Today, class, we’re going to look at how the American oligarchy works in the person of Stephen Schwarzman, the 33rd richest person in the world (net worth: $50 billion) and a man widely touted as “the undisputed king of private equity.”
Schwarzman is the co-founder and chief executive of Blackstone, the third-largest private-equity firm in existence. He was also the 12th-largest donor in the 2024 election cycle, giving $40 million to Republicans. Schwartzman’s relationship with President Donald Trump has had some ups and downs. He supported Trump in 2016 and donated $3 million to Trump’s failed re-election bid in 2020. Then he broke with Trump over the January 6 insurrection. (He even told an associate privately at the time that Trump should step down.) But Schwartzman worked his way back into the fold in May 2024 after it became clear Trump would be the Republican nominee.
Blackstone was in the news Wednesday because it’s creating a new business unit to tap private equity’s prospective new market in 401(k) plans. Private equity, which used to be called leveraged buyouts before the junk-bond king Michael Milken gave them a bad name, is a largely-unregulated extractive financial industry wherein a firm purchases an existing business with borrowed capital; assigns that debt to the business in question; charges management fees to the business for cutting overhead (typically through layoffs); and then re-sells whatever’s left, typically but not always in a public offering.
Like much of the shadow banking world, private equity can be highly lucrative, but it also entails risk that nobody will want to buy the stripped-down, debt-burdened asset in question. (Indeed, there’s some worry private equity will take down the entire economy.) Consequently, private equity investment has in the past been limited to wealthy investors and large professionally-managed funds that can tolerate significant losses. But there are only so many of those, so the private equity industry started lobbying the federal government to give it access to defined-contribution pensions such as 401(k)s. “In life, you have to have a dream,” Schwarzman said on a conference call with financial analysts in 2017. “And one of the dreams is our desire—and the market’s need—to have more access” to the savings of ordinary people.
In 2020, the Trump Labor Department signaled informally that a retirement adviser wouldn’t violate his fiduciary duty if he recommended that a defined-contribution pension invest in private equity. But the following year, the Biden Labor Department distanced itself from that opinion. Then, this past August, the Labor Department, once again under Trump, distanced itself from that distancing.
“This is just another example of how the Biden administration put their thumb on the scale to pick winners and losers,” griped U.S. Secretary of Labor Lori Chavez-DeRemer at the time. “Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans.” Trump himself weighed in with an executive order, “Democratizing Access to Alternative Assets for 401(k) Investors,” that directed the Labor Department and the Securities and Exchange Commission to facilitate rather than block retirement savers’ investment in private equity.
It’s easy to see why Schwarzman and Trump think 401(k)s should invest in private equity. With the private equity industry in a slump, Blackstone’s future profitability may depend on it. That’s Schwarzman’s interest. Trump’s interest is that Schwarzman has shoveled a lot of money his way. The breach between the two men over January 6 was sufficiently healed last May that Schwarzman sat at the head table with Trump and the emir of Qatar at a state dinner.
Not a lot of other people, though, think defined-contribution pension holders should invest in private equity. Writing in The Wall Street Journal October 5, Randall Smith noted that although return on private equity beat the S&P 500 over the past 20 years by 2.5 percentage points, that drops to 0.4 points when you look at the last ten years and negative 2.5 points when you look at the last five. Also, Smith noted, private equity is less transparent; investors must rely on quarterly reports to find out what’s happening to their money. Oh, and private equity’s management fees are between four and eight times as high as those for mutual funds.
“Workers Do Not Need Private Equity in Their 401(k) Plans” warns Alicia Munnell, senior advisor of Boston College’s Center for Retirement Research. “Happy to talk when private equity and credit amounts to 30-40 percent of the total” equity and private-credit markets. (Today it’s 10 percent.) “Until then, in my book the risks associated with private equity far outweigh any potential gains.”
Further deregulation of a financial sector that’s already regulated too lightly is plainly not in the public interest. That’s sufficiently obvious that retirement advisers won’t likely recommend to their clients that they invest their 401(k)s in private equity—barring some unwholesome financial inducement that private equity might one day sneak past government regulators. I wouldn’t put it past them; the oligarchy is mighty. Indeed, I’d be surprised if Schwarzman himself didn’t urge Trump to issue his executive order opening 401(k)s up to private equity.
Schwarzman has managed to amass this much power without many people even knowing who he is. He’s working hard to fix that, though. Recently I mentioned to a very smart friend that I was shocked to see, walking past the 42nd Street main branch of the New York Public Library, that a new name was chiseled into its facade: The Stephen A. Schwarzman Building. “Who’s that?” my friend asked. The next day I visited the newly renovated Frick Collection and discovered that it had acquired, in its much-publicized recent renovation, a Stephen A. Schwarzman Auditorium.
Once you start looking for it, Schwarzman’s name is everywhere. There’s a Stephen A. Schwarzman Center at Yale (his alma mater); a Schwarzman College of Computing at MIT; a Schwarzman Centre for the Humanities at Oxford; Schwarzman Scholars, a Rhodes-ish one-year fellowship at Tsinghua University in Beijing; a Schwarzman Animal Center on Manhattan’s East Side; and a Stephen A. Schwarzman Stadium at Abington Senior High School in Abington, Pennsylvania, where a young Steve Schwarzman graduated in the class of 1965.
It may seem ungrateful to fault Schwarzman’s philanthropic gestures, but in 2019, The Yale Daily News’s Sereno Cho provided some insight into the obnoxious attitude that accompanies them. At his 50th reunion dinner that year, Schwarzman said that then-Yale President Peter Salovey “came to me with a list of projects Yale wanted to fund. I said, ‘I don’t give a shit about this list.’” Instead, Schwarzman told Salovey he’d give money to create a new student center, for the less-than-compelling reason that when Schwarzman was a freshman he often felt lonely.
At the moment, Schwarzman is conducting negotiations with Harvard about how much of its integrity the university must sacrifice to get Trump off its back. (Schwarzman was wait-listed there as an undergraduate but later attended its business school.) Schwarzman is more sympathetic to Harvard than anybody in Trump’s White House or Education department. But when he’s done will Harvard have to rename itself Schwarzman University?
Being the undisputed king of private equity looks pretty great. Schwarzman can buy his way into a president giving sanction to unwise financial practices and bully a Yale president into building a student center Yale doesn’t need. But at the presidential level, oligarchic power is a bit more complex, flowing in both directions.
It turns out you can be too rich to speak your mind. Schwarzman may have briefly attempted to distance himself from Trump after January 6. But he waited a week after the 2020 election to acknowledge, meekly, that Joe Biden had won (“It looks like Joe Biden”), and he declined to sign a November 23 letter from 160 chief executives demanding that Trump relinquish power. In 2024 he had to throw in the towel and support Trump. You or I wouldn’t feel like we had to do any of that, but Schwarzman did. Does Schwarzman favor Trump’s destructive tariffs and his increasingly frequent forays into fascist corporatism? I doubt it. But he keeps his mouth shut.
Schwarzman’s oligopolistic reward, in addition to the executive order on 401(k)s, is the pass-through and other tax cuts in the Big Beautiful reconciliation bill. Also, we won’t see elimination anytime soon of the carried-interest loophole, a tax break costing $6 billion per year that nobody except the private equity industry bothers anymore to defend. The price of being as rich as Schwarzman is that your money ends up owning you. I wonder how often Schwarzman allows himself to notice.
The post How the Trump Oligarchy Works: The Case of Stephen Schwarzman appeared first on New Republic.
