Schwarzman shares macro view with New Jersey

Blackstone chief Steve Schwarzman took time to attend New Jersey’s State Investment Council meeting this week to give his macro view of the market.

Being a “strategic partner” has its advantages. In New Jersey’s case, having a $3 billion relationship with The Blackstone Group meant a personal visit Thursday from the firm’s chief executive Steve Schwarzman.

Schwarzman, who was given top billing at the meeting, led the New Jersey State Investment Council through Blackstone’s perspective on the current global economy, returning frequently to themes of slowing or stagnant growth in developed markets.

He labeled Europe “a very slow growth, or no growth, kind of area”, attributing the region’s recent struggles to a combination of factors, including poor management of the global financial crisis by the European Central Bank as well as uncertainty surrounding the implementation of new regulations.

“As you look around the world, you see that Europe has a variety of structural flaws … they appear to be stuck in a pretty slow-going mode,” he said. “They have 17 countries making decisions, can you imagine? We have one country, two Houses [of Congress], a president, a legal system … can you imagine doing that 17 times?”


After his presentation, Schwarzman clarified that Europe’s stagnant economy has not been prohibitive to investment. “It depends on what type of opportunity. Certain debt products, real estate, those are interesting in that market,” he told Private Equity International.

In particular, slowing credit markets have created an opportunity for Blackstone’s $55 billion credit business. “Europe … it’s tough to get loans, which means [opportunity] for people like us who have money from nice people like you,” he told the council.

The New Jersey Division of Investment has approximately $3 billion invested with Blackstone, including $1.5 billion in separately managed accounts that the system secured with below-market management fees in an arrangement the pension system called a “strategic partnership”. Blackstone’s New Jersey mandate crosses several asset classes including private equity, real estate and credit.

Blackstone is the largest owner of real estate in the world other than governments, Schwarzman said, though the firm made a good decision when it sold off a lot of its office properties before the global financial crisis hit. “Thank goodness we sold it before the bust,” he said. “All the people who owned our stuff went broke.”

Schwarzman also discussed the slowing of China’s economy, but expressed optimism about the country that

As you look around the world, you see that Europe has a variety of structural flaws … they appear to be stuck in a pretty slow-going mode.

Steve Schwarzman

continues to grow at a rate three or four times that of the US. “China’s growth has gone down, but don’t be mistaken, they’re growing at 7.5 percent, we’re growing at 2 percent. Something amazing is happening in China, something not amazing is going on here.”

After taking the council through the macro-economic overview, Schwarzman spent a few minutes discussing Blackstone’s performance. According to presentation materials, Blackstone’s sixth flagship fund, which closed last year on about $16 billion, has outperformed five-year Treasury yields by 7.1 percent.

He also highlighted the firm’s US jobs record – employment at Blackstone portfolio companies grew by 4.6 percent in 2011 compared to 1.3 percent in the US.

Schwarzman fielded several questions from the council after his presentation, including one from new council member Charles Dolan about trends in private equity management fees. “It’s very seldom [that] I go to any meeting where I meet any happy people … overall it’s been institutional investors who have underperformed their needs,” he said. “They need to economise, so they’re taking looks at fee issues.”

Other top private equity executives have taken time to visit their top limited partners, including George Roberts, who visits the Washington State Investment Board to give updates about the firm. Also, Fortress co-founder Wes Edens made a personal visit to the Oregon Investment Council a few years ago to talk about the struggling economy.