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Stephen Schwarzman on the key ‘flaw’ in the private equity job loss study

A recent study found that PE buyouts resulted in substantial job losses. What does private equity think about this? We asked Blackstone CEO Stephen Schwarzman for his take.

The face of private equity, Blackstone chairman and CEO Stephen Schwarzman, is pushing back against the methodology behind a recent study that found leveraged buyouts resulted in substantial job losses.

The study, authored by economists including Josh Lerner from Harvard Business School and Steven Davis from the University of Chicago, evaluated about 9,800 US private equity takeovers from 1980 to 2013. The analysis focused on the two years immediately following a buyout, and on average, the researchers found an overall net job loss of 4.4% in that time period.

But that statistic is far from the full story, according to Schwarzman. Specifically, he zeroed in on what he argues is the study’s principal “flaw": the two-year timeframe used by the researchers.

“The average life of a private equity deal isn’t two years. And the reason is that in two years, you haven’t established enough growth, because just reducing people count does not add a lot of value,” Schwarzman said in an interview with PitchBook. “You always get a company that has more jobs at the end of five years than you started with after the first year or two, because that’s how you make money.”

The researchers’ findings varied widely based on buyout type—underlining what the study called “striking, systematic differences” depending on both the buyout type and the overall economic conditions at the time. At publicly listed companies taken over by private equity, for instance, 13% of jobs were cut compared to a control group. Corporate carve-outs saw a steep 16% job loss. However, for takeovers of private companies, employment jumped about 13%.

“The cycle in private equity is dependent upon what kind of company you buy,” Schwarzman emphasized.

The study, published Monday, has garnered attention amid an increasingly hostile political environment for private equity. Sen. Elizabeth Warren introduced her “Stop Wall Street Looting” bill in July, and several other politicians are demanding answers related to portfolio company outcomes from firms across the industry.

Featured photo of Stephen Schwarzman via Faruk Pinjo/World Economic Forum/CC BY-NC-SA 2.0

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    Written by Eliza Haverstock
    Eliza Haverstock was a PitchBook writer covering venture capital, startups, and private equity.

    A graduate of the University of Virginia where she majored in history and economics, she’s also a native of the Washington, DC, area. Previously, Eliza worked as a news editor for her college paper, The Cavalier Daily, and interned as an industrials reporter for Bloomberg in New York.
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