page_title: The Blackstone Group
section_title: Founding and early history
hierarchical_section_title: The Blackstone Group / History / Founding and early history
context_page_description: The Blackstone Group Inc. is an American multinational private equity alternative investment management and financial services firm based in Midtown Manhattan, New York City. As the largest alternative investment firm in the world, Blackstone specializes in private equity, credit, and hedge fund investment strategies.
  Blackstone's private equity business has been one of the largest investors in leveraged buyouts in the last decade, while its real estate business has actively acquired commercial real estate. Since its inception, Blackstone has invested in such notable companies as Hilton Worldwide, Merlin Entertainments Group, Performance Food Group, EQ Office, Republic Services, AlliedBarton, United Biscuits, Freescale Semiconductor, Vivint, and Travelport.
  Blackstone was founded in 1985 as a mergers and acquisitions firm by Peter G. Peterson and Stephen A. Schwarzman, who had previously worked together at Lehman Brothers. In 2007, Blackstone became a public company with a $4 billion IPO, becoming one of the first major private equity firms to list shares in its management company on the public stock market.
context_section_description: The Blackstone Group was founded in 1985 by Peter G. Peterson and Stephen A. Schwarzman with $400,000 in seed capital. The founders named their firm "Blackstone", which was a cryptogram derived from the names of the two founders (Schwarzman and Peterson): "Schwarz" is German for "black"; "Peter", or "Petra" in Greek, means "stone" or "rock". The two founders had previously worked together at Lehman Brothers. At Lehman, Schwarzman served as head of Lehman Brothers' global mergers and acquisitions business. Prominent investment banker Roger C. Altman, another Lehman veteran, left his position as a managing director of Lehman Brothers to join Peterson and Schwarzman at Blackstone in 1987, but left in 1992 to join the Clinton Administration as Deputy Treasury Secretary.
  Blackstone was originally formed as a mergers and acquisitions advisory boutique. Blackstone advised on the 1987 merger of investment banks E. F. Hutton & Co. and Lehman Brothers, collecting a $3.5 million fee.
  From the outset in 1985, Schwarzman and Peterson planned to enter the private equity business, but had difficulty in raising their first fund because neither had ever led a leveraged buyout. Blackstone finalized fundraising for its first private equity fund in the aftermath of the October 1987 stock market crash. After two years of providing strictly advisory services, Blackstone decided to pursue a merchant banking model after its founders determined that many situations required an investment partner rather than just an advisor. The largest investors in the first fund included Prudential Insurance Company, Nikko Securities and the General Motors pension fund.
  Blackstone also ventured into other businesses, most notably investment management. In 1987 Blackstone entered into a 50–50 partnership with the founders of BlackRock, Larry Fink and Ralph Schlosstein. The two founders, who had previously run the mortgage-backed securities divisions at First Boston and Lehman Brothers, respectively, initially joined Blackstone to manage an investment fund and provide advice to financial institutions. They also planned to use a Blackstone fund to invest in financial institutions and help build an asset management business specializing in fixed income investments.
  As the business grew, Japanese bank Nikko Securities acquired a 20% interest in Blackstone for a $100 million investment in 1988 (valuing the firm at $500 million). Nikko's investment allowed for a major expansion of the firm and its investment activities. The growth firm also recruited politician and investment banker David Stockman from Salomon Brothers in 1988. Stockman led many key deals in his time at the firm, but had a mixed record with his investments. He left Blackstone in 1999 to start his own private equity firm, Heartland Industrial Partners, based in Greenwich, Connecticut.
  The firm advised CBS Corporation on its 1988 sale of CBS Records to Sony to form what would become Sony Music Entertainment. In June 1989, Blackstone acquired freight railroad operator, CNW Corporation. That same year, Blackstone partnered with Salomon Brothers to raise $600 million to acquire distressed thrifts in the midst of the savings and loan crisis.
caption: Blackstone co-founder Peter Peterson was former chairman and CEO of Lehman Brothers
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