How Stephen Schwarzman Built The Blackstone Group

Once dubbed the undisputed king of the private equity industry by Forbes magazine, Stephen Schwarzman is one of the wealthiest people in the U.S. with a net worth of $53.8 billion—making him the 27th richest person in the world as of January 2025. The investment company he founded, The Blackstone Group (BX), is one of the largest alternative asset managers in the world, with more than $1 trillion worth of assets under management. Schwarzman and his team oversee capital allocation for several pension funds, sovereign wealth funds, central banks, and other institutional investors.

Schwarzman is one of the most powerful people on Wall Street. He has a wide range of global business interests in private equity, debt financing, hedge fund management, and real estate acquisitions. In 2007, Time magazine named him one of its most influential people. A benevolent billionaire, Schwarzman has donated hundreds of millions of dollars to different causes over the years, and has pledged to give the majority of his wealth to philanthropy after signing the Giving Pledge in 2020.

Here is an overview of how he made his fortune and built the world’s most powerful alternative asset manager.

Key Takeaways

• With an estimated net worth of over $53 billion, Stephen Schwarzman is one of the world’s wealthiest people.
• Schwarzman is chair and CEO of The Blackstone Group, the largest alternative asset management firm in the world.
• Blackstone is a private equity fund, offers multi-asset investing, has done m&a advising, and is perhaps best known for its real estate investment partnerships.

Stephen Schwarzman’s Early Life and Education

Schwarzman says, ‘‘I stopped [studying math] in the eleventh grade and I think calculus was, for me, that was way too much of a reach. So I am more in the add, subtract, divide, and multiply kind of category, which worked and still does quite well for me.’’

With no interest in corporate finance, Schwarzman took social science-related courses like psychology and sociology during his time at Yale. While in school, Schwarzman and former United States President George W. Bush were members of Yale’s infamous secret society Skull and Bones.

The Start of Stephen Schwarzman’s Career

After graduating from Yale in 1969, Schwarzman got a job with an institutional asset management firm, Donaldson, Lufkin & Jenrette (DLJ). At the time, the company had just been listed on the New York Stock Exchange. Now defunct, it was co-founded by Bill Donaldson, who also founded the Yale School of Management.

Schwarzman developed a love for the world of corporate finance at the firm. He learned about the stock market, the money management business, and how to analyze financial statements. On one occasion at DLJ, Schwarzman was tasked to interview an executive of a publicly-traded company to determine if its stock would make a good investment. However, many of the questions he asked weren’t answered. Schwarzman later discovered that the executive was not trying to be difficult but did not want to disclose certain details about the company due to insider trading laws.

Although he understood why the executive could not answer his questions, Schwarzman was uncomfortable with analyzing a potential investment without having all the important and relevant information about it at hand. This frustrated him, so he decided to further his studies at Harvard Business School, with the hope of finding a way to resolve this issue.

Beginning of The Blackstone Group

In 1972 with a Harvard MBA under his belt, Schwarzman took a job at the then-independent investment giant, Lehman Brothers. By 31, he had become Lehman’s managing director of global mergers and acquisitions. Following American Express Company’s (AXP) acquisition of Lehman Brothers in 1984, Schwarzman left the firm. He approached Pete Peterson, his former boss, who had left Lehman earlier that year, with the idea of starting an investment company.

One year later, in 1985, Schwarzman and Peterson formed The Blackstone Group with $400,000 of their own money. Never a fan of being a stock market speculator, Schwarzman wanted to make private equity investing the heart of Blackstone’s business model.

He knew that privately held businesses provide their investors and potential investors with much more transparency than publicly traded companies. This access to detailed information would allow Blackstone to scrutinize investment opportunities more closely.

Note

Blackstone is a combination of its founders’ last names: “Black” translates to “schwarz” in German, and “peter” means “stone” in Greek.

Since Schwarzman and Peterson had very little experience in the private equity industry, investors were initially hesitant about giving them money to launch their first fund. The duo decided to operate as a mergers and acquisitions (M&A) advisory boutique for the next few years to build credibility. One of the company’s most notable accomplishments occurred in 1988 when Blackstone advised CBS Corporation (CBS) on selling its subsidiary CBS Records to Sony Corporation (SNE).

Entering the Private Equity World

Schwarzman successfully raised $800 million in 1987 for Blackstone’s first private equity fund, Blackstone Capital Partners I, L.P. Prudential Financial Inc. (PRU), and General Motors Company (GM) were two of the fund’s largest investors. The money raised was used to purchase companies using a strategy called leveraged buyouts (LBOs).

Private equity funds are typically formed as limited partnerships (LPs). Outside investors, who contribute to most of the partnership’s capital since they play a non-active role in management, are known as limited partners. The general partner, who in this case is Blackstone, contributes a rather small amount of money to the partnership and is responsible for allocating the pooled money into several different investment opportunities.

As a result, the general partner receives a management fee, which is normally a percentage of the total assets in the partnership and a percentage of the profits realized.

For instance, say that Blackstone uses the standard industry fund management compensation structure of 2% of assets under management and 20% of profits. If Blackstone manages a limited partnership with a total asset base of $500 million that realizes a $150 million return in a given year, it would receive $40 million in fees—2% of $500 million, plus 20% of $150 million. Blackstone would also make additional money on the capital it invests in the partnership.

From January 1, 2019, to December 31, 2023, Blackstone raised an impressive $123 billion in capital, solidifying its position as one of the world’s largest investment firms.

According to Schwarzman’s presentation at Yale, his private equity funds realized an annual average return of 23% from 1988 to 2008. However, its results have been more mixed in recent times. In its Q2 2024 earnings release, Blackstone said its private equity returns in the year ending in June 2024 were 11.3%, underperforming the 24.5% total return for the S&P 500.

Expanded Business Segments and IPO

Since launching his firm’s first private equity fund in 1988, Schwarzman has significantly expanded Blackstone’s business segments. The company continues to provide mergers and acquisitions advice as well as private equity fund management. In addition, Blackstone manages several funds of hedge funds and real estate investment partnerships.

In 2012, Schwarzman’s real estate team started buying single-family houses across the U.S. hoping to turn them into rental properties—buying 50,000 over the next three to four years. In 2024, the company made its largest transaction in the multi-family real estate market when it bought Apartment Income REIT (AIR Communities) for $10 billion, securing 76 rental housing communities primarily located in coastal markets.

Schwarzman took The Blackstone Group public in 2007; originally an LP, it became a C corporation (C-corp) in 2019. The initial public offering raised more than $4 billion. In 2014, it was reported that Schwarzman received $690 million in Blackstone dividends alone.

Important

Becoming a C-corp means Blackstone has to pay corporate taxes; however, its dividends now qualify for a lower tax rate, and index and exchange-traded funds can invest in the stock.

How Did Stephen Schwarzman Start Blackstone?

Stephen Schwarzman built Blackstone by focusing on private equity, starting the firm in 1985 with Pete Peterson and $400,000 of their own money. He prioritized investing in privately held companies, which offered more transparency and allowed for deeper scrutiny of investment opportunities, helping Blackstone grow into a global investment powerhouse.

Who Are the Major Shareholders of The Blackstone Group?

Blackstone’s largest institutional shareholders include Vanguard Group (65 million shares or 9.05% of all outstanding shares), Blackrock (47 million shares, or 6.56%), and Capital World Investors (37 million shares, or 5.16%). The Vanguard Total Stock Market Index Fund is the largest mutual fund holder, with just under 23 million shares (3.14% ownership).

How Many Shares of Blackstone Does Schwarzman Own?

Schwarzman owns about 232 million shares of Blackstone, and he reportedly earned $896.7 million in pay and dividends in 2023.

The Bottom Line

Stephen Schwarzman became a billionaire by managing money for other people. Dissatisfied by the level of transparency offered by the stock market, Schwarzman co-founded The Blackstone Group, a private equity firm, in the mid-1980s. Today, Blackstone is one of the world’s largest alternative asset managers. The company collects fees for managing hundreds of billions of dollars for several institutional investors.