King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone

By David Carey and John E. Morris

Overview

Published in 2010, "King of Capital" is the definitive account of the Blackstone Group, one of the world's largest and most influential alternative asset managers. David Carey and John E. Morris trace Blackstone's trajectory from its founding in 1985 by Steve Schwarzman and Pete Peterson through its transformation into a publicly traded financial conglomerate.

Key Themes and Arguments

The Founding and Rise

The book details how Schwarzman and Peterson, both veterans of Lehman Brothers, launched Blackstone with a modest advisory business and gradually built it into a leveraged buyout powerhouse. The narrative covers Blackstone's early deals, its expansion into real estate, hedge fund management, and credit investing, and the competitive dynamics of the private equity industry during the 1980s and 1990s.

The LBO Machine

Carey and Morris provide detailed accounts of Blackstone's major deals, explaining the financial engineering, operational improvements, and strategic positioning that generated returns for investors. They examine both successes (like the Celanese and Hilton Hotels acquisitions) and failures (like the Deutsche Telekom deal), providing a balanced view of private equity's value creation potential.

The IPO

The book provides an inside account of Blackstone's controversial 2007 IPO, which occurred near the peak of the credit bubble. The IPO raised questions about the alignment of interests between public shareholders and the firm's managing directors, and its timing proved unfortunate as the financial crisis soon devastated the values of Blackstone's portfolio companies.

The Financial Crisis

The 2008-2009 financial crisis nearly destroyed Blackstone's portfolio, with the firm's stock price falling over 80% from its IPO price. The book documents how Schwarzman and his team navigated the crisis, renegotiating terms with lenders, supporting struggling portfolio companies, and eventually positioning the firm for recovery.

The Private Equity Debate

Throughout the narrative, the authors engage with the broader debate about whether private equity creates genuine economic value or merely extracts wealth through financial engineering and tax arbitrage. They present evidence on both sides, ultimately suggesting that private equity's impact depends on the specific deal and the skill of the operators.

Significance

As the most detailed account of a major private equity firm, "King of Capital" provides essential context for understanding the role of leveraged buyouts in modern finance and the business model of alternative asset management.