耶鲁大学金融市场英文文本FinancialMarketsLecture20Transcript.docx

耶鲁大学金融市场英文文本FinancialMarketsLecture20Transcript.docx

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耶鲁大学金融市场英文文本FinancialMarketsLecture20Transcript

FinancialMarkets:

Lecture20Transcript

ProfessorRobertShiller:

Well,IhavethepleasureofintroducingtoyoutodayStephenSchwarzman,whohaskindlyagreedtolectureourclass.Mr.SchwarzmangraduatedfromYalein1969.HewasatDavenportCollege.DowehaveanyDavenportpeoplehere?

Afew,notalot.HegraduatedthenfromHarvardBusinessSchoolin1972.HeworkedforLehmanBrothersas--Idon'tknowifitwashisfirstjob,butoneofhisfirstjobs,andbecameManagingDirectoratLehmanBrothersatagethirty-oneandhebecameheadoftheirGlobalMergersandAcquisitionsteam.In1985,Mr.Schwarzman,withPeterPeterson,foundedtheBlackstoneGroup,whichhasbecometheleadmanagerofalternativeassets.

Insomesense,whathedoesandwhatDavidSwensendoes,whomwehadheardfromearlierthissemester,aresimilar.They'rebothlookingatunusualanddifferentinvestmentassetsandtheyarebothverysuccessfulindoingthis.Mr. Schwarzman'sfirmhashadareturnonprivateequityinvestmentsof23%ayearforthelast--onaverage--forthelasttwentyyears.ThisisalittlebitinexcessofDavidSwensen,butIthinkwehavetoputthembothasremarkableinvestors.IntherealestategroupatBlackstone,they'vehad30%ayearforthelastfifteenyearsandthisisafterfees.BlackstoneGrouphasbeenverymuchinthenewsrecently.Itjustcameoutthattheyareapparentlygoingtobebuying$12.5 billiondollarsofleveragedloansfromCitigroupatasteepdiscount.So,apparentlythey'veseenaprofitopportunitythereorthey'resupportingoureconomyfromtheravagesofthesubprimecrisis.

Alsointhenews,Chinahasannouncedthatitplanstobuy$3 billiondollarsstakeinBlackstoneGroupasitsfirstefforttodiversifyits$1.2trilliondollarsofforeignexchangereserves.So,theBlackstoneGroupwaspickedbytheChinesegovernmentasthemostfittingplaceforittoputsomeofitsreserves.Withthat,IwillleaveittoMr.Schwarzman,whowillspeakforawhileandthenwewillopenitupforquestions.I'mgoingtohavetoask--canyourepeattheirquestionsbecauseitwillbedifficulthearingotherwise?

Ihavetomovethetwomicrophones.

Mr.StephenSchwarzman:

Well,thankyouverymuchforcomingoutonwhat'sabitofdreary,slightlyrainymorning.WhenIwasanundergraduate,youwouldn'thavegottenmuchofanattendance;peoplewouldhavebeensleepingin.So,it'sawfulniceofyoutobehere.TherearesomedramaticdifferencesfromwhenIwasanundergraduateandyouare.Oneofthefirstdifferencesisthatthiscoursewouldn'thaveexistedbecausenoonehadaninterestinfinanceatthattime.Itwasn'taparticularlyinterestingtime.Inthe1960s,thesecuritiesmarketsactuallywereregulated,commissionswerefixedontheNewYorkStockExchange;so,itwasverydifficulttofindsomewaytocompete.Itwassortofriggedsystem,ifyouwill,anditwasn'topen.

So,therewasverylittletonointerest,really,infinance.Therereallywasn'tanSOM--SchoolofManagement--atYaleatthatpoint.Businessgenerallywasutterlyunfashionable.WewereinthemidstoftheVietnamWarandbusinesswassortoflinkedtotheperceptionofthatwarbecausetheysuppliedcertaintypesofwarmaterialsandthatwasthemostunfashionablethingthatyoucouldbeinvolvedwith.So,therewasaveryanti-business,non-existentfinanceorientationattheschooland,obviously,that'schangedinthesocietygenerally,withenormousdifferences.AsaresultofwhenIgrewup,Ididn'teventakeaneconomicscourseatYale.Ifranklywasn'tmuchgoodwithmath;IstoppedintheeleventhgradeandIthinkcalculuswas,forme,thatwaswaytoomuchofareach.So,I'mmoreintheadd,subtract,multiply,anddividekindofcategory,whichworkedandstilldoesquitewellforme.

WhenIgraduated,Iwasluckyenoughtogetajobatafirmthathadjustgonepublic.ItwasthefirstNewYorkStockExchangefirmthathadjustgonepublic;itwascalledDonaldson,Lufkin&Jenrette.BillDonaldsonactuallyfoundedtheSchoolofManagementafterheleftDLJ.Thatwas,becausethisisafinancialmarketscourse,thatwasquiteinterestingformebecauseIdidn'tevenknowwhatcommonstockwaswhenIgraduated.Hopefully,youwillhavelearnedmoreinthiscourse.IwenttoDLJ--Icouldn'treadafinancialstatement,whichislikegoingtoaforeigncountryandnotbeingabletospeakthelanguage;itwassortofhopeless.

OneoftheinterestingexperiencesIhadabout--whichreally,nowthatI'malittlebitolderandcanlookbackwardsonfinancialmarkets,itwasmyfirstvisittoacompany.DLJbasicallywasoneofthefirstlargeinstitutionalstockmanagersofpensionfundassetsandsoforthandIwasallowedtogoandinterviewacompany.Ihadneverinterviewedacompanyexecutive;IreadtheirannualreportandIwentuptoseethisgentlemanandIsatthere.IfiguredoutallthethingsI'dwanttoknowsothatIcouldfigureoutwhetherIshouldbuyhisstockorinvestinhiscompany.Iwentthroughmylistofquestionsandhewouldn'tanswermostofthem.Ifounditaveryfrustratingexperience.

IwentbacktotheofficeandbythetimeIgotbacktotheoffice,DickJenrette,whowaspresidentofthefirm,hadgottenanenragedphonecallfromthisexecutiveandcalledmeintohisoffice.Hesaid,geezyoumadethismanveryangry.Isaid,wellhowcouldIdothat?

Iwasjustaskingquestionsandhewasn'tansweringthem,soIjustaskedthequestionagain.Icouldn'tquiteunderstandwhyhewasn'tansweringme.Hesaid,wellyouwereaskinghimthingsthathe'snotallowedtoanswer.Isaid,whatdoyoumean?

Hesaid,wellyouwereaskinghimforinsideinformation.Isaid,wellIdon'tknowwhatinsideinformationis;I'mjustaskingthequestionthatIneedtoknowtoknowtoanswerwhethertobuythestockornot.Hesaid,wellSteve,therearealltheserulesofwhatyoucanasksomebody.Thenifhetellsyou,thenhehastotelleverybodyintheworldandthat'sjusttoocumbersome,sothat'swhyhedidn'tanswer.Isaid,wellifhedidn'tanswer,howintheworldcanyoufigureoutwhattodo?

Isaid,I'mnotthatsmart;Ineedtohaveallrelevantdataandhe'sthepersonwhohasit,sowhywon'thegiveittome?

ItbecameprettyclearthatIwasdoingthewrongthingforaliving.Ineffect,that'sthedilemmaforpeoplewhowanttobuyliquidsecurities.Idecidedveryquicklythiswasabadbusiness,certainlyabadoneforme--thatIcouldn'tfigureouthowIcouldwinthatgamewhensomebodywouldn'tfullyshareopenlyeverythingtheyknew.Iguessifyouwerelikeasumowithagoodfashionsense,that'showyoumanageliquidsecuritiesandbeatotherpeople.It'snotjustwhatyouknow,it'saquestionofwhethertherestoftheworldwillbuyintowhatyouknowanddrivethatsecurityup.So,IbasicallyretreatedandwenttoHarvardBusinessSchool,whereIfiguredmaybesomebodywilltellmehowthisgamereallyworksinawaythatIcanprosperinit.Thatwasagoodexperienceforme.Theybasicallytaughtyou--you'reundergraduates,soyoudon'tknowwhatthey'reteachingyouattheschoollikethat--so,Icanexplainitactuallyprettyclearly.

It'sbasically--they'reteachingyouthateverythingyoudowithacompanyhassomethingelsetodowiththatcompany,sothatit'sanintegratedsystem.Ifyouaretryingtodevelopaproductforsale,itwouldbegoodtoknowwhethersomebodywantsit.Whathappens,actually,intherealworld,isthatsometimespeoplejustgetaninterestingideaandthey'llproduceaproductandnobodywillwantit.Ifyouintegrateallthedifferentkindsofknowledgeinthecompanysothatyou'redoingintelligentthings--andIknowthisappearsveryelementary--you'llhaveabettercompany.That'ssortofwhattheywereteachingandaftertheytaughtthatfortwoorthreemonths,Isortofgotitandthoughtaboutdroppingoutofschoolbecauseitgotalittlerepetitive,frankly.Iwasconvincedbymyfriend,DickJenrette,whoalsothoughtaboutdroppingoutofHarvardBusinessSchool.InDecember,itgetsverycoldinBostonandreallymiserable--hewasgoingtodropoutandgoandgetaPhDinEconomics.IwasgoingtodropoutandgobacktotherealworldandhesaidthathisstayingonwasagoodthingandIshouldstayon,soIdid.

WhatI'vesortofdoneforacareeristryandsolvethatproblemofmyinitialmeeting,wherepeoplewill--Iwantpeopletotellmewhat'sreallygoingon,soIcanfigureoutwhetherwhatthey'resayingmakessenseordoesn'tmakesense.Youcandothatintheprivateequitybusiness,whichwassortofourlargestbusiness,andyoucandothatintherealestatebusinessbecauseyou'reallowedtogetallthatinsideinformation,ifyou'retryingtobuyacompanywithourrulesandalsotherulesofothercountries.Ifyousignaconfidentialityagreementthatyouwon'tusethatinformationforanypurposeotherthanbuyingthecompanyandputtingapriceonit,thentheshareholdersgetachancetovoteonwhethertheywantthepricethatyougivethem.So,tomethatwaslikeananswertomyconundrumofhowcouldwegetalltheinformationandthenfigureoutwhattodowithit,includingimprovingthecompany.

I'msureyouknowsomethingaboutprivateequity.Ifyoureadthegeneralnewspapers,I'lltellyoubasicallywhatitis.Well,allwedoiswebuycompaniesandthat'sthesimplestthingwedo.Wedoalotofotherthings,butlet'sstartwith,webuycompanies;weborrowmoneytobuythosecompanies.Historically,it'sbeenaboutthreedollarsofdebtforeveryonedollarofequity.Wethenimprovethosecompaniesthroughawholevarietyofsortofmanagerialactionsandthenthose