Friday, April 15, 2016

Friday Feature Book Review: The King of Capital: Blackstone's Steve Schwarzman 首都の王=>ブラックストーンのスティーブ・シュワルツマン

Blackstone is a name that means money and success. They run over US$30 billion is assets, and this book does not disappoint. However, like the tip of an iceberg, it did not come quickly or easily. Billionaires like its founder Steve Schwarzman, when self-made, know how to work hard and take risks. The full background story is what the book explains well. Nobody got rich by just "showing up" at the right time with the right product. 

This is not just about one founder, or one firm. In many ways, it explains the full picture of how LBO deals, and the billions in profits made from them, have grown over the last 40 years. If you wondered how the whole industry started, this is a great place to begin. We find out that private equity guru Steve Schwarzman, did not even study finance at Yale, but an arts degree! He started at DLJ and found that despite a lack of financial background, he had talent and was a quick study. 

After 3 years, he went for an MBA from Harvard, and then he perfected this talent for finance at Lehman Brothers, before starting Blackstone. Being an entrepreneur is not all about having a "big idea" one day to start a firm either, there was a logical clear process. One thing you learn about the head of Blackstone, is that he always tries to minimize risks, and follow a process. He takes calculated risks, and never just "throws the dice". We learn there is nothing he hates more than losing money. The most interesting aspect about Steve though is his creative side for finance. 

To close the most difficult deals he often needed to come up with "outside the box" style solutions. What you learn the most is that standard operating procedures with various LBO and M&A deals, grew faster because of Steve's efforts. Do you want to sell more junk bonds to finance the debt? then offer bondholders reset caps, in case the bonds fall in value to ease their sale. Do you want to figure out the true price of real buyers? set up a blind sealed bid auction for takeovers. These are just two of the many innovations that Steve came up with, the market did not. Most are basic procedures now, but were always new and innovative at the time.

If you can see KKR founder Henry Kravis, as the Bill Gates of corporate finance, Steve seems more like a Steve Jobs. He seems nicer too, highly innovative and different in type. Both of these titans are driven and very successful, but for different reasons. Blackstone as a firm was built a certain way, and it was built properly. The drive needed to be very successful in the business takes a lot of time and total persistence. High energy and a bit of luck are also key. 

This is no overnight success story. In the beginning, it was hand to mouth for 2 years and a difficult early road. Like many who spin out on their own, there is comfort in size and a reputation that clients prefer. Personal loyalty can be forgotten when a deal needs to be signed with a new firm. Major clients prefer an established name. When Blackstone started out, there was no welcome with open arms. New entrepreneurs learn this reality the hard way, and Steve was no different. He survived, built the firm into legend, and lived to enjoy the rewards. This book is Highly Recommended!

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