Coffee with BS: Blackstone's Schwarzman on how to stay ahead of competition

Stephen Schwarzman talks to Pavan Lall about lessons from India, how he catches up on lost sleep and his formula to stay ahead of competition

Barely seven minutes have passed before Stephen Schwarzman, chairman and chief executive officer of the world’s largest private equity company, the Blackstone Group, arrives for our scheduled meeting at his office in Mumbai. We proceed towards the boardroom on the fifth floor of the iconic Express Towers which, incidentally, Blackstone bought out for Rs 900 crore in 2014. At 73, Schwarzman, dressed in a blue suit, white shirt and sporting a silk tie, is bright-eyed and energetic.

I step forward expecting a handshake, but am surprised by the perfectly executed namaste, which reminds me that we are in the midst of a pandemic. I reciprocate and we get seated. Schwarzman’s two American associates sit at the far end of the table, at a safe distance.
 

The in-house waiter arrives, and I order a cappuccino while Schwarzman sticks to the bottle of Evian (mineral water) that has already been placed next to him.

My first and obvious question is how long he thinks it would take to create a vaccine for Covid-19. “Based on what we hear from various sources, we think it would take about a year,” he says, with an air of certainty that comes from the experience of running a life sciences business with a team of 15 doctors whose very job is to fund clinical trials for vital drugs.

Amongst other things, Schwarzman is in town to promote his biography titled What It takes: Lessons in The Pursuit Of Excellence and has a flurry of speaking engagements at colleges, editor lunches and even a fireside chat at the home of India’s richest man, Mukesh Ambani. Is this the billionaire’s latest pursuit — authorship — and will there be a sequel?

“No, it’s the first and the last,” is the prompt rejoinder. What next? A prelude to life at the White House? “I’m not running for anything. I have turned down government appointments, but I like being someone who can help the country, which is easy in the United States of America, but impossible in many other countries.”

What’s unusual are his frequent jaunts to India. Blackstone manages over $600 billion  in assets so its investment in India is relatively small compared to, say, what it might be investing just in the state of Texas. In part, that is because he seems to identify with India’s democratic streak, the widespread usage of English and its geographic diversity. “I like India because it is highly unusual. Topographically, you go from deserts to the mountains of the Himalayas, then south where it is almost like a jungle,” he explains. “I bring my wife with me on my trips sometimes and she enjoys coming to India,” he adds. His family includes two children from his first marriage and a stepson from the present one.

While he tends to play down the tough choices he made to get to where he is, he admits that on many occasions he would be sitting on a beach towel and conducting business via phone while his kids played sports at school. “I was there. They could see me and I could see them,” he explains and admits when pushed that success and sacrifice go hand in hand.
 

The India experience for Blackstone began in 2006 and Schwarzman has, to date, invested around $15 billion in the country. And that’s now worth a lot more, he says with visible joy. When it started out, Blackstone didn’t make minority investments “but invested alongside people called promoters which in the West is a negative word because a promoter is trying to take your money and put it in his pocket”, Schwarzman says, adding that he was told that was not how India worked. But soon he found that his original instinct was correct and then on Blackstone decided to do control deals and buy assets.

My coffee arrives. Schwarzman hasn’t touched his water. I ask, “You seem to have an uncanny ability to make your investments at the right time and before anyone else is able to... How...” Schwarzman completes my question: “...does that work?” I nod, and the silver-haired investor explains: “First, make all knowledge available to many people at the firm. When all of them know a lot, it’s better than one person trying to figure it out,” he explains. Schwarzman also understands what a network of networks is. From being an alumnus of Yale University and Harvard University to donating funds to Oxford University and MIT and more, there aren’t many key decision-makers that he doesn’t know. “I have a varied group of inputs from people who are heads of universities, senior people with government insights worldwide and the remarkable network we have created at Blackstone”  

He says an investor will hear about exceptions that don’t happen every day. “When there are meetings every week with business units and you just listen to what’s going on, you can start to see exactly when things change. Once changes occur, the way the world works is that it is going to evolve and will impact an industry or geography,” he says. 

Simplistic, as that may sound, Schwarzman says how a real estate boom in India around a decade or so ago seemed to have led the trend worldwide. As one of the largest corporate landlords in the world, real estate is intrinsic to Schwarzman’s strategy. After achieving what most investors would do anything for, Schwarzman has also been getting more involved in academic philanthropy sharply focused on artificial intelligence while ever aware that his time is limited and precious.

A believer in fitness and a one-time sprinter, Schwarzman still works out everyday but lets out that he’s skipped that in India. He also eats very little and seldom consumes meat. At a later date, I watch him address a closed-door meeting and stick to tandoori roti and paneer masala, but take just one bite during a 90-minute meeting. He enjoys non-work reading a lot, prefers warm weather and over the years has started to notice that he sleeps less than before. “So, you cheat and make up for it during the weekends,” he smiles. Schwarzman also collects art like many blue-blooded architects of American capitalism. 

Is the PE world going through a paradigm shift? Schwarzman nods. “In the 1980’s, one just had to buy something, lever it and the multiples were sufficient. And we loved that we could make acceptable returns. But by the late 1990s we had to bring in real value by way of operating improvements. The entire industry has moved because of higher and higher creation prices and the necessity of delivering more and more operating returns and growth.”

The man, who bought ailing hotel chain Hilton in 2007 and made $14 billion in profit after 11 years, explains that “today when you buy something, you have to have a total plan of what you will do. It’s not an adventure, and you have to work with managements and see where you can accelerate growth. So the best way is to take assets and not only improve growth, but also the rate of profit because people pay you a higher multiple for each additional dollar of profit.”

Schwarzman writes in his book that he still feels he is in his 30s and while that’s reassuring for his investors, I ask him how he has changed over the years. “If you carry an iPhone you’re plugged in all the time and you are like an emergency doctor on call because we are so large that we have something big going on somewhere at any given time.” But of course, Schwarzman delegates efficiently and has no shortage of smart accomplices to fill in the blanks.

I’m done with my coffee and realise it’s time to call it a wrap.

Schwarzman leans back in his chair and for the first time I spot his watch. For someone worth billions he isn’t sporting a gold Rolex or a Patek Phillipe or even an Apple iWatch. On his wrist is a battery-operated, plastic 30-dollar, 2004-model Swatch called the Cite Corsaire with the image of a Church in St Tropez on the dial. He doesn’t say it in his book but perhaps that is the sort of grounded, value-driven focus that you need to drive the best returns.