Stephen Schwarzman Shares the Values that Underpin Blackstone's Success

Uh, good morning, everybody. We're so glad, uh, to have you join us. And, uh, today, it's really an honor and a privilege, uh, to welcome Steve Schwartzman, uh, for our distinguished speaker series. Uh, Steve, um, to those of us, uh, in the investment industry, but just broadly, really, uh, needs no introduction. Uh, the founder of Blackstone, uh, you know, truly one of the great success stories, uh, in the last century, in, in the world of finance. But also a renowned philanthropist and, uh, an all-around great guy, and, uh, author of the recent book, uh, "What It Takes: Lessons in the Pursuit of Excellence." And so, Steve was, uh, gracious enough to agree to be with us here today. And what I was, uh, going to do was, uh, maybe lead a conversation with him for the next, uh, 30 or 40 minutes or so, and then open it up to the chat room for those that may have additional questions for him. And again, Steve, thanks so much for being here.

Well, it's my pleasure. Thanks, David.

Terrific. Um, so, uh, listen, there's so much to talk about, Steve. But I thought, um, I might start with your book, which really captured your life story and Blackstone's story beautifully. But, um, but really go to the point at which you were a successful executive on Wall Street, you know, running, uh, M&A for Lehman, and, um, you know, really sort of at the top of the world at a relatively early age. And you decided to do something that most people in that situation, uh, wouldn't do, which is you went and decided with Pete Peterson to start Blackstone. What, uh, what went through your mind? What was the, the urge to, to do your own thing that that made you take that step?

Well, uh, basically, what happened is my horse got shot from under me, uh, and, uh, you know, I took a saddle and found another horse. Uh, it wasn't much of a horse. Uh, uh, there was nothing there. Uh, basically, just a saddle. And what had happened is that, um, uh, Lehman ran into a lot of trouble as a result of a change in CEO. My former partner, Pete Peterson, was forced out of the firm. Lou Glucksman was put in, and through a variety of decisions that turned out to be, uh, unfortunate, the firm found itself in a situation, uh, with a giant, uh, trading position that went wrong. The net worth of the firm, basically, marked to market, was zero. It's just a question whether somebody would figure it out. If they did, uh, you know, that comes to a very violent ending in finance. And so I was asked to sell the firm, uh, in two or three days, which I did. And I decided I didn't want to be with the people, uh, who were part of that, uh, that bad series, uh, of outcomes. And, and I left and started a new, uh, firm, um, uh, with, uh, with Pete Peterson. And, and, and so I wasn't looking to change. I was quite happy doing the kind of work, uh, that I was doing. But I didn't think that just morally, ethically, I could be in the same place. When you see people under enormous stress doing things that go against your values, you basically don't have a choice as to, you know, where you stay. And, and so we started a new business. Um, and we spent months trying to figure out why would anybody do business with something new when there were all these firms that were quite wonderful, you know, and, and major firms. And we came up with a business plan that we thought would be different. The first was doing, uh, advisory work. And we ended up, I know this sounds bizarre, I don't know how old I am in that sense, that that we became the first of a boutique firm that was set up to do corporate advisory work, including transactions. Jim Wolfensohn had an advisory firm for $250,000 a client, but he refused to do, uh, actual deals. And we were trained to do deals. So we started that part of the firm to generate cash flow, uh, as soon as we could. Um, we wanted to go into the private equity business, which took us about a year to do that. And then the third part of our strategy was to start allied businesses based on change conditions in the world, where we could go into those businesses, for example, like we did in real estate in the, in the early '90s when nobody wanted to be in it, cyclically depressed, go into that area as a new and allied money management business. And, and we, we looked at it not as a diversification, but as just another wonderful thing to do, as long as it met, uh, you know, three criteria. The, the first, it had to be so good, even I could make it a success. The compelling opportunity. Second, we had to recruit somebody who was a 10 on the scale of, uh, 10. Uh, and, and it was a going to be a very, I needed to be a very big market so we could grow something, uh, big. And the third criteria, uh, uh, was that it would generate intellectual capital that would make the firm much stronger in terms of the things it was already doing. So we sort of discovered data, if you will, before it was called data. I just knew I wasn't so smart. And the more things that I could see that I could know, I could use some elementary logic. But, but I wasn't like Proust, who was going to sit in a corduroy room and, and, and come up with great ideas. I needed to see things that were happening, and this was my feed. And, and so we're still executing, uh, the same strategic plan. The only difference is, you know, we spun off the advisory business after about 25, 30 years because it was just too difficult. As we got bigger in the rest of the business, we kept having conflicts. We're still starting new things. I, we're still generating intellectual capital. We're now the biggest in the world, uh, actually, sort of pretty much nobody close, uh, in, and, you know, finding all kinds of ways to have our different areas working together to generate unique ways of of doing things. So that, that's, that's the story, uh, you know, as told to the public. The actual story is, oh my god, you know, if you've never really managed anything at scale, and, you know, you start out, how miserable. Like there was no Xerox machine, there were no, uh, amazing. But there's a story. There's, I mean, now it's almost probably for you just to look back on it. But there's this picture in the book, which I love, which, uh, you two guys, you and Pete, I think, flying up to Boston, and it's a, you go to the MIT endowment office, I think, and it was shot or something. And then it's a rainstorm. And so here we go, we got two masters of the universe standing out trying to get a cab. You know, former Commerce Secretary, and it's just, um, the thing that I took away from that was the, the humbling nature of being an entrepreneur. Just talk about that for me, because now people look at it and they go, oh my god, it was destined for greatness. But it had to look different for you at the moment.

Yeah, well, that was, you know, being an entrepreneur, and an entrepreneur in finance, is, is on, on one level, anybody can do it. On another level, there's no, uh, patent protection. Anything you invent, somebody can instantaneously copy. So, so it's a business that demands continual invention, which is one thing we understood, which a lot of other people who went into private equity, per se, which we never did, they didn't understand that. But, but gee whiz, so many things go wrong, you almost can't imagine it. So, so we made every mistake you can make by self-advised, arrogant amateurs. And, and, you know, uh, we, we developed our first private equity fund. I, I set the scale of it at a billion dollars, just because I happened to be over at First Boston and picked up their annual report, and they had a billion dollars of net worth. And I said, well, why shouldn't I? I just won't have the people. We can make much more money without all those people in the same capital. And at that point, uh, a billion dollars in 1986 was massive, and neither Pete nor I had ever made an investment. Now, of course, that did not inhibit us, because I had worked as an advisor to, uh, both KKR and Forstmann Little, they were doing this. There weren't too many people doing it. It looked like a straightforward type of of of business. And so we printed these books up and, you know, but offering circulars, we sent them out, and we started calling. And, you know, sort of almost no one wanted to see us. And we did, uh, what all amateurs do. We went to our best prospects first. All I can say is, if you're ever thinking of doing something like this, don't do what we did. Don't go to your best prospects. That's what everybody does. And what happens is they ask you questions, you don't have all the answers yet, because it's like the first time you ever heard the questions. And then, so the people, even if they're your friends, think you're a bunch of dummies, and they don't give you any money. And you burn almost everyone. And we had, uh, two institutions willing to give us $75 million, but they each had a minimum that we had to raise $500, because they didn't want to be bigger than a certain size. So, uh, we were like out of people. You know, that's that's what we had after 17, you know, sort of meetings, two people who said yes, and we, we were out of the A categories. And we, we went to, we started with B's, one of which was Prudential Insurance, just because we didn't know them well, and they were the largest insurance company in the world in 1986. Hard to imagine. And, uh, the number one investor in private equity in the world. And we went over there with zero expectations. And this is like, this is a useful learning lesson for everybody, uh, on the call, that, you know, went through the same pitch, private equity, but you got a piece of the fees from our M&A business, and, you know, a little bit of a merchant bank. And the chief investment officer, Cruz, sitting there chewing on a, uh, a tuna sandwich on white bread, cut on a diagonal. And I'm like watching, uh, him eat his sandwich, and I'm going through the same pitch, which is even boring me to death. And I'm watching his Adam's apple going up and down like a metronome. He finishes the first half of the sandwich, eats the second half, halfway. And then he looks at me and he says, you know, that's a very interesting idea. He said, why, why don't you put me down for a hundred? And I'm thinking, a hundred what? You know, he said, you know, a hundred million. Now, here's the number one investor in the world in an asset class we're just like dead, and he wants to put in $100 million, which I knew instantaneously we could roll up enough to get to $500 based on his name.

All right. Good point. Over a tuna sandwich, your fortunes changed, huh?

So what I said to myself after he finished telling me that, I said, I just can't let this guy choke on the rest of his sandwich. We got to get to a closing. And, and so, so, you know, we had so much difficulty. We only got, uh, on average, one out of 17 investors that we sent materials to or pitched. Now, for those of you who are so successful at Bridgewater, the idea that you'd be turned down 16 out of 17, uh, is like mind-bending. And that's what happened to us. And I was used to being sort of a pretty hot guy or something in my 30s. And, holy, I mean, it's like so awful, so devastating, as people look at you and say, you're no good. Yeah. You know, you just don't have it. And we don't want to have anything to do with you. And, you know, forget humble, you're so far beyond humble by the time you finish this. Now we get $3 billion. I got one for $20 billion. And we're not in liquid securities in that sense. So $20 billion into a, you know, sort of a block up fund, I mean, come on. Nobody in history ever did that until Masa. And, you know, that's got mixed outcomes. So, so, um, it's been an incredible journey. But, but this entrepreneur thing, you need, yeah, it's tough. Emotional reserves and stability and the ability to take pain. Yeah.

That that came out of the book. The other thing that came out of the book was something you and I spoke about, uh, what, right when we got on the call, which was culture. And, and you, you know, whether you're $500 million or $5, uh, whether you're, uh, rather $500 million or $500 billion, I think the consistency of the culture. And, and your point when we get on the call, which is, in our business, culture is sort of everything. Talk a little bit about what that, what that was in the early days, uh, why it was so important to you, and how it's manifested itself at Blackstone.

Well, I'd say in the early days, nobody quite knows what they're doing. Ask Ray. You know, I read his book. You know, he almost like blew up. Uh, in the early days, he did blow up, right? Early days, not so easy for anybody. You hire some people, you think they're right, you find out your judgments weren't right, or they weren't candid, which happens a lot, surprisingly, uh, at the beginning. You don't have a lot of other people to do interviews. You, uh, uh, you're like a one-handed chef. You, you're trying to get business, you're trying to prosecute business, you're trying to do office leases, you, you, you, you're trying to raise money. There's so many different things you're trying to do. And so we had some turnover at the beginning, uh, and, uh, which was a little distressing. But I learned, uh, some lessons. And then after five years, we hired our first business school class of amazing people. And I said to my wife, I said, we've made it. We can train these people in our values, my values, which are, you know, meritocracy, no internal politics, cooperation, work, work really hard, assume nothing, question everything, innovate, be inclusive, treat first-year people like you treat the most senior people at the firm. It's the broadest concept of a partnership you can imagine. And I, when I address people, uh, when they start, I said, look, you're, you're no different than than me or the other people on the management committee. In fact, you're probably smarter. We're just a little older, you know? So, so we've had the benefit of some experience, but not necessarily, you know, any different than than you. And we can remember exactly what it was like to be you. And so we'll treat you just like we treat everybody here. We want to hear what you have to say. Uh, we want to include you in important meetings. This isn't a hierarchy in that sense. Another part of the firm is nobody's an executive. We're all player coaches. In other words, I still know how to do things rather than just, you know, like blow venate. And, you know, we all have to be able to, to be able to know how to do deals, assess deals, values. And, you know, yes, we do other functions, of course, for most of our time as the firm gets bigger, but, uh, you never lose that sense. And, and another part of the culture is the world does not owe us a living. We're like a restaurant. We're only as good as our last meal. And if we poison the customer and they spend the night in the bathroom, they're not coming back to that restaurant, no matter what the reviews are. Very quickly, they might try it again in a year or two, but if you poison your customer twice, you will never see them. And I said, that's how fragile financial institutions are. And so we have to assume that every day is the most important day we've ever had. Every decision we make to buy something or change a management or do something that affects outcomes is, is not a normal day. It demands our best of everything, our focus, our relationships, and that sense of immediacy. As a firm gets bigger, uh, only works if you transmit it all the time. So, so, you know, it's sort of fun, uh, as a business grows to figure out how you take these core principles and, and everybody learns. Because it doesn't do you any good with the 10 or 20 people that you deal with all the time to have them just have them. It's got to have everybody's got to know them. And, and, you know, part of what you're doing at Bridgewater, obviously, with series like this, is to introduce people to the ways other people, you know, think, so you can, you can take the best stuff and adapt it for your own environment.

I love your mantra about the immediacy of today. I think it's, I think there's, there's a great lesson there. I'm gonna ask you one more question looking back, and then I want to ask you a couple questions looking forward. And the one looking back is, you know, all of us that have had some success and, you know, good fortune, you look back in your lives, and there's, there's, there's probably one or maybe even a handful of people that made a difference, mentors that sort of helped you zig when you might have zagged. Is there anybody that sort of immediately comes to mind? I know I thought in the book you mentioned this track coach that was particularly important to you, but, you know, if you look back, is there one person you'd highlight who made a real difference and, you know, you probably wouldn't be in the same shoes you're in had it not been for that person?

Yeah, there are a bunch of them, uh, over a course of a lifetime, for probably everyone. One of the people for me was Dick Generette, who started a firm called Donaldson, Lufkin & Jenrette. And I got a job there. It was my first job when I graduated from college, and I went to Harvard Business School after being in the Army Reserves. And, you know, I found the Harvard Business School, uh, sort of in the midst of the Vietnam War, a very unfashionable place to be. The students were, you know, uh, not not up to the caliber of people who went to my high school, you know, and, and, uh, Yale. And I was bored because every case was basically teaching you more or less the same thing, which was, everything relates to everything at a company, okay, I got that. How many months of this do I need? So I was going to drop out. And I wrote a note to Dick, and I said, I'm really unhappy. I'm not being challenged in a way that I want to be, and I'm thinking about dropping out. Maybe you want me to come back. What do you think? And he wrote me a six-page letter in the days where there were letters. And he was a Southerner and a great gentleman. And he basically said, Steve, in 19, whatever it was, '56, I had the same thought. I too was unhappy. I was going to drop out of Harvard Business School and go over and get a PhD in the economics department. And I didn't. And my life has worked out really wonderfully. And you shouldn't drop out either. I want you to stay. So I was so overwhelmed to get such a long, informative, caring letter from such an important person to me that I stayed. And, you know, staying made a lot of difference, yeah, to me. And what I've learned is, and this is part of, in a way, a finance industry culture, it's it's talent-driven. And when any of us see somebody who's really talented, as opposed to squashing them, we want to help them, we want to promote them, we want to advise them. It's, there's something in it in in this system of endless series of people who have talent. And, and, and so I've tried to do that for other people because it was done for me. And I've had a few people in in my career who've tried to just let me let me progress, let me fly. And every once in a while, would, you know, course-correct. But, but that's part of of what we all do. And it doesn't matter at what level. You could be at your level, David, or mine, or you could be somebody in the middle of the organization with a really talented person working for you. For you, I always had people like that, and they almost all became like, really, yeah, fantastic, uh, successes because all I was doing was facilitating that.

Yeah, and it's fulfilling for you, and I'm sure it was fulfilling for Dick to see, to see all that's come of you. It's, uh, it's a great, it's a great part of it. It's a, it's a virtuous cycle, right?

Yes.

You know, I wanted to maybe ask you about your philanthropy. We, we've never, we've never talked about this, but, you know, just an observer, uh, uh, watching from a distance, you know, over the years, you've, uh, you've made, there's been a couple things that have sort of shown through. One is, you've made these enormous, lead, generous gifts to a number of things, and they all seem to have very important thematics around, you know, sort of the future of the world, the future of critical things. And so everything from your your gift to MIT and artificial intelligence, to the Schwarzman Scholars, which, by the way, we're very proud to have a number of your graduates that have, that are at Bridgewater, and they, they are, they are great contributors to, uh, to what you've done at Oxford, to the New York Public Library. So, I, I just wondered, it seems like you go big and you go big against these important themes. And just what, what's behind that in terms of what you're trying to do with your, with your great success that'll be lasting beyond you?

Well, I, I don't think about legacy things. I think about what's going on that needs to be addressed or fixed, and is there something I can do, which can have, at least the way I'm thinking about it, a unique, uh, impact. So, so, so I'm not, you know, I, I give a bunch of money away of all types, including to other organizations that are up and running. But, but what I like doing, it's the nature of how I think, actually, I have to think this way for the firm. What's going on in the world? What, what needs to be addressed? How can we make the world a better place or solve a problem that's important? And, and so, uh, you know, Schwarzman Scholars, for example, which is like the Rhodes, uh, but oriented to China. I was looking at China in 2011, at the enormous growth rates, you know, the US stumbling around, you know, after, uh, the financial crisis. And I, I could see what was gonna happen with, with, you know, China was gonna ultimately be the biggest economy in the world, biggest number of people. And I looked at this and I said, there's gonna be problems with this relationship as a result of, in effect, the rising power challenging the existing power. And, and I said, I'd like to find some way to get in the middle of that, to, to help inform the Chinese, for example, when they're going off in a direction that's alienating the world. And I'd like to also tell the rest of the world what's going on in China, because they're not always very good at marketing, uh, their, their own, uh, successes and situations. And, and, and so I, I thought about it and came up with this idea. And the reason I give so much money to things isn't because I have money burning a hole in my pocket, it's because when you finish designing them, there's sort of like a moment where somebody says, geez, that's really amazing, that would be great. And, and I said, yeah, that would be great. And they go, well, you know, you're going to pay for the whole thing, aren't you? Yeah. And you go, what? Uh, and, you know, because I, I, I like starting things and growing them to address something that really works. It's no different than Blackstone. So in this case, you know, it'll cost me $125, $250 million. Um, I started out as a hundred. It's like building a house, always takes twice as long, costs twice as much, that kind of thing. With MIT, with, uh, got involved with AI, uh, through meeting, uh, Jack Ma and the real big technology people in China, through the Schwarzman Scholars. And he explained about AI. One of my, uh, donors, actually not donor, uh, uh, leaders, uh, was MIT. And, and so I got to know the president of MIT quite well, Rafael Rafe. Just, I just liked him as a person. And he was in the South of France. He takes one week off a year. And it was near where I was, so I invited him over for lunch and spent the afternoon with his wife. And we were talking about US competitiveness in technology and how rapidly the progress and how do we wake up the United States. And, um, um, we're basically all this technology, the basis of it started here. That's where, uh, AI came from, MIT. And so, so he said, well, geez, well, I said, well, what, what would really be terrific for you? He said, well, if you could, if we could double our faculty in computer science and then have, uh, hold university linked to artificial intelligence to our computer science faculty, we would become the first AI-enabled university in the world. And we developed knowledge faster than anyone else. And I said, well, that's pretty neat position, you know, monopoly on knowledge. He said, well, Steve, you don't have monopolies on knowledge in universities. We produce and publish, so everybody could know. I said, well, jeez, then they'll compete with you. And he said, he said, that's the objective. He said, if we to get this huge jump, it's great for MIT, but it'll also put down a marker so the other great scientific universities, they'll have to double what they're doing, and that'll kick-start, uh, the United States. So I, I said, geez, that's, that's pretty good. And, you know, we had two or three meetings. He had some proposals that I didn't think they were bold enough. And we charted them up, if you will. And, you know, I said, by the way, what does this cost? And he said, I don't know. I said, how can you not know? He said, well, I'm just bullshitting with you. But he wants to come over for lunch. He wants to have a regular lunch, I bet, right? This is like a dream. This is a dream of mine. You know, so I said, why don't you price it and come back? So he priced it at a billion one. So I said, he said, well, why don't you give a billion one? I said, well, why don't you go swimming in the pool and not come up? And I said, I'm not doing something like that. He said, well, what would you do? I said, the minimum possible. And, you know, he said, well, you can't do that, you know. Anyhow, it's like a normal negotiation. I ended up at 350. And I said, but look, I don't know science. I just know this is an issue I want to address the issue. I said, but if I'm putting up 350, I don't want to be the only person. So before we go to the world, so I want you to put up 350. He said, me? You're the one supposed to be giving. I said, yeah, but you're the ones who know the science. So if you and your board don't want to put up 350, I'm out. Two weeks later, came back with 350. So that's 700, and we're raising money to get to the billion one. So each of the projects that I get involved with are meant to address something that I think really needs attention, that's really consequential, that's going to change, uh, an institution or, or, or an area that society really needs. And what happens at the end of dreaming these things up is there always that terrible moment where somebody says, well, who's going to pay for this? Yeah. And then I get trapped. Oh, it's a good, it's a good trapping. You're, you're leaving. Whether you, whether you're seeking a legacy or not, these will be things that will, will have enormous consequence.

I'm going to blend in a couple questions from the audience. I have a couple more I want to ask you, but one of the concepts we talk a lot about at Bridgewater is triangulation, which is if you're going to make a big decision, you need to triangulate with, uh, with other experts or other people that can inform your thinking, show the flaws in your thinking, and so forth. And there was a, a reference in your book that the, the question referred to, which was your great conversation at one point with Averell Harriman. But, uh, talk about that concept a bit and how, you know, what, at critical points, you'd use others to inform, stress test, uh, challenge your thinking.

Well, uh, there are a few things. First of all, you, you all pretty much use, uh, liquid securities to express, uh, investment, uh, uh, opinions. And that's a very hard business to be in because, you know, the SEC wants everybody to have fundamentally the same information. So the reason I didn't do your business is I'm not as smart as you. So I, I need competitive advantage. So, so we get, what you would regard as inside information by signing a confidentiality agreement that we won't, uh, do anything with that information other than study it, and, and see if we can buy, uh, an asset on the basis of that information. So, so, so by our nature, what we do for a living is is improve that asset. You know, we don't depend on other people to improve it. So when we buy something, we're trying, uh, to buy it at the right price, uh, but only if we can make that asset, uh, earn a lot more, and then we sell it and put some leverage on it, and then sell it, uh, at a profit. That's turned out to be a really, you know, sort of simple but, but enduring model. So as, as part of, uh, doing that investigation, what we do, uh, is, is we do a very thorough analysis. We start with everything a company or piece of real estate or whatever, you know, every piece of information they have, we try and get that. That's a really good start. And then, uh, we, of course, hire third parties in certain parts of an analysis, but basically, what we do is, I learned that in most investing, there's an endless list of risk factors, and young people can at least produce 10 of them, uh, on every investment. I'm not smart enough to deal with 10, uh, things, so I always reduce them, uh, to either one, two, or three. Those are the things that really drive, uh, and, uh, and sometimes they're correlated, which creates more, uh, volatility. And, and so what we've evolved in our system, maybe similar to yours, I don't know, is, you know, we, we have a written analysis of, of the investment, and, you know, all these different types of projections, and, and then we have the risk factors, and we make decisions with groups of about eight people. And I'm a believer, uh, that there should be an active dialogue. So I read Ray's book, or at least most of it, and, you know, I, I saw your, you know, sort of process of whatever you call it, it had some funny name, uh, and, and, you know, has been, you know, sort of profiled in the press as being either informative or brutal, or whatever it is. And I said, geez, that's just what we do, except we don't have anybody recording what everybody thinks, because I can remember that. And I, I know how people change under stress. You know, some people become more conservative. So the way you evaluate, you know, is this person predictable, and how, you know, some of us do that. But the fundamental thing that we're trying to do is beat up those three key drivers on a deal. And I don't believe in professional audiences. Human behavior dictates that that the one or two people who are sort of in charge, uh, didn't get there necessarily by accident. They tend to be smart, they tend to be assertive intellectually, and they tend to more or less squash everybody around them, or at least the people around them think they could potentially be squashed, even if the, those one or two people aren't trying to squash them. So our rule is that everyone in the meeting must talk. No free riders. We don't need you if you don't want to talk. Go somewhere else and do something, but don't waste our time. And that means everybody has to study, everyone has to have a view on each of those two or three variables. And we go around the table. And it's fascinating because people are smart. Every once in a while, as you go around, somebody will tell you something that you just haven't thought about, or a hole in the analysis, where we'll send the team back, you know, to have another meeting just like that. So what happens as we go around the table and everybody raises questions, and it's a dialectic, of course, like your committee, uh, where people have to feed in, okay, here's what would, oh, not so quick. I'm not sure that'll work that way. Really? So what happens by the time we do this two or three times on each of those variables, we can, we can figure out what the probability of something going wrong will be, and, uh, the impact of that on an investment. And if we get to the point where we're doing that, and this is different than you, will, where we think we could ever lose money, we will drop the investment, even if the upside, yeah, is, is really good. Because as a private owner, you just can't sell your mistakes. You got to live with these turkeys. You change them, and they're awful. Failure is awful. But that mechanism, which is similar to yours, yeah, uh, gets great outcomes.

How do you avoid, as you were describing, uh, when you're in the room and you're, you and, uh, and you've got your opinions, how do you avoid not squashing, and how do you, uh, ensure that the other voices come to the fore? That must be a challenge, given, you know, given your history and success. How do you, how do you get that balance right?

Well, it's easy. I don't think I'm so smart. So I, I love to listen, uh, to what people have to say. And, uh, you know, the job of a leader isn't to give an answer. The, the job of the leader is to establish a process and let everybody's talent come forward. So, so the person you would see at the firm who looks like me, right, who goes to a meeting, I, I don't ever try to dominate a meeting. So you'd find me to be a different person. I've, the person you're seeing now is actually the real person. The person at the firm, I, I, I have to, uh, modulate my behavior because it doesn't sell. You can't build a great firm like that. And so I'll just sit there and watch this occur. And if I think the discussion's really going the wrong way, which hardly ever happens, because like a great firm like yours, you know, the same people are sitting around that table for a while. I mean, they're smart girls, they wouldn't be at the table. And, and so you want to hear what they want to say, and you don't want to dominate things. Where you get more involved is with pricing something, maybe, yeah, where, okay, what does it take to win? If you have more experience with that, uh, then that's, that's a useful.

I got it. No, but that's a great leader. I think that's a great leadership lesson, or great leadership insight, which is that you're not, you're not, you're not trying to have the right answer, you're trying to create an environment where the right answer comes to the fore, which, uh, which is which is key. Um, I'm, I'm going to, uh, take you back to China for a minute, if I could, because, uh, obviously it's at the front of all of our minds right now. And how do you see the risk of the current decoupling? And, uh, and, you know, if you were whispering in President Xi's ear, or whispering in President Trump's ear, or, who, President Biden, if he follows, whoever it is, what would you advise both sides in terms of finding their way through the, the current challenges?

Well, the, the whole issue between China and the United States, or China in a broader sense, in the West, is about China's rise, uh, and, and the mechanisms it's using to get wherever it's getting, and the patience or the assessment that the West has in, in terms of looking at that. And so you have to understand, you know, both sides of, of that evolution. On the Chinese side, uh, 40 years ago, uh, when the current leadership, um, were, you know, like late teens in college, uh, China had a GDP per capita of $300. Now, there are very few people at Bridgewater who've gone out to a dinner, uh, with another couple, let alone just just with a spouse or a loved one, who haven't spent $300 for dinner. That's one dinner. You eat 365 of them, and you also get, as a bonus, lunch and breakfast. This was the whole income for, for a Chinese person. And so the people who are the leaders of that country grew up in that world of exceptional poverty. Now, you meet them, and they wear suits and ties. They, they look like they could have come from basically any place, except in their core, they're the $300 a year people. And they know that world. And their job is to drive their country, uh, to make sure it, it achieves what's called the China Dream, which is, uh, very much like the American Dream, a better home, better health, and better income as a person. And, and that's what they're trying to achieve. So, so they're now up to somewhere around $10,500 per person. And it's split. On the coast, where everybody from Bridgewater would pretty much encounter them, so it's appreciably higher than that $10,500, and lower, you know, in the interior of the country. And they've used a bunch of mechanisms, starting with the WTO accession, to get there. And they have strategic plans for every five years. They pretty much really focus on that. And some of the ways they get places are not consistent with Western values. The, the West, who allowed them to to enter the global system, thought that they would become more democratic, and adopt more of Western practices and rules. And the Chinese have adopted some of them, but have not adopted other ones, which gets the West really unhappy. So either the West is going to stay really unhappy, and bad things are going to happen to China, and also the rest of the world, as you go through decoupling, where China will change some of its practices to accommodate Western values. And, and that is the debate. That's the framing now. Within China, they have politics too. They have their reformers, and they have their hardliners. And the reformers understand this and want to accommodate, uh, within a Chinese system, uh, to, to have more congruence, uh, with Western values. The hardliners say, hey, we're doing fine. We're growing three times US rates the way we're doing it. We don't want to stop. And that's the nub of it. And, and, and that'll be resolved over time because it has to be. These two countries together, depending upon which criteria you use, have between 35 and 40% of the global economy. This is not a game. Okay? What are there, 220 countries, something like that? 215? Two of them have 35 to 40% of the whole world economy. To imagine that they just sort of go their separate ways is interesting if you have a vivid imagination, but, but somewhat unpractical, you know, in, in actuality. So I think there's going to be a continual tugging and throwing, if you will, uh, over time as these two systems, uh, come to grips, uh, with each other. That's a pretty high-level answer, but, but that, that's, that's what's actually going on.

I lost your, uh, sorry, I lost, I was mute there. I think there's an embedded in that is a note of optimism in the sense that they'll find, it'll ebb and flow, but they'll find their way through it inevitably because, because we have to. One thing, one thing about China that's fascinating is it never stays the same, and it changes very rapidly. I call it, you know, one year in China, it's like a dog year, right? It's like seven years in the outside world. So they're used to enormous evolution, uh, enormous change. And if it doesn't work, yeah, they'll try something new. So, so this won't all just get fixed, right? And, and when you say optimistic tone, I, I view myself as a realist. Yeah. That that there'll be a bunch of friction, and as a result of that friction, there'll be adjustments. Yeah.

Well, um, let me turn, uh, let me turn inward a bit and, and talk about other adjustments for a minute, which is really what your perspective, um, and maybe, maybe, uh, maybe this will be the final question, but your, your perspective on the current state of polarization and some of the challenges we face in our own country. And, you know, with your upbringing, really coming out of a, I think, a middle-class family in Philadelphia, and now to where you currently are, and the issues, um, that we're, we're facing on, on both the, the polarization in our politics, but also the enormous, the enormity of the wealth gap that we're seeing. How, how do you see that, um, uh, playing out, and what, you know, what's your, what are your thoughts on how that will likely evolve in the, in the months and years to come?

Well, this, this is a tough one, because, um, there is developing, sort of, two different points of view, and, you know, there are so many things that are trying to be addressed simultaneously, that unpacking this, uh, for a simple answer, uh, is a little tough. One, one thing that is happening, uh, is, um, as a result of the factors that you mentioned, David, um, we're starting to compromise, uh, freedom of speech in the United States. Some people call it cancel culture, it doesn't matter what you call it, but the ability to say what you think, which is part, a core part, uh, of liberal democracies, is, is being really attacked. And, uh, perhaps that's the most troubling thing, because then you lose your ability to have real discussions to figure out how to solve things, because if, if one side just tells you didactically, you will believe this, or else I will take you down, and they do, and that that gets you into, uh, not a familiar type of democracy. And, uh, you know, there are reasons why, you know, that's occurring. And, uh, the question is, um, can you change those underlying, uh, uh, reasons? One thing that's, that's particularly key, and it speaks to your income and equality thing, I was watching, um, MSNBC, uh, at around 7 o'clock the day before yesterday, and my friend Steve Rattner got on television. And Steve worked with us at Lehman. That's when we hired him. He converted from being a journalist before for the New York Times, and I guess he was Arthur Sulzberger's roommate in Washington. We hired him with no training, and then he made it big in finance, and now back to journalism, right?

So Steve gave the following two statistics. They're so stunning. I, I give them to you, um, for thought.

The first, uh, is that the, you know, reported unemployment was eight point four percent, but it's probably nine point something. I mean, they made a mistake with the numbers, but call it eight four just, you know, because it was used. Um, the unemployment for, um, people who had a high school degree or less, dropped out of school, unemployment was twenty percent. For college graduates, according to Steve, unemployment was point one of one percent. In other words, college graduates have gone through this astonishing dislocation and, um, they're basically doing great.

And so, um, when you talk about income inequality, I, I look at education and I say to myself, because I know it's true, um, if you educate people, they will do better in a post-industrial society. So, um, we have not successfully educated many people in our population. And the biggest point of, um, uh, I think, uh, of impact for addressing, uh, this, uh, situation, uh, is is to do it, uh, through educational equality, uh, and the whole bunch of things that go with that.

I happen to be the largest donor, apparently, in the country. They told me to, to Catholic schools. And, uh, last time I looked, I'm not Catholic, nor have I ever been. Uh, I married one. Uh, and, uh, the reason, uh, I'm a big giver to that is because, um, uh, ninety percent, uh, of the people at Catholic schools in New York are minorities, um, and seventy percent are at the poverty line or below. Uh, and ninety-eight percent of them graduate from high school. Yeah. Uh, and ninety-six percent of them go to college. And so I look at this. I know it's not that relevant. Half of, roughly, are Catholic. Uh, that to me, this is just like a giant school system. Yeah. That is transformational. Yeah. For the people. Huge, huge opportunity for those who, yeah, yeah. That's the name of the game.

Now imagine, uh, would we be having this huge dislocation, uh, on the streets, uh, if, if a much, much higher, uh, percentage of our people in the United States had the benefit of the kind of educations the people at Bridgewater. Um, I, I would promise, and I'm sure somebody would debate with me, that nothing would change. But I know them to be wrong, uh, that that if you had that kind of equal opportunity, there are a lot of things that would normalize. Uh, and so, so we can do that. By the way, educating people is not, um, you know, sort of that complicated. Uh, there are a lot of people who have great outcomes, including from, um, these other, uh, you know, less than privileged, uh, uh, backgrounds.

So, so, you know, this is a question that you could spend a lot of time on, and it's a question that demands, uh, an answer, because what's happening is we're really, um, creating enormous stress, uh, on the system. Questions about capitalism, questions about meritocracy, um, uh, you know, um, how do you run a system if you give up, uh, on merit? You know, who's got an answer to that one? Apparently, somebody does, because I keep hearing it. Um, right. And, and so I think these things have to be addressed, but there has to be actual change, uh, in, in outcomes and opportunities for everyone. Yeah.

Well, I, I think, um, that's a great note to end on, because I think the notion that education is sort of central to closing the opportunity gap is something that I think is both, both true, and it's, uh, it's something tangible that we can, we can put our hands around. Uh, the final thing, I, I, I'd say, I don't want to overstay my welcome much longer, uh, but my first donor for the, uh, Schwarzman Scholars, uh, was somebody named Ray Dalio. We've heard of him. Yeah. And, and I didn't know Ray. And we were both speaking on the same panel at the New York Times thing, uh, uh, that Andrew Sorkin has on, whatever it's called, uh, you know, his, uh, DealBook. And then so Ray was in the green room. I had just, you know, finished with getting ready to fundraise, and he was sitting in a chair, and I walked in, and I sat next to the only two people in the room, and I said, "Hi, I'm Steve Schwarzman." He said, "I am Ray Dalio." I said, "Yeah, I know. I've seen your picture." Uh, and, you know, I'm raising this money, uh, you know, for this, you know, school in, uh, China.

And Ray listened carefully, the way he normally does, and he says, "Geez, I don't think you're going to be successful." I, I said, "Why would you say that?" Uh, he said, "Because I've been, you know, active in China since 1984 or two, I forget which year, uh, and, you know, I've failed a whole bunch of times. It's just an impossible system." I said, "I don't know. It's pretty easy. I just got three billion from them for our IPO." Uh, and, and so, you know, I know all the people there, and, you know, they want me to do this, and it's going to be successful and so forth. He said, "Well," he said, "you've set yourself an impossible task." But he said, "I'll give you ten million dollars to try." Because I asked him for twenty-five million dollars. He said, "I'll give you ten million to try." Uh, and you can come back to me for more if you really are successful, and I agree with you. And this started like a dialogue and a friendship, uh, where, you know, he said, he said, "I can't believe you actually did this." I said, "Well, it's sort of rigged. Their government wants it to be successful. The U.S. government wants it to be successful. I said, I'm just in the middle making it happen, and there are these global forces that want it to be successful. So we will be successful. I'm not worried about regulations or approvals or anything like that." And, um, so, so we become really good friends. Uh, and, you know, he's one of the most interesting guys talking about global finance, uh, I've ever met in my life. Uh, his integrative abilities, uh, for currencies, debt securities, equity securities, it's like some giant machine. You, you feed something into it, and something magical happens, and there's like a correct answer that comes out.

And we were on a panel together in China on currencies or something about which I know next to nothing. Uh, and it was Ray and me, and, and, and I, I, I said, "Ray, I said, look, this is an embarrassment. I don't know what I'm doing here. I know what you're doing here. I'm going to just seed my entire time to you." And he took it. He said, "No, no, you, you, you don't have to do that. You know, you can, you can speak a little bit. Don't worry, don't worry. I won't hurt you." Well, I know that feeling. I know that he's a huge admirer of yours, and I know he's been blown away by what you've done with, uh, with not only Blackstone but the Schwarzman Scholars.

So listen, Steve, we, we've, uh, taken a lot of your time. Thank you. It's been, um, really a pleasure, uh, for me to hear this, and I know for many participants in Bridgewater, we're going to have lots of readers of your book. So thank you again, and, uh, uh, we really appreciate it. Yeah. Enjoy the book. See everybody. Congrats on your success. Thanks again, Steve. You.