WHEN: Today, Tuesday, September 12th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Stephen A. Schwarzman, The Blackstone Group Chairman, CEO and Co-Founder, live from the CNBC Institutional Investor Delivering Alpha conference in New York City on Tuesday, September 12th.
Following are links to the video of the interview on CNBC.com: https://www.cnbc.com/video/2017/09/12/stephen-schwarzman-we-have-a-higher-obligation-than-making-money.html, https://www.cnbc.com/video/2017/09/12/stephen-schwarzman-on-trumps-ceo-council-i-was-accused-of-being-a-nazi-but-im-jewish.html and https://www.cnbc.com/video/2017/09/12/stephen-schwarzman-daca-is-a-legal-issue-right-now.html.
Mandatory credit: CNBC Institutional Investor Delivering Alpha conference.
MICHELLE CARUSO-CABRERA: Thanks everyone for being here. Very excited to be with you, Mr. Schwarzman, a pleasure. Thanks for doing this.
STEPHEN SCHWARZMAN: My pleasure.
MICHELLE CARUSO-CABRERA: Let's start with the guerilla in the room. This is the first time you have spoken publicly since the leadership councils was disbanded. You're the head of one of the leadership councils. The narrative that emerged that day was that you and Jack Welsh were trying to hold the thing together. Is that true? Do you want to tell us what happened that day?
STEPHEN SCHWARZMAN: Well, this was a complex time, around Charlottesville. And it was sort of unprecedented, and it reminded me of the 1960 s , without going into every strand of why, and what happened is, people who were running public companies at that time were concerned about employee reaction to conflict and what the President said or didn't say.
There were customer issues for those countries where some of the CEO s felt that they were under pressure. There were shareholders who were unhappy with people's affiliation, and so we actually had a very interesting order of process.
I asked each person what they wanted to do, and I gave them one minute.
MICHELLE CARUSO-CABRERA: Each?
STEPHEN SCHWARZMAN: Each. I wasn't interested in anyone's life history. What do you want to do? We had a few options. And virtually anyone running a public company that was on that group could not deal with the pressure from the constituents.
And so I basically said, well, it seems pretty clear. I really didn't want to have a melting ice cube. And people were under legitimate astonishing pressure. You should've seen some of the emails that I got.
MICHELLE CARUSO-CABRERA: Tell me.
[LAUGHTER]
STEPHEN SCHWARZMAN: You know, I was accused by people of being a Nazi. And I'm Jewish.
[LAUGHTER]
MICHELLE CARUSO-CABRERA: It struck you as absurd, right?
STEPHEN SCHWARZMAN: It was absurd.
MICHELLE CARUSO-CABRERA: Yeah.
STEPHEN SCHWARZMAN: And I got hundreds of these things. And so it was pretty clear that the country, itself, it felt like it was going out of control. We had a logical meeting and decided that there was just too much pressure, or too many people all running public companies.
MICHELLE CARUSO-CABRERA: Anybody voice stay, to hold it together?
STEPHEN SCHWARZMAN: I'm not -- person. It seemed pretty widespread that this was just so hot. It was hard to just have all those constituents, you know, attacking the CEOs.
MICHELLE CARUSO-CABRERA: Just so we can check off more boxes on the narrative that emerged, to make sure that the story is accurate, the New York Times reported that you were outraged by what the President had said during that news conference.
STEPHEN SCHWARZMAN: No.
MICHELLE CARUSO-CABRERA: No? What were you?
STEPHEN SCHWARZMAN: I don't know where the New York Times got that one.
MICHELLE CARUSO-CABRERA: Well, they didn't quote you, but they quoted people familiar with the --
STEPHEN SCHWARZMAN: Well, of course they didn't quote me, because it wasn't true.
MICHELLE CARUSO-CABRERA: Mmhmm.
Another one of the narratives was that -- okay, so there was your outrage, you said that's incorrect.
You and Jack tried to hold it together?
STEPHEN SCHWARZMAN: I think we did it alphabetically. I'm a great believer in order. By the top --
MICHELLE CARUSO-CABRERA: So you and Jack would've been close to the bottom.
STEPHEN SCHWARZMAN: By the time you got to "W," it didn't much matter.
MICHELLE CARUSO-CABRERA: [Laughing]
The other narrative was that you were miffed/annoyed/confused that there had been an agreement; that there was going to be a statement that you jointly agreed what was best for everybody. You know, it's not you; it's me. Or it's me, it's not you. And then the President kind of, confronted that with his tweet saying, you know, "They can't disband it, I'm firing." [Laughing]
So were you miffed by that? I mean, was that what was supposed to be happening and didn't happen?
STEPHEN SCHWARZMAN: Well, this is the political world. And I don't control the political world. And there's a secret to communicate that decision --
MICHELLE CARUSO-CABRERA: Do you still talk to the President?
STEPHEN SCHWARZMAN: Sure.
MICHELLE CARUSO-CABRERA: How often?
STEPHEN SCHWARZMAN: That's your business.
[LAUGHTER]
MICHELLE CARUSO-CABRERA: Have you talked to him recently?
STEPHEN SCHWARZMAN: Still not your business. Maybe it is your business. It's not my business.
MICHELLE CARUSO-CABRERA: We hear he's very fond of you. In New York City circles, it's known that he's very fond of you, that he admires you a lot, your real estate portfolio. And do you still -- you know, some people would say, you know, that you're the Trump Whisperer. Is that calling it too much?
[LAUGHTER]
STEPHEN SCHWARZMAN: I can't comment on my relationships like that.
You know, I've tried to help a number of presidents. Worked on a bunch of sensitive stuff with President Obama -- push during the financial crisis. People who know his background as well as -- it should help the government, it helps society. That now has actually been a little controversial, apparently. But I think you have an obligation. And if you can make things better, it doesn't matter if they're Democrats or Republicans, you know. You do what you're personally comfortable with. You give advice, help out. And more people should do it.
I think if people don't want to listen to you on occasion, that happens. If they like to, you know, hear what you have to say and mostly do, and that's good. I mean, we all have a higher obligation, I think, than just making money.
MICHELLE CARUSO-CABRERA: Have you Googled yourself lately?
STEPHEN SCHWARZMAN: I've never Googled myself. What does it say?
MICHELLE CARUSO-CABRERA: Well, I only bring it up because you said we have a higher obligation than making money. And so I Googled -- I hadn't Googled you even until yesterday. I discovered I didn't get invited to your bank's very swanky 60th. Okay. But, I wouldn't recommend it. I quite mean. You joined the Trump Administration because it's going to help you make money. "Washington Monthly" says that Yale should shun your money, and it's based on a blog post by a student who said that you take advantage of the poor through your real estate portfolio.
I'm not going to ask you to answer all of those things, but when you tell me you received hundreds of emails that you're a white supremacist, when you're Jewish, the tenor in the country against people like you has gotten so ugly. And I'm not sure why.
STEPHEN SCHWARZMAN: Well, it's not just about people like me; it's an adversarial society, and it's very broad. It's very deep. There are a lot of experts who can tell you how we got there. But it's a terrible position for the country. I mean, if you look at universities which don't commit to free speech -- I grew up in the '60 s . One, there was plenty of free speech. You didn't have to agree with a lot of it, but you heard it.
MICHELLE CARUSO-CABRERA: Because it wasn't the only thing that was free back then.
STEPHEN SCHWARZMAN: It was -- it was informative. And now, you know, sometimes you can't say anything for fear of being shunned. That is not the way a democracy is supposed to work. I happen to think we're, like, really off course. And ultimately these things get corrected.
MICHELLE CARUSO-CABRERA: On a political question, DACA, we know that this is important to you and that Schwarzman scholars, one in particular, Carlos, they've been trying to influence the President about that. He's seemed to have backed down from his harsher positions --
STEPHEN SCHWARZMAN: I think the issue with DACA right now is really a legal issue. I think there was, in the prior administration, there was another issue involving 5 million people, was thrown out of court. And I think the perception was here that a similar outcome would happen. And so it was thrown into the Congress.
I'm really passionate about this issue. There's 800,000 kids who were brought in the United States, and they were asked to register, they did, and their outcomes in their short lives, less time, more achievement. Really great outcomes. Where are you going to send them? I mean, they're kids.
MICHELLE CARUSO-CABRERA: Some of them are adults. Right? I mean, when Apple says they've got a certain number, I mean, you could apply when you were 31. They could be 37 right now. Really the case -- they may not speak the language of their home country.
STEPHEN SCHWARZMAN: I strongly support these people, believe they're as American as you are. I support, strongly, their ability to be in this country, contribute to this country.
I can't imagine taking people who were brought here, not of their own volition, and asking them to leave. And I'm not an immigration expert. I don't know exactly what status one should have. But if it would be beyond and against our own self-interest, I would believe -- to have them leave.
MICHELLE CARUSO-CABRERA: You acknowledge, though, it appears to be a legal issue. And really, it's never going to get fixed permanently. It's got to be done by Congress.
STEPHEN SCHWARZMAN: That's right.
MICHELLE CARUSO-CABRERA: Any confidence it's going to happen?
STEPHEN SCHWARZMAN: I think it will, because despite partisan types of things, I think there's a moral dimension to this that we'll overcome in the political you know, to'ing and fro'ing. And I'm optimistic that people will stand up. This is good for America. It's a certain simple test, I think, something basically literally not good. I think this was an easy call.
MICHELLE CARUSO-CABRERA: You think tax reform is good for America?
STEPHEN SCHWARZMAN: It depends how it's done. What's done --
MICHELLE CARUSO-CABRERA: You confident it's going to happen? We're going to get a tax cut?
STEPHEN SCHWARZMAN: I think, as political people, I know -- want to be able to have the next term. And if you're a Republican, and you find a way not to do tax reform as well as not be able to do healthcare reform, you have a midterm election. If you don't think you're more vulnerable, then perhaps you shouldn't be in that position in the first place.
So I think self-interest will drive that, as well as it being good for the country. So I'm optimistic that the worst we'll do in that area is a tax cut somewhere between 25 and 28%.
MICHELLE CARUSO-CABRERA: For the final rate on corporations?
STEPHEN SCHWARZMAN: Yes.
MICHELLE CARUSO-CABRERA: Okay.
STEPHEN SCHWARZMAN: And so I think there's certainly consensus to do that. And then anything deeper really requires tax reform, which is harder just by the nature that somebody's losing. You take away deductions. And -- but I think the probability that something gets done is quite high.
MICHELLE CARUSO-CABRERA: Can we talk about some specific Blackstone stuff in the news recently?
STEPHEN SCHWARZMAN: Whatever you like.
MICHELLE CARUSO-CABRERA: You're selling a lot of London real estate, office space. Why? Is that because of Brexit?
STEPHEN SCHWARZMAN: No, not at all. We own a huge amount of real estate. I think we're the largest owner of real estate in the world. And, you know, the building we just sold we bought and we knew the tenant would be leaving.
MICHELLE CARUSO-CABRERA: This is the lake on house, the --
STEPHEN SCHWARZMAN: It was an empty building. And, in fact, we leased it up. And we sold it. We did very well. You know, in our real estate business, we basically have an approach of buy it, fix it, sell it. And we're quite, you know, disciplined about that. And we have some properties in London that we bought at a good price and did that. And there was nothing extraordinary about doing that. The demand for property in London is quite good outside the city, where the financial companies are.
And so business continues to be done there pretty brisk.
MICHELLE CARUSO-CABRERA: Back at a buck thirty this morning, Brexit is a problem, it's not a problem?
STEPHEN SCHWARZMAN: That's one of those we'll find out, and it's highly complex. And I think it's a lot like any divorce, apparently, where there is a lever and a leavee. And the Brits are the leavers, and the EU is the leavee. And what tends to happen in those situations is the person that's been left is angry, and the person who's leaving is enthusiastic. And so how that translates into negotiation and outcomes is hard to know. Thus far, it appears they haven't made much progress.
Because, like most divorces, the most important thing is the money. And until you resolve the money, you can't resolve the kids.
MICHELLE CARUSO-CABRERA: [Laughing] Right. The weekend house, and all that again, yeah.
STEPHEN SCHWARZMAN: But you've got to get the money right.
MICHELLE CARUSO-CABRERA: Right.
STEPHEN SCHWARZMAN: And, you know, so there's an aggressive ask by the EU, and there's a difficult situation for the UK. And my sense is this is such a complicated deal, so many things are touched that getting this done in a two-year period is -- is like really --
MICHELLE CARUSO-CABRERA: What you do in the UK relevant to Brexit or not?
STEPHEN SCHWARZMAN: No. I mean, the operations of Blackstone, no, because we don't -- you know, we don't trade and sell European securities, so, you know, for us it's -- we've already had our Luxembourg office, you know, for some other reasons and so we did add a few people to that. It's not material at all.
MICHELLE CARUSO-CABRERA: You're selling an app.
STEPHEN SCHWARZMAN: Well, I don't know what I'm allowed to say about this, because I think we're in registration, you know, or going to be.
MICHELLE CARUSO-CABRERA: Have you ever used it? [Laughing] You use any apps?
STEPHEN SCHWARZMAN: No, you know, I'm barely literate technologically.
MICHELLE CARUSO-CABRERA: And the BLADE, you know, Uber.
STEPHEN SCHWARZMAN: I don't do any of that.
MICHELLE CARUSO-CABRERA: No, none of that. Okay.
It's a security app and it makes for smart homes, something like that, yeah.
STEPHEN SCHWARZMAN: Yes. It's the leading smart home company. And they have really great technology on how you turn things on and off remote and also security types of applications.
MICHELLE CARUSO-CABRERA: So you don't use any of that stuff. But, tell me, a deal comes, think about -- you have advisers to tell you do it and you trust them or do you really -- I mean, how do you approach it when you're not a user of the product?
STEPHEN SCHWARZMAN: You know, well, basically, we're in the investment business.
MICHELLE CARUSO-CABRERA: Yeah.
STEPHEN SCHWARZMAN: And to be in the investment business and be successful, like we are, we've earned, in our block of products, somewhere around 900 over the S&P for about 30 years. There are not many investors in the world who have done that. So you have to have a process and buy-in. And we start from the premise of "don't lose money." I realize that's not a profound concept. But if you almost never lose and you always win, it's like a baseball team, you know, that only plays the first inning, right? You keep getting runners on home base.
And so we're sort of analytically intensive/ruthless with each other in terms of analyzing where the downsides are on everything. And usually there are two to four real drivers. And part of it is just debating internally with a lot of knowledge and analysis of what the outcomes would be with each of those sort of variables, and which ones are correlating with each other. Because if you think you've nailed each one, but then two of them are actually multiplied, that's a bad outcome.
So we're extremely thorough, and we're open. We believe we're in openness, horizontal management structure. Everybody at the firm is equal. And the reason they're equal is they're equally smart. Some are just younger. They'll be -- when they get older, they'll be the same as the other people. And we encourage everyone to speak up. Everybody's got to have a point of view. And we're in a lifetime learning business, and we express that with each of our proposed, you know, investments. And, you know, we know where we want to come out.
And the way we do it, and it's quite interesting, that I learned at the beginning it's like a great man syndrome where you sit at the end of the table and you tell everybody, you know, this is like, you know, in Hollywood, you know. Yea and nay is not the way it works, actually. There are very few geniuses. I'm not one of them. And what you do is you make every person at the table criticize the proposal that's on the table. And everyone says something, and no one who's brought the deal feels they're being attacked by anybody.
And so you can be completely objective and analytic about that, because people know that when they're sitting at a table on the other side --
MICHELLE CARUSO-CABRERA: It's going to happen to them.
STEPHEN SCHWARZMAN: It's going to happen. It's just what happens at the firm. And so we have like a cheerful, you know, active approach to everything. One of the advantages is if anything ever goes wrong, it's almost always one of those variables. As a group, we've assessed it. So the people who bring the investment are not to blame for it not working out as well. It's not their fault, we all evaluated it.
So we have very few people who leave our firm because it's actually an exciting place to work. And we were voted the best place to work in finance. So we can't be all bad.
MICHELLE CARUSO-CABRERA: So, avoiding downsides. Is there downside in the equity market today? What do you think about valuation?
STEPHEN SCHWARZMAN: Well, yeah. The issue, as you probably already experienced with your first one or two or three speakers, is that the economies around the world are pretty good. So, you know, whether it's Europe growing over two, which nobody believed, U.S. growing, China, India, and even Japan. So the issue isn't particularly economic in terms of markets. And it's not that we have central banks where people get overly excited. They're not trying to create a recession where there's hardly any inflation. The issue is geopolitical, and there are some bad things going on in the world.
And a conventional analysis says things will be fine. But whether it's North Korea, whether it's trade, there are a number of issues that people don't want to focus on because the outcome would be really bad. And those are the things I think about. I don't spend my time on the things that are good.
MICHELLE CARUSO-CABRERA: So North Korea, for example. Do you think about it a lot?
STEPHEN SCHWARZMAN: I do.
MICHELLE CARUSO-CABRERA: And you think about it in terms of asset allocation, what you would do with a firm, what you should invest in or not invest in, or in just terms of likes?
STEPHEN SCHWARZMAN: Both.
MICHELLE CARUSO-CABRERA: Okay. So that means, therefore, at Blackstone you would do A but not B, or tell me how it actually plays out.
STEPHEN SCHWARZMAN: Well, you know, I wouldn't be buying office buildings in Seoul right now.
[LAUGHTER]
MICHELLE CARUSO-CABRERA: That's a little obvious. Got anything else?
[LAUGHTER]
STEPHEN SCHWARZMAN: You asked me a question. I told you I've been doing that.
[LAUGHTER]
STEPHEN SCHWARZMAN: And, you know, it's very complicated.
MICHELLE CARUSO-CABRERA: You're just back from China. Any insights from what they were thinking about North Korea?
STEPHEN SCHWARZMAN: To the Chinese, it's a lot of different things. You know, first, their relationship with the North Koreans is not good and has not been good for a very long time. So America somehow feels that they're close allies. I don't believe that is true at all. The Chinese do not want to nuclearize Korean -- and they're really serious about that. They also don't want to have a shooting war occur and have 20 million refugees from North Korea going to China. So it's complicated for them as to what to do. And what we've been doing is dealing with them during a period where they're actually having what we would call an election.
There aren't that many major decisions made right before a U.S. election. And it's the same in China. And they'll be finished --
MICHELLE CARUSO-CABRERA: The next-party Congress, you're talking about, which is coming up?
STEPHEN SCHWARZMAN: Yes. It's like an election. I'm trying to make this accessible to the viewers.
And so that will be finished by October, end of October. And, you know, they'll have their array of leaders set. And I think they'll have more freedom of that in terms of what they do. If you notice, they have been supporting these U.N. resolutions and I don't think the leader of North Korea has ever been to China.
MICHELLE CARUSO-CABRERA: So you would agree that ultimately it's up to them, right? I mean, they may not be close allies. They may not like each other. But North Korea survives because of China. And if there's going to be any change in North Korea, China can best effect that change, correct? They understand that responsibility.
STEPHEN SCHWARZMAN: Well, it's complicated for them because you also have the Russians involved. But that's why this is -- the perception is this is just China and North Korea is not correct.
MICHELLE CARUSO-CABRERA: No.
STEPHEN SCHWARZMAN: That's how we think about it. So there's a lot of actors in this drama, you know. There's South Korea, there's Japanese, missiles flying over them. This is a very dangerous situation.
MICHELLE CARUSO-CABRERA: But when the President says China could be doing more, do you agree with that?
STEPHEN SCHWARZMAN: It doesn't matter what I think. I'm -- it's complicated, and you only find out what people will do at the end of the drama.
MICHELLE CARUSO-CABRERA: Mmhmm. I just don't quite get -- think I got an answer to the question that I asked earlier about the valuations in the stock market in the United States.
Do you think they're higher?
STEPHEN SCHWARZMAN: They're high by most people's . . . The economy's doing well. If you get tax reform, if you get an infrastructure bill that's substantial, you can have the economy go on for some time. On an absolute level it's pretty high, particularly if you believe that interest rates are going to go up over time. We've got a very stimulative effect. And, you know, eventually they'll all start unwinding some of their positions. They could carry those positions for a very long time.
When we started the financial crisis, the Central Bank in the United States had $800 billion of assets.
MICHELLE CARUSO-CABRERA: And now?
STEPHEN SCHWARZMAN: At that same time I believe that one bank, Citibank, had 3.6 trillion. So one bank in the United States was four times the size of Central Bank. So the idea that they've increased to where they are is, in my perspective, not the end of the world. They've been back. They'll do that over time.
MICHELLE CARUSO-CABRERA: Will it hurt the market?
STEPHEN SCHWARZMAN: Will it hurt the market? It depends how big, how fast.
MICHELLE CARUSO-CABRERA: Ten years with Blackstone since you went public.
STEPHEN SCHWARZMAN: Yep. In fact, we had our road show right in this room.
MICHELLE CARUSO-CABRERA: Yeah.
STEPHEN SCHWARZMAN: And we had balloons all over. It was really quite a to-do.
MICHELLE CARUSO-CABRERA: Are you happy with the stock price?
STEPHEN SCHWARZMAN: I don't think there's any CEO that's ever happy with their stock price. So I'll join the vast majority. But we've run the business, it's about 4 1/2 times, roughly, then we're the fastest-growing, decent-sized financial institution in the world. We make a lot of money. We yield somewhere around, I don't know, 7.5, 8%. Nobody has a yield like that. And we have the most important thing, we have wonderful people and a great culture. And we're in the part of the money management area where people really have to put money, because that's where you get the credit. And we've only been doing that for 32 years.
For some people, some reason, people think it's temporary. It just keeps happening. And that's because it's meant to happen, because we have an approach to investing that's been validated. And we have some handicaps. We're a master limited partnership. Some people feel they can't buy us, day one, instead of something else. And so we're a little handicapped in that regard. But the business itself is magnificent. And it's fun to be here for everyone. And stock prices ultimately will take care of themselves.
MICHELLE CARUSO-CABRERA: Well, it's been great fun to have you. Thank you so much for doing this. We really appreciate it.
STEPHEN SCHWARZMAN: Thank you.
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