WHEN: TODAY, TUESDAY, NOVEMBER 17TH AT 4:30PM ET
WHERE: CNBC'S "CLOSING BELL WITH MARIA BARTIROMO"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Blackstone Group Chairman, CEO & Co-Founder Steve Schwarzman today, Tuesday, November 17th at 4:30PM ET on CNBC's "Closing Bell with Maria Bartiromo."
All references must be sourced to CNBC's "Closing Bell with Maria Bartiromo."
STEVE SCHWARZMAN: Thanks a lot, Maria. Glad to be here.
MARIA BARTIROMO: we haven't spoken in a while, and what a year it's been. Can you give a status check on the private-- equity business today? You told investors in the last call, "We see the world changing once again, at least for private equity. The worst is behind the industry." What do you mean?
STEVE SCHWARZMAN: Well, I think-- there are a number of different things going on. Obviously, the improvement in the economy makes an enormous difference. That's been exceeded-- by the improvement in the markets. We've had-- much lower interest rates, and-- equity markets around the world have-- recovered, which provides a lot of options-- for us in terms of exits.
One of the things that institutional-- investors were concerned about-- when their own-- liquidity went down, and the value of their assets went down, is they needed-- more money coming back to them from the-- private equity investments that they made.
So, it looks like that's-- starting to flow now. There have been some very impressive gains that some firms have had-- selling-- retail or in-- Australia with profits of six times their money. Similar kinds of profits-- selling a-- cable television business in-- Germany. Very big profits, taking a retailer-- public in the United States. And-- we-- we can see within our own portfolio the opportunity to have a variety of what are called exits-- for our investors. And at the same time-- there are a variety of very interesting investment opportunities developing, which happens-- at this point in the cycle.
MARIA BARTIROMO: Now--
STEVE SCHWARZMAN: So-- the business--
MARIA BARTIROMO: Go ahead, Steve.
STEVE SCHWARZMAN: So-- so, the business is really-- developing and-- and coming alive again. And it's part of the normal cycle-- which we've-- experienced-- numerous times in-- private equity.
MARIA BARTIROMO: Well, I guess the markets have been a lot more vibrant and so many people expect it. And many companies are trying to-- you know, get in while the getting is good, take advantage of the strength we've seen. You're planning to list up to eight companies you own and sell at least five others. Is that right?
STEVE SCHWARZMAN: Well, that's-- that's the way it looks at the current moment. You know, that can change-- up or down-- really as a function of what's going on in the world. But that type of-- alternatives for us as managers in private equity really wouldn't have been there-- three to six months ago.
MARIA BARTIROMO: You-- you really were very-- very-- very keen on what was happening in the economy as you traveled all around the world when we were first beginning to get into this-- slow down. Among the few private equity firms that-- that were doing something-- sort of seeing the negative-- economic landscape out there, and you've been traveling around the world a lot. Does the rest of the world feel like it's recovering? Or are there still weak spots when you look international, Steve?
STEVE SCHWARZMAN: Well, the rest of the world is really quite a fascinating place, as you might-- suspect. You know-- I-- I was just in Asia about two weeks ago. And-- and Asia almost across the board is-- is doing really well. China-- has-- ten percent growth, although it's really-- very much a function of enormous economic stimulus. India looks like it's growing in the seven to eight percent-- range. Indonesia is growing. Australia is going to be growing.
Even-- in Japan, which has been the slowest growing economy in Asia-- appears to be-- at least expected to be-- next year up-- one to two percent. So-- you almost can't find a spot in Asia-- that is not doing really well. I think you know the North American-- story. The U.S.-- had three and a half GDP last-- September quarter. And I think it's reasonable to expect to get at least that or more-- from the fourth quarter, because the comparisons-- are so low.
Latin America has-- as a continent-- is doing quite well. In large part because of commodities, which are linked to China. And-- Canada itself-- is also doing well because of that. So, you-- you have all of those parts of the world doing well. The slowest part-- is really-- in-- Europe. And there, it's an uneven picture. Europe itself has just-- tipped back into growth. The Middle East is-- very strong-- with-- energy, in the $75 to $80 a barrel level. And that's sort of a bit of a world tour.
MARIA BARTIROMO: Really interesting. Steve, what changes this situation? When we spoke-- a while back, you were considered about the deficit, considered about spending levels, and also considered about the tight access to credit-- because the banks were getting squeezed. They were being asked to raise capital levels and also do lending. And it was-- really impossible to see them do both.
STEVE SCHWARZMAN: Well, I-- I think, Maria-- if-- if you look at the banking system-- it's still not-- giving an enormous amount of-- of-- of credit. It's fighting off-- let's take the U.S., for example-- fighting off-- a real wave of-- consumer defaults, and-- credit cards, car loans-- and in-- in the mortgage area. And-- it's hard for banks to extend a lot of credit-- in the face of those kind of problems as well as the potential for defaults in the commercial real estate business.
So-- so, to expect a-- typical economic recovery-- in the U.S. per se-- seems-- seems a little-- a bit of a reach-- with the system facing those kind of problems. And consumers with really-- quite high debt. You know, by historic standards. That doesn't mean we won't grow. That-- that doesn't mean there won't be a positive-- type of economy, but-- it's much more reasonable to expect-- the economy to grow at-- at much more muted rates-- than it would-- in another severe economic-- recession scenario, such as-- the early 1980s.
MARIA BARTIROMO: So, Steve, how has the structure of the deal changed? You know, a couple of years ago, I was looking at-- one of our old interviews, and it was really in the middle of the boom time. And I said to you, "How easy is it to do a deal today." And you said, "Look, I could do a $30, $40 billion deal in a very short period of time with no covenance." That probably-- at that moment in time, represented the top. How is the structure of the deal close today? What kind of a deal can you do, and what kind of leverage are you talking about?
STEVE SCHWARZMAN: Well, fortunately, Maria, we didn't do many of those. And we really cut back-- very severely-- when-- when prices got high and credit was flowing like that, which is one reason I think that we're-- we're experiencing a pretty good-- situation-- at-- Blackstone today.
But the world has changed quite dramatically as you would suspect. You know, you can do transactions in the $3 to $5 billion range. The amount of-- debt you can borrow is probably-- in the five times cash flow-- type range. That's down from as high as 11-- at the top of the peak. Sometimes, now, you might be able to do six, other times it's four. But it's that kind of four to six-- range.
And-- the equity in the capital structure which got as low as ten percent-- at the top of the cycle, it's a 15 percent-- could-- could be in the 30 to-- 40 to 45 percent-- range now. So, you're doing smaller deals. And you-- because there's a lot more equity in them-- you-- you actually have to-- put in pretty good size equity checks-- to do reasonable deals. But deals of a few billion dollars-- which require $500 million of equity-- or-- or deals at $3 to $5 billion that require a billion dollars of equity-- that's still quite a big equity check in-- in the old world-- or the new world.
MARIA BARTIROMO: So, the pipeline for deals looks good, Steve. Which sectors can you talk to us about. Where do you see-- most of the opportunity for Blackstone right now?
STEVE SCHWARZMAN: Well, the pipeline has improved. I would say six months ago the pipeline really wasn't-- robust at all. With the world just right on the precipice of the maximum decline in the-- economy. Now, we sort of start thinking about deals on a geographic basis. And we like the United States and we like-- Asia. We're less focused at the moment in Europe because of the slower growth there. And-- and the question of which industries is-- is really a function-- of-- of-- you know, the kind of pricing-- that we get. What-- what I say is that-- we think it's a little bit too early to be playing-- large-scale cyclicals-- which we do once the economy gets growing-- a little more robustly.
MARIA BARTIROMO: Are you interested in resources? We're seeing so much money move into the commodities place. Where are you in that area? I mean, one of the reasons that you're seeing such interest in Brazil and-- and in places-- in Asia-- even Russia, is because of the resource rich nature of those economies.
STEVE SCHWARZMAN: Well, I-- I think-- I think resources are-- are interesting. You have to be really careful. I mean, there's been a-- huge cyclical-- rebound-- in resources. Not necessarily just because those-- commodities are-- are being-- utilized in-- in what-- a slowly growing-- global-- economy. Those resources are going up because-- the-- the world is getting a little-- unsure about paper money. And-- and different types of resources-- gold-- hard resources, to some degree, oil-- are used as offsets-- to-- pay for currencies which are subject to the fiscal deficits-- of governments around the world. So, we-- we-- we like resources, but we're a little cautious-- given how much-- those-- commodities have run.
MARIA BARTIROMO: So let me ask you about real estate, Steve. A lot of people are worried about commercial real estate having a problem in 2010 and '11. What do you think?
STEVE SCHWARZMAN: I-- I think-- the standard view-- of real estate-- particularly commercial real estate-- is-- is that, you know, the refinancings (SIC)-- that'll be necessary-- won't have sufficient resources-- from credit extension-- to-- to finance all of it. The price-- of-- of real estate has gone down in different parts of the world. In almost all parts of the world, except China and maybe a little bit of India. And-- and so, there's bound to be-- difficulty-- in-- in those areas.
Now, one of the things that's a relatively new phenomenon-- really over the last month or two, is how rapidly-- rates have come down-- to finance real estate, which will provide more of a cushion-- than-- than some people think. On the other hand-- with-- with the value of commercial properties-- down-- a number of owners will not be able to put up the additional equity-- to refinance these properties, and-- and that will create-- problems for those owners. But-- very unique opportunities-- for new investors-- like ourselves.
MARIA BARTIROMO: So, Steve, what's the biggest change on Wall Street in your view and the lessons learned over the last two years?
STEVE SCHWARZMAN: Well, the changes on Wall Street are immense. You know, there are major players who-- no longer-- exist, and the remaining players are making more money because there are less competitors-- actually, and bigger-- spreads. You're seeing a revolution-- in terms of the potential for the regulatory-- structure.
You're going to need-- a-- major-- relook-- at-- capital ratios throughout-- the major-- credit extending-- institutions. And-- I-- I think you have a unique-- set of circumstances that created-- sort of the-- the mess that-- the world found itself-- in. And I think a lot of people are working in good faith to make sure that that-- doesn't happen in any magnitude of that type-- again.
MARIA BARTIROMO: When-- when you look back at the boom years for private equity, do you think those years were good for the American economy, or good for private equity, or good for financial services only, or what? What happened over those boom years that we can take away with?
STEVE SCHWARZMAN: Well, I think-- I-- I think it's pretty clear-- that those boom years led to excess. Leave aside private equity for the moment, when you look at the impact of-- rating agencies on subprime loans-- and the ability to create leverage in the system generally-- that-- that pretty clearly, that was way overdone.
I think it affected the-- American consumer-- over-borrowed. I think-- real estate-- was-- was over-leveraged. And-- and to some degree, private equity was paying too much money-- for companies as were industrial companies-- buying businesses. It was a top of an economic cycle, and we have lived through tops of economic cycles before.
But we haven't done it-- with-- with this much global coordination-- with leverage spreads-- you know, throughout the world. And-- and we-- we also had set a-- a policy that was extremely accommodating-- at the same time, and we had a regulatory regime that was set up in the 1930's that could not cope-- with-- modern types of-- securities.
And-- and so a lot of that just needs to be relooked at. And the system needs to be-- redesigned-- to keep the best of some of that system, but engineer out-- the-- the parts that really were dysfunctional-- and created the problems-- not just for financial institutions, but for the man on the street. And-- and, you know, who has been-- damaged. And-- economies of various parts of the world that have been damaged. And-- and that's got to be-- fixed, and we have to get-- job creation-- growing.
MARIA BARTIROMO: Now, do you worry about the exit strategy, Steve, of-- of the fed? I mean, a lot of people say, sure, you know, things feel better, but what happens when the stimulus is gone.
STEVE SCHWARZMAN: I think-- you know, in this sense, I-- I really-- I guess I'm on the same page as-- as-- Ben Bernanke that-- that the economy is not running away on the upside. Certainly in the United States. You know, you've got factories I guess that are operating at 70 percent of capacity. You've got veritably no inflation-- other than in commodities, which as I said, are being used for different-- purposes-- than just industrial purposes. So-- I-- I-- I think it's gonna be quite a long time. And I may be wrong on this one-- before we're gonna be facing-- inflationary issues. And that the fed will-- find its way at the appropriate time-- to reverse that.
MARIA BARTIROMO: So, we should then expect that we probably will see the stimulus in place for a little while, because the global economy and in particular the U.S. economy needs it?
STEVE SCHWARZMAN: I think-- the U.S. economy certainly-- needs that. Not all that-- stimulus money, of course, has gone into-- the system. It'll be coming in this year. It's part of what contributed-- to economic growth in the-- in the third quarter-- along with-- inventory-- refills.
We do have a beaten up-- and-- a damaged U.S.-- consumer. Now, I don't know anyone who actually disagrees with that. And it's gonna take a while for that consumer to-- rehabilitate their balance sheet, which they're slowly doing with higher savings-- and-- and-- and not spending as much money. There will take some period of time-- for them-- to recover. And the stimulus is filling-- that-- void.
MARIA BARTIROMO: So, would you be-- would you be poised to be putting money into some of these depressed areas, whether it's retail, or the consumer-related areas, or financial services-- given-- the fact that longer term, you Rae expecting that-- we'll get through this and you see a better feeling out there?
STEVE SCHWARZMAN: Well, I think you have to be-- selective, like in all things. That if you-- look at what we just did-- we're just buying-- the Bush amusement park. And-- we think that this is a great time-- to be buying those types of-- wonderful-- assets-- because-- we're doing it at a time of-- of damage consumer spending. And we're buying it at what we believe is a very good-- price. So, we'll be able to take advantage of that kind of rebound as well as the kind of improvements-- that we make in all the parks.
MARIA BARTIROMO: Steve, would you like to add anything else that I may have missed? I know you've been traveling all around the world, and I don't think that we got in there Latin America, but I want to make sure that we-- we touched on all of the things that are pertinent to what you've been doing lately.
STEVE SCHWARZMAN: What-- what I would say, Maria, is that there's a-- new paradigm-- developing in terms of how one looks at the world. I think the Chinese have been saying for quite some time that they plan on growing their economy at eight to ten percent a year-- for the foreseeable future.
That-- it-- it-- it seems that they've managed to do that. And they've got the wealth-- to stimulate-- their economy-- and grow it-- at those rates to the extent that they do that. Then people-- countries that-- that touch China-- whether they're in Latin America, whether they're in Africa-- whether they're in North-- America, like Canada-- that sell them-- goods, sell them commodities, then those countries should have a very good-- economic future, certainly over the intermediate term.
We tend not to look at the world that way. We tend to look at it-- geographically by region. And I-- I think we have to start looking at it-- in terms of-- of-- of who-- China-- touches. And they have-- they have a very powerful long-term-- growth engine-- which they'll gradually convert to a bit more of a consumer-- economy. So, that's one of the things we've discovered-- all over the world-- in terms of-- of their bilateral-- types of relationships.
MARIA BARTIROMO: That is--
STEVE SCHWARZMAN: And just sort of generally-- just sort of generally the-- developing world is now approximately 34 percent of the world. Much more than the United States part of the global economy, so it's important that we keep more an active look on what's going on in those parts of the world.
MARIA BARTIROMO: It's a great point. And-- and a really interesting approach. Steve, so nice to have you on the program. Thanks very much for joining us.
STEVE SCHWARZMAN: Thank you, Maria.
MARIA BARTIROMO: I hope we'll see you again in Davos, and-- I'm sorry if it's cold once again.
STEVE SCHWARZMAN: In-- in Davos, you can wear a coat.
MARIA BARTIROMO: Join us in Davos, Steve. Have a wonderful day, and thanks again.
STEVE SCHWARZMAN: Okay, thanks.
MARIA BARTIROMO: We'll see you soon. Steve Schwarzman joining us. Chairman, CEO, cofounder of Blackstone Group.
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