Is Private Equity ‘Pretty Terrific’ for Society?

Justin Menza, Special to CNBC.com
Tuesday, 26 Jun 2012 | 11:55 AM ET

Blackstone Group chairman and CEO Steve Schwarzman told CNBC’s “Squawk Box” that the private equity industry's leaders need to do a better job of marketing if they want to dispel popular misperceptions about what their firms do.

Power Player on Defending Private Equity
"What private equity does is raise money from pension funds -- and it invests that money to buy companies," says Steve Schwarzman, Blackstone Group chairman, CEO & co-founder, explaining the merits of private equity and why the PE industry hasn't done a better job marketing.

“What private equity does is raise money from pension funds – these represent policemen, firemen, teachers, corporate executives and state and municipal employees,” said Schwarzman, “and it invests that money to buy companies.”

“I think what creates difficulties is that not every private equity investment is a successful one. And by the way, in the real world not every company is successful, whether it's private equity or not,” he added.

With private equity a focusthis election season, the industry’s unsuccessful investments have become a campaign issue, but Schwarzman points out that private equity doesn’t have a greater incidence of failure.

In fact, Schwarzman noted, private equity has been fairly successful in creating returns that make pensions safe. “The state of Oregon, for example, earned 700 basis points more by investing in private equity than in their regular stock portfolio over the past decade,” Schwarzman said. That’s about $400 million more every year, he added.

Schwarzman argued that the jobs created by successful private equity companies dwarfs any of the jobs lost by failures. “On the whole, it’s pretty terrific for society,” Schwarzman concluded.