Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

Steve Schwarzman, the founder of Blackstone, is a superhub who could sell sand in the desert. Once the world’s largest private equity firm, Blackstone has since morphed into one of the most diversified investment companies in the world with more than $344 billion in assets under management. In Davos, he seemed omnipresent. I bumped into him several times on the snowy streets, his geeky ski cap pulled wide over his face, and only recognized him by the brown shearling jacket he wears every year. What Schwarzman lacks in height, he makes up for with a big personality and charisma. He shone on panels, rushed to bilateral meetings, and appeared to enjoy the famed Davos parties.

In fact, if anyone knows how to throw a good party, it is Schwarzman. The mainstream media headlines on his sixtieth-birthday party were as ubiquitous as his presence in Davos. He celebrated this personal milestone, which would soon become a public one with an over-the-top gala at the New York Armory on Park Avenue. Virtually the entire cast of global superhub characters flew in to fete the financier. Even in America, where displays of wealth are acceptable to a much larger extent than almost anywhere in the world, the extravagant affair—with estimated costs ranging in the millions—caused quite a stir. Characterized by the media as ostentatious and decadent, this exposure arrived at a politically inopportune time as private equity funds lobbied for preferential tax treatment and were heavily criticized for their business practices. The birthday-party hype was soon eclipsed by Blackstone’s immensely successful initial public offering, which yielded Schwarzman personally over $10 billion. He was now officially the “king of capital.”

Schwarzman is one of the best-connected financiers in the world. Always on duty, he tirelessly circles the globe, building and maintaining relationships for the purpose of maximizing business. He has a nonchalant demeanor that makes others feel comfortable in his presence. In his frequent interviews and speeches, he displays his ability to explain complex issues in simple terms, and to disarm audiences with his dry wit. With a straight face, he mercilessly tells hilarious stories and delivers a killer imitation of German Chancellor Angela Merkel. Social by nature, he and his wife are popular staples on the party circuit.

Born into a middle-class family in Pennsylvania, Schwarzman was a self-starter from an early age. He earned his undergraduate degree at Yale University and, like so many of his peers, subsequently graduated from Harvard Business School. During his time at Yale, he took on leadership positions, such as class president, and joined the elite Skull and Bones secret society, which counts President George W. Bush and numerous other prominent figures among its members. In the mideighties, Schwarzman left Lehman Brothers, where he made partner at age thirty-one, to start Blackstone with his boss Pete Peterson, who was a couple decades his senior. Peterson, a former secretary of commerce, brought with him a portfolio of stellar corporate and political connections, which he successfully used to raise assets and close deals.

Private equity firms have become a powerful force in the economy. They raise equity capital and employ debt to buy companies, take management control, and subsequently sell them at a profit. In contrast to public companies, private equity companies can focus on long-term profitability as they are not under pressure to produce quarterly results. The industry has been criticized in the past because in the course of turning around companies, they often laid off employees and borrowed heavily against the company’s assets, sometimes disassembling it and selling it piecemeal. Although private equity firms suffered from a lack of liquidity during the 2008 financial crisis, they did not require any bailouts. On the contrary, the government sought to consult their turnaround expertise, for instance in the auto industry. Although private equity firms and banks compete in parts, they are also intertwined by business relationships as private equity firms give banks much business and pay them billions in fees.

Schwarzman went on to hire strong partners who brought both their business acumen and networks along with them. According to colleagues and business partners, he is incredibly driven, has an uncompromising work ethic, and is as demanding of others as he is of himself. Blackstone did not merely survive the crisis; it flourished, largely due to Schwarzman’s cautious risk management and low tolerance for mistakes. The government even sought his advice because of his turnaround expertise. Despite occasional tone deafness, Schwarzman’s self-awareness and persuasive sales skills have been instrumental in building an empire and elevating him to superhub status.

INQUIRING MINDS

High intelligence and academic achievements at top schools are indispensable to becoming a network’s nucleus. In addition, superhubs are typically open-minded, intellectually curious, creative, and receptive to considering new opportunities. If they weren’t in finance, many superhubs would probably be inventors, engineers, or entrepreneurs. They are equipped with mind-sets that can cope with and even thrive on times of uncertainty and change, since they understand how our complex, nonlinear world operates. In the course of their careers, they typically develop a strong intuitive sense, because complexity is difficult to grasp with intellect alone.

Contextual intelligence—the ability to understand evolving environments and capitalize on trends—is another important aspect of cognitive ability. Being connected and understanding interconnections are an important source of relevant power.13

In Soros: The Life and Times of a Messianic Billionaire, Soros described his total absorption in managing his fund. His primeval instincts of fear and greed made him sense impending downturns way in advance, as if he had his nerve endings in his fund. This manifested itself in backache problems, which flared up whenever he sensed impending doom.14 His unique life experiences as a survivor of the Holocaust most likely contributed to his ability to recognize and monetize inflection points far in advance. With their ability to look beyond facts and think outside of conventional parameters, superhubs are better able to anticipate change, develop a vision, and execute.

To keep their minds crystal clear, the newest trend among superhubs is thousands of years old: meditation. Hedge fund bigwigs Ray Dalio and Paul Tudor Jones, as well as many Goldmanites, invest time and money in introspection to clear their minds and gain a competitive edge.

INVENTING IDEOLOGIES

Another common characteristic of intellectually curious superhubs is that they often construct their own theories or ideologies, rather than follow those of others. In their quest to crack the code of the world’s operating system, they fine-tune their intellectual discipline and intuition, and posit their own framework of successful strategies.

For example, Robert Rubin, former secretary of the treasury, developed an intellectual construct that he describes in his best-selling book In an Uncertain World: Tough Choices from Wall Street to Washington. He shares how a philosophy course at Harvard inspired him to base his thinking on the assumption that nothing is provably certain. The daily decisions he made on Wall Street were based on probability: “Success came by evaluating all the information available to try to judge the odds of various outcomes and the possible gains or losses associated with each.”15

This creation of a thought construct is reminiscent of George Soros’s theory of reflexivity, developed while he was a student at the London School of Economics. Within this conceptual framework, which Soros credits for much of his success, he focuses on the relationship between thinking and reality.