Like cal ripken on or off the field. Good morning, everyone. This is Market Makers. Proud to announce, yesterday, i was one of the four hundred 32 people this year to buy a new blackberry. Have a lot to talk about. With the keyboard. Two devices, still. But we have a big guest coming up. We do, indeed. Steve schwarzman is here, chairman and ceo, cofounder of twoblackstone group, almost hundred 50 billion, investing in everything from legoland theme parks to duncan hines cake mixes and rental housing in nevada, he just had one heck of a week. 1 billion more raised in secondary offerings. Thank you for coming. Good to be here. We will talk about that, but i want to begin where every good interview start, with a clip from the daily show. Lack stone, which doesnt sound like an evil wizards castle, but is actually a private equity firm, so same deal blackstone, which sound like an evil wizards castle, but is actually a private equity firm, so same deal. [laughter] pr can be hazardous to business, but those are different businesses. Those are regulated businesses, you are in an unregulated business. I wondered to myself how much does it matter to someone like you if someone like jon stewart says that blackstone is evil . Like anythingd like that. Unfortunately i missed his show, but i think there was a misunderstanding on the transaction that he was explaining, where we actually saved the company in spain by investing in it, it would have been liquidated. They do not have the same bankruptcy codes that we do. If we had not put money into this business, there would have been a lot of unemployed people. Theink that now people in financial community, generally, are pretty much targets. That goes with the territory. What is most important is that you behave in a transport transparent, straightforward, ethical way. It, then, that people always seem to draw the same conclusion about private equity . Not just about blackstone. You are thinking about mitt romney . That is one. This idea that no matter what the trade is, it always works out in your favor. In do people persist thinking this way . Dont you want them to think that . If i were one of your investors, i would definitely want to think that way. Nothing works out your way all the time, that is not how the world is, but the private Equity Industry generally is fairly miserable at marketing themselves, but the fact of the matter is that the industry itself has improved companies and creative a lot of jobs and the returns that people say go to the industry really are not going to individuals, per se, they are going to the Pension Funds, they are going to universities and foundations, which is where those returns go. Our job, consistent with doing the right things in society, is to provide retirement benefits. You are seeing it now, discussions where Pension Funds are having trouble paying the benefits. Our job is to make sure that they earn a lot of money so that the people who are the ultimate beneficiaries, the people who people who areg ready to retire have money, and we do that by producing much higher returns. Ofhow has the lack regulation in your industry helped . When you look at where blackrock made its money over the last five years, has it changed a great deal . First, we are regulated. We are regulated through the sec , and then they come in and look at what we are doing. We are not unregulated. Are not the same kinds of restraints. They do have Capital Requirements they have to meet. We do not have that because we do not take deposits. We do not have the obligation to outsiders in the same sense. Looking backwards, it has worked out, but ironically the companies for the most part got in trouble in the financial crisis, they were the most highly regulated. The ones that did not, like ourselves, as an industry we had almost no significant problems. So, i think that we have to be careful about how we look and think about these things. What would you say today, as you look at your percentage of wins . Are they in businesses you were not in . Expanded our business significantly. When we went public in 2007, we hit 77 billion in assets under management, now we have roughly 250 billion. That is highly unusual during a financial crisis and afterwards, where almost all Financial Institutions were pretty much shrinking and we have been the outlier in terms of dramatic growth. How has blackstone continued to reinvent itself, then . Thing,to say next big but i kind of want to know what the next big thing will be. The next big thing a few years ago was credit. Has 63 billion dollars in assets, can you see blackstone doing Something Like that in another industry . We have a number of aggressive plans, but if we told you to the problem is everyone else would know. In finance, imitation is the highest form of flattery and we do not have trademarks and intellectual properties. So, i can ensure you that we have a whole variety of things that we think are let me put it let me put it this way. Is it going to be harder to move, like Warren Buffett . Be big to make a difference . You have spent so much money at this point. The way we have organized, are continuings. To grow. We have wide types of areas to go into, whether it is geographic or with new products. Part of the reason that is important is to give our star younger people something to write. This way, we can keep growing and we do not lose people. We develop areas with high returns for our limited partners. Place. Ld is a big globalization has opened a lot of opportunities for firms like ours. We regularly take advantage of those. Your biggest win happened right here in hilton. This is not a typical private equity story. This was not restructuring. This was you repositioning and growing a country company. Are we going to see more of that . This is basically what we do in private equity, we are somewhat mischaracterized, but this is a situation where we bought this company at an admittedly high rice at that point in the cycle, there was a lot of consolidation, they were running three or four separate businesses. It was a great opportunity to expand outside the United States. Merger of two companies. The Foreign Company had not aggressively expanded at all. Our plan called for opening a lot and we have accomplished that type of execution. But it is not just in your real estate business. Did you not have hilton investments across all funds with lp partners . It was a giant sized investment and part of what is important when you make investments, everyone that you make you think is going to be right, that is not always how it occurs. What we did is we allocated that investment to different parts of the firm where it was appropriate to do so. Lets go back to the point that you made at the outset of the conversation, the idea that these private firms are not great at telling the world about the good things that they do, including growing businesses, turning them around, making money for Pension Funds. Do you be do you feel that as an investor you need to or that . Ou have already changed in order to leave people with that impression . You know full well what people ,hink of private equity markets but that you need to make these different kinds of investments that can create jobs where you take a Company Public without selling any of your stock . So that you are not immediately trading on it . Does that help, to leave people with a better view of what blackstone is . In terms of what we do, we have a clear idea of what we are trying to do, which is add value and grow the business, creating jobs. And we do that. Statistics on the industry have and arel studied apparently not repeated by other people, they just go ahead with whatever they feel like saying. But it is pretty clear. Do you not find that unfair . It is unfair, but life is somewhat unfair. We have to make our case not that we are inventing reality, but just putting it out there. We are proud of what we do is affirmed. The people are proud. The people who give us large amounts of money are very happy with our performance. A big emphasis on green investments, especially in the energy area. Even with our companies in terms of preserving energy, you know, we have a very large footprint, if you will, just in our private equity business, which is one of our seven business lines, we have 120 billion in revenue, 80 companies, 740,000 people. Doings not a few people some deals, this is like a Major Industrial global enterprise. We operate with best practices, because that is good business. It is the right thing to be doing and it is certainly working out for our investors. When we come back from commercial break we are going to talk about something for your firm and your commercial investors. Washington, dysfunction and washington, d. C. Another setback for bill ackman and his quest to prove is or is not a pyramid scheme. Of our watch all interviews streaming live, now, on demand. There is some breaking news in washington, a key vote is underway in the senate that concerns the twoyear budget deal between paul ryan and patty murray and it appears that it will get the 60 votes needed to proceed to final passage. Peter cook is on capitol hill. The vote is still under way at this hour. Going in we knew that there were only seven republicans that would vote in favor of this legislation. I heard a couple of boats on the floor, you can add to that total nine or 10 republicans supporting this. People on the fence before now saying yes, as did bernie sanders, who had been on the fence because he did not think that this did enough to help to loses who were going their unemployment insurance. This bill is about to advance to final passage in the u. S. Senate, taking off the table for two years the threat of government shutdown, does nothing on major issues to the deficit, but it at least amounts to a ceasefire and gives some cover to the Business Community going forward. Much. Er, thank you very lets return to our conversation chairman, schwarzman, ceo, and founder of blackstone, the Worlds Largest alternative asset manager. You have been outspoken on political issues before. Several weeks ago we were talking about the rancor and discord in washington, saying it felt like it had never been worse. Now we have a budget deal. Is a good thing. I guess it was two weeks ago and i ran into paul ryan patty murray, they were both very careful about talking about how they were keeping a secret, what they were doing, and that they were working hard to get something done. And they will. It is not a big deal in numbers, but it is good to sort of change of dialogue. You think that the gesture is big enough . As i said, it is not a big financial deal, but i think that there was a desire in washington the system was clearly not working. Every poll that comes out, from every network and every pollster, shows that the folks in congress and the executive branch are really suffering. If 70 to 78 depend on the pole in america and believe that we are on the wrong track, lets assume that that is the case. Either the people in the government are going to change it, or the American People are going to make some changes. What does it mean for you, practically . That the tea party is not hijacking the Republican Party . Can you get kind of the Republican Party again . I am not the worlds expert. But i think that from looking around the world, whenever there are big moves, either to the right or to the left, you tend to get a counterbalance move on either side. You get a society politically that does not work as well. I think there will be adjustments that occur. The public wants those adjustments and once a government that functions correctly and accomplishes business on behalf of people. You cannot leave the country with a perception, which is true , actually, that we are on the wrong track. It will be corrected. Americans are practical. Decisionsmake certain to ensure that we have a normal functioning government. Is there something you would like to see as president who can fix all of this . We have heard from people in the industry who think that Chris Christie is that guy. Think it is early. America is a volatile place. A lot of people over the last decade have been announced as being the next president who, in fact, are not, or were not. So, i think you have to get closer to that to figure out what america is really looking for. Are in a position to get behind someone in a significant way and help them along. Is there someone you are seeing who you think could be great for america that you could get behind . Do that early for me to on your show. You could try. I know, that is the job. Here is a question you can answer, what is your relationship with the white house like . Have they reached out to you . Do they understand better what they want or what you want . They made a big effort over the last year or two. I see the president actually with reasonable frequency, through either of the organizations i belong to. They are trying to get behind some things that are important. I can always support things that are important. You and the presidency i to eye . The whole concept of Immigration Reform is something we really need to do. The idea that we educate, for example, foreigners, give them phds at our best schools, and then do not allow them to stay here anymore and shipped them back . Then they go into competition with us, combined with the fact that we leave our money offshore , this discourages Money Companies for bringing it back to expand with capital that should be coming back here, with workers that have been trained in the United States . It is almost deranged. So, things like this need to be good forcause it is america. On the issues like that, i look at my role sort of as someone in the Business Community who says that the president thinks that is a good thing to be focused on . I happen to think it is a good thing to be focused on. Some of the details are up to political people to fight about on the margin, but that is not my fight. But accomplishing it and being positive on things like that . Good for america. We need to take a quick break , but we will continue in a few moments with steve schwarzman. When we come back we will be speaking about china, from Blackstone Investments to steves wellknown scholarship program. That and more right here, when we come back on Market Makers. Coffee consumption grows proportionally with disposable income. You are watching Market Makers. We will be back with more from steve schwarzman, as well as from the hall of fame to the toyground, and junior wants give back even more to the sport that made him a legend. This is Market Makers. A little more breaking news for you out of washington, the senate voted 67 to 33 to advance the budget deal to a final vote. Later this week this procedural means that final passage is all but a done deal, but we will have to wait for that to happen. It will happen this week. We are back with steve swartz , ceo and chairman of blackstone. Earlier you mentioned Pension Funds. Often time people look at revenue equity in the abstract, do not think that they can get involved, but you have a growing focus on Retail Investors. How is that working . Pretty well. We basically offer the same kinds of products to institutions and we have had rapid growth in that area. In the last year we have raised about 7 billion from Retail Investors. How small do they have to be . When i think of people who just open up an account and they buy apple stock and can suddenly invest in blackstone . They can buy our stock, which is a separate thing, but usually there are restrictions of size, though there have been changes in the laws to break into small changes, down to 50,000. We do not specialize in that kind of grown frome have roughly 600 million per year in 2009 from retail to 7 billion per year. This is another one of these massive scale ups that we are doing. How big a deal, alternately, can Retail Investors be . Retail investors are way under allocated. Bearge institution would 15 , sometimes 20 alternative products, which historically have averaged, firms like ours, somewhere around 1000 basis. If you get an extra 10 on return, you would want to put more money in these types of products. Retail investors, typically, are only one percent to two percent of their total total portfolio. So, it makes sense for them. What about the liquidity . Illiquidity is not a bad thing. Liquidity, is, in effect overrated. The premium in terms of return for illiquidity is so much higher. No one needs 100 liquidity, typically. How often do you have to explain that to people . In 2008 all the people cared about was liquidity. Do you have to explain this over and over . You do because investors do not always do the right thing for themselves. One of the advantages of being locked up, in effect, in our types of investments is that you can take investments that go down abnormally in times like that and stay in them so that they go up. One example of that type of approach, many investments are like that. People tend to panic near bottoms and be overly enthusiastic at tops. What we do for them is make sure that that does not happen. I want to talk to you about china. You have spent a lot of time creating the program schwarzman scholars so the 200 people per year can learn about what you think is the most important country for the next 50 or a hundred years. What do you think of the new leadership in china and the job they are doing confronting that countrys Biggest Challenges . Ofchina has got a lot issues. It is not a wealthy country, it just has huge reserves, but it is around 100 in the world in terms of per capita income. Aere as we look at china as rich country, they do not see themselves that way. They do not really have a developed Social Security system, which is a surprise, i guess, for a country of that type. They do not have adequate medical care. Are a lot of fundamental things they have to address. 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