WHEN: Today, Tuesday, December 5
WHERE: CNBC's "Fast Money Halftime Report"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Blackstone Chairman & CEO Steve Schwarzman and CNBC's Wilfred Frost from the Goldman Sachs Financial Services Conference. The interview aired today, Tuesday, December 5 on CNBC's "Fast Money Halftime Report" (M-F 12:00PM – 1:00PM.) Following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/12/05/blackstone-ceo-tax-bill-is-a-game-changer.html.
All references must be sourced to CNBC.
SCOTT WAPNER: LET'S GET MORE VIEWS ON THE MARKET. OUR WILFRED FROST IS LIVE TODAY IN NEW YORK CITY AT THE GOLDMAN SACHS FINANCIAL SERVICES CONFERENCE AND HE IS SPEAKING EXCLUSIVELY FOR US TODAY WITH STEVE SCHWARZMAN – HE IS THE CEO OF BLACKSTONE. WILF.
WILFRED FROST: HEY SCOTT, THANKS VERY MUCH. STEVE, WELCOME TO THE SHOW. THANKS VERY MUCH FOR JOINING US.
STEVE SCHWARZMAN: WELL, I'M GLAD TO BE HERE.
FROST: THE GUYS IN THE STUDIO WERE JUST DISCUSSING TAX REFORM, THE POTENTIAL BENEFITS OF IT. EARLIER TODAY I HAD BRIAN MOYNIHAN AND HE WAS PRETTY OPTIMISTIC ABOUT THE BROAD EFFECTS IT'S GOING TO HAVE ON THE ECONOMY. WHAT'S YOUR TAKE IF IT PASSES BROADLY AS IT SHAPES TO DO SO AT THE MOMENT?
SCHWARZMAN: I THINK IT WILL BE CERTAINLY POSITIVE FOR THE ECONOMY RIGHT NOW WE'VE BEEN GROWING AROUND 3%, WHICH IS UP FROM THE 1.8, THE PREVIOUS EIGHT YEARS ON AVERAGE, AND -- AND I SEE A LOT OF STIMULUS COMING FROM THIS, AND IT SHOULD BE IN THE 3s.
FROST: AND IF THE BILL DOES PASS BEFORE CHRISTMAS, I MEAN, YOU GOT TO KNOW THE PRESIDENT FAIRLY WELL WITH ONE OF HIS ADVISERS FOR OF HIS FIRST YEAR IN OFFICE. HOW BIG A WIN WILL IT BE PERSONALLY, AND WILL HE BE PERSONALLY PROUD AND OPTIMISTIC ABOUT WHAT HE CAN ACHIEVE NEXT YEAR, IF IT DOES PASS THIS SIDE OF CHRISTMAS?
SCHWARZMAN: I THINK IT'S BEEN A GAME-CHANGER BECAUSE THERES BEEN ENORMOUS FRUSTRATION IN TERMS OF GETTING LEGISLATION PASSED, AND THIS IS A WHOPPER. THERE'S NO DOUBT ABOUT IT IN TERMS OF ITS IMPACT, SCALE, AND THE FACT THAT MANY PEOPLE THOUGHT THAT THIS WOULDN'T WORK. AND IT SEEMS AT THIS POINT, A PRETTY GOOD SHOT THAT THIS IS GOING TO GET RESOLVED AND SIGNED BEFORE CHRISTMAS.
FROST: LET'S TALK ABOUT SOME OF THE INDIVIDUAL LINES WITHIN THE TAX REFORM BILL. AND FIRSTLY THE REPEAL OF THE DEDUCTIBILITY OF INTEREST EXPENSE, IS THAT NEGATIVE FOR LEVERAGE BUYOUTS AND THAT IS THAT NEGATIVE FOR BLACKSTONE?
SCHWARZMAN: I WOULD SAY IT'S SLIGHTLY NEGATIVE, BECAUSE WE HAVEN'T HAD ANY RESTRICTIONS ON THAT. IT CALLS A LARGER QUESTION THAT WE MAY BE THE ONLY COUNTRY THAT HAS ANYTHING OF THIS MAGNITUDE AND DOES IT FORCE ANY KIND OF BORROWINGS OFFSHORE, IF YOU HAVE ASSETS. BUT IT IS A CHANGE, AND IT'S PART OF A GREATER PACKAGE. AND THE PACKAGE ITSELF IS PRO GROWTH.
FROST: ONE OF THE OTHER PROVISIONS IN THE SENATE VERSION OF THE BILL AT THE MOMENT, FIRST IN AND FIRST OUT, WHERE SHAREHOLDERS WILL BE FORCED TO SELL THEIR OLDER SHARES FIRST, THINGS THAT ARE MORE PREGNANT WITH CAPITAL GAINS. WHAT'S YOUR TAKE ON THAT ON THAT IT MIGHT DO TO THE SENTIMENT OF INDIVIDUAL INVESTORS IN THE UNITED STATES?
SCHWARZMAN: THAT ONE I DON'T UNDERSTAND SO MUCH. IN FACT, IT'S BURIED IN THAT BILL. THIS IS ACTUALLY THE FIRST TIME I'VE EVEN HEARD ABOUT THAT.
FROST: OKAY. FAIR ENOUGH. ONE OF THE OTHER SPECIFIC ONES AGAIN IS THAT PRIVATE EQUITY INVESTORS ARE ABLE TO KEEP THE BENEFIT OF A LOWER TAX ON CARRIED INTEREST. WERE YOU SURPRISE THAT HAD THAT STAYED IN THE BILL GIVEN THAT THERE WERE SO MANY ATTEMPTS TO BALANCE THE BOOKS?
SCHWARZMAN: WELL, THAT'S NOT EXACTLY HOW IT WORKS. I WISH IT WERE, WILF, BUT THE WAY IT'S LAID OUT BOTH IN THE HOUSE AND THE SENATE IS THAT IF YOU SELL SOMETHING WITHIN THE FIRST THREE YEARS, IT'S ORDINARY INCOME, AND IT'S ONLY AFTER THREE YEARS, SO THIS IS A DRAMATIC CHANGE OF SOMETHING THAT'S BEEN IN PLACE FOR 100 YEARS, SO -- SO IN THAT SENSE ITS – IT'S CERTAINLY NOT A POSITIVE FOR US.
FROST: SURE, BUT ITS ONLY A VERY MINOR NEGATIVE BECAUSE THE VAST MAJORITY OF YOUR PRIVATE EQUITY INVESTMENTS ARE LONGER THAN THREE YEARS.
SCHWARZMAN: WELL, WE'RE IN A VARIETY OF BUSINESSES. WE HAVE EXPOSURE TO HEDGE FUNDS, AND, OF COURSE, THAT DOESN'T WORK FOR HEDGE FUNDS. WE HAVE A VARIETY OF OTHER PRODUCTS AND CREDIT WHERE THAT HITS. AND IN PRIVATE EQUITY, YOU KNOW, WHEN YOU'RE MANAGING MONEY FOR OTHER PEOPLE YOU DO THE RIGHT THING FOR THOSE LIMITED PARTNERS, AND SOME OF THOSE WILL FALL IN THE FIRST THREE-YEAR PERIOD.
FROST: LET'S TALK ABOUT THE BLACKSTONE STOCK AT THE MOMENT. I'VE HEARD YOU TALK IN THE PAST THAT YOU FEEL THAT IT'S UNDERVALUED, AND YOU POINT TO THE VERY BIG DIVIDEND YIELD THAT'S A RESULT OF THAT. SOME CRITICS OF THAT VIEW WOULD POINT TO JUST BROADLY TO THE LEVEL OF ASSET VALUES ACROSS THE U.S. ECONOMY AT THE MOMENT AND CLEARLY BLACKSTONE VERY MUCH RELIES ON ASSET VALUES MORE BROADLY AS A PRIVATE EQUITY COMPANY. WHAT'S YOUR VIEW ON THAT? IS THAT A FAIR CRITICISM AND JUSTIFICATION FOR A SORT OF CHEAPER STOCK PRICE BECAUSE ASSET VALUES ARE GENERALLY VERY RICH FOR THE MOMENT?
SCHWARZMAN: WELL, FOR THE LAST THREE YEARS WE'VE AVERAGED $2.50 AND WE HAVE A STOCK THAT I GUESS IS AROUND 32 TODAY, AND THAT'S A YIELD SOMEWHERE AROUND 8%. THE AVERAGE STOCK IS 2%, SO YOU -- YOU CAN ALMOST PREMISE ANYTHING, AND, YOU KNOW, WE HAVE A GENEROUS DISTRIBUTION POLICY, SO PRICES ARE HIGHER AND ASSETS HAVE GONE UP. IT AFFECTS ALL MONEY MANAGEMENT COMPANIES, AND, YOU KNOW, THEY WILL MOVE ACCORDINGLY IN TERMS OF THEIR NET ASSET VALUE.
FROST: LET'S TALK ABOUT YOUR VIEWS OF SOME PLACES AROUND THE WORLD AND CHINA IN PARTICULAR. THE PRESIDENT, OF COURSE, JUST VISITED ASIA. HOW DID YOU TAKE HIS TRIP TO ASIA AND THE CHINA LEG OF IT IN PARTICULAR. PEOPLE FEARED HIS RELATIONSHIP WITH CHINA WOULD BE VERY COMBATIVE AND THERE'D BE A LOT OF FRICTION. PERHAPS YOU CAN FRAME IT AS THE POLAR OPPOSITE AT THE MOMENT.
SCHWARZMAN: YEAH, I WOULD SAY THAT. HE HAS A VERY GOOD RELATIONSHIP WITH PRESIDENT XI, AND I THINK THAT'S VIEWED MUTUALLY, AND THEY HAD A VERY GOOD VISIT FROM EVERYTHING THAT I UNDERSTAND AND THE RELATIONSHIP BETWEEN THE TWO COUNTRIES IS -- IS VERY GOOD.
FROST: YOU MENTIONED TO ME PRIVATELY YOU WERE GOING TO GO TO THE MIDDLE EAST TOMORROW OR PERHAPS EVEN TONIGHT. YOU GOT A BIG INFRASTRUCTURE FUND COMING WITH THE SAUDI'S. WHAT'S YOUR VIEW ON WHAT'S HAPPENING THERE WITH THE ROYAL FAMILY AND WHAT MBS HAS DONE TO REMOVE SOME OF THE OTHER POWER PLACE ACROSS THE ROYAL FAMILY?
SCHWARZMAN: WELL, SAUDI IS GOING THROUGH A MAJOR CHANGE, AND AS THE CROWN PRINCE ANNOUNCED, THAT THEY WERE GOING BACK TO BEING A MODERATE MUSLIM COUNTRY THE WAY THEY WERE BEFORE 1979 WHEN THEIR MOSQUE WAS TAKEN OVER BY EXTREMISTS, AND HE ALSO WANTS TO DIVERSIFY THE COUNTRY AWAY FROM OIL, AND OIL AND GAS, AND THAT'S ABOUT 80% OF THE REVENUE, SO WITH – WITH THE CONSTRUCT OF ELECTRIC CARS AND OTHER TYPES OF THINGS, IT'S REALLY TIME TO DIVERSIFY, AND HE VIEWS HIMSELF AS REPRESENTING THE WHOLE COUNTRY AND PARTICULARLY THE 70% OF THE PEOPLE WHO ARE UNDER THE AGE OF 30, AND SO THERE ARE LARGE CHANGES AFOOT. THERE ARE ALSO ISSUES REGARDING CORRUPTION IN THAT COUNTRY AS WELL AS A VARIETY OF OTHER NON-EUROPEAN, NON-U.S. COUNTRIES, AND HE'S TRYING TO ADDRESS THAT ISSUE AS WELL.
FROST: STEVE, AS EVER, WE HAVE SO MANY MORE TOPICS WE COULD DISCUSS, BUT WE'RE OUT OF TIME. PLEASURE TO SEE YOU AS ALWAYS. THANKS VERY MUCH FOR JOINING US. STEVE SCHWARZMAN, THE CHAIRMAN CEO OF BLACKSTONE. SCOTT, I'LL SEND IT BACK TO YOU.
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