Blackstone’s Stephen Schwarzman on Not Wasting a Serious Crisis

Following the 2008 financial crisis, Blackstone Group chairman and CEO Stephen Schwarzman used the acquisition of GSO Capital to diversify the alternative asset management firm’s businesses and help more than double its assets.


In November 2008, just weeks after Lehman Brothers Holdings filed for bankruptcy and the U.S. government was forced to bail out insurance giant American International Group, incoming White House Chief of Staff Rahm Emanuel famously told a reporter that “you never want to let a serious crisis to go to waste.”

Five years after the worst financial crisis since the Depression, it seems that Blackstone Group co-founder, chairman and CEO Stephen Schwarzman took that advice to heart. Blackstone Group has been one of the biggest winners in the wake of the crisis, doubling its assets under management from $90 billion to $218 billion during the past five years. Much of that growth has come from the 2008 acquisition of credit manager GSO Capital Partners, run by three partners who had turned Donaldson, Lufkin & Jenrette (later Credit Suisse) into the No. 1 underwriter of high-yield debt on Wall Street. GSO gave Blackstone access to investment strategies that would do well as the economy fell off the cliff. Since the acquisition, GSO’s assets have grown fivefold and rival those of Blackstone’s real estate and private equity businesses. Senior Writer Julie Segal spoke to Schwarzman recently about the GSO acquisition, the advantage that U.S. financial services firms now have in Europe, and the expanded role that money managers are playing as the banks contract.

GSO has obviously been a successful acquisition for Blackstone. How did you see it fitting into the organization?

When we started the firm in 1985 we decided to be in three lines of business. The first and second were the M&A advisory business and private equity. The third part of our strategy, which we’re still executing on, is to go after new businesses that had to meet a few criteria. First, it has to be a great business with terrific expansion potential. We don’t want a lot of little businesses; we want to be in relatively few complementary ones where we can be the global leader. Second, we want people who are 10s on a scale of 1 to 10. Third, the business has to make our existing businesses stronger by bringing intellectual capital to the table that we didn’t have.

GSO fit those criteria. GSO produces intellectual capital that can be used throughout Blackstone and GSO leverages information, where appropriate, that comes out of our real estate, private equity and other groups. As the largest investor in leveraged loans in the world, GSO gives us a unique look into what’s going on in the credit markets. And Blackstone gives GSO access to a lot of deals that they might not otherwise see. So, part of the secret sauce at Blackstone is that we can create and harvest intellectual capital and insights across all four of our major investing businesses and our advisory business. And not just on an industry basis, but geographically. We don’t need an economist to tell us what’s happening in the world. We see it.

GSO has a very different opportunity going forward because of the smaller role banks are taking in lending to distressed businesses. Tell us about that.


The regulatory environment has become more restrictive and difficult for many financial institutions. And Europe in particular now is having all kinds of problems. But it’s very difficult for Europe to put their problems fully to bed. It will take a period of years to do that even as the European banking system still needs significant repair. While that’s going on, the ability of certain borrowers to obtain credit has been inhibited, which creates opportunities for firms like GSO.

Do you think regulators will get involved in overseeing this type of activity?

Firms like ours avoided trouble during the financial crisis by being prudent with our investors’ money. We have to compete for our money on the open market without the benefit of federal or sovereign guarantees. People deposit their money with banks because they feel their money is protected not just by the financial institution itself, but by government as well. We don’t have that. We haven’t seen restrictions because we are operating without any “lender of last resort” standing behind us and we don’t have the same kind of central role in the financial system.

In many ways, it seems that Blackstone is stronger now than before the crisis.

In some areas we have fewer competitors, so it’s good. But the overall system has really been challenged. As you can see in Europe, when you have very tough regulations and you have a shrinking banking system, it’s very difficult to get economic growth. Virtually anyone would tell you that. How do you grow if you can’t get money? A negative growth environment creates other political problems. It’s complex, of course.

What are the implications for Blackstone?

One of the advantages that we have is that the American financial institutions are in much better shape than the European ones. What you’re starting to see is a normal pattern where firms like ours go to non-U.S. locations and our banks tend to follow. We can get financing where domestic people can’t. It provides a competitive advantage for which we have to thank [former Treasury secretary] Tim Geithner for doing a good job putting the U.S. banking system in a better position with the stress tests and capital raising.

Now the U.S. banking system is under-lent. Look at the massive amounts of cash on corporate balance sheets. Banks wouldn’t lend in 2008-2009, so corporations essentially created their own banks, doing debt deals and keeping the proceeds on their balance sheet. That money had no purpose other than giving corporations a reason not to call their bank. That’s good for us, whose job it is to buy companies, buy real estate and do other types of investments. So, it’s actually turned out to be not so bad, as they say.