Breakingviews - Blackstone’s Schwarzman schools CIC on art of deal

Stephen A. Schwarzman, Chairman, Chief Executive Officer and Co-Founder of Blackstone, attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 23, 2018. REUTERS/Denis Balibouse

HONG KONG (Reuters Breakingviews) - Stephen Schwarzman has schooled China Investment Corp on the art of the deal. China’s sovereign wealth fund has offloaded its stake in Blackstone, according to documents the $42 billion private equity firm filed with U.S. regulators on March 1. It bagged a so-so return over the decade or so of its investment, while the partnership helped the buyout behemoth open some lucrative doors in the world’s second-largest economy.

CIC bought a $3 billion stake just before Blackstone’s 2007 initial public offering. The deal was lauded at the time as a watershed moment in Beijing’s efforts to diversify its foreign exchange reserves beyond U.S. government bonds. Blackstone’s traded units then tanked to just a tenth of their $31 IPO price as a result of last decade’s global financial crisis. That prompted widespread criticism within China that crafty Western financiers had outfoxed Beijing.

The units now trade around 10 percent above the 2007 launch, but CIC hardly hit a home run. The total return for investors who held onto their IPO allocations stands at 117 percent, almost all thanks to dividends. That’s around 7 percent a year – far from awful, but less than if holders had simply put their money in the S&P 500.

Blackstone, on the other hand, has enjoyed far more financial success. Highlights include selling Strategic Hotels & Resorts to insurance giant Anbang for $6.5 billion in 2016, making some $500 million just three months after taking the company private. Months later it sold 25 percent of Hilton Worldwide to conglomerate HNA for $6.5 billion, three times what it paid in 2007. It has even sold assets to CIC itself, which bought European warehouse company Logicor from Blackstone last year.

Blackstone’s boss has been building his own ties too. In 2016 he set up the Schwarzman Scholars programme at Tsinghua University, aiming to cultivate leadership skills for students from the United States, China and elsewhere. The initiative has won plaudits from Chinese President Xi Jinping.

CIC still retains some ties to Blackstone – it has investments in the company’s funds, says a person familiar with the matter. Having the continued backing of Beijing, albeit indirectly, may help win it kudos as it raises its first Asia-focused buyout fund. Financially, at least, Beijing is playing second fiddle.


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