Blackstone CEO Steve Schwarzman has built one of the largest investment firms in the world, which specializes in private equity, credit, and hedge fund investment strategies. In his new book, What It Takes: Lessons in the Pursuit of Excellence, Schwarzman reveals some of the biggest lessons he’s learned from his 50-year career in business.
Part memoir, part leadership guide, Schwarzman addresses the highlights (and low lights) of his career including quitting his high-power job to start Blackstone, raising capital as a first-time fund manager, and dealing with the fallout from the unraveling of his presidential CEO business council. (I personally enjoyed the part when he talks about meeting “Beyoncé and her husband Jay-Z.” He writes: “We talked for a few minutes, reminiscing about her Kennedy Center performance in 2005.”)
Schwarzman was 38 years old when he founded Blackstone in 1985, and he’s been at the helm ever since. Today, the firm boasts $545 billion in assets under management and 2,500 employees. Blackstone recently converted from a publicly traded partnership to a corporation, which makes it easier to own Blackstone stock and allows the firm to be included in more indexes.
I sat down with Schwarzman for a wide-ranging conversation about Blackstone’s dealings in China, the ethical challenges surrounding artificial intelligence, the rise of cryptocurrencies, and whether he sees a looming recession on the horizon.
Below is an excerpt from our conversation. (Read the full Q&A here.)
What are you investing in, and where do you see growth opportunities?
Growth is certainly going to technology, services, and experiences. You have things like shopping centers. When I grew up, it was like: What could go wrong with a shopping center? And now that thing is called Amazon. Just that technological innovation has changed people’s shopping patterns, changed the delivery mechanism, and it’s led to shopping centers going bankrupt. It’s disrupted a whole chain of things people took for granted. It took 10 years for an entire stable structure to be dismantled.
We saw that in 2011 when we started buying warehouses. We’ve been the largest buyer of warehouses in the world for the last eight years, and we did that because that’s where Amazon and retailers needed to stage their goods before they get delivered. So that area has exploded with growth. If you’re investing now, you have to recognize that almost everything’s about to have its business model changed.
What’s another example of a sector you think will experience Amazon-like growth?
Artificial intelligence. AI will affect the whole healthcare industry, from billing, to admissions, to diagnostics, to the development of drugs, to telemedicine, which will have enormous growth. You look at all of this, and there are a lot of different things that go into what you or I believe is just a hospital. AI is going to have a profound impact on our society.
There will also be serious ethical implications that come with that innovation.
That’s why I did this big donation at MIT and Oxford. [Note: Schwarzman donated $350 million to MIT for computing and AI research and $188 million to Oxford University for AI ethics research.] One involves technological innovation, and the other is about making sense of it in society. What are good outcomes and what are not-so-good outcomes? Who makes that determination, and how do you control for not having bad outcomes? That’s a challenge that we have to face.
Are you confident we’ll be able to solve the ethical challenges quickly enough given the pace at which technology is evolving?
Like most things in technology, it’s moving faster than your ability to control and implement things. On the other hand, everybody who’s running a company or is part of the discovery of AI watched the Internet get developed. I haven’t met a mature person yet who was involved in the development of the internet that hasn’t regretted they developed it.
They said, “We just thought this would be really cool. Everyone in the world can connect, and it’ll be a positive sum game.” They weren’t aware that [the internet] would destroy the ability to govern. Everything is so short-term, there’s so much divisiveness, and social media is very destructive. They’ve looked at what they’ve created, and they’ve all said, “If I could have it back, I’d take it back.” I was shocked. So with AI, we have to get right on it so that the technology itself doesn’t overwhelm society.
There’s enormous interest and good will to doing something important in terms of AI ethics. No matter what country you’re in, if you make a huge cut in your workforce, you’ll have social unrest of some type. We already have that in the West. You could even have that in China, although they’re investing so much in the area, they’re actually creating a whole bunch of new jobs too.
Speaking of innovation, a 2007 Fortune article called you “the master of the alternative universe” because Blackstone made its name by investing in alternative assets. What do you think about frontier assets like Bitcoin and other cryptocurrencies?
I don’t have much interest in that because it’s hard for me to understand. I was raised in a world where someone needs to control currencies. There’s a reason to want to control currencies, which is why governments all do it. There’s no one who says, “I don’t care.” Part of that is to make sure the economy is as insulated as it can be from excesses. Another part of it is to control bad behavior. So the idea that you can transact without anybody knowing anything, you could have a lot of criminal behavior — dirty money, drug money — running all over the world. It only encourages that kind of activity.
I may be a limited thinker, but that’s a problem. If they could solve that problem and also the problem of controlling the money supply, then it might be OK. That doesn’t mean that the blockchain technology applied to non-tradable currencies is not a good thing. That is clearly a good thing.
And why do you say that?
There’s all kinds of uses you can have from certain executions. [Blockchain technology] is a very good idea, and it will end up being adopted because it’s good technology. Applying it to the creation of money is sort of, for my taste, pretty odd.
So in the future, you do see Blackstone investing in companies that are using blockchain technology?
That would be good because it’s a sound, very interesting technology.
But you’re not going to own any Bitcoin?
That’s an easy one: No.
WE WILL WAIT: WeWork’s much-anticipated IPO is now TBD. The co-working behemoth is expected to cancel its roadshow planned for this week and postpone its IPO until at least October. The decision could threaten a $6 billion credit financing that was contingent on a successful offering. The facility reportedly requires We to go through with its IPO by Dec. 31. Read more.
VC BREAKUP: The founders of Aspect Ventures, a prominent female-led venture capital firm, are parting ways to launch separate firms, according to The WSJ. Jennifer Fonstad is creating Owl Capital to invest in early-stage companies, and Theresia Gouw will form her own early stage firm called Acrew. “We saw very much eye to eye in terms of our investments and strategy. But we had very different leadership styles and different ways of operating at the portfolio level,” Fonstad told the WSJ. Read more.
- DataRobot, a Boston-based developer of machine learning automation software for enterprises, raised $206 million in Series E funding. Sapphire Ventures led the round. Investors include Tiger Global Management, World Innovation Lab, Alliance Bernstein PCI, EDBI, DFJ Growth, Geodesic Capital, Intel Capital, Sands Capital, NEA and Meritech.
- TuSimple, a San Diego, Calif.-based autonomous driving company, raised $120 million in Series D funding. Investors include UPS, CDH Investments and Mando Corporation.
- Trulioo, a Canada-based global identity verification provider, raised C$70 million ($52.8 million) in funding. Goldman Sachs led the round, and was joined by investors including Citi Ventures, American Express and Santander InnoVentures.
- Greenlight Financial Technology, an Atlanta-based provider of a debit card for kids that parents manage by app, raised $54 million in Series B funding. Drive Capital led the round, and was joined by investors including JPMorgan Chase, Wells Fargo, TTV Capital, Live Oak Bank and Relay Ventures.
- Holidu, a Germany-based tech company in the vacation rental industry, raised €40 million ($44 million) in Series C funding. Prime Ventures led the round, and was joined by investors including coparion, MairDuMont Ventures, EQT Ventures, Venture Stars, and Senovo.
- Fieldwire, a San Francisco-based field management solution for the construction industry, raised $33.5 million in funding. Menlo Ventures led the round, and was joined by investors including Brick & Mortar Ventures and participation from Hilti Group and Formation 8.
- Trigo, a Tel Aviv-based provider of checkout-free systems to grocery retailers, raised $22 million in Series A funding. Red Dot Capital led the round, and was joined by investors including Vertex Ventures Israel and Hetz Ventures.
- Biproxi, a San Diego, Calif.-based end-to-end commercial real estate transaction platform, raised $10 million in seed funding. Greycroft led the round, and was joined by investors including Newmark Knight Frank, RPM Ventures, and the National Association of Realtors.
- Front Range Biosciences, a Lafayette, Colo.-based technology provider for the breeding and production of new plant varieties and seeds in hemp, coffee and regulated cannabis industries, raised $8.5 million in funding. Investors include Militello Capital, Welcan Capital, AFI Capital, Phyto Partners, Harvard Business School Alumni Angels of New York, New York Angels, Sand Hill Angels XVI, LLC, Arcadian Capital Management, Halley Venture Partners LP and Salveo Capital.
- Classcraft, a Canada-based learning company focused on the K-12 education market, raised $7.5 million ($10 million CAD) in Series A funding. Investors include Whitecap Venture Partners, Brightspark Ventures, and MaRS Catalyst Fund.
- Unearth Technologies, a Seattle-based SaaS startup for the construction sector, raised $7 million in Series A funding. Vulcan Capital led the round, and was joined by investors including Madrona Venture Group.
- Cerebelly, a Santa Cruz, Calif.-based children’s food brand, raised $6.7 million in funding. Investors include Imaginary Ventures.
- Luca + Danni Inc, a Cranston, R.I.-based jewelry brand, raised $6.2 million in funding, from Ross-Simons Inc.
- Broker Buddha, a New York-based technology company focused on the commercial insurance application and renewal process, raised $4.5 million in funding. Vertex Ventures led the round.
HEALTH & LIFE SCIENCES DEALS
- CMR Surgical Limited, a U.K.-based manufacturer of medical devices for minimal access surgery applications, raised £195 million ($240 million) in funding. Investors include LGT, Escala Capital Investments, Cambridge Innovation Capital, Watrium, and Zhejiang Silk Road Fund.
- Navigating Cancer, a Seattle-based company focused on personalized cancer care with its oncology patient relationship management solution, raised $26 million in Series D funding. Merck Global Health Innovation Fund and TT Capital Partners led the round, and were joined by investors including BrightEdge, LabCorp, ORIX Growth Capital, and Rustic Canyon Partners.
PRIVATE EQUITY DEALS
- Oval Partners invested in Millennium Business Systems, a Cincinnati-based provider of copiers, printers, multi-functional technology, and document management hardware and software to companies. Financial terms weren't disclosed.
- Align Capital Partners recapitalized Southwest Elevator Company, a Gilbert, Ariz.-based vertical transportation services provider. Financial terms weren't disclosed.
- Lendlease Global Commercial REIT plans to raise roughly $539 million in an IPO (S$740 million) in Singapore. Read more.
- Budweiser, the beer giant, may be targeting an IPO of its Asia unit to raise up to $7 billion in Hong Kong, the IFR reports citing sources. Read more.
- Oak Hill Capital will acquire Mercer Advisors, a Denver, Colo.-based wealth management services provider, from Genstar Capital and Lovell Minnick Partners. Financial terms weren't disclosed.
- H.I.G. Capital named Stefano Giambelli and Tobias Borkowski as principal and director.
- Felicis Ventures promoted Niki Pezeshki to investment partner, Grace Chou to vice president, and Kristin Beach to chief operating officer in addition to her role as partner and CFO.