Stephen Schwarzman: Building Blackstone From A Dream to An Empire

Fincredible's exciting new series - 'Titans of Global Finance' delves into the lives and triumphs of leaders in finance. This series highlights the trailblazers and daring strategists who have left their mark on the industry.

The spotlight for the first episode is on Stephen Schwarzman, a Titan known for his unrelenting ambition, remarkable resilience, and calculated risk-taking

You have to dream & imagine the perfect vision of what you want to create, and then you have to live in that world before it exists. - Stephen Schwarzman

Back when he was just a 14-year-old teenager, Steve Schwarzman began his incredible journey into the business world by helping out at his family's dry-goods store. This is when his ambitious spirit first started to shine. He wasn't content with just running the store – he dreamed big.?

He envisioned taking this family business and transforming it into a renowned national brand.

When he shared this grand vision with his dad, his father had a different perspective. "I'm content with how things are," his dad said, "The store brings in enough to support you and your brother's education. I'm satisfied."

However, Schwarzman was wired differently. He was constantly fueled by eagerness to spot opportunities and turn them into reality. It was part of his very nature to glimpse something successful and wonder just how far he could take it.

Steve Schwarzman was a real go-getter, a true academic powerhouse. But his outstanding performance in classrooms could not get him into his dream college, Harvard. As a result in 1965, he became a freshman at Yale. However, things didn't start smoothly for him there. But as they say, when the going gets tough, the tough get creative! And that's exactly what Steve did.??

In a stroke of brilliance, Steve decided to bring some much-needed elegance and artistry to the campus. At the time, Yale didn't have any female students. So Steve took matters into his own hands and invited ballerinas to perform at the university. This bold move didn't just make waves on campus but also caught the attention of a mysterious group known as Skull & Bones.

?Skull & Bones is the oldest senior-class secret society at Yale, a cultural institution with a powerful network of alumni and a reputation for conspiracy theories.?

Eventually, he was able to attend his dream college, Harvard. He graduated from Harvard Business School with an MBA in 1972.

Armed with prestigious degrees & and prestigious social connections, Schwarzman knows it's only a matter of time until he reaches the top of the world. But he soon found out that the real world is way tougher than he thought.

It was a time when the finance industry in America was on an absolute rollercoaster of success, with fortunes being made left and right. This created a? magnetic pull that drew in young, go-getter men who were hungry for a piece of that financial pie. And guess what? Schwarzman was right there in the mix, ready to make his mark.

He took on a job at Lehman Brothers, a legendary investment bank that was practically synonymous with success. This was the era when investment banks weren't just raising money; they were conjuring fortunes out of thin air.?

In those early days at Lehman Brothers, it wasn't all smooth sailing for Schwarzman. But Steve was no ordinary sailor. With a knack for quick thinking, he adapted quickly & and excelled at his job.

In a matter of just a few years, He was masterfully orchestrating deals that raised a sum of about 100 million dollars for his clients.

But his real break came when he orchestrated a deal worth $488 Million. Tropicana, one of the well-known juice brands was offered to be acquired and the owners felt it was time to cash out. At the time, it was the 2nd largest deal in the world, and Schwarzman played a key role in making it happen. As a result, he was promoted to partner at Lehman at the young age of 35, bringing him closer to his goal of becoming CEO of the largest investment firm. He was on the trajectory to become a Titan of Global Finance.

The Lehman Brothers saga took another dramatic turn in 1984, Pete Peterson, the CEO of Lehman at the time, was forced out due to clashes and differing views on management style and strategic direction.?

In his place, a trader, the spirited Lewis Glucksman took the reins. Known for his fiery temperament, Glucksman had a reputation for throwing his phone at the wall when things got heated. But as he ascended to the role of CEO, a toxic undercurrent began to weave through the company's culture.

As Glucksman steered the ship, a series of decisions were made that triggered a ripple of problems. The firm found itself entangled in a precarious situation, where a substantial trading bet went disastrously awry. Those bets, once seen as potential goldmines, plummeted to zero in value. Amid this chaos, it was Steve Schwarzman, then a Senior Partner, who took the helm & and made the tough call necessary, leading a coup successfully ousting Glucksman.

This chapter in Lehman Brothers' history was far from over. Schwarzman decided to sell the firm to save it.

The year 1984 marked a pivotal moment when American Express acquired the firm for a hefty $360 million. As the dust settled, those who held shares in the company, including Schwarzman, reaped substantial profits from the deal.

But life is a series of peaks and valleys, and the internal power struggle at Lehman Brothers in 1985 ?forced Stephen Schwarzman to leave the company as Sr. partner.?

He found himself standing at a crossroads, facing two diverging paths.

On one hand, there was the allure of early retirement, a life of luxury that most people could only dream of. On the other, there was the audacious option of starting anew, from square one, to chase his dream of becoming a CEO – a vision that had been fueling his journey all along.

Ultimately, all journeys are alone. It's great to have support. Go forward. Your job is to make something work & that's your number one priority. And to make it work, takes superhuman effort. People don’t become successful as part-time workers. It doesn’t work that way. - Stephen Schwarzman

At the age of 37, Steve Schwarzman dared to dream big – he envisioned building his own financial empire, one that would surpass even the grandeur of Lehman Brothers. It seemed like a far-fetched fantasy, but Schwarzman had been beating the odds all his life.

So, he embarked on a journey with his former boss, Pete Peterson, a journey that began with a challenge: What business should they dive into? The canvas was blank, but they were sure of one thing – they wanted to be different, to build something unique. Months went by, marked by brainstorming sessions and spirited discussions. And then, they finally decided to step into the thriving industry of Private Equity.

Schwarzman, while brimming with entrepreneurial spirit, was a cautious risk-taker. He believed in a steady foundation before aiming for the stars.

He wanted to have a steady stream of income first, to pay the rent before building the greatest Private Equity firm in the world. So they decided to start off with M&A advisory.

This idea that entrepreneurs are risk-takers is complete BS. They just see the same facts differently or they just obtain different facts. - Stephen Schwarzman

Pooling together $200,000 each, they set up their business in the iconic Seagram Building. Though they had no prior experience in PE, they had something even more valuable: an extensive network that spanned the finance industry. With connections like theirs, it seemed raising capital for their Private Equity fund would be a breeze, or so they thought.

They sent out a whopping 600 letters, announcing the birth of their new venture, and expected the phone to be buzzing…..but that never happened.

I don’t know how often you like to be rejected, but try it that many times. Though my math skills aren’t that good, it has to be something around 450 rejections. - Stephen Schwarzman

Fortunately, there was enough cash flow from their advisory business to keep them going.

Steve Schwarzman's determination burned even brighter, igniting a vow that he would persist until he could raise a staggering $1 billion for his company.

After weathering a storm of rejections that would deter most, Schwarzman finally secured a coveted meeting with the Chief Investment Officer of Prudential, a major insurance company. Armed with the most persuasive pitch he could muster, he held his breath for the response he yearned to hear. And then, there it was – the words he had been eagerly waiting for: "That sounds interesting. Put me down for $100 million."

In the world of fundraising, confidence is key. Schwarzman understood this well. Often, investors tend to exhibit herd behaviour, flocking where the prestigious players lead.

At that time, Prudential stood as the paragon of Private Equity Investment, and once they committed $100 million, other investors followed.

Blackstone was founded with a touch of creative genius by combining the names of the founders. The name "Schwarz", meaning black in German and Yiddish, was blended with "Peter" or "Pete", which meant stone in Greek. With a massive capital of $1 billion, Blackstone entered the scene with great potential for success.

Venturing Into The Unknown: Blackstone's Debut in Private Equity

With great trust came immense responsibility. Every step had to be measured, and every decision well-calculated. Schwarzman was acutely aware that even a minor misstep could shatter the dreams he had so ardently nurtured. With caution as his compass, he embarked on a quest for deals that promised sky-high rewards with minimal risk. And his quest led him to just the right candidate – US Steel.

In 1987, a labour strike sent ripples of chaos through the mighty US Steel. The plants bore the brunt, their foundations shaken. Carl Icahn, a renowned Corporate Raider, strategically acquired enough shares to initiate a proxy action for a hostile takeover. His playbook was clear – he intended to generate funds by splitting off the railroads and barges into separate entities, paving the way for a perfect setup for Leveraged Buyouts (LBOs).

A twist of fate brought Blackstone to the scene. Their sights set on the railroads and barges, they geared up for an audacious LBO plan. But here's the hitch: to turn this plan into reality, a considerable sum of money needed to be borrowed.

There was just one problem – banks were wary of extending loans to a new contender in the market, except for one – Chemical Bank. With $13.4 million of their own and a hefty loan of $636.6 million, Blackstone plunged in.

Soon the steel markets rebounded, and this venture proved to be a smashing success. The winds shifted in favour of Blackstone, their cash flows surged, and within a mere four years, their equity quadrupled. When the business was eventually sold in 2003, the numbers spoke for themselves – an astounding annual return of 130%.

The Shadow Of Success: Edgecomb's Troubling Turn

But sometimes, success can cast a rosy hue that blinds us to lurking challenges. Edgecomb, a steel plant that produced parts for vehicles and aeroplanes, stood as another chapter in Schwarzman's journey. With a daring move, he invested around $300 million in the company, driven by a bold vision. Yet, just a month later, a disheartening shift occurred as steel prices stumbled down, and Edgecomb spiralled into a state of collapse.

Within 6 months, we couldn’t pay our interest on the debt & and ultimately we lost all of our money. This was beyond traumatic. I don’t like failures. I am not used to it, but we all have it. - Stephen Schwarzman

The Edgecomb experience served as a turning point for Schwarzman. The sting of humiliation sparked a profound realization – he needed to shield his ventures from future failures.

What do we do when we fail, We spend an enormous time thinking through what we did wrong. How we manage failure is very important. Some people manage by pretending it never happened. They just go about their jobs till they forget that it ever happened. I don’t believe in that. I like to learn. - Stephen Schwarzman

He crafted a meticulous decision-making framework that scrutinized every move, eliminating room for repeats of past missteps. This commitment to learning from his mistakes would become a cornerstone of his approach.

Venturing Beyond Boundaries: Blackstone's Quest for Grandeur

From that moment on, the once-shaken Blackstone hardly saw an investment falter again. The remarkable turnaround served as the foundation for their meteoric rise, a rise that was unstoppable.

Schwarzman and his team displayed an unquenchable thirst for success. They sought grander horizons. Their gaze shifted towards grander horizons, and in the thriving real estate market, The booming real estate market was ripe with opportunity. With a blend of strategic foresight and courage, Blackstone embarked on this new frontier.

Blackstone Group swiftly rose as a dominant force in the real estate arena. Their portfolio became a mosaic of successful deals that stretched across the years, leaving an indelible mark on the landscape. Ventures like Hilton Hotels and Equity Office Properties stand as a testament to their prowess and ability to transform potential into profit.

In 2006, Schwarzman sensed a storm coming. He would later come to know that he was absolutely right. The country was marching onward to the 2008 financial crisis, the ripples of which would be felt for years to come.

He made a bold choice: to expand their assets massively, fortifying their position before the storm hit.?

The following year, Blackstone once again made headlines – raising an impressive $7 billion,? marking the second-largest IPO at the time, just behind Google.

Today, Stephen Schwarzman stands at the pinnacle of his career. At 76 years old, he wears the dual hats of Chairman and CEO of Blackstone, a true titan in the world of finance. The legacy he has carved is nothing short of awe-inspiring, a testament to his unwavering determination, visionary mindset, and relentless pursuit of excellence.

Schwarzman's legacy continues to shape the landscape of finance, reminding us that with determination and the right mindset, the possibilities are limitless.

Hope you enjoyed the first story of 'Titans of Global Finance' series in Fincredible??

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