[S3E5] King of Capital

Welcome to business books and company. Every month we read great business books and explore how they can help us navigate our careers. Read along with us so you can become a stronger leader within your company or a more adept entrepreneur. This month we read king of capital, the remarkable rise, fall and rise again of Steve Schwartzman and Blackstone by David Carey and John Morris. King of Capital is more than just a book about Blackstone. It's a history of private equity. Carey and Morris explained the sometimes esoteric world of this segment of high finance. They recounted cycles of booms and busts from the 1980s through the explain how Blackstone navigated the sometimes tumultuous waters to ultimately become one of the most influential alternative investment management companies in the world. But before we get into the book, let's introduce ourselves.

Hi, I'm David Short. I'm a product manager.

Hi, I'm Kevin Hudak, chief research officer at a real estate research and advisory services firm.

And I'm David Kopeck, an assistant professor of computer science. Let's start with the basics. What is Blackstone?

Blackstone is an alternative assets investment management company known primarily for private equity. In addition to PE, they are also a major real estate investor investment bank, and they operate a variety of other funds. They have a total of $881 billion under management and a market cap of $150 billion.

And the two founders of Blackstone are Steve Schwartzman and Peter Peterson. Let's learn a little bit about Steve Schwartzman.

Yes, Steve Schwartzman is the chairman and CEO of Blackstone to this day. He was born in 1947 to Arlene and Joseph, a linens and housewares store owner where Stephen worked while growing up. He graduated from Yale in 1969, where he was the first jewish member of Skull and Bones, and then Harvard Business School in 1972. After a brief stint in the army reserves, Schwarzman first worked in financial services at DLJ, Donaldson, Lufkin and Jennrette before joining Lehman brothers, where he had a stratospheric career, making MD at 31 and becoming the global head of M and a before leaving to found Blackstone. He became notorious for his lavish parties, including a $3 million birthday party featuring Rod Stewart and Martin shortly before the company was seeking to go public, which ended up inspiring a lot of congressional attention on the PE industry and the immense wealth being concentrated in the hands of these masters of the universe.

And the other founder has quite a different Persona. Who's Peter Peterson?

So I'm happy to introduce Peter Peterson, in part because he was a bit more political in the DC metro area. Where I am right now. But essentially, Peter Peterson was from Nebraska originally, but was the chairman and CEO of Bell and Howell from 1963 to 1971. He was then here in DC, like I mentioned, as the us secretary of commerce from 72 to 73 under Richard Nixon. And it was an interesting stay that he had there, despite being a more political person and the diplomat of the group. When you look at him and Schwartzman, he actually didn't have a lot of luck in the Nixon White House eventually, and ended up moving to Lehman Brothers, actually, after his stint in the White House. So from 1973 to 1984, he was chairman of Lehman Brothers, where he was somewhat described as being a bit of a fish out of the water in finance world, having come from this more policy and public service background. But that also brought him a different perspective that I think served him well. And so by 1985, he founded Blackstone alongside Schwarzman, as we've discussed. And really, it seems like Peterson was the one who brought the early pomp and momentum to Blackstone in its early years, being a bit older by about 20 years or so than Schwartzman, having that political establishment, having connections to some of the movers and shakers there as well. Morris and Kerry. The book's authors describe him as a bit more remote, cerebral, preoccupied was the word that he used. So despite being political, he often didn't really pick up on political headwinds or tailwinds. Right. He lost that clout in the Nixon White House. And even at Lehman Brothers, there was a coup that was being basically uncovered behind his back, and he didn't notice, despite having more of those political instincts. I'd also say that he was a bit more hands off in the day to day decision making. When he was at Blackstone, he still blessed the deals, looked at the deals, but he was a sounding board for Schwarzman as well. But he was always a bit more in the background of the book and in the background of Blackstone, a Schwarzman really took over the day to day. I would note that he was also a founder and principal founder of the Peter G. Peterson foundation, which is dedicated to promoting fiscal austerity. And unfortunately, he did pass away in 2018. But I'm sure he's fondly remembered by his family and colleagues at Blackstone.

Yeah. To me, Schwartzman kind of felt like a hustler a little bit, and Peterson always felt like a statesman.

I love that idea. Dave, the elder statesman.

Yep, absolutely. Let's get into something else that's pretty basic. What is private equity? Because I don't think all of our listeners are familiar with the world of finance.

Yeah. So private equity really just means equity that is not part of a publicly traded firm. So a company that has gone through either an initial public offering or taken other steps to become a publicly traded firm, which requires a lot of disclosure, private equity really just means it's not open to the public. And it means that typically to make private equity investments, you need to be considered an accredited investor, which has particular either credentials that you can earn or financial stability and income that you can demonstrate in order to be considered eligible to invest in private equity. When we think about private equity, there are private equity funds, which Blackstone is arguably the largest, one of the largest firms in that space. But there's also venture capital, angel investors. Those are all different kinds of investors, investors that are making private equity investments.

Trey and private equity firms often acquire companies using whats called a leveraged buyout. How does a leveraged buyout work exactly?

I think thats one of the key differentiators between some of those other players I was talking about. In an LBO, a firm will issue debt backed by the company that theyre acquiring and use that to purchase the company. If I wanted to buy David Kopecs business, instead of me borrowing money on my own credibility, I would instead be borrowing money based off of the new company that im going to acquire with it. And then im able to buy that company without having to put in nearly as much equity. And so the private equity industry, when it first started in the eighties, was able to do very low dollar commitments upfront in order to buy very large businesses. And over time, the banks and other institutions did sour on this a little bit and did require private equity to put in more and more equity upfront. But at the beginning, it was sometimes 10% or less of the value of the company was coming from that equity investment. And the vast majority of the purchasing price they were paying was from typically junk bonds. And there were other sort of debt financing instruments that they used in order to gain that leverage in order to complete the buyout.

Okay, thanks for that explanation. And keeping that in mind, that whole practice has actually historically been somewhat controversial as well as the whole industry, private equity has been somewhat controversial. Why is that? Why is it controversial?

Yeah, I'm happy to feel that, Dave, whether it's movies like Pretty Woman where Richard Gere plays a corporate raider, or even going back to the movie Sabrina with Humphrey Bogart and later Harrison Ford, when you think about private equity in the public imagination, it's always been that big money monster buying up small companies with very little skin in the game, as Dave mentioned, and really making money no matter what happens to the company. A lot of times some of these acquisitions are also unwelcome or hostile, like we had mentioned earlier, particularly in the early days of private equity. Toys R Us is a great example where on its acquisition there's promises, protocols around keeping a beloved american brand solvent and open, and then seven years later, it's gone. It's easy to see how the industry as a whole has taken on some reputational baggage with stories like that. But I'd also say at the same time, in a lot of situations that private equity has been involved, they do give the companies, they acquire access to cash, markets, resources, even expertise that they do, in fact, need if they're going to transform or meet an immense challenge. It's just that the big thing you hear about are the companies that haven't risen to those challenges more than the kind of good stories. It seems like from the book that Blackstone really wanted to be something different than the gamblers, hustlers, raiders, the activist investors that are profiled in the book. And I think some of that was that combination of Peterson and Schwarzman that you mentioned before in some of these private equity groups. And I would imagine Blackstone wants this, too. They want to be seen as enabling and empowering management. The book mentions that quite a bit. We didn't really see a lot of it, though. It's almost like they kept teasing us with stories of where PE empowers management. We didn't see that in a lot of cases. I would have liked to have seen that more.

Yeah, actually, one of the things I really learned from this book was that distinction between corporate raiders and private equity that I hadn't really previously understood at the beginning. That was their real differentiator was, hey, there are these corporate raiders. They're going to come in and they're going to strip the business for parts of, we are cooperative with management. We're not going to fire the current CEO. We're going to come in and give that CEO the power to not be beholden to the public equities, markets not being focused on each quarter's returns, but instead being able to think long term about the company. And as we see in a lot of the deals over time, the degree to which these private equity players were always on the side of management changed and eventually money talks. And they chose to do aggressive tactics and things that at the beginning of their careers they were claiming was completely different from what their business was.

So these leverage buyouts often happen with very little upfront equity relative to the amount of debt. How is that debt raised? You mentioned earlier, junk bonds. David, Im wondering if either of you can get more into where this debt comes from.

Sure, and Im happy to talk through some of that. We talked about, Dave, the idea that these firms are loading up their acquired businesses with debt, that gets to my skin in the game. Comment earlier and as short explained, the purchase of a given company is typically done with funds acquired through the use of the target company as collateral, collateralizing the target company. While these private equity groups and companies are raising capital from insurance companies, pension funds, endowments, other institutions, they still have to raise that money in the form of debt. So Morris and Kerry described the early days of the high yield debt or junk bonds that were actually innovated by Michael Milken. I also note that it's really relationships with banks. Relationships with a lot of these funds are super important, and they can often make or break these private equity groups. Morris and Kerry describe Blackstone's early symbiotic relationship with chemical bank and a young upstart commercial lending chief named James Lee. So chemical bank, which would then go on to become the much better known giant JPMorgan Chase, was actually not big enough at the time to finance some of these larger buyouts. So chemical bank in James Lee would give Blackstone some of that debt firepower to tackle some of the biggest booms, some of the biggest busts as well. It's funny, I remember my dad having a chemical bank credit card back in the day when we were in the eighties in New York. And so that was definitely a blast from the past.

So the book is seemingly about Blackstone and Steve Schwartzman, but really it goes into the entire private equity industry. But let's focus in a bit just on Blackstone. How did Peterson and Schwartzman start? Blackstone?

Yeah, so Blackstone was founded by Steve Schwartzman and Peter Peterson in 1985. As wed already mentioned, they had worked together at Lehman Brothers, where Peterson was CEO and chairman, and Schwarzman was the head of M and A. The name of the company itself is a cryptogram of the founders names. So Schwartz is German for Black, and Peter comes from the greek word for stone. Petros Black, stone, Schwartz, Peter. While the founders always intended to raise an LBO fund, they initially worked as a boutique M and a advisor. Because neither of them had actually done a leveraged buyout at Lehman. They'd sort of been pushing for the firm to do it. They'd gotten pushback from the other partners, and it was why they had ultimately chosen to leave. They were forced to actually give a significant amount of their profits back to Lehman, particularly if it was related to any clients that they'd had as Lehman partners. And that was something that they agreed to do, essentially to get out of their obligations to the firm. In 1987, two years after the founding, they were able to close their first LBO fund, and they got significant commitments from prudential, japanese, Nikki securities, and the GM pension fund. But that was when they were able to actually step into the private equity space with that leveraged buyout fund.

I'm going to again ask for a little bit of clarity for our listeners who are not familiar with finance. Can you please tell us more about what M and A is? Mergers and acquisitions.

Yeah. So mergers and acquisitions is a part of investment banking, where investment bankers are giving advisory to companies that are seeking to know, merge with another business or acquire another business. And so a large public company is looking to acquire another large public company or perhaps a small private company. They will go to an m and a advisor, and that person will structure the deal, help come to the terms, potentially finance part of it, and essentially just help bring that deal to a close.

Trey, throughout this book, we learn a lot about the history of private equity and some of the good times and bad times. Can you tell us a bit about some of the notable booms and busts for private equity as the industry progressed over the past few decades?

Trey? Yeah. When you look at the founding of Blackstone in 1985, that was really one of the golden eras of private equity in its early founding days. Right. In 1986, that was clearly a boom year and a big inflection point for leveraged buyouts and private equity. With the KKR acquisition of RJR Nabisco in 1988 being one of the, the large Hallmark banner transactions of the time, id then say that 1990 through 1992, the book describes as a bit of a bust. That RJR Nabisco deal, which was one of the biggest at that point, was showing a lot of strain. It was a company in crisis a bit, and a big investment bank named Drexel Burnham Lambert collapsed as well along with it. That early junk bond, high yield debt market that we had talked about. And then about 1992, that was a bit of a resurgence for the industry. There were some big notable deals that happened, including Dwayne Reed, J. Crew, Domino's, even regal Entertainment, the movie theaters. I'd then say that that 92 to 2000 time was really obviously the start of the Internet era, the tech boom the authors mention how it was a big deal when Microsoft supplanted GE and GMDH as one of the world's largest companies. And as a result, you really saw a lot of private equity and venture capital organizations supporting the rise of many of those tech titans. But then, of course, in early 2000 to 2003, we had the burst of the Internet bubble, and that caused a private equity crash as well. 2003 2007, as the book describes, was a bit more of that pre recession, sort of the glory days of private equity, which then went into that big bust year. In 2008, annual private equity volume, I remember, went from about 375 billion to $189 billion. So a really big slip there. But as things have recovered since 2008, private equity activity has obviously been rising. Covid-19 likely slowed that down for a bit, affected world markets overall. But some would say that we're entering another golden era for private equity as well. But I'm happy to share that history. And what I would say that the book really did well is, albeit a bit redundant. It really did go through that timeline. So as part of the preamble or the promise of that book, it fulfilled it and giving people, even laymen like myself, a good background and a timeline of the history of private equity.

Great. Thanks for that, Kevin. There's a lot of interesting vignettes in the book. Some of them are about particular companies that they took private. Some of them are just interesting things that happened in the industry. Can you tell us what your favorite vignettes were from the book?

Yeah, so one of the vignettes that I already mentioned, I really liked this Jimmy Lee or James Lee at Chemical Bank. I love how essentially the folks at Blackstone really had him on speed dial. Anytime they needed some creative and powerful deal terms or they needed to really work with a complex transaction, they'd go right to him. And I sort of imagined Peterson and Schwarzman sitting there and saying, get Jimmy Lee on the phone on the line right now. That's what it felt like in terms of vignettes from some of the companies that they acquired. I always thought the Six Flags example was really interesting. It was one of their largest ever investments at the time, in the early nineties at about 1.3 billion. I believe that did go on to be a very good long term relationship and a partnership for Blackstone. And I would say that's one of my favorite vignettes in the book. As long as they weren't responsible for that creepy old man character that did start showing up in Six Flags ads back in the nineties.

One of the failed buyouts in the book is about free scale semiconductor, which is now actually part of NXP. It's interesting, too, in the book, because there's one buyout that's potentially going to happen of NXP, a different one for freescale. Ultimately, after the book was written, the two companies ended up combined. But Freescale was disaster for Blackstone. They purchased Freescale, and then they claimed that the failure was due to the cyclical nature of the semiconductor business. But I think what the book was missing, and I think what the people at Blackstone were missing were some real, like, long term technological insight into where Freescale was positioned in the microprocessor industry compared to some of its competitors, and how that would play out as cell phones really became the dominant computing platform. And I think for me, what it spoke to is how a buyout firm, if it doesn't have deep expertise and knowledge in a particular industry, might be getting in over its head. And you really need to specialize and have this kind of deep technological understanding when you get into semiconductors, which I'm not sure it's clear from the book that they really had, it seemed like they were more very opportunistic about trying to take NXP or free scale, rather than thinking about, well, how are these companies well positioned for the next evolution of computing? And that's something the book could have gotten more into. But, of course, there's so many vignettes, the book covers that they didn't necessarily have the pages for that.

Well, I touch on this in every episode, but I always talk through the importance of talent. Right. And it seems like, to your point, Dave Kopeck, on the subject matter expertise, they had a number of sages as partners at Blackstone, and it was interesting how the departure of one or three of them, and at one point in the nineties, Blackstone really took on the reputation as a high turnover outfit, essentially. And it was interesting the lengths that Schwartzman and Peterson would go to keep some of that top talent, the sages who really understand the industries and can make the deal. In some cases, they would say, well, we embrace that idea. We want to set you up with an affiliate, spin off, an affiliate like Blackstone Real Estate, which later became BlackRock, but they fund that early investment in that affiliate. Some of them went on to have great success. Others actually failed. But I think it's important that to maintain that subject matter expertise, they were willing to go that far to keep their people, because obviously, Dave, like you were mentioning, with freescale, when you don't have that SME, it can cause catastrophes.

Yeah. It's interesting that you bring up Blackrock. They didn't go into it in too much detail in the book, but they ultimately sold Blackrock for, I think it's like, $250 million to PNC, who ended up making, like, two and a half billion dollars on it over the subsequent few years. And so Schwarzman listed as, like, one of his great, like, boondoggles. It was like, it was. It was really a culture clash. Larry Fink really felt like, you know, he deserved all the credit for the success of the business, which. Which he did. And he and Schwarzman were just, like, sort of at loggerheads a lot. And so they ultimately, you know, sold out the Blackstone ownership, and it was not a while. They made a lot of money. It was not the best decision.

I also like that you brought up this idea of sages, because not all the sages were always so worthy of the title. I think, about specifically David Stockman, who was a former Reagan administration budget czar who had this kind of very conservative outlook on just about everything and was like a big naysayer within the firm on a lot of deals. And it seemed even though he was there for, I think, more than a decade, it seemed like he was wrong as much as he was right. Maybe he was even wrong more than he was right on the deals. And this isn't, like, venture capital, where you're doing, like, you know, 100 bets, and you only need to get one of them right to really be successful. This is, like, where every deal really, really matters to the bottom line. And so to have somebody who might be, like, super right sometimes, but also super wrong a lot doesn't seem to really work that well for private equity. And I. I don't know. It seems like Stockman maybe not just if you don't just take the deals that he had, but also how he might have influenced some of the other deals that he wasn't involved in.

The.

He might have actually been a net negative on the firm. It's almost written between the lines. So it's interesting how you really need somebody who's a sage all the time, not somebody who's kind of right a lot of the time.

Yeah. And I thought that was really well handled in the book, too. I wish they had expanded that section where they went into Stockman, and it was almost like he was looking to brand his investment advice and his investment leadership. When you think about it, he went with this kind of this, it ended up being called heartland investing, I believe. But he was really focused on american rust belt style companies almost, and in the end it ended up being a bad bet. But I thought it was interesting how he was almost branding his leadership and his direction with this sort of rust Belt Americana focus. And I guess you start having some cognitive pitfalls when you look to have a story or a narrative to some of your investments. The other thing I wanted to mention, too, Kopeck, you had mentioned the difference between the venture capital planting seeds versus the private equity industry, and I really enjoyed one of the comparisons they made was really saying private equity is more like football on the field. It's a game of inches and you are constantly trying to push the ball forward and it requires really intelligent, sharp decision making every single play. I thought that really, really resonated with me. Whereas venture capital was just throwing the ball as far as you can and seeing if someones going to catch it and youre throwing it multiple times.

Trey, thats interesting. Another vignette I really enjoyed was Blackstones acquisition of equity office properties EOP Sam Zells real estate fund. And they ended up completing the acquisition in 2007, basically just before the housing crisis hit and the real estate market collapsed. And so its this notorious top of the market. Sam Zell is a genius. He managed to get out for, I forget what the numbers were, but tens of billions of dollars just before the market was going to fall out from under them. So that was the way I had heard about that in the past. But as you learn more about the investment, Blackstone had already sold the vast majority, or maybe not the vast majority, but enough of the properties that they could basically guarantee their success in the investment, regardless of how badly the real estate market did over the next few years. So even though they bought the top, they also simultaneously sold a lot of the key properties and were able to pay down a significant amount of the debt that theyd had to take out and pay themselves a dividend such that they did end up, I think, doubling or tripling their money. It wasnt one of their most successful investments. They certainly looked bad in the press as relates to it. But even though it seems like it was a really dumb deal, they had structured it in such a way that it was kind of guaranteed to win.

Definitely a lot of interesting individual deals in the book. Unfortunately, the book doesn't ever get into a huge amount of depth on any one deal because it just has so much to cover. But thinking about Steve Schwartzman and Blackstone, what do you think it is that made them so successful over decades in this industry?

Yeah. And ill start on this one when you think about, and im sure you guys have some ideas around this as well, but they mentioned cost synergies in the book and how cost synergies are important to the success of a deal. But what I also thought of were what I would call people synergies and those being super important to success. It really seems like the combination of Schwarzman and Peterson was very powerful. You have the pragmatic executioner and Schwarzman and the savvy people, person, diplomat, international relations expert as well in Peterson. Blackstone I feel like seemed to have always made the right relationships, the right partnerships at the right time. Think about Jimmy Lee and Chemical bank and what I had told you as well. I think Schwartzman always had a very narrow focus on the preservation of capital. He would get very personal when it came to the money, as in if I gave you this seed money for an affiliate of Blackstone that were spinning off with you in charge and you lost me money, it was a very personal thing. And I think that likely, obviously probably gained some scorn and difficulty at the organization, but it also probably gained him a lot of respect. People did not want to lose the firm's money. It was his money, and he really kept track of it. He was focused on the preservation of capital. And as I mentioned before, just the fact that they spun off a number of those funds and businesses like Blackstone Real Estate, which became Blackrock. When they heard a good idea, it sounded like Schwarzman and Blackstone and Peterson, they really backed up their talent with startup funds, support that subject matter expertise. It seems like when Blackstone heard a good idea, they really committed themselves to it. Obviously, there's hits and misses, but I think they always did a good job of that. And I think it was evident from the book that it helped make them so successful.

Throughout the history recounted in the book, Blackstone is structured as a partnership. What does that mean for practical purposes?

Yeah, for that. I know that when you look at 2019, their ipo was originally in 2007, but in 2019, they went into more of a typical C Corp structure. I think there's some tax impacts from recent legislation in 2017 that drove some of that transition. But either way, in the old partnership structure, the partners would directly bring home a percentage of those profits from their funds, from their management fees, etcetera. And they were taxed as individuals. But as we mentioned in the top of our podcast, really, if you were a non institutional investor, if you were not that accredited, investor, you would not be able to work with Blackstone on some of these funds and structures now. And as ive been seeing news coverage with Schwarzman, what hes essentially saying is, more practically, in this new structure, non institutional investors, a bigger pool of domestic and international investors as well, can now invest with Blackstone, essentially, and work with the company for financial growth. Right. And this is exactly what Schwarzman brought up. It opens that pool of potential investors, that pool of potential growth. And a lot of the other private equity organizations are doing this as well, like Apollo and others as well.

One of the unique things about the Blackstone partnership was the way they structured the deals. So the partners who executed on a deal did have direct ownership, even if they chose to leave Blackstone. So it was kind of a weird dynamic that whatever deal you had put your imprimatur on, that you had actually sort of leddehe, even if you left Blackstone the next year, you still owned that piece of the deal. And it actually created a lot of problems when they were trying to take Blackstone public of how do you go about valuing those things? How do you pay out the partners so that that equity can then be put into this public fund? And they had to go through a number of sort of different permutations of what the IPO structure was going to be as the Congress and the SEC started to ask some questions about the structure that they tried to propose. So it was an interesting dynamic of the specific decisions theyd made about the way Blackstone worked, which was very good for the partners in a lot of ways, but not necessarily great for the firm that, again, those individual partners did have their own ownership of each of the investments.

Trey Schwartzman and Peterson became fabulously wealthy doing Blackstone. Do you think if it hadnt been structured in that way, that their compensation would have been different?

I think equity is the key to incredible financial success for pretty much everyone in history. It's very hard to become fabulously wealthy without owning equity and something that ultimately becomes very valuable. I think the structure of the partnerships allowed Schwarzman to maintain an incredible level of control that in any other structure, he probably wouldn't have been able to. So I would say that it probably was key to his personal success. And Peterson got a lot along the way, although he was diluted over time and obviously became a billionaire, but just not as many times over as a Schwarzman.

Yeah. And I'm also wondering, you guys can correct me if I'm wrong here, but I remember reading that Blackstone actually had a pretty novel bonus structure for the time, right where your bonus back in the eighties was based on your actual performance and not just based on your existing compensation. And so I think from the perspective of Dave Kopec mentioned this extravagant wealth, it also seemed like at Blackstone that they were sharing the wealth as well in different and dynamic ways, including that novel bonus structure.

Okay, were there any elements of the book that you found unconvincing, inconsistent, or off putting?

I would say not things that I found unconvincing or inconsistent or off putting, but just some general reaction along those lines. We've talked about this earlier in the podcast, but when you look at the book, in seeking to provide that history, that timeline from 1980 all the way to 2000, 920 eleven, it really is a mile wide, but an inch thin or an inch deep. And I really would have preferred a bit more drill down into some of these takeover and buyout stories and what ultimately happened to leadership at these firms, their employees? We heard a lot about pink slips every now and then, but we really never had any firm numbers around what success looked like and how it actually empowered leadership and management and enabled employees to actually reach that american dream. So that's a bit more of a soft factor. In the past for some of these books that we've read, I always talk about that cinematic nature that I really like, and there were episodes in this book where I thought that it was good, others where I thought it was a bit cheap. So, for example, I loved when they were explaining the difference between the private equity executives and venture capital executives, the venture capitalists being in the khakis in a polo shirt, driving their own cars, I sort of liked that imagery and that explanation. But then when they talked about Leon Black from Apollo being a, quote, towering man with the intimidating bulk of a linebacker, or even talking through the Hermes ties and getting to what Kopeck mentioned as that, the world of extravagant wealth, some of that just went a little bit over the top and was off putting to me. But the broader criticism I would have is just on that mile wide but an inch deep. I would have liked to have seen some more. That was a bit off putting.

Yeah, I really agree. I enjoyed this and I learned an incredible amount from it. But it wasn't the book I was expecting it to be. Honestly, I just think it was poorly named. I think it's not really very focused on Blackstone. It certainly tells more about Blackstone than any other firm, but it's much more just a history of private equity. Except for KKRS acquisition of Nabisco which I think because there was already a famous book about that they kind of just decided to gloss over and they mentioned it a little bit, but they don't go too deep into barbarians at the gates story. So I enjoyed it. I learned an incredible amount about it. But I think if it had just been called private equity a history, I probably wouldn't have read it, though. And that is more accurate description of what it really is. And to Kevin's point, very much a mild, wide, an inch deep. They do go into a little bit more detail about some of the stories, but towards the end, they literally just have these, like, bold. Here's the name of a company, here's like five paragraphs about what happened. Next company, next company. Like, just like every deal that was over some threshold, they just kind of give you a little taste of what happened. But, yeah, I don't want to get ahead to some of the other questions we'll talk about later, but definitely did find that a little bit off putting.

Ian, to your point, short as well. It's almost like we have Peterson and Schwarzman sort of disappearing at times from a story that I thought was ostensibly about them or driven by them.

Yeah. So if you read the acknowledgements, they actually explicitly say they were originally writing a book that was just about the history of private equity. And one of the editors at their publisher convinced them, well, to make this more interesting, you really should focus in on just a couple maybe. And then they focused on Blackstone, Steve Schwartzman. But you can see kind of the genesis of the book and the history of the book and how it might have tried to evolve but didn't fully evolve from being just the history of private equity to just being about Blackstone and Steve Schwartzman. And I would agree with both of you. I mean, I found parts of it very dry. I found parts of it kind of difficult to get through because they became kind of like a laundry list of deals. So that's something I found a little bit off putting. But thinking about the book, I think all of us learned a lot from it. What are your key takeaways?

Well, for me, I think it really came down to the power of the people right behind these companies, the synergy between Peterson and Schwartzman being absolutely essential. They are the quote, unquote, odd couple, but it did create something that was quite transformational for the economy, for markets, et cetera, and for these companies. I also think a takeaway for me was that it seems like these private equity folks will say it's a good year or it's a good cycle when money is moving very quickly and being made even quicker. I want to have some more notes in this book, like we've mentioned before, about the actual internal workings of the companies, their success, their failure rate, etcetera. I know, and I have a feeling that this structure, and one of my takeaways from this book is that this structure is good, unique and transformational. But I really wanted Kerry and Morris to prosecute that point with some evidence and not just redundantly list some of these transactions as this oral or written history of alternative investing. And then we've mentioned Stockman earlier and making some poor decisions with regards to, for example, the Rust Belt companies that we were talking about. But I also would have liked a bit more clarity around what does good leadership in this world look like. We started getting there with the Schwarzman and Petersons of the world and the profiles in the book, but really, what does good leadership versus bad leadership look like? What does good judgment versus bad judgment look like? I didn't get that as a takeaway here, and I would have really liked that just in terms of being a business self help book. We really didn't touch on that in this book. It was more along the lines of those profiles. So maybe it's me just needing to be hit over the head with what my takeaway should be. Enjoyed it. But again, key takeaway being it's the power of the people.

I think it was interesting to learn about the structure of Blackstone because it was something I hadn't really read up on previously. I guess I'd heard about Blackrock and its spin out as having been a partnership, but the fact that Schwarzman was able to bring in these titans of finance and basically just cut a deal with them where we're going to create a new partnership, you're not going to be part of Blackstone. You're not going to get any of the benefits of the business that I've actually built, other than the name and a little bit of back office, whatever sort of capabilities. But you are going to get a very large percentage of the equity in this new business, and you are going to be expected to deliver on that. That was incredibly successful. They hit it out of the ballpark time and time again. I think maybe they had one of those that didn't succeed as much, but basically every one of those new ventures, new partnerships, were able to be very successful by giving a lot of equity to this new person who had a different set of skills, knew a different part of the market than what Schwarzman and Peterson and the current partners did, that dynamic of creating a mini conglomerate within the financial services space by bringing in individuals that have a new set of skills and then empowering them to deliver by really just having a partnership with them. I thought that was really interesting, and I'm surprised that more firms didn't echo it, given how successful it was. But maybe you do need the stellar brand that Blackstone already had to even be able to engage in that.

Trey, I'd say the key takeaway for me was something that David mentioned earlier, which is the difference between a corporate raider and a private equity firm, which actually has management on its side and is coming in to do a deal that might actually be quite beneficial to the existing management structure. So there doesnt necessarily need to be this adversarial relationship between the folks who are doing the buyout and the folks who are being bought out. So that was really enlightening for me. Is there anything else that you want to say about the book?

Yeah, we had mentioned this earlier, but really the opening of the book, and I mentioned how it seemed like Schwartzman and Peterson had disappeared in their own book. But I really thought it started promising with that profile of that very extravagant Schwarzman party that he had hosted. I believe that was the one with Rod Stewart. And I definitely enjoyed that kind of personal vignette. I wish they went a bit deeper with some of that. It seemed like an episode of billions at first, and this was going to be, I said, the power of the people, but this was going to be a story about that give and take between Schwarzman and Peterson. I think that would have been interesting. But again, it turned more into that timeline, that sort of written history and transactional history of this industry from the 1980s through the two thousands.

I really like that idea, Kevin, because the contrast between Schwartzman and Peterson and how they worked together well in the eighties, and eventually that relationship seemed to really fray in the 1990s. Digging a lot more into that would have been very interesting because they seem like two people who have pretty different worldviews and also different management styles, and how each of them was effective or how they had a nice symbiosis could have been a very interesting thing for the book to get more into.

I also think, Kopeck, that when you look at this book and you look at the Schwarzmans and Petersons of the world, it's very important. I'm probably inarticulately phrasing this, but that's almost like the role of policy diplomacy versus the financial, economic engineering. There's Petersons, there's Schwarzman's in the world. And I think the actions of these people, the views that they have of each other, really matter to the public arena. And so if this book had gone a little bit into that, I think it would have been super fascinating to show how the differences and the give and take between these two founders of one of the world's largest private equity firms really relates to the broader discussion about the economy, about markets, and about market moving figures.

I love that. Okay. Thinking about the book as a whole, do you recommend it? And if you do, who should read it?

So I think I would recommend it if you are looking for a history of private equity. So I think that is really what this book is. I thought I learned a lot about the history, and there were a lot of things that I didnt know. So it had a lot of valuable information. But I think weve kind of had the conversation throughout that it was a little bit dry. It did at times become literally almost a list. And so think of it as private equity, a history, nothing. The rise and fall and rise again of Steve Schwartzman and Blackstone, because that makes it sound much more like the book that Kevin was describing than the one that they actually wrote.

Yeah, and to shorts point, too, he basically said that he would only recommend this to folks who want a timeline or this history of private equity. I would say who I would not recommend this book to, and that is people who want a self help or a self growth business book, which I know is our mission here at business books and company. I would not recommend this book to our core listenership, those who are really out there to learn skills, learn stories and anecdotes that will elevate their own business game. I would not recommend that at all to them, but I would say that it is essential reading for those who are in private equity, those who likely know a lot more about this than we do here around the table. I would also say that Kerry and Morris, they do a good job because they don't assume their reader knows the ins and outs of the private equity game. They helpfully explain some of these headier concepts throughout their book, and that made it very educational. It made it very interesting. But again, I wouldn't recommend it to anyone outside of private equity, and I certainly wouldn't recommend it for folks who are looking to actually change their own business behaviors, change their own mindset and skillset for the benefit of their current job, their current organization. But it didn't stop it from being enjoyable at times and interesting at times. So I'm grateful that we ended up reading it, but again, wouldn't recommend it to folks outside of private equity.

Yeah, and I agree with that. I mean, the book has its interesting points, but most of it is rather dry for most people. It is not going to help you with your career. So you should really only read it if you are very interested in private equity. You dont need to even be specifically that interested in Blackstone or Schwarzman like David mentioned. You just need to be interested in private equity. And its a great book for you, but for most people, its probably not going to help you that much with your career. And most people would probably find it somewhat dry. Next month, were going to be reading the the story of Paypal and the entrepreneurs who shaped Silicon Valley by Jimmy Sony. This is a book about the early days of Paypal, and it really gets into the personalities of the founders, people like Elon Musk, Reid Hoffman, Max Levchin, Peter Thiele. So im really excited about it. I think its a good follow up to the book we did about the early days of SpaceX and Elon Musk earlier in the season.

That was awesome.

Anything that you want to plug and how can listeners get in touch with you?

You can find me on Twitter avidg.

Short and you can find me on twitter hudaksbasement. H u d a k s baseman.

Dont forget to subscribe to us on your podcast, player of choice and well see you next month.