The Motley Fool's readers have spoken, and I have heeded your cries. After months of pointing out CEO gaffes and faux pas, I've decided to make it a weekly tradition to also point out corporate leaders who are putting the interests of shareholders and the public first and are generally deserving of praise from investors. For reference, here's my previous selection.
This week, I'd like to highlight the mother of all private-equity firms, Blackstone Group (BX +0.00%) and its CEO, Steve Schwarzman.
Kudos to you, Mr. Schwarzman
As you might imagine, companies like Blackstone Group that invest in and buy out businesses, as well as run hedge funds and invest in commercial real estate markets, require a stable economy and interest rate environment in order to be successful. The recession in 2009 practically turned this sector on its head. Commercial real estate markets are only now beginning to recover with wealthier investors only recently began returning their money back into the hands of asset managers like Blackstone.
This isn't to say, even with the economy on the mend, that the asset management sector hasn't struggled mightily. In order to attract new money, KKR (KKR 1.66%) and Blackstone -- both companies known to attract the upper echelon of wage-earners, have lowered their minimum buy-in requirements for their hedge funds down to just $2,500. Even Carlyle Group (CG +0.00%), which had previously restricted access to the top 1% of all income earners, is lowering its minimum investing requirements a bit to attract new investors as my Foolish colleague Amanda Alix reported in March.
However, Blackstone, which has an astounding $218.2 billion in assets under management, has been able to exploit numerous opportunities, as well as throw its weight around, to turn profits for its company and investors and stand out among its peers. Over the past 12 months, the company has boosted its gross inflows by $34 billion, of which $31 billion was organic. Furthermore, its distributable earnings -- which can vary from quarter to quarter with P/E firms -- jumped 134% to $0.33 per unit.
One of the biggest boosts in its most recent quarter came from Blackstone's private-equity portfolio which saw economic income rise 15% from the previous year. More importantly, it saw the IPO of theme park owner SeaWorld Entertainment (SEAS 4.00%), allowing Blackstone to sell 16 million shares and generate another "whale" of a return for investors.
But, just as Blackstone's Steve Schwarzman has been heralded for finding great deals and delivering big returns to shareholders, he should be praised for knowing when to walk away as well. Earlier this year, for instance, Blackstone made a $15 per share bid to acquire a majority stake in Dell (DELL +0.00%) as a competing bid to Silver Lake Partners and CEO Michael Dell's $13.65 per share cash bid. Blackstone wisely walked away from its bid after an IDC report noted that PC sales fell 14% in the first quarter and the PC business was deteriorating faster than anyone had first imagined because of smartphones and tablets.
Knowing when to hold 'em, and when to fold 'em, has made Schwarzman a fantastic businessman.
A step above his peers
I could probably end right there and it would be more than sufficient as to describe why Steve Schwarzman is an incredible leader, but there's actually so much more!
Obviously, shareholders are going to benefit in a big way from the high profit margins associated with Blackstone's operations. With few staff and overhead needed to run hedge funds and orchestrate buyouts, much of what Blackstone generates is almost pure profit. That means it doesn't take a home run every time to yield a solid dividend. Over just the past four quarters, shareholders in Blackstone have received $0.92 in payouts. That's good enough for a 4% yield based on yesterday's close and would be just about double what you'd be earning on a 10-year Treasury note.
Blackstone's employees also benefit in a big way as well. In terms of compensation -- because Blackstone is so picky in its hiring process to gain employees who'll stay with the company over the long term -- it's the cream of the crop. In 2010, for instance, Blackstone set aside about $811,000 per employee for compensation. Furthermore, Blackstone has increased its headcount by about 25% since the recession, proving high-level jobs do still exist.
But, my personal favorite aspect of Blackstone Group and its CEO Steve Schwarzman is that he hasn't allowed some $212 billion in assets under management to go to his head. In April, Schwarzman donated $100 million (not a typo!) to the Tsinghua University in Beijing, China. The reasoning behind Schwarzman's donation was to create an elite level Master's program for 200 Chinese students as well as others around the world. Schwarzman's goal, with China playing such a large role in the world's global evolution, is to ensure that China and its top minds don't get left behind.
Two thumbs up
Private equity firms like Blackstone are certainly known for their ruthless cunning when it comes to investing and are often associated with posh lifestyles and spending. Contrary to this belief is Blackstone's Steve Schwarzman, who has done a good job of creating wealth for shareholders, makes sure his employees are fully qualified and compensated well for their hard work, and is a huge philanthropist in the educational field. It's not easy to trust a private-equity firm that offers no guarantee of future income, but as long as Schwarzman is at the helm of Blackstone, it will always have my vote of confidence.
