Schwarzman Says Selling BlackRock Was ‘Heroic’ Mistake

Schwarzman Says Selling BlackRock Was ‘Heroic’ Mistake

Steve Schwarzman said his decision 19 years ago to sell what would become the world’s largest money manager was a “heroic” mistake. Schwarzman, who runs Blackstone Group LP (BX), the largest manager of alternative investments such as private equity, in 1994 sold a mortgage-securities unit with $23 billion in assets to PNC Bank Corp. for $240 million. Schwarzman, Blackstone’s co-founder, had disagreed with the group’s leader, Laurence Fink, over methods of compensation, and the men parted ways. The unit, which traded mortgages and other fixed-income assets, changed its name from Blackstone Financial Management to BlackRock Financial Management.“That was certainly a heroic mistake,” Schwarzman, chairman and chief executive officer of New York-based Blackstone, said in an interview with Arthur Levitt airing on Bloomberg Radio on Oct. 6. “We all stumble on and have some success. But it’s a humbling experience to see what you don’t do right.”

Today, BlackRock Inc. (BLK), which Fink leads as chairman and CEO, is the world’s largest money manager, overseeing $3.86 trillion in assets, dwarfing Blackstone’s $230 billion. It has a market value of $46 billion, compared with Blackstone’s $28 billion.

Schwarzman, who is ranked 137th on the Bloomberg Billionaires Index with a net worth of $8.8 billion, personally had a stake of more than 9 percent in the business when it was sold, which would be worth more than $4 billion at the New York-based company’s current market capitalization.

‘Biggest Issue’

Levitt, who interviewed Schwarzman, 66, in two parts at Bloomberg’s headquarters in New York, is a director of Bloomberg LP, parent of Bloomberg News. He was the longest-serving chairman of the U.S. Securities and Exchange Commission, leading the SEC from 1993 to 2001.

Asked what worries him most in the current environment, Schwarzman said dysfunction in the U.S. government, such as disagreements between and within the White House and Congress regarding debt, health care and taxes, hinders all businesses.

“It’s now become almost structural uncertainty,” Schwarzman said in the first part of the interview, which aired yesterday. “The biggest issue that worries me is just overall effective functioning of the U.S. government. The periodic crises and dysfunction in Washington creates problems for all of us.”

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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