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A financier must start from the commitment to protect people’s money and develop a creative investment tool or product but that is understood by everyone in the company or organization as not to make mistakes in marketing or lose other people’ money, advises Stephen Schwarzman, chairman and chief executive of The Blackstone Group.
The wisdom could sting the Korean financial industry which has unsettled investors with a string of fund suspensions and losses from mis-selling or fraudulent sales of exotic financial products.
He spoke his vision on financial entrepreneurship in a recent interview with Maeil Business Newspaper ahead of the release of the Korean version in his book titled, “What It Takes: Lessons in the Pursuit of Excellence,” on August 19.
Schwarzman shared insights on becoming successful in the financial industry, improving life performance, and moving into philanthropy. He also spoke of U.S.-China relationship in COVID-19 situation and Hong Kong’s future as an Asian financial hub. His first book released last year in the U.S. became a New York Times Best Seller.
Schwarzman co-founded world’s largest private equity fund group The Blackstone in 1985 with former chairman and chief executive of Lehman Brothers and U.S. Secretary of Commerce Peter Peterson. The Blackstone – which started out with $400,000 capital – now manages over $500 billion in assets. The American businessman took part in U.S.-China trade talks earlier this year as chairman of President Donald Trump’s strategic and policy forum.
Schwarzman will attend the 21st World Knowledge Forum hosted by Maekyung Media Group from September 16 to 18 at Jangchung Arena and Shilla Hotel in central Seoul.
Q: The Korean edition is the second international edition after Chinese. What made you write a book?
A: It’s my first book and hopefully my last. I really enjoy talking to people, not so much writing, but apparently the book is a lot of fun. It’s a very quick read, and it’s exciting. It tells people how they can be more successful, how you can build better businesses, better organizations, how you learn from your mistakes because we all make mistakes, and learning from them is extremely important and how to think about doing something better at whatever you’re doing, how to hire people, how to train them, how to promote them. And also, how to have a good life. So, there are 25 rules of how you do things. … It’s all been quite surprising, given that I have a whole life at my company Blackstone, which is the largest in the world.
Q: Do you have any special messages for the Korean readers?
A: Yes, I do. There’s a way for everyone in society, to do a better job at what they’re doing. Also, a way to improve their performances and be happier. It’s also very good for people who are responsible for not just an overall organization like a business but for each of the people who work there and are supervising other people learn a lot. If you’re one of the people being supervised, you can find ways to improve your performance, and not be nervous when somebody’s senior to you is either talking to you or making demands. It talks about how to build a very positive culture in an organization, or even the small group of people that you work with every day, because large organizations really have small groups of people that do the work. People need to understand how to function, just in that smaller group setting. Korea is slight been an economic miracle, and has gone from poverty to the 12th biggest economy in the world. It’s really stunning. Korea has enormous energy and great focus. And the question is how you organize that, how do you imagine new things. And so, this is very targeted and important, I think, for Korea.
Q: In the book, you explained entrepreneurship cannot be learnt, but there are more and more MBA schools teaching entrepreneurship. Do you think it is not a good idea to teach entrepreneurship in classroom?
A: I went to university. I went to business school at Harvard. I learned a lot. But when I was young, I started all kinds of small businesses with my brothers. I was the oldest, and I had two little brothers and I organized them to start delivering things to be cutting the grass, of people in houses that were close. And there’s something about entrepreneurship, which involves seeing a problem or seeing an opportunity, and being willing to start something to address that problem. And take the uncertainty, and the risks that go with that. And it doesn’t just have to be in business, it can be in the entertainment area, in athletics. Some of it is just natural to certain people, or other people who don’t have that desire for a certain kind of adventure. It’s very useful at university of business school to be introduced to that way of thing, because you’ll have the opportunity to join companies like that. And some people who will look at that and say, you know, I haven’t done that before. But I think I could do that. And so in a way it awakens the instincts of some people who haven’t already been like that.
Q: You and Peter Peterson broke away from Lehman and started Blackstone, and you spent months planning and organizing and started to raise capital but it didn’t come easily. You said that you made a mistake by asking your friends for help first. Why?
A: Well, you know, it’s very interesting question. We started out business Blackstone 35 years ago. We spent months just the two of us sitting at breakfast every morning for a few hours trying to figure out if we could start a company that was unique. That was doing things no one else did or did it in a different way. Because we figured nobody else just needed another company that did the same thing as other companies. We came up with a plan in the financial area with advising big corporations on mergers and buying companies which is now called private equity and buying real estate and other types of things. We needed to raise large amount of money. It set a goal of $1 billion, and I had never made any investments. And neither had my partner. So $1 billion 35 years ago would be sort of like waking up today with two people who had never made an investment and going out and asking for $10 billion or $15 billion. This was a very ambitious goal. What we uniquely planned on doing was to go to the people who knew us best because they would trust us. And so we took all of our best relationships. And those were out 10 first calls, which is what almost everybody does. This is a complete mistake. The reason it’s a mistake is you actually don’t know what you’re doing. The first time you meet an investor, because they have all kinds of questions. You don’t know the answers to all of those. So they think you’re not so smart, so they don’t give you money. You go to your second best relationship. And they ask, even more questions. They think you’re not so smart, so they don’t give you any money. It takes 10 or 15 meetings before what you think they want to talk about. You’re much better prepared to talk with these investors. … What you want to do is save those 15 best relationships after you’ve talked to 15 other potential investors.
Q: It is surprising that the book is based on your own mistakes – not on your successful stories.
A: What I want to do in Korea is help people not to make the same mistakes that I made. But I learned. The next time we went out and raised money. We did it. The way I’m recommending to the people in Korea – let’s talk to 10 or 15 potential investors who aren’t so important and learn what they think. And in each case, we ended up raising the biggest first time fund in the world but it was terrible. We had so many people say no. We got one person to say yet, out of every 17, who said no. So the second time we did much better.
Q: In the book, you mention that “There are no patents in finance.” What do you mean exactly?
A: If you invent Coca Cola, there’s a secret formula. It is protected, and nobody else can duplicate it. So you have protection. If you’re in the semiconductor business and you have a certain type of chip that you would invent. They can’t use that chip, they can’t steal your chip. They might come up with something else. But you’re protected. When you have that chip in finance, there is no protection, every idea can be instantly taken by someone else to do exactly the same thing. So this is harder business, because you spend all the time thinking of clever things to do, and as soon as you start becoming successful, all of your competitors can do exactly the same thing. So you have to keep coming up with new things all the time. In finance, the cycle of invention is much shorter. To have a successful business, you have to recognize that and set an organization up. So it is continually inventing new things that the customers want.
Q: What elements do we need in order to be a successful financial company?
A: The first is you have to start out protecting people’s money. It would come as no surprise to you that when you take money from someone and you lose it, they don’t like you anymore. And sometimes, people in the financial industry forget that. That is the first, second, and third rule. If you always protect capital, people will trust you to do things with it. Second thing is to only do products that have a very good chance of success and design something that’s unusual, not the same thing that other people do. If you offer a customer a very good rate of return with very little prospect of loss, you will do exceptionally well. To do that, you need a few things. One, you need terrific people. Very bright, extremely well trained and very motivated and very ethical. Those are all very important things. The second thing you need to do is have a process that everyone in the company or the organization understands. You need to objectively evaluate every investment.
Q: About U.S and China – you made tremendous effort as intermediate in the trade talks last year. The relationship between the two countries seems even worse than before. Why is that?
A: I think the reason why relationship is developing more and more problems is that the COVID situation, which started in China, of course, and traveled around the world, has inflected enormous damage on many countries, and particularly the United States and its scale, and is going to take several years before the economies of most of the major liberal democracies western countries return to where they were. I think there’s an underlying reason, and it’s not just because of what China did or did not do. It’s really because the people in the countries are very angry and unhappy, generally now. What’s happened is that people generally are somewhat confused, frustrated, somewhat pessimistic, and angry. And we also are in a period before our every four year presidential election. That’s become more against China. I think that those types of things have combined with individual acts that each of the two countries have taken leads to some type of escalation. This will continue through.
Q: What do you see in Hong Kong’s future as an Asian financial hub?
A: I think Hong Kong will remain a very vibrant financial hub. We have a big office in Hong Kong and we’re not looking at making any changes. Hong Kong has gone through a very unsettled political situation over the last year with what seemed to be endless demonstrations, violence, in general, in stability. We do have Asian headquarter in Hong Kong but we’ll never change anything.
Q: You have made a huge move into philanthropy, particularly in education. Why do you focus on education?
A: I grew up in a very shady place but my mother moved us into a better environment. The things I learned to think about at those great schools changed the way I looked at the world. I believe I had those advantages. Just simply because they were there and I achieved. I was lucky. Not everybody is lucky to have great education at all levels.
By Han Ye-kyung and Lee Eun-joo
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]
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