How the Trump Oligarchy Works: The Case of Stephen Schwarzman

Blackstone was in the news Wednesday because it’s creating a new business unit to tap private equity’s prospective new market in 401(k) plans. Private equity, which used to be called leveraged buyouts before the junk-bond king Michael Milken gave them a bad name, is a largely unregulated extractive financial industry wherein a firm purchases an existing business with borrowed capital; assigns that debt to the business in question; charges management fees to the business for cutting overhead (typically through layoffs); and then resells whatever’s left, typically but not always in a public offering.

Like much of the shadow banking world, private equity can be highly lucrative, but it also entails risk that nobody will want to buy the stripped-down, debt-burdened asset in question. (Indeed, there’s some worry private equity will take down the entire economy.) Consequently, private equity investment has in the past been limited to wealthy investors and large professionally managed funds that can tolerate significant losses. But there are only so many of those, so the private equity industry started lobbying the federal government to give it access to defined-contribution pensions, such as 401(k)s. “In life, you have to have a dream,” Schwarzman said on a conference call with financial analysts in 2017. “And one of the dreams is our desire—and the market’s need—to have more access” to the savings of ordinary people.

In 2020, the Trump Labor Department signaled informally that a retirement adviser wouldn’t violate his fiduciary duty if he recommended that a defined-contribution pension invest in private equity. But the following year, the Biden Labor Department distanced itself from that opinion. Then, this past August, the Labor Department, once again under Trump, distanced itself from that distancing.