Do you remember what you were doing in June 1986? Steve Schwarzman does. He was sitting in his office at Blackstone asking two employees with divergent opinions on the firm’s third-ever potential investment, Tulsa steel distributor Edgcomb, if they should do the deal. Steven Winograd had pushed hard for a buyout while David Stockman had argued against it, worried that as Edgcomb’s profit margins were linked to steel prices, a downturn in business could result in the company selling inventory at a loss and its cash flow disappearing. “I had them both in my office,” Schwarzman says in King of Capital.
“Winograd argued that the company’s profits were of a repeat nature and that it had very interesting expansion prospects. Stockman said it was a dangerous deal to do and it wasn’t worth the price. I could see both sides, and I voted with Winograd.” The decision ultimately proved misguided, and the fund’s investors lost $32.5 million of the $38.9 million they’d put up. Shirley Jordan, the CIO of Presidential Life Insurance, called Schwarzman “a complete idiot” and told him, “I never should have given you a dime!”
A painful moment to be sure, but as it was nearly a quarter century ago and Schwarzman has since made his clients and himself very rich people many times over, one might assume he’d be over it. Well one would assume wrong. Speaking with Becky Quick for CNBC’s latest “Worst Trade Ever/Don’t Be Afraid To Open Up” series, Schwarzman said that not only his he “still upset about losing that money” but that he forces himself to think about it every single day. Read more »
If you work in private equity the last few months have not been kind to you. Man, dog, and Newt have all been ganging up on the industry, and it has not been helped by faux pas from its most famous alumnus, publicity around job losses and dividend-recaps-into-bankruptcy, or a renewed carried-interest debate.
