Monday, February 12, 2007

L’État, c’est moi

Dan Primack of peHub has recently weighed in with a jeremiad against Steve Schwarzman’s upcoming 60th birthday bash in Manhattan, scheduled for tomorrow evening. In it, Dan bewails the fact that such a high profile, posh affair as is apparently being planned is coming at exactly the wrong time, what with increased scrutiny of the private equity juggernaut in the press, Washington, and among public company shareholders:
The New York society pages estimate that the bash will cost in excess of $4 million, and I’m told that Schwarzman [is] a bit miffed that the details are being scrutinized as if it were a taxpayer-funded event. But this party presents Schwarzman with a much bigger problem than personal pique—it will be just another reason for public company shareholders to reject leveraged buyout offers (or at least to drive them up). In other words, this party is bad for business.

I agree with Mr. Primack that there is almost nothing about this bacchanal that will be good for the private equity business, whether at Blackstone itself or at any number of its competitors. Fairly or not, news of this little romp is guaranteed to stiffen the spine of the wimpiest Special Committee director and sharpen the teeth of the most passive pension fund investor. The net result cannot help but be a marginal increase in premiums paid to public company shareholders by buyout firms, plus a likely increase in the number of offers withdrawn. It will also do nothing to endear Mr. Schwarzman and his fellow PE plutocrats to the hoi polloi on The Hill or in the street. Call it the Steve S Effect.

Mr. Schwarzman is reportedly too intelligent to be unaware of this outcome. What I think Mr. Primack fails to grasp, however, is that Steve really doesn’t care. If his 60th birthday party causes adverse economic externalities to his firm and his industry, so what? Steve has already made himself “a billionaire several times over,” in the classic coinage of the New York Times. A little extra headwind won’t bother him in the slightest, and it may have a nicely detrimental effect on his competitors. Take that, Henry Kravis!

By focusing on the economic effects on the PE industry, Mr. Primack completely misses the point of Mr. Schwarzman’s to-do. So, in a different way, does the NYT, by focusing on the apparent extravagance and conspicuous consumption of the arrangements. This party is not about money, and it is not about business. It is a coronation.

* * *

Mr. Schwarzman is doing no less than crowning himself the King of New York, and as publicly as possible, too. The $4 million price tag and the bargefuls of exotic flowers destined to adorn the Park Avenue Armory this Tuesday are nothing compared to the conspicuous display of power and influence that Mr. Schwarzman and his wife are putting on. According to reports, every bigwig on Wall Street has been invited to pay homage—as befits the kowtowing due your biggest customer—as have prominent personalities in politics, the arts, and society. For anyone dense enough to miss the point, someone has apparently made sure that those who cannot or will not attend have recorded video tributes and written remembrances of the Great Man which will no doubt be shown to all the Grandees who do show up. (Those lucky enough to sit at Mr. Schwarzman’s table during the festivities better don protective eye wear, because I predict he will burst several buttons as he laps up the real and forced adulation from his audience.)

That is why it is preposterous that Mr. Schwarzman should be “miffed” about the attention his party is attracting. Attracting the attention of New York Society was the entire point. If he really wanted just another lavish birthday party for himself and a few hundred friends, he could have flown everybody to Sardinia, like his former fellow society doyen, Dennis Kozlowski. (I hear the mold for the David ice sculpture centerpiece can be had for a knockdown price.) No, I smell a virtual army of publicists beavering away in the press to get the highest profile possible for this affair.

Now don’t get me wrong. Mr. Schwarzman is undeniably a successful man, and I have no doubt that he has many admirable qualities. Why shouldn’t he have a big blowout, especially since he is paying for it himself? Just don’t confuse people like Mr. Schwarzman with Homo Economicus. I would wager it has been a long time since Steve has looked at money as anything other than a particularly effective method—especially in this city—of keeping score. And this party is all about keeping score.

The King is dead. Long live the King.

© 2007 The Epicurean Dealmaker. All rights reserved.