Turning a two man firm into Blackstone
Stephen Schwarzman's fortune comes from Blackstone, the investment firm he co-founded in New York in 1985 with Peter G. Peterson, his former boss at Lehman Brothers. The two started with a small amount of their own capital and a plan to combine merger advisory work with a private equity fund. Raising the first fund proved difficult, but they eventually secured commitments from large institutions, and Blackstone began buying companies with borrowed money in leveraged buyouts.
Over the following decades Blackstone added new businesses one after another. It moved into real estate, credit, hedge fund investing and infrastructure, and it raised ever larger funds from pension plans, sovereign wealth funds and, increasingly, wealthy individuals. Real estate became its largest business, with investments in offices, warehouses, apartments and hotels around the world.
Blackstone listed on the New York Stock Exchange in 2007, shortly before the financial crisis, and in 2019 it converted from a partnership into a corporation, which widened its investor base and helped lift its share price. Schwarzman has led the firm as chairman and chief executive throughout and holds a large stake in it. His wealth comes from that ownership and from the dividends and fund profits Blackstone pays out to its partners.
Blackstone's businesses
Blackstone is organized around several investment areas:
- Real estate: property funds and the non traded trust BREIT, with logistics, rental housing, hotels and data centers among its holdings
- Private equity: buyout funds and long term capital vehicles that own companies in many industries
- Credit and insurance: lending to companies and managing assets for insurance companies
- Hedge fund solutions: investments in and alongside hedge funds
- Infrastructure and life sciences: newer strategies in energy, transport, digital infrastructure and drug development
Some of Blackstone's best known deals include the 2007 purchase of Hilton Hotels, which it took public again in 2013 and later fully exited, and a large buildup of warehouse and logistics property in the decade after the financial crisis.
Blackstone also gave birth to BlackRock, which began in 1988 as a fixed income unit within Blackstone under Larry Fink. The two firms separated in 1994, a sale Schwarzman later described as a mistake given BlackRock's subsequent growth. Jonathan Gray, president and chief operating officer, is widely seen as Schwarzman's eventual successor.
From a Philadelphia linen store to Lehman Brothers
Stephen Allen Schwarzman was born in 1947 in Philadelphia and grew up in the nearby suburb of Abington. His father ran a dry goods and linen store, and Schwarzman worked there as a boy. He later said the experience convinced him that he wanted to build something larger.
He studied at Yale University, graduating in 1969, and was a member of the Skull and Bones society. After a short period in the Army Reserve and work at the investment bank Donaldson, Lufkin and Jenrette, he went to Harvard Business School, earning an MBA in 1972.
He joined Lehman Brothers and rose quickly, becoming a managing director by his early thirties and head of the firm's mergers and acquisitions business. At Lehman he worked closely with Peter Peterson, then the chairman. After Lehman was sold to Shearson American Express in 1984, the two left to start Blackstone. Schwarzman described his approach to business and his career in his 2019 book What It Takes.
Major gifts and political ties
Schwarzman has become a prominent philanthropist, particularly in education and libraries. In 2008 he made a major donation to the New York Public Library, whose main building on Fifth Avenue now bears his name. In 2013 he founded Schwarzman Scholars, a fellowship program at Tsinghua University in Beijing modeled in part on the Rhodes Scholarship, which brings graduate students from around the world to study in China.
In 2018 he made a founding gift for the MIT Stephen A. Schwarzman College of Computing, focused on artificial intelligence and its effects on society. In 2019 he gave a large gift to the University of Oxford for a new center for the humanities, including a program on the ethics of AI. He has also funded the Schwarzman Center at Yale. In 2020 he signed the Giving Pledge.
Schwarzman has been active in politics as a donor and adviser. He chaired President Donald Trump's Strategic and Policy Forum in 2017, a business advisory council that was later disbanded, and he has been involved in discussions on trade with China. His lavish birthday celebrations have occasionally drawn public attention.