By Patricia Sellers
April 15, 2009

Blackstone Group

CEO Steve Schwarzman is worried. Very worried.

Last evening, at the firm’s annual press dinner, the big boss of the buyout industry riffed about what he’s been hearing as he has circled the globe. I was lucky enough to sit at his table — and I asked him that question, in fact: So, Steve, how do you think the U.S. and its economic policies are being viewed abroad? Though the dinner is a strictly off-the-record affair to convene financial journalists with the Blackstone brass, Schwarzman agreed to let me share some of his thoughts here.

Schwarzman says that foreign leaders and investors abroad have been telling him that they can’t quite believe what they see happening in the U.S. — the decline of capitalism, no less. And they’re asking, he says, how they can drum up public support for capitalistic endeavors in their own countries when the nation that’s long been their model — the U.S. — is shifting away from a market economy. The international anxiety, Schwarzman contends, can’t be good for global stability.

Yes, he’s a Republican, as you might have guessed. (Last summer, Schwarzman, along with other business VIPs including Cisco

CEO John Chambers and former eBay

CEO Meg Whitman — who’s now running for governor of California — tried to help John McCain with his economic policy.)

Clearly, though, it’s not just GOP-leaning financial execs who are fretting. When Tony James, Schwarzman’s No. 2 at Blackstone and his heir apparent, swung by our table, he too expressed worry that if the U.S. government shackles the financial giants with rules and regs and pay caps, the whole industry will have trouble luring talent.

Meanwhile, Blackstone’s share price has sunk more than 50% to below $9 in the past year. The firm has picked up advisory work for some casualties of the crisis — AIG, for instance — and for healthier companies like Microsoft

(on its failed bid to buy Yahoo last year) and Procter & Gamble

on its 2008 sale of Folgers coffee to J.M. Smucker.

Blackstone is reportedly considering launching a $3 billion fund to provide financing to companies on the brink of bankruptcy. But for the most part, Schwarzman & Co. are sitting on the sidelines with some $25 billion in capital, waiting to invest again in major real-estate and private-equity deals. The firm’s last big buyouts happened last fall: Apria Healthcare and the Weather Channel, where Blackstone partnered with Bain Capital and General Electric’s

NBC Universal.

Blackstone wins big, of course, only when it sells the stuff it has bought — properties in its stable such as Hilton Hotels, Freescale, Nielsen and SunGard, all acquired before the global markets collapsed. The firm’s last major sales? That was in 2007, when it flipped Equity Office Properties months after acquiring it from Sam Zell for $38.7 billion in the largest real-estate deal in history. Ah, remember the good old days of get-rich-quick capitalism?

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