How 2019 Became The Best Year In Private Equity’s History

The most influential person on Wall Street, billionaire Stephen Schwartzman, is sitting in his personal conference room, slightly tanned from recent travels, including from a trip to Saudi Arabia, and he is determined to philosophize. “What I learned in finance is that there are always things that don't seem to make sense,” says Schwartzman, who wears a blue suit, pink tie and shirt from his beloved tailor, Turnbull & Asser.

It is well known that Schwarzman’s firm, the Blackstone Group, first conquered the world of private equity, and then set its sights on real estate, distressed debt investments, hedge funds, and even the purchase of other buyout stores, raising nearly $ 600 billion in assets. governed by. For many years, it was also clear to Schwartzman that, despite the fame that Blackstone had made a deal with financial centers around the world, he followed a company valued at market value along with trivial companies such as a used goods seller eBay or a conglomerate of liquors Constellation Brands, producer Robert Mondavi wine.

“Sometimes there are things that are so underestimated that they make no sense to me. Then sometimes they are so overrated that it also makes no sense. But this is a market, and people defend these anomalies as if they were fair, because it is a market, ”says Schwartzman.

For most of the current boom in the company's stock, when Schwartzman raised billions of dollars from the most picky pension and sovereign funds on the planet when it came to attracting stock investors to buy shares in his own company, demand was warm. and fleeting. The structure of the company as a partnership, distributing its profit in a tax-efficient manner every quarter, meant that its value was tied to short-term dividend payments received from remuneration and the realization of investment profit. In a market dominated by fast-growing technology platforms, Schwartzman missed an opportunity to prove himself in the spirit of a real investor, where fund managers and passive indexes are applying increasingly high ratings to companies with growing competitive advantages, business dynamics and high, constantly recurring profits.

This was followed by a tax review of Donald Trump and at the same time Schwartzman's decision in April 2019 to change the structure of Blackstone. This technical revolution brought one of the biggest gains in Wall Street history. Since then, Schwarzman's net worth has grown from $ 13.2 to $ 19 billion. This is $ 5.8 billion of additional personal wealth in nine months.

Blackstone shares returned 91% in 2019, reaching a record high market capitalization of $ 66 billion after Schwartzman reorganized the company from a tax-ineffective partnership into a corporation, opening the company's shares to many index funds and mutual funds that were excluded from stock purchase earlier. As investors such as Nick Schommer of the Janus Soroka Foundation and passive ETFs associated with the S & P Total Market and MSCI indices created holdings at Blackstone, stock analysts began evaluating the firm along with corporate titans such as Visa, Amazon and Home Depot pushing her out of a big discount on the S & P 500 turning into a premium.

Over the past 18 months, the world's largest privately held publicly listed companies have done everything possible to become corporations, and in response to this, investors have called them one of the most efficient companies on the market. Apollo Global Management shares returned 106% in 2019, and Carlyle Group shares - 111%. Including Brookfield Asset Management, KKR & Co and Ares Management, and publicly traded private equity companies, they cost nearly a quarter trillion dollars. Overall, large public private equity companies received about $ 75 billion in value.

Schwartzman shrugs confidently on this cold afternoon in Manhattan. “It didn’t make sense, because it didn’t make sense,” he says of the once stagnant stocks of his company. “After the financial crash, almost all financial institutions shrank — we grew six times.”

For about a dozen years, Schwartzman led the dominant Wall Street institution, earning many hecklers along the way, both for Blackstone's huge ambitions and his own inclination to get involved in politics, causing controversy. During this time, banks went bankrupt, hedge funds flared up, the pompous Wall Street trading tables were replaced by algorithms and electronic markets, and the low-cost Vanguard and BlackRock funds, along with several financial and technology companies, eliminated the impotence taken by the crowds of brokers. and funds.