Oct. 7, 2010
BOOK REVIEW: 'King of Capital'
How Private Equity Firms Like the Blackstone Group Morphed from Being 'Barbarians at the Gate' and 'Strippers and Flippers' to a New Source of Business Financing
Reviewed By David M. Kinchen
Outside of the Wall Street establishment, Stephen A. Schwarzman, co-founder of the Blackstone Group, wasn't a public figure until the publicity that emerged early in 2007 about his upcoming lavish 60th birthday party -- instantly making him famous -- or infamous.
Financial journalists David Carey and John E. Morris open their "King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone" (Crown Business, 400 pages, notes, index, $27.50) with details of the party, held in a block-long armory on Park Avenue, not far from Schwarzman's duplex apartment. The joke circulated that the armory was chosen because it was a more "intimate" venue than the apartment, which had been owned by John D. Rockefeller Jr. and which Schwarzman purchased for at least $30 million.
Entertainment for the Feb. 13, 2007 party (Schwarzman was born Feb. 14, 1947 in suburban Philadelphia) was provided by Patti LaBelle, Rod Stewart (he was reportedly paid $1 million for his half-hour performance), comedian Martin Short and others, and the guest list included Gen. Colin Powell, New York Mayor Michael Bloomberg, Barbara Walters, Archbishop Egan of New York, Donald and Melania Trump, and most of the machers of Wall Street. Schwarzman made the fictional Gordon Gekko of the 1987 -- and now 2010 -- Oliver Stone flicks "Wall Street" look like a Walmart, Dollar General or Costco shopper with the $3 million birthday bash.
The Blackstone Group was formed Oct. 1, 1985 by Schwarzman, late of Lehman Brothers, and two decades older Peter G. Peterson, born 1926, who was also at Lehman Brothers. The name came from a combination of the elements of the names of the founders: Schwarz means "black" in German and Yiddish, reflecting the middle-class Jewish background of Schwarzman, who boasted that he was the first Jewish member of the Skull and Bones society at Yale, his alma mater, and the "stone" from "peter" which means stone in Greek, the mother tongue of Peterson's parents, Greek immigrants who owned a 24-hour coffee shop in the railroad station of Kearney, Nebraska (His father changed his name from Georgios Petropoulos to George Peterson).
Carey and Morris provide readers who are unfamiliar with the inner workings of Wall Street -- that means most of us -- with excellent background material on the origins of private equity firms like KKR, along with details on junk bond financing of the kind made famous by Michael Milken of Drexel Burnham Lambert.
The authors also show how Blackstone, KKR and other private equity firms transformed themselves from gamblers, hostile-takeover artists and the kind of "Barbarians at the Gate" immortalized in the 1990 bestseller by Wall Street Journal reporters Bryan Burrough and John Helyar of the same name, which described the takeover of RJR Nabisco by Kohlberg Kravis Roberts and Company (KKR), the older prototype for Blackstone and other private equity firms, into disciplined, risk-conscious investors.
By way of contrast, Carey and Morris write, the older financial establishment firms such as Citigroup, Bear Stearns, Lehman, UBS, Goldman Sachs, Merrill Lynch, Morgan Stanley were the cowboys, recklessly assuming risks, leveraging up to astronomical levels and driving the entire economy to the brink of collapse with subprime mortgages and other elements of a tulip bubble Ponzi scheme on a massive scale.
Carey and Morris had access to all of the people at Blackstone and many of the other firms mentioned in the book, but they insist this isn't an authorized account of the Blackstone Group. I wish they had included photographs in the book to supplement the descriptions of Schwarzman as the shorter (5-6) of the two founders, with his thinning gray hair in contrast to the darkly Mediterranean six-footer Peterson. Publishing insiders tell me that photos add to the production costs of books, necessitating a higher price, which I can understand. Still, photos add to the value of books, eliminating need to Google or go to Wikipedia to find out what the various people mentioned in the book look like.
"King of Capital" describes how Blackstone went from two guys and a secretary to being one of Wall Street’s most powerful institutions, far outgrowing its much older rival KKR; and how Steve Schwarzman, with a pay packet one year of $398 million and $684 million from the Blackstone IPO (which came later in 2007), came to epitomize the spectacular new financial fortunes amassed in the 2000s. Along the way, private equity firms tried -- and largely succeeded -- in improving their image from predatory "grave dancers" that "stripped" --- sold off the assets -- of companies they bought and "flipped" -- quickly resold the companies, often to foreign companies that closed plants, laid off workers and beggared whole communities.
While this has occurred, Carey and Morris write that successful private equity firms benefit more by making the companies they acquire stronger and thereby better competitors. They describe several examples of firms strengthened by private equity firms that bought them. With financing continuing in short supply and firms like Blackstone sitting on billions of dollars, it seems inevitable that private equity firms like KKR and Blackstone will play a major role in the recovery from a recession that the economic experts tell us ended in mid-2009, but which in reality continues for most Americans.
About the authors:
David Carey is a senior writer for The Deal, a news service and magazine covering private equity and mergers and acquisition. He has written for Fortune, Adweek, Institutional Investor and Financial World. John E. Morris, now an editor with Dow Jones Investment Banker, was formerly with The Deal and American Lawyer magazine.
Publisher's website: www.crownbusiness.com
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BOOK REVIEW: 'King of Capital'
How Private Equity Firms Like the Blackstone Group Morphed from Being 'Barbarians at the Gate' and 'Strippers and Flippers' to a New Source of Business Financing
Reviewed By David M. Kinchen
Outside of the Wall Street establishment, Stephen A. Schwarzman, co-founder of the Blackstone Group, wasn't a public figure until the publicity that emerged early in 2007 about his upcoming lavish 60th birthday party -- instantly making him famous -- or infamous.
Financial journalists David Carey and John E. Morris open their "King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone" (Crown Business, 400 pages, notes, index, $27.50) with details of the party, held in a block-long armory on Park Avenue, not far from Schwarzman's duplex apartment. The joke circulated that the armory was chosen because it was a more "intimate" venue than the apartment, which had been owned by John D. Rockefeller Jr. and which Schwarzman purchased for at least $30 million.
Entertainment for the Feb. 13, 2007 party (Schwarzman was born Feb. 14, 1947 in suburban Philadelphia) was provided by Patti LaBelle, Rod Stewart (he was reportedly paid $1 million for his half-hour performance), comedian Martin Short and others, and the guest list included Gen. Colin Powell, New York Mayor Michael Bloomberg, Barbara Walters, Archbishop Egan of New York, Donald and Melania Trump, and most of the machers of Wall Street. Schwarzman made the fictional Gordon Gekko of the 1987 -- and now 2010 -- Oliver Stone flicks "Wall Street" look like a Walmart, Dollar General or Costco shopper with the $3 million birthday bash.
The Blackstone Group was formed Oct. 1, 1985 by Schwarzman, late of Lehman Brothers, and two decades older Peter G. Peterson, born 1926, who was also at Lehman Brothers. The name came from a combination of the elements of the names of the founders: Schwarz means "black" in German and Yiddish, reflecting the middle-class Jewish background of Schwarzman, who boasted that he was the first Jewish member of the Skull and Bones society at Yale, his alma mater, and the "stone" from "peter" which means stone in Greek, the mother tongue of Peterson's parents, Greek immigrants who owned a 24-hour coffee shop in the railroad station of Kearney, Nebraska (His father changed his name from Georgios Petropoulos to George Peterson).
Carey and Morris provide readers who are unfamiliar with the inner workings of Wall Street -- that means most of us -- with excellent background material on the origins of private equity firms like KKR, along with details on junk bond financing of the kind made famous by Michael Milken of Drexel Burnham Lambert.
The authors also show how Blackstone, KKR and other private equity firms transformed themselves from gamblers, hostile-takeover artists and the kind of "Barbarians at the Gate" immortalized in the 1990 bestseller by Wall Street Journal reporters Bryan Burrough and John Helyar of the same name, which described the takeover of RJR Nabisco by Kohlberg Kravis Roberts and Company (KKR), the older prototype for Blackstone and other private equity firms, into disciplined, risk-conscious investors.
By way of contrast, Carey and Morris write, the older financial establishment firms such as Citigroup, Bear Stearns, Lehman, UBS, Goldman Sachs, Merrill Lynch, Morgan Stanley were the cowboys, recklessly assuming risks, leveraging up to astronomical levels and driving the entire economy to the brink of collapse with subprime mortgages and other elements of a tulip bubble Ponzi scheme on a massive scale.
Carey and Morris had access to all of the people at Blackstone and many of the other firms mentioned in the book, but they insist this isn't an authorized account of the Blackstone Group. I wish they had included photographs in the book to supplement the descriptions of Schwarzman as the shorter (5-6) of the two founders, with his thinning gray hair in contrast to the darkly Mediterranean six-footer Peterson. Publishing insiders tell me that photos add to the production costs of books, necessitating a higher price, which I can understand. Still, photos add to the value of books, eliminating need to Google or go to Wikipedia to find out what the various people mentioned in the book look like.
"King of Capital" describes how Blackstone went from two guys and a secretary to being one of Wall Street’s most powerful institutions, far outgrowing its much older rival KKR; and how Steve Schwarzman, with a pay packet one year of $398 million and $684 million from the Blackstone IPO (which came later in 2007), came to epitomize the spectacular new financial fortunes amassed in the 2000s. Along the way, private equity firms tried -- and largely succeeded -- in improving their image from predatory "grave dancers" that "stripped" --- sold off the assets -- of companies they bought and "flipped" -- quickly resold the companies, often to foreign companies that closed plants, laid off workers and beggared whole communities.
While this has occurred, Carey and Morris write that successful private equity firms benefit more by making the companies they acquire stronger and thereby better competitors. They describe several examples of firms strengthened by private equity firms that bought them. With financing continuing in short supply and firms like Blackstone sitting on billions of dollars, it seems inevitable that private equity firms like KKR and Blackstone will play a major role in the recovery from a recession that the economic experts tell us ended in mid-2009, but which in reality continues for most Americans.
About the authors:
David Carey is a senior writer for The Deal, a news service and magazine covering private equity and mergers and acquisition. He has written for Fortune, Adweek, Institutional Investor and Financial World. John E. Morris, now an editor with Dow Jones Investment Banker, was formerly with The Deal and American Lawyer magazine.
Publisher's website: www.crownbusiness.com
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