Today’s reading assignment for the students in Frank Morgan’s MATH 373 is the recent New Yorker profile of Stephen Schwarzman. Excerpt, commentary and an appearance by legendary Eph banker Jimmy Lee ’75 below the break. Pictures too!

The article starts:

On June 18, 2007, Stephen A. Schwarzman, the chairman and chief executive of the Blackstone Group, and his driver approached the Fifth Avenue entrance of the New York Public Library. Schwarzman, a member of the library’s board, was being honored that night. To his dismay, television reporters and cameramen were milling on the steps and the sidewalk. He evaded them by using a side entrance. A TV cameraman managed to penetrate the cocktail party that preceded the ceremony, and Schwarzman was startled when the glare of a camera-mounted spotlight hit him in the face.

In the previous few weeks, he had become the designated villain of an era on Wall Street—an era of rapacious capitalists and heedless self-indulgence that had driven the Dow Jones Industrial Average to new highs, along with the prices of luxury real estate and contemporary art, while the incomes of ordinary Americans stagnated or fell. Blackstone, the partnership that Schwarzman founded, in 1985, with Peter G. Peterson, Secretary of Commerce under Richard Nixon and a former chairman and C.E.O. of Lehman Brothers, was a new type of financial institution: a manager of so-called alternative assets, such as private-equity, real-estate, and hedge funds—esoteric vehicles that barely existed when Blackstone began but now accounted for trillions in assets. Most of the investments came from corporate and public pension funds, endowments of universities and other nonprofit institutions, insurance companies, and rich people. Blackstone was the world’s largest manager of these alternative assets, with $88 billion. Its investors included Dartmouth College, Indiana University, the University of Texas, the University of Illinois, Memorial Sloan-Kettering Cancer Center, and the Ohio Public Employee Retirement System. It had taken control of a hundred and twelve companies, with a combined value of nearly $200 billion. It had just completed what was at the time the largest private-equity buyout ever, the purchase, for $39 billion, of Equity Office Properties, and was on the verge of acquiring Hilton Hotels.

Blackstone was also about to become the largest private-equity firm to offer shares to the public. A week before the library tribute, the company disclosed, as required by the Securities and Exchange Commission, that Schwarzman would receive $677.2 million in cash from the public offering and that he would retain shares worth an estimated $7.8 billion, making him one of the richest men in the country. Coming soon after the lavish and widely chronicled sixtieth-birthday party that Schwarzman had given himself in February, an unflattering profile on the front page of the Wall Street Journal, and strident calls from Congress to raise taxes on private-equity funds like Blackstone’s, the disclosures could only tarnish the public offering.

Nevertheless, investors were eager to buy shares. On June 21st, a heavily oversubscribed public offering was priced at thirty-one dollars a share, at the top of the projected range, causing Blackstone to be valued at $31 billion—not far behind the venerable Lehman Brothers. The next day, Blackstone shares, trading under the symbol BX, opened at $36.45 and closed slightly lower, at $35.06. Schwarzman’s friend James B. (Jimmy) Lee, Jr., a vice-chairman at J. P. Morgan Chase, sent him a congratulatory e-mail:
l

You were like Indiana Jones over the last few weeks. . . . They rolled giant boulders at you . . . fired poison darts at you . . . threw you into that giant snake pit . . . and yet you still found the grail, and got the blonde. . . . Bravo.

Read the whole thing. Pendants will complain that the leading lady in the Indiana Jones movie with the canonical boulder scene was a brunette. Lee makes one other appearance in the article.

Another traditional measure of wealth is charitable activities and donations, and Schwarzman’s philanthropic activities have received wide notice. With a hundred and fifty million dollars from the public-offering proceeds, Blackstone established the Blackstone Foundation. Schwarzman has contributed to or raised money for a long list of nonprofit institutions, including the Frick Collection, the Whitney Museum, Phoenix House, the Red Cross, the Inner-City Scholarship Fund, the American Museum of Natural History, New York City Outward Bound, the Asia Society, and the Central Park Conservancy. His competitive instincts are as keen here as in business; he told me that every fund-raiser that he has chaired or at which he has been the honoree has set a new record. He is on the board not only of the New York Public Library but of the Frick and of New York City Ballet. Jimmy Lee jokes that his friend has received more accolades and raised more money for the Catholic Archdiocese of New York than any other Jew; Edward Cardinal Egan is a close friend. (Schwarzman has also raised money for the American Jewish Committee.) As chairman of the board of trustees of the Kennedy Center, in Washington, he shares a box every year with the President and the center’s honorees.

Our younger readers may not realize that Lee has a variety of motivations to be quoted in this article. (See also my last exercise in spotting-the-source in a Lee business arrangement.) Besides saying nice things about a friend (and who among us would not do the same), Lee also depends on Schwarzman/Blackstone for tens of millions of dollars in fees each year. Lee isn’t paid about $10 million dollars per year just because he is a nice guy. He is paid that much because he brings in huge amounts of business to JP Morgan. Indeed, among commercial bankers, he must be one of the greatest rainmakers of his generation. Learn from him, young Eph bankers. Although you should learn your investment math from Frank Morgan, you should learn your networking from Jimmy Lee.

Of course, every successful Eph generates some jealousy. Consider this satire of a conversation between Schartzman and a “friend.” (The funniest finance post I have read this month.)

Schwartzman: Did you see the profile on me in this week’s New Yorker?

TED: Uh, yeah.

Well? Whadja think?

Not good, Steve, not good.

Really? I kinda liked it.

No, Steve. It makes you look like a fathead.

Oh. … Anything else?

Yes: monomaniacal, driven, aggressive, tightfisted, greedy, controlling, hyper-competitive, miserly (to others), obnoxious, obsequious to superiors, self-aggrandizing, pigheaded, tyrannical, abusive, sensitive to criticism, and desperately needy for recognition.

Is that all?

Well, to be fair, you also came across as focused, smart, successful, and immensely wealthy.

Good.

You and your publicist could have done a better job getting your friends to testify to your positive character traits, though.

Really? What do you mean?

Well, it’s gonna be difficult for the average reader to believe you’re a good guy when the only “friends” who gave you positive testimonials for attribution are people who want money from you, like the President of Yale, an M&A lawyer, and legendary brownnoser Jimmy Lee.

Hmm. I see your point. Do you think it’s too late to pay some more folks to say nice things and have The New Yorker print a correction?

Never too late if you are a billionaire. Read the whole thing.

Facebooktwitter
Print  •  Email