From an initial total investment of $400,000 to today’s $684 billion in assets under management, Blackstone Inc. has transformed into Blackstone Group, becoming one of the world’s largest independent alternative asset management firms, often referred to as the "King of Wall Street PE." Its business covers a wide range of areas, including private equity investment funds, real estate funds, hedge funds, debt investments, closed-end mutual funds, merger and acquisition services, and fundraising services.

What is Private Equity?

Simply put, private equity refers to equity investments in companies that are not publicly traded. These companies are typically in a growth phase or possess high growth potential.

Blackstone Group and Private Equity

In 1985, Stephen Schwarzman and Peter Peterson founded Blackstone Group after leaving Lehman Brothers. J. Tomilson Hill joined the group in 1993, serving as vice chairman, president, and CEO, overseeing hedge fund operations valued at approximately $68 billion. He noted, "The story of Blackstone is essentially the story of Lehman Brothers’ bankruptcy." This is because one of the founders, Peterson, was the chairman and co-CEO of Lehman Brothers, as well as chairman and CEO of Bell and Howell Corporation and the Secretary of Commerce under the Nixon administration. The other founder, Schwarzman, was the global head of M&A at Lehman Brothers.

In the fall of 1985, the two each invested $200,000 to open Blackstone's first office on Park Avenue in New York City. In 1987, Schwarzman decided to raise a $1 billion leveraged buyout fund to expand Blackstone’s M&A business. However, neither Schwarzman nor Peterson had experience in M&A. Initial marketing efforts were unsuccessful, including pitches to the MIT endowment fund and Delta Airlines pension fund.

Ultimately, Prudential Insurance committed to investing $100 million in Blackstone’s fund, becoming a key investor. Soon after, Mitsubishi UFJ Financial Group, General Electric, and General Motors also invested. Blackstone raised $635 million and concluded this fundraising just before the stock market crash in 1987. By 1988, the fund had grown to $850 million, becoming the largest fund at the time.

In 1989, Blackstone completed its first deal, acquiring USX's transportation subsidiary (later known as Transtar) for $640 million. Blackstone invested $13.4 million in equity, acquiring a 51% stake in the company. They improved operations, and over a 15-year investment period, the investment endured economic cycles. When Blackstone exited in 2003, the deal provided investors with a 25-fold return.

In 1992, Blackstone launched an opportunistic real estate fund, which thrived under Jon Gray’s leadership. In 1999, it introduced alternative credit business; in 2000, it opened an office in Europe; in 2002, it launched a senior debt fund; in 2005, it launched proprietary hedge funds; in 2006, it opened an office in Asia; and in 2008, it acquired GSO, an alternative asset management company focused on credit products. Such examples are numerous. Thirty years ago, Blackstone was a small M&A firm with only two employees; today, it has evolved into one of the most diversified private equity firms. By early 2018, its assets under management reached $434 billion, nearly twice that of its largest competitor. A significant change in the 21st century was the shift in company ownership structure, with several large private equity firms going public, including Blackstone.

In 2006, Schwarzman and Blackstone president Tony James began discussing an initial public offering (IPO), which could bring substantial capital inflow, ensure liquidity for M&A activities, and establish a stock-based compensation scheme. The IPO increased recognition of Blackstone and helped solidify its premium brand in the industry.

Twenty-five years later, Blackstone continues to progress according to the blueprint designed by Peterson and Schwarzman in 1985: a new type of financial institution centered on private equity that also ventures into other areas when the time is right. Moreover, as demonstrated by attempts to invest in China, Schwarzman still manages to find necessary capital for investments—paving the way for Blackstone’s long-term development.

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