Blackstone head sheds insights into ‘challenges of the modern world’
TORONTO Stephen Schwarzman, head of Blackstone Group Inc., the world’s largest alternative asset manager, has been stepping beyond his well-honed role as a corporate deal-maker into the midst of high-stakes trade negotiations between nations.
During a stop in Toronto on Wednesday to give a speech to the Canadian club and promote his recent book, What It Takes, Schwarzman weighed in with an optimistic view that an important new trade agreement can be forged between the U.S. and China ahead of next November’s presidential election — despite repeated stalls.
In the book, he says he played an active behind-the scenes role in last year’s renegotiation of the North American Free Trade Agreement between the United States, Canada, and Mexico, and worked for more than two years to try to sign an important new trade deal between the United States and China.
“There’s a lot of momentum to do a trade deal,” said Schwarzman, whose private equity company’s relationship with China dates back to 2007, when a precursor to that country’s sovereign wealth fund became an investor in his firm.
“There’s a relatively short fuse to get something resolved before the U.S. elections, which I think both countries would like to do.”
In a wide-ranging interview, Schwarzman called the U.S. tariffs imposed on China “a bit of a pileon” for a country that was already experiencing slowing economic growth.
As for the on-again, off-again talk of a deal being reached over the past several months, Schwarzman said there appears to be some reluctance in China to end policies that had led to double-digit economic growth.
“They’ve got their hard liners, who don’t want to change at all, (and) they have their reformers who recognize they have to,” he said.
In his book, the 72-year-old Schwarzman describes his backroom role in trade negotiations as an “unusual opportunity to serve” his country late in his career.
Perhaps surprisingly, Schwartzman describes his role in Canada’s new USMCA deal, announced in October of 2018, as a key one, including advising Prime Minister Justin Trudeau on how to get the deal done and avoid a Canadian recession that could jeopardize his chances of re-election.
In the acknowledgments near the end of his book, Schwarzman names a handful of Trudeau’s team including Deputy Prime Minister Chrystia Freeland, formerly Canada’s minister of trade.
During the interview with the Post, he demurred when asked about anything he deemed overtly political — including whether it is justified to have national security fears that threaten to keep China-based telecommunications firm Huawei from developing a 5G wireless network in countries including the U.S. .
“That’s a whole political thing … a little outside my pay grade,” he said.
However, Schwarzman said he believes that any concerns that China’s economic growth is unsustainable are overdone, noting that the country has taken steps to deleverage and has ramped up the focus on its consumer sector.
“The concept of China collapsing or something like that is completely incorrect,” he said. “It’s just slowed its growth.”
Blackstone continues to manage money for China Investment Corp., though the sovereign wealth fund had sold off its investment in the firm by 2018.
Schwarzman described his involvement with the sovereign wealth fund as a “happy accident” that occurred just ahead of Blackstone’s planned initial public offering in 2007.
It started with a phone call from a new partner, who, while in China at a board meeting, had been summoned to meet with two former senior officials from China’s government and central bank.
“He called me at home around 10 or 10:30 at night. I was watching Law and Order,” Schwarzman recalled, adding that it took him a while to grasp the importance of the “two unemployed people” who wanted to invest.
“He said, ‘Steve, this is China Inc. … It’s China the country, the country wants to invest.’”
The additional US$3 billion required expanding the size of Blackstone’s IPO, making it the second largest at the time next to Google Inc.
“As slow-moving as I am, even I recognized that this was a huge strategic initiative by China where they were basically saying they were going to open themselves to the world and start recycling the huge amount of savings they had, and foreign reserves,” Schwarzman said.
“And so we found a way to do that.”
Blackstone’s long-standing success is due in large part to being in the “right time, right place in history,” Schwarzman said.
But he rejected the notion espoused by some that capitalism may have run its course, with evidence including gaping income inequality and signs even middle-income families are falling behind in the United States.
Schwarzman acknowledged the issues, but said there are a number of reasons for them that have little to do with the effects of capitalism.
Among the root causes, he said, are poor decisions made by governments and regulators in the run-up to and the aftermath of the 2008 financial crisis that slowed the recovery, and declining academic performance in the United States, particularly in mathematics.
He said China recently announced plans to require every student to study computer science, as the country hopes to dominate in certain areas of tech, and that compares to fewer than five per cent of American students who receive training in computers.
“That’s not capitalism’s fault. That’s the fault of people who determine what happens with education,” Schwarzman said.
“They’re not accepting the challenges of the modern world. And if you don’t, that world will move ahead without you and your population will be disadvantaged.”
He added that the shift of wealth and jobs to the developing world over the past 25 years has “pulled billions of people out of poverty.”
There’s a lot of momentum to do a trade deal There’s a relatively short fuse to get something resolved before the U.S. elections.