Steve Schwarzman, co-founder and CEO of Blackstone, the largest alternative investment firm in the world with more than half a trillion dollars under management, reflected on what he called one of the highlights of his life — an incident when he badly injured himself in a high school track meet.
Relating the story during a Reuters Newsmaker interview with Reuters Editor-at-Large Sir Harold Evans, Schwarzman said that once during an 800-meter relay race in high school, he pulled his right hamstring right out of the gate. Determined to keep going despite the pain, Schwarzman said he knew he couldn’t make a good time, but had the presence of mind to “drift wide in the turns” to impede the progress of the competing runners. Still, when he limped toward his teammate to pass the baton, his team was already almost 20 yards behind the pack. He watched as his team dug in, made up the lost ground, and won the race. “It became one of the great moments in my life because it wasn’t about me,” he said. “It was about my teammates doing an astonishing feat by making up this deficit.”
He has always remembered this incident as a metaphor for the teamwork and collective drive that makes organizations like Blackstone successful.
Schwarzman touched on a wide range of topics during the Newsmaker event, held last week in New York, including the current state of the trade dispute with China, why it’s crucial to learn from mistakes, and whether the U.S. is headed toward recession.
The last two years has been a difficult time between the U.S. and China, Schwarzman admitted, but says that the Trump Administration just wants “the two countries to compete on an equal footing” so the best or most economic product can win.
While this current back-and-forth process is normal in a trade dispute, today we’re at the point where we’re seeing the global economy becoming “adversely affected” because the two countries represent about 35% to 40% of the entire world’s economy. “Now, both countries recognize that making progress is important not just for each of their countries, but for the world,” Schwarzman explained, adding that positive developments are “lined up” and there’s a good faith effort to start moving forward soon. “Overall, I see reason for optimism.”
On con men (or con women)
Reuters’ Evans praised Schwarzman’s investing acumen, but cited recent incidents where investors’ infatuation with a particular story or individual may have blinded them from digging deeply into a company’s fundamentals. “So, I ask, is charisma more important than the fundamentals in the story? And is there a receptivity to be taken in by con men?” Evans queried, citing recent examples such as WeWork and Theranos. “How does Blackstone cope with this?”
First, Schwarzman says, you need “a diminished emotional life, because you can’t get caught up in these things.” He describes Blackstone’s investing mantra as similar to a doctor’s oath of ‘Doing no harm’ — “We want to not lose money,” Schwarzman quipped, noting that Blackstone often starts analyzing a possible investment “by looking at every conceivable way in which you can get into trouble by owning this thing. “We ask ourselves, ‘How bad can it be? How wrong can it go?’ And then we try to find the correlation — because if one bad thing happens it can trigger others.”
Prodding further, Evans brought up Edgcomb Steel, one of the first investments a fledgling Blackstone undertook in the late-1980s. It went spectacularly wrong, and the firm couldn’t even make its initial debt payments once the price of steel dropped.
Schwarzman says he views Edgcomb as a mistake that taught valuable lessons and helped make Blackstone the firm it is today. “We all make mistakes,” he said. “And we try not to have them be fatal. And the younger you are, the more rapidly you can make mistakes because you don’t have the database of what you’ve done wrong to never do it again.”
After the Edgcomb meltdown, Schwarzman remembers he was sitting in the office of a major Blackstone investor getting yelled at, when he made an important vow that this would never happen again. Returning to the office, Schwarzman looked at everything he did wrong, and wanted to design a process so that all decision-making was not just centralized on him and few others. “So, we designed this process that’s objective, that fosters added perspectives, and helps identify risks,” he notes. “Now, Blackstone is in the position it’s in as the largest investment firm in the world largely because of its attitude toward risk.”
That attitude, dating back to the Edgcomb days, helped spark Schwarzman’s interest in writing his new book, What It Takes: Lessons in the Pursuit of Excellence. “One of the reasons I wrote the book was to show how important it is to protect everybody else from the mistakes you make,” he added.
On recession fears
Evans also broached the subject of a global or U.S. recession, but Schwarzman cautioned about getting too fearful over that, saying that “you often never get an understanding of a recession until afterward” and often the fears can lead to worse outcomes than the actual economic downturn. Indeed, examining the trend line of U.S. GDP shows a slowly climbing upward line over the decades with just a few minor kinks that represent past recessions.
Schwarzman said he believes that supply and demand should continue to drive wages higher — “which is good because working people need money and will spend money” — and interest rates should remain low. “As long as the consumer is continuing to make more money, and we have a labor shortage, I think there’s a pretty good shot we’ll keep going, but maybe at a reduced rate compared to what we enjoyed over the last year or two.”
He added that he sees few stark warning signs, such an overcapacity of goods or investors buying at high prices, which are often the hallmarks of past recessions. “But we really aren’t seeing that,” he said.