Speaker 1 (00:03):

From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over for 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and at ISIS 12 exchanges and six clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.

Josh King (00:46):

Okay. Let's run down a list of the largest US based employers globally, among companies listed on the New York Stock Exchange, which includes some behemoths like the US Post Office and the United States Army. First there's Walmart, that's NYC ticker symbol, W-M-T with 2.3 million employees. Okay. That's biggie. Then there's Yum! Brands, NYC ticker symbol YUM. The parent company of Taco Bell, Pizza Hut and KFC. They've got 450,000 employees. Keep going down the list. The next is Kroger, ticker symbol KR 449,000 followed by Home Depot, NYC ticker symbol HD with 413,000 employees. You get the idea. But there's another name among that list of household names. That's a name that I think isn't often mentioned around the household. NYC ticker symbol BX, are you stumped? A market cap of nearly 59 billion dollars. If every head among its portfolio of companies was counted, the Blackstone group founded in 1985 by Pete Peterson and Steve Schwarzman with just $400,000 in seed capital. 200 grand from each of them would be second only to Walmart with 500,000 people.

Josh King (02:04):

Now that's the little understood reality of Wall Street and Private Equity. We've talked about it on this show before. Fewer public companies than there used to be for a variety of reasons. The early stage firms get their money from venture capitalists, other firms that need to be loved, managed, fixed up a little bit, work with Private Equity. Companies like Carlisle, you've heard David Rubenstein on this show before. KKR, which held first data, the company I worked at for many years and Blackstone headed by its chairman CEO, and co-founder Steve Schwarzman who joins us in the ICE House today. His is an utterly fascinating story. The true embodiment of the American dream, the story in the Frankford section of Philadelphia's at Schwartzman's Curtains & Linens, the dry good store beneath the elevated train station in Philly, where you could get drapes bedding and towels at a fair price.

Josh King (02:55):

Maybe Joseph and Arlene Schwarzman have American Bandstand on a black and white TV back in the office. We'll find out. The story wins its way through New Haven, Connecticut at Yale. Fort Polk Louisiana for a hitch in the army reserves in Cambridge to Harvard Business School, the ultimate destination by way of Wall Street. Places like Washington, DC, London, Paris, Beijing. They all figure prominently in What It Takes: Lessons in the Pursuit of Excellence. A book out just this week by Mr. Schwarzman published by Avid Reader, press an imprint of Simon & Schuster. It's a story about America at the end of the last century and the beginning of this one. And while it has a final page, it's book is really still being written as we speak, with every tidbit of news coming out of trade talks between the US and China. Our conversation with Steve Schwartzman on his prodigious rise and his view of the world from his perch at which he sits, right after this.

Speaker 3 (03:57):

It's more than an iconic building or a global financial marketplace. It's anywhere technology, commerce and people intersect. The innovation that makes people's lives better. Dreams that were once impossible are now realities. At the New York Stock Exchange we help tech companies flourish and change the world. So, go ahead, bring those ideas to life. We'll bring it to market. We are living tech.

Josh King (04:31):

The Blackstone group went public on June 22nd, 2007. The New York Times wrote at the time that the stock had "an almost Google like mystique." After 22 years of working to build that mystique you'd think that it's co-founder Stephen Schwarzman would be where he should have been at the podium of the New York Stock Exchange that day to bask in the glow of what many regard as the ultimate milestone of being an entrepreneur, ringing the bell on the day of your IPO. Instead, he sat in his conference room alone. As Schwartzman wrights, I stared at CNBC for an hour, semi-comatose. There I was again, inescapable. I couldn't even remember the interviews they were showing. I shut it off. It was nuts, an absolute blur. I thought I understood what I was getting myself into, but I no idea. Well, Stephen Schwarzman, you may have blown off your own IPO, but you're here now. Welcome inside the ICE House.

Stephen Schwarzman (05:29):

Well, I wasn't quite blowing it off. Thanks, I'm glad to be here. It was one of the most intense, exhausting times. We had all kinds of potential setbacks and we had the different members of the federal government trying to stop the offering. And we had some of my partners who were-

Josh King (05:52):

This was the Blackstone tax?

Stephen Schwarzman (05:54):

Yes, they were trying to change tax rules. Some people petitioned the SCC to stop the offering it itself. We had one of our roadshow groups headed by my president. Tony James lost an engine flying over Iran. And there was a decision-

Josh King (06:15):

With a gal bladder problem as well, right?

Stephen Schwarzman (06:17):

Yeah. He had another kind of health problem going on at the same time where I had to send somebody down to take care of him from London when he was in the middle east. And we're trying to figure out, do we try and go on one engine and get over Iran to see if they could make it to Athens? Or do you sit down in Iran with a bunch of Americans, some of whom were Jewish and see what happens? And we decided to go on and obviously everybody made it or you would have been reading about it.

Josh King (06:58):

You don't need On Wings of Eagles, Ross Perot incident during your IPO, the Roadshow.

Stephen Schwarzman (07:03):

Yeah. We had enough other crazy things going on and it was a time of frenzy. And our offering was oversubscribed 15 times when we were halfway through the Roadshow and it ended up being the second largest IPO of the decade and with Google being the largest. And I was through so much stuff that after we priced the deal, I just took a hot shower and sat alone watching television. I put the television on and it was left on CNBC evidently, I was eating my dinner on a tray. And then I came up and I was looking at myself. I was completely exhausted. And I said, this is like surreal. And I just didn't have any adrenaline left to make it down to the New York Stock Exchange. And the next morning I just sat in my conference room and watched the opening and watched all this stuff. And we were on almost the whole day. It was Blackstone Day on television. And I must say it was one of the most extraordinary experiences of my life.

Josh King (08:28):

And a life I would say that having read the book cover to cover is filled with extraordinary experiences. And we can't begin to cover all of them now. But you write something that jumped out of at me at the beginning of your chapter, which is entitled everything is interconnected. You are about to graduate Yale, I think. You're in a job interview. The interviewer asks as they always do. So, what do you want to be when you grow up and you say, and I'm going to quote you here. "I want to be a telephone switchboard. Taking in information from countless feeds, sorting it and sending it back out to the world." Steve, that's not an answer along the lines of I want to do great things. You wanted to be a telephone fricking switchboard.

Stephen Schwarzman (09:09):

Well, apparently that was the wrong thing to say to get the job. I didn't get that job, but I was describing the feeling of what I wanted for a career and for my life. And I think I had that figured out pretty well at that point. Now, of course, there aren't telephone switchboards, I mean we have different technologies. But that's what I wanted to do. I wanted to learn. I wanted to have all these different feats of what's going on, whatever I'm doing in the world, and then whirl it around with my CPU, which was evidently sort of a symbol for my brain. And then come up with something. And then have it go out and get broadcasted or actioned. And that is sort of what I do.

Josh King (10:04):

Well, I asked that question and I zeroed in on that phrase, because 18 months ago, it seemed that, that's exactly what Blackstone did when it purchased a 55% stake in the financial and risk business of Thomson Reuters in early 2018. Tell me about your thinking about that deal?

Stephen Schwarzman (10:23):

Yeah, well, Thomson Reuters was both a terminal company competing with Bloomberg pretty much. And it was also a data company. And it was a little tough on the Bloomberg competition with the terminal. And on the other hand, the data side of their business was really pretty strong. And the company itself was not managed in a very streamlined way, it was very cludgy. And everyone recognized that they had difficulties making quick decisions and actioning things. And I think the owners were frustrated and we approached them and said, well, if we bought the co company and you wanted to stay in, we think we could really improve the operations. And that appealed to them. It took us quite some time to do that. And you have to do these things secretly if you will.

Stephen Schwarzman (11:34):

And we ended up buying Thomson Reuters, it was about $20 billion. So, it was quite a large transaction. And we set to work changing it. And the company itself occupied a very unique place in the data world. And so all of a sudden we had all these different people contacting us who wanted to combine with us. And we ended up picking the London Stock Exchange as a partner, and we made a deal with them, which was announced. We made 2.6 times our money in 10 months, which I guess if you annualized that type of thing would be pretty heroic. But it's certainly good enough. And now we'll be the largest shareholders there. And the markets loved the business combination. And we have to get through to the closing, but it was very well perceived. And I think it's going to be very successful.

Josh King (12:45):

So, here is how the news broke on that, I think Friday afternoon in mid-August on Bloomberg.

Speaker 5 (12:51):

Aaron, what do we know so far about out these deals?

Aaron (12:56):

We know that it's not summer holidays yet. We thought it would be a quiet weekend. Friday we saw the LSE Refinitiv deal break. And this is going to be mega transaction in the financial data space. And I think what it shows is the CEO of the LSE is looking to grow in the businesses that he's already of built out that are growing faster than the traditional ones. So, that's financial data exchanges. So, buying Refinitiv really bolsters that area.

Speaker 7 (13:22):

Yeah. It's really interesting to see the market reaction because you know better than I do, often, the acquirer is at least questioned by investors not wholly bought into. And yet this morning, we see the LSE share price up by 14%.

Josh King (13:35):

I mean, if you look at that, sir, and you have to sort of say 2.6 times your investment in 18 months go all the way back, maybe to the deal that you did when you worked with Chemical Bank to buy the USX business or buy part of the USX business, again, annualized over returns when you finally got out of it in 2003. You do have this track record of finding the thing that is distressed now and having the patients to wait it out.

Stephen Schwarzman (14:04):

Yeah. It's unclear whether it's distressed now. What it is is that it could be made way, way better. And that's what the job is, if you will, of the private equity industry, certainly our company, Blackstone. And we don't buy assets just to own them. It's not like stocks where people buy a stock, if they analyzed it correctly and things go well, it goes up. If it doesn't, it goes down. And your remedy is to sell it if you don't like what's going on pretty much. In our world before we buy something, we study it thoroughly. We have access to all the information at the company, or if it's a real estate we get to do due diligence on that. And other parts of Blackstone do that similarly. And we don't buy things unless we can make them much better, because otherwise we don't have a reason for being. You can just buy something on the New York Stock Exchange.

Stephen Schwarzman (15:09):

And so by having in advance a program to dramatically improve the company, and then you put leverage on top, you can earn, as we have with our high performance products, double the stock market, double the indexes over 30 years or so. And so it's not being lucky the way some people think you got lucky on that deal. It's a system faster growing, better managed. And what happens when you do that is you invest a lot of money in the company and you develop new products and new ways of doing things. You end up if you're growing faster, hiring more people. So, this is a good thing for the economy. And then we take the company's public. So, it's a happy day for the New York Stock Exchange.

Josh King (16:05):

It is indeed. Here at the New York Stock Exchange just yesterday we had in the chair that you're sitting, Jerry Jones, the owner of the Dallas Cowboys and the principal stakeholder in Comstock Resources. Again, he is sort of making major bets on where natural gas is going, thinking that the Haynesville Shale deposits and the demand overseas of LNG and the proximity to shipping ports in Louisiana will be as good an investment for him as the Dallas Cowboys were when he bought them for 141 million back in the late 1980s. Similarly, we're watching Blackstone this summer, dealing with its bet on Tallgrass. You bought a 44% stake for 3.3 billion at $24 a share that price is dipped. But similar to Jones, you see a pattern maybe that others don't and have sort of doubled down in your bet.

Stephen Schwarzman (17:01):

Yeah, well, I think with that, I can't comment much. It's a live deal and we've made an offer for the balance and that'll be evaluated. We think in the long term natural gas is the best of the fossil fuels to be used in energy applications other than the completely green activities that don't have the scale at the moment to provide sufficient amount of power. So, we'll see what happens with that.

Josh King (17:38):

So, what it takes as the subtitle says, is lessons in the pursuit of excellence and some citations, Steve, put your net worth in the neighborhood of between 13 and 14 billion. You do not have to write this book, what's its purpose and why share those lessons with the world?

Stephen Schwarzman (17:56):

Well, I wrote it for a specific reason and I've learned a lot of stuff over decades of growing Blackstone and other things that I did before then. And I want to pass along those lessons so that other people don't have to experience all the pain I did of discovering things. And there are so many ways of giving people advice with their careers, how to run a company better, how to grow things, how to create things. It doesn't have to be about business. Everybody should have a vision of what they want to do. And I think it's important because we're all to time limited. If we're doing this podcast, we can't be doing something else while we're doing the podcast. And so you have to be very careful to pick something that really is worthy of your time.

Stephen Schwarzman (19:06):

And it's just as easy to do something big as it is to do something small. You have sort of complexity either way. So, you might as well pick something that's big. I wrote it to show people that we all make mistakes and mistakes actually, it sounds odd, is the greatest opportunity to help build a business or build an organization because successes are pretty easy, you know what you're doing. But when you do something that's wrong, you really have to stop not make pretend it didn't happen. And analyze what went wrong and learn from it. That kind of lifetime learning is really essential. And I want people to understand that nobody is a success alone. That's some kind of fiction that somebody wrote and nobody does stuff alone.

Stephen Schwarzman (20:15):

Most of the major startups that have been done, they're like two partners, sometimes three, and you have to do this by creating a culture that excites people. And you have to those people working together and you have to make people as part of a corporate culture or organization culture. Understand what your objectives really are. In Blackstone case, we try and be the best in the world at whatever we try and do. That way it's easy to measure. People know what you're trying to do. If you're a football team, you're objective should be to win the Super Bowl, get in it and win it. And if you don't, you failed. And so attracting people, how do you figure out who you should be hiring? How do you do interviews? How do you get interviewed? And I have all kinds of helpful hints, I hope.

Josh King (21:20):

They are interspersed throughout the book. There's the narrative chronological chapters of your life. And then probably in six or seven spots throughout the book, there are specific lessons on things like how to be interviewed and how to interview and how to find talent. I want to talk about the pain of discovering things that you mentioned, the life lessons. I mean, first of all, there is humility. People are made not born as you write. You're in my hometown of Boston in the spring of 1987, it's pouring, raining out as what it takes begins. I think Pete Peterson is going to take your head off for anyone who started a business with two people, as you just mentioned with a dream as ICE founder, Jeff Sprecher did when he slept on his sister's sofa up here looking for investors for his nascent, the energy exchange. Talk to me about the humiliation of repeated rejection and how you endure it even as your suit is getting soaked to the bone.

Stephen Schwarzman (22:17):

Well, I would say one of the most shocking things to me of starting something new is we started a firm that to some degree was a continuation of what we had been doing in Lehman. I was the head of the merger department and my partner was the chairman and CEO of the firm. And just even getting anyone to hire us was almost impossible. And before when we were at Lehman, it was like easy. I mean, we were the busiest merger department in the world. And you go off on your own, we sent 600 letters out to people announced our new business, and I expected the firm phone to be ringing. And I'm in this little office it was 3000 square feet for the whole "firm" of which there was no one except Pete and me, and he had a secretary and I didn't feel I could afford one. So, I answered the door for two years.

Josh King (23:24):

And the only guy who shows up is a guy in black leather pants and a motorcycle jacket and a helmet who says, he's parked his motorcycle outside on 345 park ave.

Stephen Schwarzman (23:32):

Yeah, that was a little odd. I thought he was his delivery guy. It ended up as Sam Zell who had the biggest real estate empire in the United States. But we spent a few hours sitting on the floor, because I didn't have furniture left. But the rejection that you talk about was so shocking. The idea nobody wanted to call us. And then we called everybody and they still didn't give us any business. And I'm sitting there going, what in the world have I done? I mean, how did I come up with this bad idea.

Josh King (24:11):

Jim Robinson would've kept you next to his office forever. You said, no, I got to get out of here and do my own thing.

Stephen Schwarzman (24:16):

Right. But it was the same when we started our private equity fund. We mailed to about 500 investors and nobody called and then we started calling and we only managed by the time we finished this exercise to get one investor for 17 presentations, that level of rejection it's really like people looking at you and it's sort of like gladiator and the emperor is standing up in his box and he turns his thumb down. And that's the end of you. I found this whole experience so shocking, so unexpected.

Stephen Schwarzman (25:09):

I'd had a whole bunch of success in my life. I had some failures, but really it was like a pretty good run. And all of a sudden no one had confidence and you realized you could really fail. And to this day as you can tell, by the tone of my voice, it profoundly changed me. And I realized that when people give you money, we're not the largest in the world by far in the alternative asset business, which is private equity and we're the largest real estate business in the world, and all these employees and so forth. But I realized that we have to earn that every day from those people who reluctantly trusted us by the end. And it's harder for people who join, when they see us so successful.

Josh King (26:08):

I mean, you write that you've always regarded worry as an active, liberating kind of activity.

Stephen Schwarzman (26:14):

Absolutely. And the reason for that is I worry about what can go wrong. And our job in terms of being the senior people at the firm is to make sure everyone at the firm looks at life and says, okay, a lot of things could go right, but what can go wrong? And what's the probability that that can happen. And how do we stop that from happening before it happens? And if we can't, let's not do it. And so worrying is actually liberating because it allows you to live in the future and experience what things might be like on the downside and ask yourself constantly the question, can I live with that? Can I survive that? Or can this investment survive that? Can the firm survive it? And you never want to take risk. And by worrying and looking and think and evaluating in a dispassionate way, it doesn't create stress. It's actually a very positive because it removes stress once you've analyzed everything.

Josh King (27:35):

Well, let's change the tone of, and get away from the worry for a minute, because you are having your meetings every day with Pete at the Mayfair Hotel. You're trying to get this business going, you're sending out the letters, you're putting out a full page ad in the New York Times. You're designing your logo and your business card. And you're taking all these meetings and you're getting so much rejection. And one day you probably take a car under the Lincoln Tunnel, and you head of all places New York, New Jersey and Prudential insurance, and you get a commitment to that first equity fund for your first firm I think 100 million of that. How did it feel walking out of that door?

Stephen Schwarzman (28:19):

I couldn't believe it, because we didn't have a close relationship with Prudential. And we had finished our first 18 meetings with our close contacts, which by the way, we did exactly the stupid thing everybody else does. You go to your closest relationships first, when you really don't even know what you're presenting. You think you do, and you make all kinds of mistakes, and then they reject you. You should save those people until you really know what you're doing. But in any case with Prudential, I just thought it was like a meeting. We were there with their chief investment officer, Garnett Keith. I'd never met him before. And it was funny. We were having lunch and I couldn't figure out the menu, they had all kinds of weird prices. And the reason it took me halfway through the meal is that the prices were actually calories.

Stephen Schwarzman (29:14):

I didn't know why the desserts cost so much. And so I was doing my presentation of private equity fund and getting a piece of our fees from our M&A business. So, we're starting a merchant bank. And Garnett is like eating a tuna on white bread sort of cut on a diagonal. So, he finishes the first half of the sandwich and I'm continuing to do my pitch. And then he eats half of the second half of the sandwich and he looks over to me and he says, that's very interesting.

Stephen Schwarzman (29:55):

Why don't you put me down for a hundred million dollars? And I couldn't believe what I was hearing. I didn't think, usually you can hear instantaneously, you know what it means. I just sort of sat there in stunned disbelief, because at that time, the Prudential was the largest investor and the most prestigious investor in the world in private equity. And a hundred million in 1986 for a fund that was first time funded, two people never made an investment. This was like getting $500 million. And I only hoped he wouldn't choke on the rest of his sandwich because I needed him alive to be able to actually get the money.

Josh King (30:52):

Those diagonally cut sandwiches can be pretty sharp at the end.

Stephen Schwarzman (30:55):

Well, anything can go wrong. But fortunately, I walked out and I was sort of in shock. I remember sitting in the car with Pete and I was in the right hand backseat and he was on the left and we didn't say anything. We just felt the car moving and finally looked at each other and said, could you believe that just happened? And Pete said, yeah, I could believe it. I said, well I'm just in shock. And that was really what made the firm.

Josh King (31:37):

You could say that a hundred million dollar commitment from Prudential might have made the firm. But I would say that probably the fortitude and the soul of Pete Peterson, Steve Schwartzman made the firm and all that commitment. And as I read your book, I would like to just go back quite a bit further to find out where that fortitude was steeled. You sold candy bars, door to door as a kid. You delivered telephone books. You started a lawn mowing business. You had the vision to scale Schwartzman's Curtains & Linens into Bed Bath & Beyond, but your dad wasn't buying it. You were really trying to push and build and expand, looking for people to the same kind of vision that Prudential saw.

Stephen Schwarzman (32:26):

Yeah. I was always like that. I always liked to win. I always liked to compete. I enjoyed it. And I liked pushing myself and I liked achieving things. And I can't tell you why. Those things are mixes of sort of genetic stuff and environment.

Josh King (32:50):

But the genetics wasn't a play here, because your dad said, no, Steve. And your grandfather said, I'm not even going to give you a raise.

Stephen Schwarzman (32:56):

Yeah. But my mother was very aggressive and wanted a much better life. Her father died when she was 11 and they had basically no money. And so she grew up very poor. So, she wanted a better life for her children. And I was the oldest child in the way birth order analyses go. The oldest child bears the burden of the dreams of the parents. And so I was extremely lucky. My dad was very smart and smarter than I was and than I am. And my mother was like an unstoppable force. And so as my brothers and I like to laugh, Steve, you got the right mix of the genes, which I did. So, I was fortunate.

Josh King (33:56):

So, a young man coming of age in America, in the late 50s and early 60s, had a big world in front of them. Especially with the model that your mother laid out for you and Philadelphia helped to tell their story. Here's Dick Clark in American Bandstand.

Dick Clark (34:11):

[inaudible 00:34:11] years and years ago, these young men came up with a hit and it's nice to have him back aboard again. Little Anthony and the Imperial.

Dick Clark (34:33):

(singing)

Josh King (34:47):

Your first gig as an entrepreneur is to get little Anthony and the Imperials to come to Abington High School.

Stephen Schwarzman (34:54):

Yeah. That was really, really fun. And I was elected president of Student Council of the high school. I did that in junior high school too. And for whatever the reason I wanted to do something that nobody had ever done. I just didn't want to do the normal student stuff. And we were driving in California with my mother and my brothers to see the country. And I would sit in the back and think of ideas of new things we can do. And back then you could write postcards. So, I kept writing postcards to the other officers of the student council.

Stephen Schwarzman (35:37):

I thought that in retrospectively, they must have thought I was nuts, with different ideas of what we can do. And I came up with the idea of having a top tier rock and roll group come to our high school. The only problem was we had no money and there was no reason for them to come. So, you had a think of a mechanism and why. And we managed to do it. And instead of a normal school dance, I mean, you had one of the top acts in the country and that was fun for me and the kids and the school loved it.

Josh King (36:17):

I mean, you can talk about what's fun for you and we can talk about your efforts to get into Harvard your time at Yale, your stint in the army, or you figuring out how to make the best out of your time at Harvard Business School. But what I found most interesting about your early years was the gumption that you had to serve as an engine room wiper on a ship bound for Trinidad in the summer after your freshman year. Not the kind of thing that a kid out of Yale is going to spend their summer doing.

Stephen Schwarzman (36:42):

Yeah. I don't know. I thought that would be fun. And I've always had a sense of adventure. I like doing new things. I like learning new things and what could be more unshackling than getting on a Norwegian tanker with a destination unknown, categorization when I got hired. And I said, what do you mean destination unknown? They said, well, you get on this ship and you go out to the Arizona narrow underneath the bridge. And if you turn to the left, you're going to Canada. If you go straight, you're going to Europe. And if you turn right, you're going to the Caribbean and they buy the cargos at the last minute. And so the crew never knows where they're going. And so we turned right. So, I figured, geez, I'm going to the Caribbean. I've never been there. What an adventure.

Josh King (37:44):

You take along on your adventure, some people could bring magazines or comic books. You bring the works of Sigmund Freud, why?

Stephen Schwarzman (37:53):

Well, I was always interested in how people thought. And so I realized I was going to be on a boat and sometimes I can be a little extreme. So, I decided to buy everything that Freud wrote. I forget whether there were 26 different books or something like that and monographs. And so I just read everything when I was at sea.

Josh King (38:19):

And when you were ashore in Trinidad, did sort of your understanding of the way people thought help you maneuver out of that bar fight you got in, in the Trinidad?

Stephen Schwarzman (38:28):

I was lucky. I ended up in some big bar fight. I was picking up a girl, I thought. And apparently she had been spoken for, by somebody from another ship. And how would I know that? And so this other guy comes over and starts threatening me. And the people on my ship, my crewmates, all of whom were Norwegians at that point came over to defend me. And it was like a Western. Somebody broke a chair over somebody else's back and I'm standing there. And all of a sudden, there's like this eruption as these two crews start beating the crap out of each other. And the only person who was never touched was me. I was just standing. It was really something.

Josh King (39:22):

There's so many experiences, deals, highs, lows in What It Takes: Lessons in the Pursuit of Excellence, the new book out by Steve Schwarzman that we could talk for hours. I don't want to let you go without asking one more important question, which is I'm on the Peloton this morning with CNBC on, but the volume is muted seems like groundhog day. The lower third crawl says oil prices rise along with optimism on China trade talks. Go on to read, talks will take place in Washington in October. It seems like similar spirits are buoyed and then dashed often within a single news cycle, as it relates to talks between Washington and Beijing. No one in the private sector is probably closer to this than you. As the kids go back to school this week, where are we on the trade war?

Stephen Schwarzman (40:15):

Well, actually, I was Beijing last week meeting with people. And it was rewarding to see the announcement that trade talks will restart. I think this all has to be put in a context that China has grown faster than any other country in world history over the last 40 years. And they've done it as a emerging markets country where they have high tariff restriction, reasonably closed markets, and a variety of other things that are unfamiliar with developed countries. And the US did that in the 19th century and grew up behind tariff worlds and worked fine for us, and it worked fine for China. But China is now the second biggest economy in the world. They're growing at a rate at least double the United States, which is much faster than the other developed world countries.

Stephen Schwarzman (41:30):

And so there's a moment where a country needs to give up it's full protections, if you will. And join the more developed world, Chinese GDP per capita is now up to around $10,000. And it was in single digits for the last 20 some odd years. So, the United States is asking China to change. The developed world is asking China to change. And it's normal if you've had this amazing run to not want to change. So, on the other hand, the Chinese are quite intelligent and you don't become this successful without understanding how the world works. And so there's meant to be some type of accommodation to the realities of the world. The only question is what's the timing and which one of different types of issues will be addressed initially, and over time. Because nobody wants China to have an awful economic outcome from shock change, nor will they do it.

Stephen Schwarzman (42:50):

And so this is meant ultimately to happen. It's sort of like two porcupines mating. I mean, how do you do this? Carefully?. And there's been some breakups, if you will, and break off of negotiations and different countries among the two countries reacting differently to things. But I think it doesn't surprise me that people will be back at the table. And it wouldn't surprise me over time that there'll be some type of start to new arrangements. But to think that there'll be a miracle cure one day, just a day certain for all issues is unrealistic. That's not the way people work or countries work. So, to make a deal, we have to find out how much the US will compromise on the world of the perfect and how far China will go to accommodate the developed world.

Stephen Schwarzman (44:13):

And there will be an overlap at some point. We were pretty close in May before China broke off and in effect truncated conversations at that point. And we'll see where they come back and we'll see what the US is prepared to do or not. But over time trying to delink these two economies, depending upon how you think about it, or what numbers you use, it's the 35 to 40% of the world economy. It's massive. And to not have these two countries have some sensible relationship will result in very bad outcomes for not just them, but for the rest of the world. There's no reason for that to happen. And so you have to have a perspective on this. And you have personalities involved that introduce sometimes complexity or whatever. But longer term these issues should be addressable and resolvable.

Josh King (45:30):

Well, figuring out the thorny problem of how two porcupines might mate is just one of the many aspects of the business that you have in China. As we say, farewell to you, Mr. Schwarzman, I wonder if you might just reflect a little bit on the other purpose of one of your usual summer travel to Beijing, and that is to address the graduating class of Schwarzman Scholars. And at the end of the book, you have a passage from one of those sets of remarks. And I wonder if you could read it as we exit?

Stephen Schwarzman (46:01):

Every year when the students graduate from the Schwarzman Scholars Program in Beijing, which is a program that I started in built a college building, like an Oxford or Cambridge College, where the students live and eat, and take classes. It's a beautiful building that's one awards as one of the best academic buildings in the world. And the students come from all over. We have 40% Americans, 40% from rest of world, 20% from China, it's like the Rhodes Scholarship Program. It's more selective than Harvard or Stanford. We get 97% of the students we offer come. It's a graduate program for a year. And the students are so remarkable. There's only one thing clearer, I could never get accepted. And so when they graduate, this is what I tell them.

Stephen Schwarzman (47:06):

"Regardless of how you begin your careers, it's important to realize that your life will not necessarily move in a straight line. You have to recognize that the world is an unpredictable place. Sometimes even gifted people, such as yourself will get knocked back on their heels. It is inevitable that you will confront many difficulties and hardships during your lives. When you face setbacks, you have to dig down and move yourself forward. The resilience you exhibit in the face of adversity, rather than the adversity itself will be what defines you as person. Devote your time and energy to the things you enjoy. Excellence follows enthusiasm and doing anything solely for prestige, rarely leads to success. If you have passion for pursuing your dreams, if you persevere, and if you are committed to helping others, you will have a full and consequential life and always have a chance at greatness. And the benefit of your enormous gifts will accrue to yourself, the people you love and to society at large."

Josh King (48:30):

I can't think of a better way to end our discussion. Thank you, Steve.

Stephen Schwarzman (48:33):

Thanks for having me.

Josh King (48:35):

That's our conversation for this week. Our guest was Steve Schwarzman, co-founder, chairman and CEO of the Blackstone group and author of What It Takes: Lessons in the Pursuit of Excellence. If you like what you heard please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question, you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at Ice House Podcast. Our show is produced by Theresa DeLuca and Pete Ash. With production assistance from Ken Abel and Ian Wolf. I'm Josh King, your host signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.

Speaker 1 (49:15):

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