Steve Schwarzman, CEO of private equity firm The Blackstone Group (BX), was in Raleigh today to announce that Blackstone’s charitable foundation has committed $3.6 million to a new entrepreneurship initiative in Research Triangle Park. The goal is to create 50 new companies and 17,000 new jobs. Truly a fantastic initiative in a region that many venture capitalists seem to have abandoned.
As part of the launch, Schwarzman sat down with Bloomberg Television’s Cristina Alesci for a wide-ranging interview. Highlights:
* On carried interest taxation: “Everyone in this society is going to end up bearing some burden except the very poor who need to be protected. But I think this is a widespread issue where everyone will be giving something up. If you don’t, you’re not going to be able to solve the problems we have. 9% of GDP is over $1 trillion per year; that is piling up. It is not really as much of an abstract concept. The more we do this, eventually we reach a point where the country has great difficulty preserving the livelihoods for people as they know it. It is really an issue that must be addressed.”
(comment: Schwarzman here is sounding a lot like Leon Black of Apollo Global Management, who last year said that an increase in carry — to some level — is an eventuality. And much less like the Schwarzman who compared raising taxes on PE execs to Hitler’s invasion of Poland. Those tone-deaf comments were aimed more at tax changes to publicly-traded partnerships than to pure carried interest, but he’s publicly opposed both of them. A welcome change of heart?)
* On raising the debt ceiling: “I think it is reasonable to assume that the debt ceiling will find some way to get extended because the consequences of not doing that on the international capital markets are very adverse. There will probably be some solution. Whether it is a longer-term solution or a series of shorter-term solutions postponements so you get a little bit of a debt ceiling extension but not very long, because I think this is all headed toward the makings of a grand trade among the different constituents.”
(comment: A grand trade among the constituents? What exactly do Obama/Dems get in this, other than the U.S. economy not falling into an abyss? Is that something Republicans actually want, but are willing to compromise on for budget cuts? I keep seeing this straw man get set up and it’s driving me a bit nutty.)
* Will rising oil prices = more Middle Eastern investment in private equity? “I think we have a split in that part of the world. You have countries without oil and gas, and you have those with it. If you’ve noticed, it’s those who don’t have that resource who are incurring more of the problems of political instability. The ones that do have more and more cash-flow and will start investing outside of their countries.”
* Leveraged buyout financing. A corresponding Bloomberg article quotes Schwarzman as saying: “We’ve seen prices higher than we expected as a result of very low levels of interest rates. The Fed has created a lot of liquidity… The financing is clearly there. The question is, ‘Is the value there?’”
(comment: This is kind of odd, because Schwarzman doesn’t actually talk about LBO financing in the video available online. But he’s obviously right that cheap debt is driving deal valuations higher, and it echoes Blackstone president Tony James’ comments last week that Blackstone is focusing outside of LBOs until the Fed raises rates. It’s interesting, because conventional wisdom is that LBO firms are willing to pay higher multiples if the difference is being covered by the banks at attractive rates. Perhaps the 1995-1998 buyout boom chastened folks a bit).
We seem unable to embed the video, but you can watch it here.
