Highlights of CNBC Interview with Blackstone Boss Stephen Schwarzman

Here is an unofficial transcript of CNBC's Michelle Caruso-Cabrera's interview with Stephen Schwarzman, chairman of Blackstone Group.

Caruso: What is the logic of the deal with China and the country investing $3 billion in Blackstone?

Schwarzman: Well, I think from the Chinese side, it makes a lot of sense. In March, they announced they were going to do something with their $1.2 trillion of foreign exchange reserves, to increase the return on those. And they announce they were going to segregate $200 billion to start and form a new company, which is going to be called the "China Investment Company" and it's very much like the government of Singapore Investment Company or the Abu Dhabi Investment Company, and look for higher return investments.

I think for whatever the series of reasons, that one of my partners called on them, and they became interested, without our knowledge, actually, in the IPO, and called us and indicated that they had an interest in buying $3 billion in the IPO, which was obviously too much of a $4 billion offering. So what we did was increase it. And I think, from their perspective, and they talked to us about having non-voting stock, and they wanted to make sure that they stayed under the governmental approval level of 10%. So they wanted to be at 9.9%.

And I think that they were looking, on the one hand to have a non-controversial investment, but what's most important here is that this is a historic investment because it's the first time the Chinese have used their foreign exchange reserves, which are the largest in the world. Which are growing extremely rapidly into a commercial type of relationship to recycle these vast amounts of money.

It's important for the world currency flows, for capital flows, for this money not just to build up in one country, China. And if they can recycle it, give it to folks like us, we'll reinvest it, we'll keep some of the profits and they'll keep some of the profits. And that way, as the money moves around the world, it facilitates trade, it facilitates investment and it helps open China to further investment by us there as well.

Caruso: I was just about to ask, what's the logic from Blackstone, taking the investment from China?

Schwarzman: Well, I think the logic from our perspective is that it does a number of things. One is that it facilitates a larger transaction. But it does a number of business things in terms of our focus on that part of the world. You know, I am in the midst of working on an IPO and we have restrictions from our lawyers and the SEC in terms of what they call a “Quiet Period.” So I can't talk about benefits to Blackstone, per se but what I'd say in a general sense is that having relationships in other parts of the world is always a good thing. And I think, given the way this particular country is organized, it certainly fits in that kind of rubric.

Caruso: We know you're very interested in issue of American competitiveness, and maintaining American competitiveness. How does doing this deal with China help keep America great?

Schwarzman: Well, I think the way it helps is that to the extent that capital is brought back into the United States to help us invest, to grow our country, and even to export that capital to other places in the world to make our companies, which we represent, more competitive is a very good thing and it's almost a perfect paradigm of what one is supposed to do in a global system with money. You're not supposed to horde it. You're not supposed to just spend it in your own country. To the extent that you give it to other people who can then employ that money productively, that creates an increased living standard.

Caruso: Have you spoken with Hank Paulson? What did he say about it? Is he excited about it?

Schwarzman: Actually, it's quite interesting that, ah, Hank has a whole variety of restrictions on him as a result of working at Goldman and being so active in China, of who he's allowed to talk to, and what he's allowed to say. Ah, we've talked to Bob Kimmet, who is the Deputy Treasury Secretary and to Hank's chief of staff, all of whom can walk into the next room and talk to Hank.

Caruso: But you can't talk to Hank.

Schwarzman: But, I was not allowed to talk to Hank on that. But the Treasury is very positive, as I think has been reported today. And Hank spoke publicly today, from what I've been told, and had some very positive things about this investment, which would be logical, because it would be consistent with the objectives of the U.S. government, which is opening China to the extent possible.

Caruso: Still, do you think the investment might become politicized? Will there be some who are critical of it in Washington, in Congress?

Schwarzman: I think that there is a very, very small minority of people who, as described to me, are typically against anything that has to do with China. However, from what I know today, that this investment has been very well received, in large part because the Chinese have been very sensitive, to have non-voting shares, to have the amount of ownership be within a non-control range.

They do not have member on the board of directors. And so it's really a passive investment in what they hope will do well for them. And that's one of the changes, along with the change in the paradigm, of recycling this money, which is so important to so many people, that on balance, from what we know, there's been an extremely positive reception to this transaction from virtually all constituencies.

Caruso: If I could broaden it out, is there a private equity bubble right now?

Schwarzman: Well I don't really want to talk about that, because I don't feel legally I can. If  I could, I'd give you my normal, kind of snappy, direct answer. But you know, we're working hard on a variety of transactions and we lose most of them because the prices are high. And I think generally one has to be how one generally is, you know, selective, about what one does.

Caruso: Did you hear Jeff Immelt's interview this morning?

Schwarzman: I did not.

CONTINUED : More from the interview

---

1 | 2 | 3 | Next >