Blackstone chief warns on pay gap

By Francesco Guerrera, James Politi and Chrystia Freeland in New York, FT.com site
Published: Dec 20, 2006

Stephen Schwarzman, chief executive of the private equity group Blackstone, has warned that the widening gap between Wall Street's lavish pay packages and middle America's stagnating wages risks causing a political and social backlash against the US's new rich.

The comments by Mr Schwarzman, whose fortune has been estimated at $2.5bn by Forbes magazine, are a reminder to the financial community that the success of the past few years is causing deep unease among America's middle classes.

The warning comes as investment banks and private equity groups are awarding executives and top employees big bonuses after one of the most successful years on record. "People like to have the American dream: everybody successful. I think Wall Street is doing so well now, it's certainly not an object of any sympathy for anyone, " he said in an interview for the Financial Times' "View from the Top " series. "The middle class in the US hasn't done as well over the last 20 years as people at the high end, and I think part of the compact in America is everybody has got to do better. "

But Mr Schwarzman, a Republican supporter, suggested that political action such as higher taxes for the wealthy was not the best solution. "Better to deal with this by having the middle class do better rather than whacking somebody on either side of that, " he said.

Asked about the uncertain outlook for the US property market, Mr Schwarzman said that, unlike the residential sector, commercial estate continues to be "white hot ". But he warned that the favourable climate for investors in property would not last indefinitely.

"The debt markets which have helped to fuel this are about as good as they are going to be, " he said. "But it takes a while in real estate, unlike the stock market, to correct. "

Blackstone recently acquired Equity Office Properties, a commercial real estate company, for $36bn including debt in the biggest buy-out deal in history.

He predicted "an avalanche " of stock market listings by hedge funds if pioneers such as Fortress, which has revealed plans for an equity offering, were successful.

He said it would be more difficult for private equity groups to list because their earnings are less predictable but added that Carlyle had been looking at the option. In a recent FT interview, David Rubenstein, Carlyle's co-founder, said the firm was "not working on " a listing.