In retrospect, Blackstone Group CEO Stephen Schwarzman thinks it was a bad idea to sell the business that became BlackRock—and the world's largest money manager.
Blackstone sold its 35% stake in the future BlackRock 19 years ago amidst a dispute between Schwarzman and the head of the then-Blackstone Financial Management, Laurence Fink. The deal netted Blackstone $240 million; a 35% stake in BlackRock is now worth more than $16 billion. Schwarzman himself took home $25 million 19 years ago; today his 9% stake would be worth more than $4 billion.
"That was certainly a heroic mistake," Schwarzman told Arthur Levitt on Bloomberg Radio, in an interview that will air on Sunday. "We all stumble on and have some success. But it's a humbling experience to see what you don't do right."
Blackstone created what became BlackRock in 1988, providing Fink and his First Boston Corp. team a $5 million credit line in exchange for a 50% stake in the new mortgage-securities unit. But as the group continued to grow, with assets hitting $2.7 billion in less than a year, Fink continued to award shares to new hires, diluting Blackstone's stake to 35% by 1992.
Schwarzman objected to further reducing Blackstone's stake, and eventually gave in to Fink's demands that he sell it. PNC Bank bought Blackstone's stake in June 1994.
BlackRock now manages $3.86 trillion and is worth $46 billion. Blackstone manages just $230 million and has a market capitalization of $28 billion.