Schwarzman: Individuals Need More Alternatives

Your next video will start in

Recommended Videos

  • Info

  • Comments


April 28 (Bloomberg) -- Steve Schwarzman, chairman/CEO at Blackstone, discusses the latest round of sanctions against individuals and companies in Russia, where he sees opportunities in the current market, and offers his warnings to tech industry investors from the 2014 Milken Global Conference on Bloomberg Television’s “Market Makers.”

Los angeles, it's sunny outside and it's a beautiful day and never buddy seems to be in good spirits, it's hard to see anything going wrong in the world but there are definitely things going wrong in the world.

How worried are you about russia?

Russia is a complicated thing.

It's a complicated situation and it's an area where we don't seem to have much in the way of leverage and control.

I don't know that the russians were sitting around waiting to take crimea.

But when the root -- the revolution happened, it was an opportunity for them and it's a natural sphere of influence for them.

And they took it.

There was nothing the west could do.

The biggest structural problem in terms of dealing with this type of crisis is that the russians provide about 1/3 of the gas into europe.

If that gas were reduced or turned off, it would have a very material impact.

As you think about how to manage a crisis, with that in the background, that is the problem.

On the other hand, were the russians to do that, that would affect them financially adversely.

It's a bit of a complicated sing-along with the ethnic russian issue and what is the russian agenda?

Is it to reassemble part of their empire that was liquidated in the 1990's? we will find out.

Is there an opportunity for you as an investor in any of this?

With the concept of u.s. sanctions and european sanctions of different types, in the short term other than if you are a market operator which we are not, we buy assets on a longer-term basis as a rule in most of our businesses, it is time to watch.

This could have a variety of outcomes from going back to more of a business as usual or lurch into another direction.

The russian government appointed you to an international advisory board a while ago.

Is that a position you still hold?

Yes, i am on that as is everyone else.

I think the reason is that what you are supposed to do in life is see how things evolve.

The u.s. government has not given full direction in terms of what one might do and this crisis could be resolved relatively quickly or it could lead to more difficulties.

I think it is in the watch and wait category.

This morning, the white house announced a new round of sanctions against seven individuals and 17 companies.

You talked a couple of moments ago about the west not having a lot of leverage.

Is that about all we've got is sanctions?

With you had your foreign policy experts using the military is probably not particularly on the table.

The ukrainian government is not able to match the russian armies.

So you are dealing with the nonmilitary lands from the western perspective.

You can keep escalating sanctions.

Your biggest problem is that just u.s. sanctions alone do not do a lot because most of russia's business is with europe.

The europeans are suitably more cautious because they are the group that will feel the brunt of any of the issues with gas access.

It's a very difficult situation for the white house to manage.

And by that i mean, any white house.

Let's see what you are focused on.

It has been a great opportunity in the last year to sell.

Where is the opportunity for private equity guys like you to buy?

We have had a great time buying things.

The m and a business has been really depressed for years.

It is way below historic levels.

What is happening is some confidence is coming back on there are many reasons why there might be some confidence.

We are finding that our companies themselves are increasing their earnings.

It is in excess of the s&p 500 comfortably.

Our portfolio companies -- as businesses do better, people are more confident in the ability to buy or sell.

It does not surprise me at all with over $2 trillion of cash in the system, stock prices that are higher than they have been, as a buyer, you have more currency and if you're business is starting to do well, you should feel comfortable about buying something.

If there is nothing that anybody wants to sell you, it's hard.

It seems like there is more of secondary buyouts like other private equity firms.

Can you make as much dough with those transactions?

I know people talk about that but think about it differently -- when you buy a stock, did somebody own it before?

Indeed, they did.

Some people make a lot of money buying what i would call it used to stocks.

Those are all stocks.

People don't think about it that way.

We have done extremely well.

We bought one company called gerseimer in europe from someone else.

We fixed up a big plant that could never make money and we did in acquisition and we made six times profit.

That works out.

That's not so bad.

We know that the sec is taking a close look at the private equity industry.

They have been taking a close look at fees.

Have they spent time examining and talking to blackstone?

Does the threat of regulation pose a risk to your business?

We have been regulated since we went public and before that we were members of finra and so forth so we are used to this.

This is nothing new.

We have been through and sec audit and license my -- in life has moved on.

What's most important is to always run your business in the most straightforward, open, transparent way.

That is something we do.

For people who have not had the benefit that we have of going through the ipo process, having lawyers crawling all over us to make sure that everything was done well, -- it's the benefit of the meatgrinder.

You can occasionally have something tasty come out of it.

As long as you don't look at how it is made.

Isn't that what they say?

We are in a position through this type of stuff but not everyone is.

We hear the sec in particular is uncomfortable with some kinds of transaction fees and deal fees.

Do you think there is a risk that through some kind of pressure if not outright regulation force firms like you to do away with things like that?

Our funds are arrangements between ourselves and the buyers.

These are the investors and they typically each have a law firm that is representing them.

These are not like regular purchases.

This is not like going into a store and buying a dress.

These are very detailed negotiations.

When you settle that, what happens is that there is a balance on each one of the terms in the agreement are so that the final agreement, some side wins, some side loses, bus in agreement and it's fair.

You are raising more money from retail investors.

Why are they the next target audience for you?

Retail investors are significantly underinvested in alternatives.

The stuff we do, the alternative class, tends to make around 1000 basis points more than the stock market.

If you were an investor, you would want to get some of that.

You would have to have the stomach for it.

There is no stomach issue.

We lose virtually no money in the individual investments in our funds.

The funds themselves are all in the money.

In effect, there is not risk that has been an paraclete seen -- empirically seen at this point even going through the crisis.

An average institution might have 20% total alternatives or 25%. the average individual investor has 2% so the average individual investor is being disadvantaged and left behind.

They should really be able to take advantage of the things the institutions get.

Individual investors are getting intoxicated by the excitement of tech.

Do you feel we are in a tech bubble?

I think we were.

I'm not an expert and i have been in the secure his business for a long time.

Whenever you have someone paying $19 billion for a company with no earnings, that never had earnings, this is a wake-up call.

A wake-up call or a warning sign?

You have to wake up to be warned.

It's hard to do it while you are sleeping.

That deal may have its own logic but there are so many very high-priced businesses that make no money.

We have lived this movie he for.

It ended badly.

And it ended badly.

Usually what happens in markets around the world when you either get superhigh valuations or you get very high valuations based on revenues and no profits, eventually there is a correction.

I think we are in a stage where you have to be more alert to this then not alert.

Let me ask you about something i know is important to you.

The program you started in china, schwartzman scholars, it was ambitious to begin with, $300 million, multiyear rho des-like scholar awareness -- as you look at things today, do you see yourself doing something like that somewhere else?

Could schwartzman scholars become bigger than what it already is?

At the moment, -- eric did not think $300 million was enough.

He is right, he is always right.

We have increased the fund raising to $350 million because it's more expensive.

We are busy recruiting professors and building a building.

Condoleezza rice was just there yesterday and i got these wonderful pictures of condi and a hard hat walking around.

She is one of our advisory directors and a terrific person.

There is a bunch to do to get to the point where the big admissions process is modeled off of the rhodes with admissions panels and we will have students there in two years.

My wife would not be in favor of an additional program in another country particularly one that does not speak english as a first language.

This has been a fascinating thing.

Here today, there is a famous professor i will spend time with in a private meeting to see if he would go to china.

?and teach a course.

E. the problem is when you sleep.

The business does not stop and the short and scholars is an overlay.

It is turning out really wonderfully well.

I am excited to see what it will be like when we have human beings from around the world.

That means in the building is

This text has been automatically generated. It may not be 100% accurate.


BTV Channel Finder


ZIP is required for U.S. locations

Bloomberg Television in   change