Investor Agenda

One-on-One with Blackstone's Steve Schwarzman

Private equity had a rough 2009 with few deals driven by a lack of liquidity. But with global markets recovering and financial institutions beginning to open the spigot of lending, private equity is looking for big opportunities in 2010. At the World Economic Forum in Davos, Blackstone Group Chairman and CEO Steve Schwarzman painted the picture of the landscape for his industry and where the next possible deals will be found.Bartiromo: Three-hundred thirty one funds raised $96 billion which was down about 68%. How would you characterize fundraising right now?

Steve Schwarzman: Well, I think it's normal for fundraising to be more difficult given the kind of very significant losses in the liquid securities markets, pension funds and the endowments and the foundations. But the private equity business is really turning around. The value of companies has gone up as the economy has turned around. I think people are looking forward to a really interesting time to be buying assets. So I think a time for pessimism in that asset class has passed.

Bartiromo: Where are the opportunities in terms of assets and sectors?

Steve Schwarzman: We first start looking geographically as to where it's interesting to invest money. The two principle areas now in North America and in Asia. So both of those areas present a lot of very interesting opportunities. The Indian growth story is really very strong. China, of course, is really sort of on fire. Now it's strong but it's got a lot of stimulus that's creating that strength. But the people are very aggressive, and it's clear that the leadership of the country is going to try and keep that growth rate at least in the eight to ten percent area.

Bartiromo: What are your thoughts on the opportunities in North America?

Steve Schwarzman: Well, the-- the States is really starting to recover. We probably have GDP growth in the fourth quarter of around four percent plus or minus. And there's a slow turn coming for next year from both stimulus and inventory refill. The consumer is still under a lot of pressure. And the markets have run a lot really because we have extremely low interest rates. That's a story around the world which is helping to restart the global economy. From our perspective, it's a time where there isn't enormous confidence and that creates opportunities for us to buy assets at very low prices. Typically, in the United States, we get our best returns in the year or two after a recession. Even if the leverage is low, and the leverage is increasing, actually for us. And there are more and more financial institutions that are starting to want to put money into private equity deals because the interest rates are a lot higher. And, as it's turned out, particularly for the bank debt the risk is extremely low.

Bartiromo:Can you explain the structure of the deal today?

Steve Schwarzman: Well, about six to nine months ago-- times were pretty tough. The amount of money you could borrow is about three to four times the cash flow of the company. Now we're at five to six times. The amount of money you could borrow nine months ago would probably be one billion, two billion. Now it's doubled that easily. I think this will probably increase over the year. But size is not the most relevant factor in the private equity business. It's how much money you invest, and actually what the returns are for the investors.


In his State of the Union address, President Obama said jobs will be the number one priority in 2010. How would you recommend businesses create jobs?

Steve Schwarzman: Well, I think it's going to be tough to create jobs in an environment where there's hostility towards the financial institutions. I think there's a risk, if that continues, that they would lend less money rather than more money. And you really need credit flowing to be able to create jobs. So I think that's one major change. And I think there needs to be more civility in the discourse over financial institutions. I realize there are angry people. But using that anger to end up having financial institutions extend less credit, creating more of a problem for just, not only the US economy, but for the global economy, isn't optimal. I think, for jobs, that's also pretty naughty. And I think we're going to need some new initiatives. I think the president said some interesting things in terms of job creation. And I think the business community is going to have to take a different look at what their role is in job creation.



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