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In 2020, Blackstone Group co-founder and chairman, 73-year-old Stephen Schwarzman, embarked on a transatlantic livestream to sell his book. Over 50 political and business leaders wrote endorsements for his book “What It Takes: Lessons in the Pursuit of Excellence,” with recommendations from Zhou Xiaochuan and Jack Ma printed on the belly band. There were also peak dialogues via video link with Stephen Schwarzman by Zhang Lei, founder of Hillhouse Capital, and Neil Shen, global managing partner of Sequoia Capital.
Founded in 1985, Blackstone Group has averaged a 33% return on investment over the past 30 years and has already become the “uncrowned king of Wall Street”, with assets under management of $571.1 billion as of 2019. Schwarzman is seen as an exemplar of the “American Dream”, having started from scratch. He is a descendant of Jewish immigrants, with a personal fortune of $15.9 billion, and is a confidante and “latest BFF” of Donald Trump. What kind of younger days did he have?
In an interview before graduating from college, when asked what he wanted to become, Schwarzman gave a unique answer. “I want to become someone like a telephone switchboard, to collect information from countless phone lines, categorize it, and then send it to the world.”
He spent his life perceiving information from the world, seeking patterns. This progressive process is like the TV show “Name That Tune”: the more songs you know, the more likely you are to recognize a song from just a note or two. You become like an experienced clinician who can diagnose a patient’s problem before seeing all the test results.
Schwarzman, Zhang Lei, and Neil Shen are all investment leaders who graduated from Yale University, but few notice that Schwarzman got into Yale on the merit of his sprinting. He always ran the first leg for his high school relay races, and his best record was a state championship and fourth place nationwide.
Investing and sports share basic logics, requiring experience, endurance, and the tolerance of pain. The loss and gain of a few events don’t mean much; it’s the long-term strategy of unity of knowing and doing, research, execution, and discipline that presents the chance to win.
This experience of “running laps all winter long” in track training had a long-term impact on Schwarzman’s life and investment journey. In countless investment negotiations and life decisions afterwards, he always remembered his high school track coach, Armstrong. The coach’s message was simple and consistent: “Run with all might.” He neither threatened nor praised blindly but encouraged his athletes to consciously discover their inner goals.
Throughout his career, Armstrong’s track team lost only 4 times, with an overall win-loss ratio of 186:4. “We insisted on training under harsh conditions while our competitions did nothing in winter. When spring came, we were ready and won every race,” reminisced Schwarzman.
This experience taught the young Schwarzman the value of persistence; extra effort would undoubtedly bring unexpected rewards. The coach would always make him run a few more miles, and over time, this additional effort gradually turned into a firm belief and an unyielding spirit. This became Schwarzman’s intangible asset, always there when he needed it, which he later used to propel his investment career.
For instance, Stephen A. Schwarzman is quite fond of leveraged buyouts, which are far more complex than stock investments. First, it involves finding suitable acquisition targets, signing non-disclosure agreements with the owners, and obtaining more detailed information about the prospective enterprise, followed by due diligence. Next, comes the discussion with investment bankers to study the capital structure to ensure financial flexibility for investment even when economic conditions turn unfavorable. Then comes the selection of trusted and experienced executives to improve operations of the acquired enterprise. If all goes well, the debt invested early on will enhance the returns on equity when the company is sold.
Such investments require years of constant effort, outstanding management, hard work, persistence, and a seasoned team of experts. But if one can successfully perform leveraged buyouts time and again, one can reap significantly substantial returns, similar to Coach Armstrong’s record of 186 wins and 4 losses.
In his senior year of high school (which typically lasts four years in the United States), Schwarzman was elected president of the student council. During his tenure, he first experienced what it meant to be an “innovator.”
That summer vacation, the family went on a trip to California by car. With his mother driving and Schwarzman sitting in the back, a gentle breeze caressed his face as he pondered in his mind what he could do with his new position. He did not want to be just another nameless figure in a long line of student officials; he wanted to do something no one else had done or even thought of. In his heart, he designed a vision that was so exciting that the whole school would want to come together to make it happen.
During the trip, he finally had an epiphany: there were many music enthusiasts in the school, and all places with good acoustics, such as bathrooms and stairwells, became spots for students to listen to and sing songs. Their favorite song was Little Anthony and the Imperials’ “Tears on My Pillow,” which was particularly fitting for the teenage mindsetāwith tears on the pillow and pain in the heart.
Schwarzman thought that if he could invite Little Anthony and the Imperials to perform in the school gym, it would be a unique event. At that time, Little Anthony and the Imperials, based far away in Brooklyn, was one of the most popular bands in America, but Schwarzman had no money.
More than 50 years have passed, and the details of that time have become blurry. But at 73, Schwarzman still vividly remembers making many phone calls and leveraging relationships with many classmates’ families. In the end, Little Anthony and the Imperials came to Abington High School. Even today, Schwarzman often hears the music from that time echoing in his ears, the band’s performance on stage still vividly in his mind, with everyone’s heart blooming with joy.
Since then, he has believed that if you desire something enough, even without the conditions, you will always find a way to achieve your wish. As an ordinary student, he also cleverly used public opinion and the media to break the centuries-old overnight curfew at Yale; allowing the then all-male Yale students to watch the city’s highest-standard ballet performances for free together with female students…
His life has actually been repeating this one thingābeing adept at listening and keenly observing various needs, matching these different demands together, and creating a seemingly impossible win-win event.
Associate with the good, walk with the wise. This is especially true in investing, where one’s circle greatly influences their perspective and radius of capability, with the young Stephen A. Schwarzman placing great importance on building connections.
During his time at Yale University, he focused his attention on the “senior societies,” these secret clubs whose membership consisted of the most outstanding students on campus, with mysterious names like the Skull and Bones, Scroll and Key, Wolf’s Head, and Book and Snake. Prospective members had to swear never to mention the society to anyone else or discuss the internal happenings of the club. Out of these, the Skull and Bones was the most unique, and Schwarzman became one of its members.
Before graduating from university, Schwarzman felt clueless, so he wrote to Yale’s 1913 graduate Averell Harriman for advice. Harriman was also a member of Skull and Bones, and one of the “wise men” of American diplomacy, having served as the Governor of New York State.
Harriman subsequently invited him for lunch at his home, prompting Schwarzman to urgently purchase his first suit. During that meeting, Harriman gave his advice: “Wealth will have a major impact on your life. If you are interested in politics, I suggest you do your utmost to make money first. If you decide to go into politics, then money will ensure your independence. If my father hadn’t been Edward Henry Harriman of the Union Pacific Railroad, if I was not wealthy enough, I could not have ensured my political independence, and you wouldn’t be sitting here asking for my opinion today.”
His interactions with Jack Welch, who would later become the CEO of General Electric, reinforced Schwarzman’s belief that the most important asset in business is information. The more you know, the more perspectives you have, the more connections you can establish, the stronger your predictive abilities.
He described Welch in his youth as if his brain were hooked up to a vacuum cleaner, sucking up everything you knew. He was good at thinking, quick-witted, able to immediately understand the connection between two ideas, even if both were completely new to him. He was like Tarzan, swiftly moving through the trees with vines, never missing a grasp.
Schwarzman summarized that Wall Street and the business world are small. If you start with a top school or a large company and interact with the best of your generation, you will continue to encounter them in the future. “Many friends I made early at Yale, Harvard Business School, the Army Reserve, and on Wall Street are still my friends today. Friends made early in life, in unpredictable ways, greatly enrich it.”
It was also through the connections made while studying at Yale University that Schwarzman got his first interview opportunity on Wall Street.
A Yale classmate named Larry arranged an interview for him with Dillon Read & Co., as Larry worked in the Yale admissions office. Schwarzman had met Larry at a Yale reunion where Larry came with his family. Out of politeness, Schwarzman bought Larry’s son a set of “Babar the Elephant” books. Although the two were not very close, it was this act of kindness that led them to become friends, which also got Schwarzman the interview and his first job.
On his first day of work at the company, Stephen Schwarzman’s task was to analyze the annual report of the clothing retail enterprise Gnesko. This was the first time in his life he had seen such a report, and as he looked at the footnotes of the balance sheet talking about preferred stocks and convertible preferred stocks, subordinated debts and convertible subordinated debts, senior debts and bank debts, he felt as if he was reading a report in a foreign language, completely clueless.
To this day, when the name Gnesko comes up, Stephen Schwarzman still often gets chills down his spine and breaks out in a sweat, fearing someone might walk into his office, ask him questions, and pierce through his “fraudulent” identity.
His second assignment as a newcomer to the workforce was to investigate a newly-listed German sausage chain restaurant Zum Klient. This was the first company that Schwarzman visited, where he asked questions to the CEO and other company executives, but they were not very friendly and he received little information. That afternoon, the president of Teijin Securities found Schwarzman because people from the restaurant’s joint company reported him for gathering insider information.
“I only asked some questions, such as how many stores they had, the profit of each store, the expenses, and so on, so I could predict the future development of the company,” Schwarzman was baffled. The rookie at the start of his career couldn’t even understand the rules and boundaries of information disclosure.
When working at Teijin Securities, Schwarzman moved many times, renting apartments with no elevators and infested with cockroaches, some where you could hear trucks shifting gears all night. He mostly made dinner at home, boiling pasta with tomato sauce on an electric stove. He had no kitchen, and the bathroom was at the end of the corridor. One day, he invited a girl out for dinner and kept eyeing the menu while she was ordering, secretly hoping she didn’t realize he could only afford her appetizer and dessert. After bidding her goodbye, Schwarzman walked 50 blocks home, all the while contemplating when significant changes in his life would occur.
Schwarzman’s career began at Teijin Securities on Wall Street, and at the time, he didn’t even know what securities were, and his math skills were quite average. His twin brother would exclaim at every opportunity, “You, Steve? In finance?”
Although lacking in basic economics, Schwarzman was able to play to his strengthsāhe possessed the ability to build insight patterns, research new solutions, and create new models. It turned out that finance was the way for him to understand the world, build relationships, face major challenges, and fulfill personal ambitions. Finance also endowed him with the ability to simplify complex problemsāto solve complex problems, one only needs to focus on those two or three decisive factors.
After graduating from Harvard Business School, Schwarzman decided to return to Wall Street. The job-hunting interview didn’t go as smoothly as before. The First Boston Bank didn’t have a single Jewish employee in 1972; Goldman Sachs acknowledged him but was concerned about his strong personality and didn’t extend an offer.
Morgan Stanley only hired seven employees that year, and the president, Bob, gave Schwarzman the opportunity to be one of them. It was a huge honor, but there was an important condition attached: he had to change his personality. Morgan Stanley’s hierarchical culture was stodgy and old-fashioned, and Schwarzman couldn’t display his self-righteous, fervent radical self. He expressed gratitude for Bob’s invitation, but stated he couldn’t accept it, as he hoped to work somewhere that suited his own personality.
For Stephen A. Schwarzman, Lehman Brothers was more captivating. This firm did not solely recruit MBAs, but gathered a range of intriguing individualsāformer CIA agents, veterans, former oil industry workers, family members, friends, and all sorts of people. The design of each floor’s office was unique, with no barriers between the 30 partners and 30 managers.
At DLJ, Schwarzman wandered alone through the mists of Wall Street. But when he started at Lehman Brothers, the company assigned a partner, Steve Dubrule, to guide him. Dubrule, also a Harvard Business School graduate and former CIA worker, took Schwarzman out to eat and introduced him to the company’s operations. However, before long, Dubrule decided to leave Lehman Brothers and join Lazard.
“This has nothing to do with Lehman Brothers’ values. Here you are sure to thrive and make a name for yourself. But my entire career to this point has been spent at Lehman Brothers. Now it’s time for me to move forward,” said Dubrule. “You shouldn’t be loyal to me, but to the company. However, if you wish, I can help arrange an interview with Lazard for you.”
At the end of that interview, Felix Rohatyn, the renowned merger and corporate finance advisor at Lazard, said to Schwarzman: “If you want to work at Lazard, I can offer you a job right now, but I suggest you don’t take it. At Lazard, there are two kinds of people: masters like me and slaves like you. I think you would be unhappy as a slave, and you are not yet qualified to be a master. You should go work at Lehman Brothers, let them train you, and then come to Lazard as a master.”
Thus, Schwarzman went to Lehman Brothers for training, stationed on Wall Street, absorbing information from all over the world, and eventually became a person like a telephone exchange switchboard.
He often recalled the first few months on Wall Street without any training or guidance. That experience taught him that when young, one should take a job that provides a steep learning curve and challenging opportunities for toughening oneself. The first job lays the foundation for life, and one shouldn’t take a job for temporary prestige too lightly. Schwarzman found what he needed at Lehman Brothers, and his experiences there became the foundation for his later achievements.
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