March 8, 2017 7:00 pm JST

'King of Capital' joins hands with Donald Trump

Presidential adviser and Blackstone CEO Stephen Schwarzman holds a key to U.S. growth

MAKOTO KAJIWARA, Nikkei commentator

Blackstone Group Chairman and CEO Stephen Schwarzman, left, is a mentor and long-time friend to Trump. © AP

HONG KONG -- Stephen Schwarzman, chairman and CEO of the Blackstone Group, is acting as a bridge between Donald Trump and the rest of the world. The question is whether the head of a multinational private equity company with a self-declared "obligation" to "work for the common good" can bridge his political differences with a president who vows to put "America First". 

Days before the inauguration, Schwarzman met Chinese President Xi Jinping at the annual gathering of business and political leaders in Davos, Switzerland, and conveyed a message from Xi to Trump -- who later softened his hostile stance on China and in February went on to hold a telephone conversation with Xi.

Schwarzman does not deal solely with foreign leaders. Just before December's meeting between the president-elect and Masayoshi Son, the Japanese SoftBank Group chief visited Schwarzman and discussed how to handle the new U.S. leader. After their meeeting, Trump tweeted Son's pledge to invest $50 billion in the U.S. -- and Son visited Schwarzman again to share his delight at the successful talks.

Long-time friend

As chairman of the President's Strategic and Policy Forum, comprising leading executives, Schwarzman's role is to offer advice to Trump, who relies on him as a long-time friend and mentor.

It was Schwarzman's nickname -- the King of Capital -- that first piqued my interest in the close relationship between the two men.

Schwarzman founded Blackstone in 1985 and has made it one of the world's leading investment houses, with assets worth nearly $400 billion under management. Today Blackstone is more of a holding company than an investing company.

As a private equity fund, it is a major shareholder in 77 companies with a combined total of more than 510,000 employees at the end of 2016. With investors worldwide, Blackstone acquires large equity stakes in companies with growth potential and requires them to promote management reform and corporate value.

Between them it is conceivable that Schwarzman, a charismatic emblem of his industry, and President Trump, with his regulatory and budgetary powers, will come up with a new form of American capitalism -- a tarnished model symbolized by Schwarzman and his fellow Wall Street titans.

Before the collapse of Lehman Brothers triggered the global financial crisis, Schwarzman was a face of "greedy capitalism" typified by huge profits and lavish spending. Unusually for an acquisition fund, Blackstone went public in 2007 and Schwarzman reportedly earned nearly $700m. His birthday party in New York that year -- the year before Lehman Brothers collapsed -- cost $3 million.

As Wall Street faced mounting public anger, he began to move towards a form of capitalism with an eye on its broader social impact.

In 2013 Blackstone began a campaign to hire large numbers of U.S. military veterans. Companies on its portfolio have employed almost 50,000 to date.

Schwarzman also decided that companies needed a stable world to achieve sustainable growth. In 2013, therefore, he used his personal fortune to found a scholarship of $100 million at Beijing's Tsinghua University, selecting 200 mainly American students a year to promote understanding between China and the world.

"The slow-growing developed countries would get more and more upset with China that's doing so well. And what would happen is that you'll end up with trade and military tensions," Schwarzman said at that time -- a statement that has come to sound prescient in the past few months. "So students go back to their own countries and they can interpret what China is doing, or not doing, in a way that makes sense."

Risky strategy

Schwarzman must be aware of the risks he faces in working so closely with Trump. The president's words and deeds have made some apprehensive that America is turning its back on the world. His environmental position suggests he will backpedal on measures to curb global warming and his "Buy American" stance is seen as increasing tension between the U.S. and other countries.

Blackstone, by contrast, boasts that its companies pursue environmental sustainability programs. It also calls for its worldwide portfolio of businesses to share their management resources. In other words, the companies it invest do not procure all their goods in America.

The question of immigration, too, has come to the fore. Travis Kalanick, CEO of Uber Technologies, quit Trump's business advisory forum in February as users began shunning the ride-hailing app in protest at the president's executive order to restrict the entry of citizens from seven Muslim-majority countries.

Yet Blackstone is the biggest property investor in San Francisco, the city that serves as the gateway to Silicon Valley, where businesses depend on immigration to drive innovation.

Differences deferred

Schwarzman has brushed aside his differences with Trump for now. "There are too many regulations as a result of actions over the last 10 to 15 years, which have made the U.S. less competitive. That's can be easily reversed," he said, suggesting he will focus on proposals for deregulation and other near-term growth strategies.

This business-focused approach alone, however, will not enable him to fulfill his role as Trump's mentor. "We try and take care of our countries if we are given the opportunity to do it. That's your obligation as a citizen to look out for your country," Schwarzman said. He thus is not simply supporting Trump as an old friend. 

Opportunities to remonstrate with Trump may yet arise; the U.S. president has asked him for feedback on "how he should change what he was doing" for the good of the country.

Under the "Trump rally," led by investors seeking to profit from proposals to use infrastructure investments and tax cuts to stimulate the economy, the Dow Jones Industrial Average of 30 major stocks temporarily exceeded the 21,000 mark. 

But the real question is whether the U.S. can create a form of capitalism that can build sustainable growth -- and whether Schwarzman can exert influence at the highest level to help make that happen.

SoftBank Group Corp.

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