On Feb. 13, 2007, just months before the international economy entered a devastating recession, the Wall Street investor Stephen Schwarzman ’69 celebrated his 60th birthday at the historic Seventh Regiment Armory on Park Avenue in New York. According to news reports, some 350 guests — including a real estate mogul and reality television star named Donald Trump — crowded into the arena for the night’s main attraction, a live performance by the rock star Rod Stewart. A giant portrait of Schwarzman, which usually hangs in his lavish Manhattan apartment, was brought to the Armory for the occasion.
Schwarzman, the founder of the multinational private equity firm Blackstone Group, has a net worth estimated at $11.6 billion. In 2015, he donated $150 million to Yale — the second-largest gift in the University’s history — to transform Commons and Memorial Hall into a state-of-the-art student center bearing his name. Yale is scheduled to begin building the Schwarzman Center in August, according to documents filed with City Hall earlier this year.
But as the groundbreaking approaches, the Schwarzman Center has drawn scrutiny from Yale community amid nationwide debate about the symbolic significance of building names. In February, the Yale Corporation voted to rename Calhoun College based on newly established principles for renaming — a set of concrete guidelines that could apply to any campus structure including the Schwarzman Center. In recent weeks, some students, alumni and faculty have called for the center to be renamed, arguing that the guidelines, which say that a namesake’s “principal legacy” must not conflict with the mission of the University, should disqualify Schwarzman because of the damage Blackstone has inflicted on the American economy.
“The premises, protocols and practices through which private equity members earn their fortunes often do more damage to the social fabric than all of their self-celebrating philanthropy can repair,” political science lecturer James Sleeper ’69 told the News. “There’s something about [Schwarzman’s] conspicuous self-promotion that some people are inclined to excuse, but I think that a Yale education should impart a better sense of obligation, a better sense of stewardship.”
The ascendancy of President Donald Trump has also fueled the backlash against Schwarzman, who was not available to comment for this article. In December, Trump made Schwarzman the head of a new White House business council and gave him the unofficial title of “job czar.” Earlier this semester, stickers featuring a photograph of Schwarzman and Trump in matching red ties appeared on lampposts and bulletin boards all over campus, captioned, “What is Stephen Schwarzman’s ‘principal legacy’?”
This is not the first time that Yale students and faculty memberes have voiced concerns about Schwarzman’s investment practices and personal extravagance. When the University unveiled plans for the student center in the spring of 2015, debate over Blackstone’s forays into the housing market percolated on the popular Facebook page Overheard at Yale. But over the last few months, the Trump connection has led to fresh news coverage of Schwarzman, raising questions about the impact of private equity on American workers and adding fuel to the naming debates that have consumed Yale for the last year and a half.
“The issue is whether Yale should accept money from a person who works diligently to place financial markets in jeopardy of yet another global meltdown and who is a major player in fostering increased income inequality,” James Luce ’66, whose uncle Henry Luce, class of 1920, is the namesake of Luce Hall, wrote in a letter to the News last month. “After the Trump administration crashes and burns in a vast pyre of corruption and incompetence, I wonder how long it will be before there’s a renaming hearing on the Schwarzman Center.”
THE FIRST BOOM
During his time at Yale in the 1960s, Schwarzman never quite fit the mold of budding Wall Street titan. He enjoyed classical music and graduated in 1969 with a bachelor’s degree in Intensive Culture and Behavior, an interdisciplinary subject that did not require him to take a single class in economics or accounting, according to the New Yorker. But even as an undergraduate, Schwarzman was fascinated with the intricacies of power.
“I’ve always been comfortable with people who run things, whether it was the principal of my high school or the president of the university,” Schwarzman told The New Yorker in 2008. “I empathize with their problems, with their issues. I ask myself, ‘How would I do that?’ It’s very easy if you think about what they think. It comes naturally to me.”
After leaving New Haven, Schwarzman attended Harvard Business School, graduating in 1972 with an MBA. He went on to work at Lehman Brothers, where he made partner after just six years. In 1985, Schwarzman left Lehman Brothers to collaborate with the businessman Peter Peterson on a new kind of project — the creation of a Wall Street firm designed to turn private equity and a mergers and acquisitions advisory business into major profits.
The origins of private equity, loosely defined as capital that is not invested in the public market, date back to the decade after World War II. But the first private equity boom did not arrive until the 1980s, when Blackstone emerged on the scene at almost the same time as Bain Capital and the Carlyle Group, major private equity firms whose freedom from certain regulations governing public companies has enabled them to grow dramatically over the years.
Perhaps the most notorious byproduct of Wall Street’s private equity boom is the leveraged buyout, a revolutionary and controversial investment method that Schwarzman and Peterson helped pioneer at Blackstone. For the most part, leveraged buyouts follow a predictable pattern: A private equity firm buys a company, implements managerial changes designed to increase efficiency and then sells the company at a handsome profit. But these transactions have drawn scrutiny from Wall Street watchdog groups, because in most cases, the private equity firm funds its buyout using a large amount of money borrowed by the company being purchased. Thus, when it resells the company a few years later, the firm often profits greatly beyond its initial investment, while the company is left to pay off the debt created by the original buyout.
“It’s all about trying to buy and sell within three to four years,” said Josh Kosman, a financial reporter for the New York Post, who is the author of “The Buyout of America: How Private Equity is Destroying Jobs and Killing the American Economy.” “You try to jack up the profits quickly often by cuts in different areas, and then you try to get out and resell it or bring it public.”
According to Kosman, private equity buyouts often lead to layoffs or other cost-cutting measures that actively harm workers. “Companies who need to pay money back end up not spending enough on research and development, fire more people than their peers, and often they fall behind their peers,” Kosman said.
A case study of Blackstone’s method is the firm’s 2006 investment in the travel reservations business Travelport, says Celia Weaver, research and policy director at New York Communities for Change, a social and economic justice nonprofit. Blackstone spent $4.1 billion on the acquisition, and over the next year, Travelport laid off nearly 850 employees, about 10 percent of its total workforce. A story in The Wall Street Journal documented the human cost of those cuts: lost health insurance, unemployment, workers forced to sell their homes or postpone plans to start a family.
“Travelport took on a lot of debt, which is common in private equity,” Weaver said. “They will overleverage any asset because their model is to only be in the deal for a short period of time.”
Private equity investment is “inherently predatory,” Weaver said. But defenders of private equity argue that investment by firms like Blackstone enables struggling companies to regain their footing, leading to long-term job growth. School of Management professor Andrew Metrick ’89 GRD ’89 described private equity investors as “radical surgeons”: The treatment is necessary, even if sometimes a body part must be amputated, or the patient dies.
“I’m relatively certain that if you add up the ledger for contributing to society from Stephen Schwarzman, it’s heavily in the positive standpoint,” Metrick said. “But you know, he’s broken a lot more eggs to make these omelets than most people do.”
Since the 1980s, Blackstone has evolved significantly, moving beyond traditional buyouts and expanding its reach outside the United States. After the foreclosure crisis in the late 2000s, the firm became a major player in the real estate business, buying houses through a subsidiary group called Invitation Homes. Indeed, in 2015, Blackstone became the largest owner of real estate in the world.
Claire Parker, a spokeswoman for Invitation Homes, said the company spends an average of $25,000 renovating houses, which is required to meet a 250-point checklist before move-in. “Invitation Homes brings value to the 120,000 residents we serve by providing access to high quality, well-maintained homes in close proximity to the neighborhoods and schools they value,” Parker said.
But according to Weaver, Invitation Homes has a track record of poor management. In 2014, a family sued the company for failing to make repairs to a three-bedroom rental house infested with mold and cockroaches.
“There’s a huge gap between what private equity expects and what the market will deliver, if your goal is stable, long-term housing,” Weaver said. “No matter what, Blackstone is going to make its profit.”
THE PUBLIC SPHERE
In the summer of 2010, Schwarzman defended Blackstone in an address to the board of a nonprofit organization. At the time, President Barack Obama had just pushed the Dodd-Frank Wall Street Reform law through Congress, and the White House was considering an increase in the tax on carried interest, the share of profits received by private equity managers like Schwarzman.
In his comments, Schwarzman angrily criticized the Dodd-Frank legislation. “It’s a war,” he told the board members. “It’s like when Hitler invaded Poland in 1939.”
After the statement was reported in Newsweek, Schwarzman apologized for the “inappropriate analogy.” But he defended his underlying argument: “The fundamental issue of the administration’s need to work productively with business for the benefit of the overall economy is still of very serious concern not only to me but also to large parts of the business community.”
The Obama-Hitler remark was an especially vivid example of Schwarzman’s consistent opposition to Wall Street reform. Over the years, Schwarzman has also criticized the Volcker Rule, a component of the Dodd-Frank legislation that prevents American banks from making the kinds of speculative investments many believe contributed to the 2008 financial crisis. And in an op-ed in The Wall Street Journal in 2015, Schwarzman argued that Dodd-Frank created “an expansive and untested regulatory framework” that has hurt small businesses and endangered the world economy.
Kosman said Schwarzman’s new role in the White House has turned him from an outsider criticizing government policy to a presidential confidante who will likely use his influence to shape it. “From my understanding, President Trump looks up to Schwarzman, and he has become a real counsel to him,” he said.
Schwarzman brings a long history of corporate philanthropy to his new position at the White House. Commons was not the first building to be named after the Blackstone founder. Schwarzman serves on the board of the New York Public Library, the flagship building of which was named after him in 2008. And a year ago, he launched the postgraduate Schwarzman Scholars program, which allows hundreds of students worldwide to pursue advanced degrees at Tsinghua University in Beijing.
Dick Beattie, a lawyer and long-time friend, said Schwarzman “has wanted to do things in the public sphere for a long time” and that the Schwarzman Scholarship will make a lasting contribution to U.S.-China relations. Schwarzman’s only public defense of his role in the Trump administration came in a letter to the current class of Schwarzman Scholars in which he expressed “regret that some Scholars have reservations about my following this approach.”
At Yale, administrators preparing for the University’s next capital campaign are reluctant to criticize Schwarzman. Vice President for Development Joan O’Neill said he is “very curious and bright” and lauded his work as a fundraiser for Yale. University President Peter Salovey also praised Schwarzman, describing his White House appointment as an example of “the great Yale tradition of public service.”
“There is great danger in creating political litmus tests around charitable giving around philanthropy,” Salovey said. “We should be thankful that a Yale alumnus is willing both to be generous to our university as well as serve our country, whether that service is to someone with whom we agree strongly or disagree strongly.”
That view of Schwarzman’s political activities does not belong solely to Yale administrators. Law professor John Witt ’94 LAW ’99 GRD ’00, who chaired the Committee to Establish Principles on Renaming, rejected the argument that the new student center should be renamed because of Schwarzman’s opposition to Wall Street reform.
“There is no position on the Dodd-Frank legislation that is fundamentally at odds with the mission of the University,” Witt said. “Organizing against the name of the center is essentially not a serious idea.”
A STRIKE ON THE HUDSON
On the bank of the Hudson River, at a sprawling factory owned by the company Momentive Performance Materials, the name Stephen Schwarzman signifies something much darker than the Yale tradition of public service.
The chemical manufacturing company Momentive, based about 10 miles north of Albany in Waterford, New York, was sold by its original owner, General Electric, to a group of private equity investors in 2006. In the decade since that sale, workers at Momentive have endured a series of damaging cutbacks. In 2008, the company slashed production workers’ wages by 25 to 50 percent, lowering morale and forcing many long-time employees to leave the company. Five years later, Momentive froze pensions for workers younger than 50 years old. At the end of last year, contract negotiations between Momentive and the union IUE/CWA Local 81359 broke down after the company demanded significant health care reductions.
The contract dispute culminated in a 105-day strike that lasted from November to mid-February. On the picket line, striking workers blamed the cutbacks on the Wall Street investor who helped pioneer private equity buyouts in the 1980s: Stephen Schwarzman.
“It is disgusting that this is the person that President Trump has picked to be in charge of job growth and job creation,” Dominick Patrignani, the president of IUE/CWA Local 81359, said in a phone interview last month. “I have no problem with people making money and being business leaders, but to take it off the blood and sweat of the workers is so unbelievable, so un-American.”
But Schwarzman was never directly involved in the cutbacks at Momentive. Blackstone obtained a minority n ownership stake to help the the company during the bankruptcy process in 2014 and was not part of the original group of investors that purchased it from General Electric, according to Matthew Anderson, a spokesman for the firm. Blackstone sold its stake in Momentive last August.
Regardless of his company’s involvement, over the course of the strike, Schwarzman emerged as a potent symbol of income inequality and corporate greed. In mid-February, Patrignani arranged to take a group of workers to Palm Beach, Florida, to picket outside Schwarzman’s 70th birthday party, which is rumored to have cost as much as $20 million. Patrignani also planned a protest against Schwarzman in the center of Manhattan: “We had three busloads of people that were going to go down and picket his apartment,” he said.
The union reached a new three-year agreement with Momentive on Feb. 14, before either demonstration could take place. The contract cut health care coverage and terminated certain retirement benefits. “We didn’t win anything,” one worker told the Albany newspaper, the Times Union.
Jack Mack, an electrical employee who has worked at Momentive for nearly four decades, said it was “disturbing” that Yale has named a campus building after Schwarzman. Mack, 59, was not directly affected by the Momentive pay cuts. But having recently recovered from prostate cancer, he relies on his health insurance to pay for frequent trips to the doctor.
“When we went to work for GE, in a facility that has hazardous material, we had the understanding that if we did have an issue, that the company would support us with adequate and affordable healthcare,” Mack said. “Now, since then, if you look at what’s going on right now in this past contract, you see basically they have a disregard for the health and well-being of the employees.”
Mack grew up with Momentive — his father worked at the Waterford factory for 36 years. But over the last decade, he has watched as the buyout damaged morale and dramatically altered the culture of the plant. “When you have a person who’s working in operations and say they have a family, they have all kinds of responsibilities, and they receive notification that they’re no longer making $28 an hour, that they’re making $18 or $19 an hour — that turns their world upside down,” Mack said. “I’m second generation in this plant, and it’s changed radically for me. There was more of a sense of community at one time.”
By all accounts, the vast majority of Momentive workers voted for Donald Trump, who won Saratoga County, the district containing the city of Waterford, by a comfortable margin. During the campaign, Trump pitched himself as the savior of American workers — or, as he put it, “the forgotten men and women of our country.”
But according to Mack, Momentive employees have grown increasingly skeptical about the president’s ability to improve their lives.
“They believed he was going to make changes. They believed he was a straight shooter,” he said. “But the scary thing is Donald Trump aligns himself with people like Stephen Schwarzman. These people have made their millions of dollars by exploiting workers. I don’t have any respect for that.”
Contact David Yaffe-Bellany at firstname.lastname@example.org and Ryan Gittler at email@example.com .
Correction, April 7: A previous version of this article stated that Henry Luce was James Luce’s father. In fact, he was his uncle.
Clarifications, April 27: This story has been clarified to reflect an attribution of Schwarzman’s major to the New Yorker; Blackstone’s involvement in mergers and acquisitions; that leveraged buyouts do not always result in profits; that comments Schwarzman made about Wold War II in 2010 were not part of a prepared speech; and that Blackstone purchased a minority stake in Momentive.