July 5, 2007 / 12:04 PM / 11 years ago

Blackstone's president faces major test

NEW YORK (Reuters) - With Blackstone Group (BX.N) taking heat from investors and lawmakers after its IPO, the man in charge of day-to-day operations faces perhaps the biggest challenge in his more than 30 years on Wall Street.

Although much of the attention on Blackstone has centered on CEO and co-founder Stephen Schwarzman, it is Hamilton “Tony” James who runs the firm, his hand on everything from private equity deals to real estate transactions to advisory work.

As Blackstone’s No. 2, the pressure is on James to lead the firm through its new chapter as a public company and steer the massive money machine through the rough waters facing private equity firms.

Schwarzman is still the boss, but the future direction of the firm is seen falling just as heavily on James’ shoulders.

Former colleagues say James’ situation is one he is well equipped to handle, having held top roles at two Wall Street banks before and having weathered many ups and downs along the way.

“The more stress he is under, the better off he is,” said Larry Schloss, CEO of buyout firm Diamond Castle Partners and the former head of DLJ Merchant Banking.

Blackstone declined to make James available for an interview.

James, 56, grew up the oldest of four boys in Lincoln, Massachusetts, a wealthy suburb near Boston. His father was a management consultant at Arthur D. Little.

After boarding school at The Choate School in Connecticut (now Choate Rosemary Hall), he went to Harvard where he met his wife, Amie. James played soccer there and continued to play in weekly games in New York City until a recent ankle injury.

His children grown, he lives in Manhattan and spends much of his free time fly fishing, owning land just outside of Billings, Montana. The waters there are trout heavy, and he stays in a single-wide trailer plopped in the woods.

WORKAHOLIC

James took a job at Donaldson Lufkin & Jenrette in 1975 after Harvard Business School where he and U.S. President George W. Bush were classmates. The two are on friendly terms but not close, former colleagues say. James was part of a 2004 White House delegation attending the inauguration of Guatemala’s president, a delegation led by Bush’s brother, Jeb.

James’ tireless work ethic and sharp financial mind are well known on Wall Street and were key aspects in his leap up Blackstone’s ranks, from new hire in 2002 to the No. 2 spot only two years later.

When he ran investment and merchant banking at DLJ it was James who spent hours poring over figures at home every night at bonus time, making certain that every last nickel was properly handed out.

It was a task most Wall Street banking chiefs delegated to their underlings. But James was determined to get it right, even if it meant going a week on a few hours of sleep, say bankers who once worked at DLJ.

Even on his beloved fly fishing trips, the tall and lanky James will awake in the night to get a few hours of work in before hitting the river at sunrise, his friends say.

The hard work combined with an ability to solve problems quickly has brought him rich rewards.

BILLIONAIRE

With the private equity industry booming, James earned more than the CEOs of Goldman Sachs (GS.N) and JPMorgan (JPM.N) combined last year and his stake in the firm is currently worth $1.55 billion after its June IPO — a huge amount considering his riches have come neither as a chief executive nor a company founder.

The billions Blackstone’s top executives raked in through the $4 billion IPO however, attracted the scrutiny of lawmakers, who proposed legislation to jack up the firm’s tax bill.

“I’m worried about the fact that private equity has grown so quickly and so fast that it’s made itself a natural target for speculation and resentment,” James said at the Reuters Investment Banking Summit in November. “It has made a lot of money.”

Also worrying are investor doubts about Blackstone’s high valuation and a pullback in the credit markets, factors that have sent shares of the company lower since their debut.

There is no time like the present to test James’ management and financial skills.

“Tony can take something complex and simplify it. He sorts it out,” said Joel Cohen, DLJ’s former co-head of M&A and currently the CEO of M&A advisory firm Sagent Advisors. “He has this incredible ability to translate.”

James has always preferred leveraged buyout investing over M&A advisory, sources close to him say. In 1989, DLJ took a stake in Chicago & Northwestern Railway alongside a start-up buyout firm named Blackstone. Sources say that deal forged the relationship and deep respect between Schwarzman and James.

While Schwarzman has publicly stated his desire to “kill off” rival bidders in the dealmaking arena, James’ style is less combative, though he will occasionally lose his temper, former colleagues say. More than anything, he respects people who are not afraid to voice well informed opinions.

One former DLJ banker said James would occasionally start a meeting about a certain deal they were pursuing by saying he thought it was terrible. Only after a chorus of affirmations would he then tell the group that in reality he thought the deal was great.

James earned a big payout in the $11.5 billion sale of DLJ to Credit Suisse First Boston in 2000 at the height of the tech bubble.

Shortly after the deal the tech bubble burst. A slumping economy coupled with a culture clash led to an exodus of DLJ bankers from CSFB. James, who was co-head of investment banking there, was in a tough spot, his support within the bank dwindling. By 2002, with a few months left in his CSFB contract, he wasn’t sure what he’d do next. Then Schwarzman gave him a call.

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