What It Takes: Lessons in the Pursuit of Excellence

by Stephen A. Schwarzman

Entering the crisis, Blackstone had $4 billion in cash from the IPO and a $1.5 billion revolving credit line to draw on if we needed it. As a fundamental operating tenet, Tony and I had insisted on having no net debt. It was part of our aversion to risk. We had more than $20 billion in committed funds locked up for ten years, so we could ride out a storm without worrying about a run by our clients on their money. Thanks to our strong capital position, we were open for business, but our disciplined investment process kept us out of another major deal that would eventually become a financial disaster. Between the late 1990s and early 2000s, we had begun taking a harder look at the US energy sector when we saw two forces changing the industry. The first was steady deregulation, which was driving more and more of the energy industry into the hands of smaller, private firms. The second was the collapse of Enron, which forced many companies to sell assets, from drilling rights to refineries to pipelines, at low prices under financial duress. We had started modestly and spent years building up our knowledge, experience, and relationships so that we could maximize our rewards and minimize our risks over the course of multiple turns in the cycle. In 2004, we had partnered with three other private equity firms, Hellman and Friedman, Kohlberg Kravis and Roberts, and Texas Pacific Group (TPG), to buy Texas Genco, a set of power plants in Texas. A year later, we sold the company and sp...