CNBC News Releases

CNBC Exclusive: CNBC Transcript: Blackstone Chairman and CEO Steve Schwarzman Speaks with CNBC's Wilfred Frost Today

WHEN: Today, Monday, November 25, 2019

WHERE: CNBC's "Closing Bell"

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Blackstone Chairman and CEO Steve Schwarzman and CNBC's Wilfred Frost on CNBC's "Closing Bell" (M-F 3PM – 5PM) today, Monday, November 25th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/11/25/full-interview-with-steve-schwarzman-ceo-of-blackstone.html.

All references must be sourced to CNBC.

LESLIE PICKER: A new report looking to quantify the impact of planned reform in private equity industry put forth by different lawmakers, led by Senator Elizabeth Warren. The study purports that enacting the so-called stop Wall Street looting act would cause some and potentially all the firms in the PE industry to close.

STEVE SCHWARZMAN: We are incredibly proud of what we do at Blackstone and the vital role we play in society. For example, the very strong returns we generate, particularly in the current low interest rate environment, enabled teachers, police officers, firemen and other public and corporate sector employees to retire with sufficient savings and secure pensions.

WILFRED FROST: I'm delighted to say that joining us now in an exclusive interview is Steve Schwarzman, Chairman, CEO and Co-Founder of the Blackstone Group. Author, of course, of "What It Takes: Lessons in the Pursuit of Excellence," which is just out. Steve, so good see you. Thanks for joining us.

STEVE SCHWARZMAN: Glad to be here.

WILFRED FROST: This book is full of so many of the great examples, not just as you say in the pursuit of excellence in success, but examples of deals that have led to much greater good, following the investments you've made. Does it annoy you when you get criticized in an industry? And do you think from a comms perspective, the private equity industry has perhaps failed to highlight successfully the good it has done in the last 20, 30 years?

STEVE SCHWARZMAN: Well, I think it's hard to highlight it when you have the political environment by a limited number of people grabbing that megaphone. And it's impossible for any private person to deal with that on an equal basis. What I would say is that a lot of that that you've just heard is not supported by reality. The concept of the legislation that was introduced about looting really is inconsistent with what we do. What we do is we buy assets. Say we buy a company and we make them better. Why do we make that company better? Because that's how you can sell it to someone else for more. If indeed the entire industry was premised on looting and ruining companies, no one would give us any money to manage. Because at the end of that sequence, you'd be selling these assets for less than you bought them. So, no one would ever fund you. As it works out, over the last 30 years, there's been enormous growth. And companies like ourselves end up having companies that we own that grow faster than the S&P. So, we can sell them for much more. So, as it works, Wilfred, we end up earning about double the S&P. And the people who benefit are all the retired people who give us money. So ironically, we're trying to help society. We are doing it. And for whatever the reasons, a narrow group of people have decided that this would be an interesting target.

WILFRED FROST: If we go one step further to the clash at the moment between politics and business and just focus on China rather than domestic issues, where clearly there are differences to how things are done to here, whether it's the Hong Kong protests or the absence of freedom of the press or free speech, do you think companies should be criticized for making profits in those sorts of environments?

STEVE SCHWARZMAN: Well, I think companies tend to invest globally, unless they're prohibited to do so by their government, which happens in a lot of places. As to the U.S. and China, together these countries represent, depending upon how you calculate it, between 35 and 40% of the entire world's economy. These aren't just two random countries. And what happens between them has some major impact. So, there's discussions going on regarding trade issues. Hopefully those can be resolved, so that markets can be opened. Regarding issues like Hong Kong which everyone is focused on, it is very difficult to figure out what's going to happen there. You know, they had a big turnout in the elections I guess yesterday for the pro-democracy party. China is a situation where Hong Kong itself was given to China as a result of the lease expiring in 1997. So, China believes it's their country with two systems of government until the late sort of '40s coming up, when it all reverts to China. So, it's a complicated thing to figure out what to do in the interim. And for people like us, we have, you know, sort of humans--we have an office in Hong Kong, as do many people, and we're concerned, of course, about protecting our people.

COURTNEY REAGAN: When it comes to the political environment, Elizabeth Warren also has made a pretty vocal opposition to the wealth that's been created by billionaires and how she thinks they should contribute more to society in the form of a wealth tax. I imagine you're not in favor of that. But do you think you and others should perhaps ban together and come up with a better solution so that you can help address that? I know you've been very charitable, of course.

STEVE SCHWARZMAN: Well, I think regarding the wealth tax, there have only been 12 countries that have tried that. And of those 12 that tried it, only 4 are still trying it. I've seldom seen taxes go away, so, the idea that 8 countries decided that wasn't going to work is no surprise. And I don't think that would be successful in the United States as well. I think we've got a problem in our society. And, you know, part of it is that I call it income insufficiency rather than income inequality. There's always been income inequality in the United States. But what we have now is a significant group of people who just aren't earning enough for a variety of reasons. One is globalization, where wealth moved around the world. Another is, I think, insufficient education. And, you know, the United States has fallen from one of the top primary/secondary education systems in the world when I was in school back in the late middle ages, and now, we're somewhere between 25 and 30. And in math certainly in the 30s. Just to give you an idea, in China for example, they're now moving to where 100% of students are going to have computer science education. 100%. We probably have maybe 5%. Computer science is the world of the future in the information age. If we don't change and modernize, we'll fall farther behind. And that disadvantages, not the well-educated, but the people who aren't as well educated. And we have to address that problem by getting better teachers. And to do that, I think we should have teachers, to attract them be the only occupation, that doesn't pay tax. And what that will do will be to increase the money going to teachers but it will also mark them apart from other occupations in the United States and say we really value that. So, we can increase the quality of people going into that occupation.

WILFRED FROST: Steve, switching focus if I may to the stock price, Blackstone's stock price, can you believe it's up as much as it is since April, since you announced the plans to switch the structure?

STEVE SCHWARZMAN: Sure. And, you know, the stock price is right behind you.

WILFRED FROST: I know. You're up 2.2% today. Well, you were up 2.5. So, Steve, in the last 20 minutes you slipped off a percent.

STEVE SCHWARZMAN: Yeah. I must have said something wrong. But, the stock has outperformed since we went public about 1.7 times the S&P. And this year it's up somewhere around 75% because we converted from a master limited partnership to a regular c-corporation. So, what does that mean in English? What it means is that before we converted, only about a third of eligible buyers could or would buy a master limited partnership because it had certain tax forms that went with it. When we got rid of that form and went to be like a regular corporation, all of a sudden, we had three times the buying power. And the company itself is growing very rapidly. It's in the fastest part of money management. You know, now the alternatives are growing quickly, index funds are growing quickly, and long only managers in between are basically shrinking. And so, we're the number one company by far in the alternative area.

WILFRED FROST: Do you fear a price war that we have seen play out amongst the brokers? We've seen it in active long only managers with the advent of more index funds. Do you fear a price war in your space as well?

STEVE SCHWARZMAN: No, I don't. Because in our space you buy something and you own it for five to ten years. And if you're giving money to someone who's not much good at that, you're in real trouble. It's not like you sell your losers. You own them forever. So, for the top performing firms, and there's enormous measurable bios that the top performing firms for a lot of reasons stay as the top performing firms. If we've averaged, you know, double the S&P, the idea that you would be subject to a normal type of fee pressure, you know is -- people are grateful to get that kind of return. And so, we're not experiencing that.

WILFRED FROST: Steve, we're going to have to leave it there. We're out of time. But always a pleasure. Thanks so much for stopping by.

STEVE SCHWARZMAN: Well, it's great to be here.

WILFRED FROST: Steve Schwarzman's book, "What It Takes: Lessons in The Pursuit Of Excellence" out now.

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Emma Martin
CNBC
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e: emma.martin@nbcuni.com