Blackstone

In nineteen eighty-five, Steve Schwarzman and Pete Peterson started Blackstone believing capital was misallocated. Companies traded below their true value. They raised a fund and bought undervalued assets using leverage. Schwarzman could buy a company worth one hundred million by putting down twenty million of investor capital and borrowing eighty million from banks. If the company sold for one hundred fifty million five years later, investors gained thirty million. But leverage was just the first lever. The second was operational improvement. If a struggling retailer's profit margins increased from eight to twelve percent, value increased dramatically. A business earning eight million in profit sold for one hundred million. The same business earning twelve million sold for one hundred fifty million. Those improvements generated real returns. Schwarzman captured a piece through carry. Blackstone charged two percent annual management fee on committed capital.