King of Capital

I just finished reading King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey and John E. Morris. I bought the book with What It Takes: Lessons in the Pursuit of Excellence by Stephen A. Schwarzman. I figured I would get a full picture but aside from covering the history of Blackstone they are different books. I started reading What It Takes first, which is newer, then in parallel I jumped to King of Capital just to see if the story matches and I ended up finishing it first. I will eventually finish What It Takes.

King of Capital mostly focuses on private equity firm Blackstone but it touches all the big main PE players. From KKR, Apollo, TPG and others. Their stories are interconnected. The book is part history on private equity since it covers a timeline that precedes the foundation of Blackstone. But the book is mostly an encyclopedia on deals. It covers deals, deals, and more deals. If you are detail oriented, you won’t be disappointed. It provides deal value, closing dates, equity invested, profits and rate of returns, and the strategic plan behind individual investments, and accounts how they played out over time. Both authors are former writers with TheDeal.com and they have their homework.

King of Capital was published in 2012, which started to touch on the post-financial crash recovery. I feel another chapter, or even a follow up book, could be added to cover the massive growth of PE as an asset class since publication. The industry has exploded. When the book was published, Blackstone had about $166 billion in asset under management. Today it has $618 billion and growing. That’s a 272% growth in AUM in 9 years. The funds they managed are also getting bigger. They can get $20b in commitment for a new fund by just picking up the phone. That’s a lot of money to put to work. I have to point out that the last sentence of the book is “A history of private equity in 2020 thus will have many new story threads and a new cast of characters.”

Notably absent from the book is Brookfield Asset Management (BAM). I bring BAM up because I’m a big fan of the firm and it’s a major PE player. It had $150b in AUM when the book was published. But I can understand why the book skipped over them. Although BAM has a massive presence in the US, it’s Canadian and has a low profile. The book covers the stories of KKR and other traditional PE firms. Their story is linear. The BAM story is a whole book on its own. It didn’t start as a PE firm. It was a massive conglomerate of assets that transformed itself into an asset management firm over the years under Bruce Flatt. I’m sure a follow up chapter would cover BAM because today it has over $600 billion in AUM.

I could write a whole post on the topic of PE. PE needs a PR firm. It has a bad rep. “Cost cutter, slash and burn, saddling companies with debt and dumping them, vulture capitalist etc…” I think the media is partly responsible for that characterization. Has PE firms done some unpopular things? Of course. Is it all bad. No. The true is that it has done more good than bad. But of course only hear about the bad deals. Despite the persistence of the bogeyman, strip-it-and-flip-it image, it isn’t borne out by the facts. Studies have been done on how private equity and as an industry does not harm the economy. Most of the standard knocks (e.g. job killer) have been debunked. A good portion of their profits derive from buying and selling and leveraging up to accentuate their gains. But that’s no sin. Also the notion that PE firms leave companies in tatters doesn’t stand to reason. How could a form of investment that relies on selling companies for a profit survive if it systematically damaged the companies it owned? Why would sophisticated buyers acquire companies from private equity if they were known to strip them bare? It makes no sense. 

I was an intern early in my career at a PE fund a while back. PE’s main job is to provide capital. That capital fuels the growth of businesses and communities. That money at work is institution money such as pension plans, in other words retirees’ assets.

Conclusion: Read the book if you are interested in a detailed history of PE and the rise of Blackstone.

Myanmar

Myanmar Kyat got crumpled around the time of the coup

Myanmar Kyat

Strange story. Sunday evening around dinner time I found a crumpled 100 Myanmar Kyat on the kitchen floor. The bill has been on the fridge for years with magnets, pictures and what not. The bill is currency left over from my travels in Myanmar back in 2012. The bill had just been another simple fixture on the fridge until I found it on the floor. That’s weird since the kids haven’t really paid attention to the bill all these years (animal magnets are more fun). I picked it up, uncrumpled it, and put it back on the fridge. Saving it for my next trip. Then it gets weirder. Next morning I wake up to the news that the military has staged a coup in Myanmar and has taken over the country (claiming election fraud, I thought that only happened in rich countries). It also occurred to me that because of the time difference (11.5hr), the Myanmar bill was crumpled around the same time as the coup (5am their time). I should probably not read too much into it but the coincidence is striking. But I can’t stop wondering how did Lexa, my almost three year old knew?

Myanmar: Democracy is fragile. I had the opportunity to visit in 2012 just 4 months after they announced they were making changes. I loved it. Beautiful country with no tourists at the time. I imagined that’s what Thailand looked like before it became a mass tourist destination. At the time Myanmar/Burma always played the international community. When they needed something, they would pretend to open the country, get what they needed, only to shut it from the world. It had a North Korea lite approach to the world with some strangeness in their actions (moving the capital in the mountains, changing the time zone to confuse the West in case they wanted to invade). But in 2012 it felt different. This time the reforms were real. I saw a great future for the country. Now I’m not sure how this will play out. Military coup is a thing in that part of the world. Just look at next door Thailand. Even if they return to democracy and open up the country again, it will be hard to trust. I reached to a friend over there but now they are shutting down Facebook for the “sake of stability” (another rich world trick). #Myanmar#Burma#democracy