course. I never, of course, had an accounting course, and they hired me and gave me an office, and I had a secretary. And unfortunately, one day, somebody actually gave me an assignment. And they gave me like a little book that was called an annual report. What did I know? It could have been like freshman English. I opened it up, I started reading, and it was going okay until I got towards the back, and they had all these numbers. I'd never seen a balance sheet. I didn't know there was a concept of a balance sheet, and I remember like looking at this and saying, why do they have so many pages? Why do they then have like really small print, which were the footnotes which went on for lots of pages. So I somehow managed to survive for seven months at this place. I have never used that much deodorant in my life. It was just complete abject fear every day when I came into work. And I said, as a 21 year old, if I ever get in an important position someplace where I control other people in finance, the one thing that's going to happen to them is they are going to be trained. I never want anybody to feel insecure in a work environment, either interpersonally insecure or content-wise insecure.
So one of the things we've done at Blackstone is make sure that if you ever were here for real, as opposed to just having like a great summer, you will be successful. You will be prepared. It will be easy to be successful because we will make it easy. All you have to do is be you. So if you can get in the door. Which you somehow magically have done, you will do great because we know how to teach you. You know how learn and we have nice people. We only have nice at the firm because my experience in finance is I was surrounded, often, by not nice people, or not polite people, things like that. And I said, that's not what I believe in. So we won't do that.
When we started, we had a strategic plan to do three things. One, M&A advisory business. This is a wonderful business. All you do is talk, and people give you millions of dollars. Imagine doing that, you all talk. Imagine when you did that, people gave you huge amounts of money. You would want to do a business like that if you could. And so since I was head of Lehman's department that did that and Pete knew all these other people, this was ideal for us. And we figured this would be our cash flow mechanism so we wouldn't have to raise external capital. The second thing we decided is we wanted to be in something that was called the leverage buyout business. Which is now called private equity. There were only about 10 companies involved at that time. Now, evidently, there are like 10,000 companies. So we sort of got a good start. So we started our business at a fortunate time when a new concept was coming in. So one of the things you learn, if you ever see something that's really terrific and it's mostly not being done and you think it's got a lot of, you know, sort of momentum. You should do that. It's hard to fail. You have to be stupid. There are some stupid people, they fail. But if you're just like reasonable and thoughtful and careful, that trend will really take you along. That was our second thing. The third thing we said when we started is we wanted to go into other money management businesses, we didn't know what they'd be, but they had to have the characteristic of making a lot of money for customers because ultimately this is a customer, you know, generated experience. If you give customers high returns with safety, they actually give you money. And the higher the return with safety, ironically, the more money they give you. So without being financially trained, if you start with 400,000, you end up with 240 billion. You actually don't need a calculator. All you need to know is that's amazing. Ha ha! Okay, so that's sort of what we've done in 40 years. And now we're the largest private equity group in the world. And we raised our first-time fund. I had never made an investment. You'll never be intimidated by things you haven't done if they all seem logical and reasonable. And you can understand the logic and reason.
We've expanded from just New York, and we opened a few other offices in the United States, and it's hard for you to imagine this, but it's actually true. I wouldn't expand outside the United states because I always like to, in our investment process, see people as well as just hearing them. Because when you see people and they're scared, that's not a good sign when you're discussing an investment. They're very cautious, they're tentative. When they really love something. They're in love, and you can tell even if they're professional, you know, their posture's different, their syntax is different, and those non-verbal cues are very important. And at that point there, in the 1990s and before, there was no way to basically have somebody on a screen because they started to have screens in the 90s. But. The lips weren't coordinated. And if you tried to talk when they were talking, then both of you blew up and there was no communication. And so I waited until they perfected video conferencing where you could simultaneously talk. It's like a real conversation. One person will eventually shut up. But if you're both talking at once, but the whole thing doesn't blow up. And so that enabled us to open an office in London. We're all over the world now. And every time you go to a new country, it's like being a tourist. It's sort of fun. You learn a lot of things. You meet a lot people, and you have to learn that economy and how those customs are different. And what we do is we take our basic products and we start moving them around the world. So you're joining a mature Blackstone where people actually love us. And they will give us the benefit of the doubt when we're looking for money. When I started, I would get 17 nos for every one yes. So to get a no, You have to contact loads of people. We sent out 400 offering circulars. We ended up with 32 investors. That's not exactly what you'd call a great hit rate. To get an appointment for somebody to see you is really hard. And then appointments usually last around an hour and a half where you pitch your heart out. And, you know, it's a little like Gladiator. Now at your age, you probably just saw Gladiator II, not Gladiator I and Gladiator II. But there's always that thing at the end of the contest where they look towards the emperor and he either goes like this or like this. So imagine you're pitching your heart out on these things. 16 times out of 17, the person you're meeting with looks at you and goes, I mean, it's really humbling and difficult, but you have to have, like, the will to really win. And you're in survival mode. If you don't raise the money, you don t have a company. It's like really simple. Plus, you failed in public. Everybody knows you're trying to raise this money. So, so You know, we've done really well in those two businesses.
What advice would you give your younger self? My younger self. Don't put yourself under as much pressure as I was under. I mean, I went for max everything. And, you know, so I've absorbed a lot of self-created stress and I still do it. But now my nerve endings are burned off. So it doesn't bother me at all. But you know when you try and do what I was doing, I mean, you're taking on the world. You're doing something nobody's ever done. You're in doing in headlights. And so if you fail, it's on Netflix or something. So, you know, I did that to myself. I didn't want my children to do that because you have to be a certain kind of person to do whatever my journey has been. And I didn't want my children to have that level of, you know, desperation every day and fear of failure because the fear was realistic.