No Plan B: The Rise of Blackstone

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Hi there,

I’ve been quiet on Wednesdays for a while — but mid-week editions are back. You can expect one every other Wednesday, diving deeper into the stories behind the headlines.

This week, we zoom in on Stephen A. Schwarzman and the rise of Blackstone — from a sublet office and 450 ignored letters to a $1.2 trillion private markets platform.

Most people know the Hilton trade or the EOP deal. But the real turning points? Quitting Lehman. Pitching Prudential with no backup plan. Refusing second-rate deals, even when the money was good.

Here’s how it unfolded — early years, major setbacks, and deal wins.

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📚 Early Moves

Stephen Schwarzman (“Steve” or “Schwarzman”) was born in 1947, just outside Philadelphia. His father owned a linen shop. As a teenager, Schwarzman spent summers restocking fabric and watching his father manage customer relationships and cashflow.

That experience gave him early exposure to pricing, markup discipline, and customer psychology — skills that later shaped his approach to deal negotiation.

By 18, he was student-body president and a middle-distance runner. At Yale, he studied Social Studies, co-founded a ballet society, and joined Skull & Bones.

A conversation with DLJ co-founder Bill Donaldson pointed him toward finance. He went on to HBS and graduated with his MBA in 1972.

👔 Quitting Lehman Brothers

Steve became a managing director at Lehman Brothers (“Lehman”) by 31 and was soon running global M&A. But behind the prestige, the firm was in crisis.

A bad bet in London had backfired, and losses were compounding daily. Internally, some feared the firm’s equity would be wiped out — but management denied everything, warning that anyone spreading concern would be fired.

Schwarzman quietly went to a senior partner and proposed a radical solution: sell the firm. With approval, he executed the plan swiftly — engineering a deal with American Express that kept Lehman alive, but left its CEO blindsided and ousted.

The sale was a turning point — and not just for Lehman.

The new regime prioritized scale, not strategy. Brokerage revenues mattered more than bespoke advisory work. The culture, once intense and entrepreneurial, now felt bureaucratic and risk-averse.

Schwarzman felt the shift immediately. Years later, he’d admit he regretted selling the firm. At the time, though, he made a different call.

In early 1985, he resigned. No new job. No Plan B.

📈 Launching Blackstone

Eight months later, he partnered with Pete Peterson — former Lehman CEO — to launch Blackstone. They each put in $400,000 and set up shop in the Seagram Building on Park Avenue.

Blackstone’s early business was pure M&A advisory. Their plan was to generate steady fee income from deals while laying the groundwork to raise a fund and deploy their own capital. It wasn’t an easy pitch.

They mailed out 600 fundraising packets. Over 450 got no reply.

Eventually, MetLife and New York Life committed $75M — but only if Blackstone could raise $500M in total. With time running out, Schwarzman secured a last-ditch meeting with Prudential’s CIO.

He made his case. “Put me down for $100M” came the reply.

With Prudential on board, others followed. Blackstone closed Fund I at $800M in October 1987 — just days before the infamous Black Monday.

🏛️ A Few Deals That Shook the Markets

The $36B Gamble on Office Space

In early 2007, Blackstone closed on Equity Office Properties — the office portfolio owned by real-estate mogul Sam Zell — for $36 billion, the largest office-REIT deal in America at the time. It was a massive bet on commercial real estate, with over 500 buildings and tenants from coast to coast.

But timing was brutal. Within weeks, credit markets began to seize up. Blackstone moved quickly — flipping prime assets in Manhattan, Boston, and Seattle to reduce leverage. By the end of 2007, it had already sold $20 billion worth of assets.

It took over a decade to exit the rest. The last office tower was sold in 2019. Despite the headwinds, the deal returned nearly $7 billion in profit — a 3x on equity.

Looking back, it wasn’t the purchase price or the buildings that defined the deal. It was speed, scale, and discipline under pressure.

Buying Hilton Before the Crash

Just a few months later, in July 2007, Blackstone agreed to take Hilton private for $26 billion. It was a bold move — the firm paid a 40% premium, loaded the deal with debt, and bet on a global travel boom. Then the market collapsed.

Within months, occupancy rates fell and revenues plunged. Hilton was sitting on more than $20 billion of debt. Blackstone could’ve panicked. Instead, they refinanced, cut costs, and doubled down on the international expansion plan.

The turnaround took patience. But six years later, Hilton returned to public markets in what became the largest hotel IPO ever. By the time Blackstone fully exited in 2018, the deal had earned them over $14 billion.

Not every pre-crisis buyout survived. Hilton did — and turned into one of the most profitable in Blackstone’s history.

Repackaging Refinitiv

In 2018, Blackstone, along with GIC and CPPIB, bought a controlling stake in Thomson Reuters’ financial data business. The price tag: $20 billion. It came with 40,000 clients, a sprawling product suite, and a fight for relevance in a Bloomberg-dominated market.

The plan wasn’t to run it forever. Less than a year later, the consortium struck a deal to merge Refinitiv with the London Stock Exchange. The transaction gave them a large chunk of LSEG equity — and a swift exit route.

Antitrust regulators circled, competitors lobbied, and integration took time. But the deal closed in 2021.

It was a different kind of play — less about control, more about structure. Deal success stemmed primarily from a well-negotiated exit, rather than ongoing management.

✒ To Conclude…

From the start, Blackstone moved with discipline, not urgency.

They avoided overconcentration in any one asset class. They invested early in operating talent and internal infrastructure. And they kept dry powder when others rushed to deploy.

The model was simple — but unusually consistent:

• Buy complexity others avoid.

• Fix what’s broken with operational leverage.

• Exit when value is realized, not just when markets rise.

As of March 2025, AUM stood at $1.2 trillion — larger than the GDP of most countries.

“Our edge is rigorous pattern recognition in markets and financial data” Schwarzman once told analysts.

That mindset shaped not just their investments, but the entire firm — built less like a fund, and more like a machine.

Enjoy these breakdowns? Let me know who else you'd like to see featured — investor profiles, firm histories, or deep-dives on strategic shifts.

Until next time,
PE Bro

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Disclaimer: The events and facts in this piece were compiled using a range of reputable, publicly available sources. While I strive for accuracy, I can't verify every detail firsthand. This should be read as a well-researched overview — not an official history or statement from Blackstone or its affiliates.