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2017-08-20 10:46:03
The Benefits of Standing by the President

He heaped praise on Jared Kushner at a private gathering of bankers and corporate executives in December, congratulating President Trump’s son-in-law on the surprise election triumph.

He stood up again in May before a group of corporate leaders on the 39th floor of Citigroup’s offices to remind them of all the good the Trump administration could do for the economy and the country.

And at a meeting on Monday with his employees, as Mr. Trump’s support in corporate America began to crumble over remarks about white nationalists, he condemned the violence in Charlottesville, Va., but not the president’s response to it. By week’s end, a rebellion among corporate leaders led to the disbanding of business advisory councils to the president.

Stephen A. Schwarzman, the chief executive of the private equity giant Blackstone and the leader of one of the councils, has not been alone on Wall Street in his embrace of the Trump presidency, particularly after the corporate world endured eight years of Obama-era regulation. But in each of these private meetings, recounted by people who attended them, Mr. Schwarzman emerged as one of the president’s most respected and reliable allies in high finance.

People close to Mr. Schwarzman say he does not view himself as a member of the president’s inner circle, but rather as an independent businessman who gives the White House advice on trade and the economy.

But Mr. Schwarzman’s stature in both the world of finance and in Mr. Trump’s Washington helped Blackstone nail down one of the biggest deals on Wall Street this year — its selection by Saudi Arabia to manage a new $20 billion fund, according to a person with knowledge of the selection process.

In May, while the president was visiting Saudi Arabia, Blackstone announced the agreement to manage the fund, the largest in the world to invest in infrastructure projects. The announcement was made at the royal palace in Riyadh as Mr. Trump and Mr. Kushner looked on.

Blackstone has noted that it has a long-running relationship with Saudi Arabia, which had invested in Blackstone before, and said Mr. Schwarzman’s support for the president had nothing to do with the infrastructure deal, which it believes would have happened regardless of who was president. The agreement was the “culmination of a year’s discussions” with the Saudis that began during the Obama administration, the company said.

Still, interviews with four people briefed on the deal revealed that the Saudis had been discussing a possible partnership with a number of other firms as well, and formally decided on Blackstone — a fund-raising juggernaut that manages funds larger than the economies of some nations — only after Mr. Schwarzman had started advising the president.

In addition to Mr. Schwarzman’s prominence, the Saudi sovereign wealth fund was drawn to the firm’s record of generating huge investment returns and building new business lines, from real estate to hedge funds, according to the people with knowledge of the deal.

There is no suggestion that Blackstone did anything wrong. Instead, the company’s experience illustrates the incentives that corporate leaders have to develop strong ties with Mr. Trump — the country’s businessman in chief — and the reputational risks associated with those relationships when Mr. Trump veers off course, as he did this past week.

“Public service is a core value for people of my generation,” Mr. Schwarzman said in a statement. “It’s a great privilege to be asked to help the country — even if it occasionally comes with some degree of criticism.”

Mr. Trump’s visit to Saudi Arabia pushed the Blackstone deal forward so that it could be announced while the president was there, two people briefed on the agreement said. And the new fund, which plans to invest in projects like aging bridges and roads primarily in the United States, is expected to benefit from any federal infrastructure plan that may materialize under the Trump administration.

A Blackstone spokeswoman said that while a federal plan “would be helpful, our business is not at all dependent upon it since state and local governments — which build the vast majority of projects — are already pursuing billions of dollars in public-private partnerships.”

Some of the other investment firms that were in discussions about a Saudi partnership, including Brookfield and the Carlyle Group, had more experience in managing infrastructure funds and are still in talks with the Saudis according to the people who were not authorized to speak about a private deal.

But the Saudi sovereign wealth fund saw that as a benefit for Blackstone: Without its own infrastructure fund, the company would have the flexibility to build one from scratch to the liking of the Saudis. Blackstone, which has invested in infrastructure projects but does not have a stand-alone fund, is expected to raise at least another $20 billion for the Saudi fund.

Other deals involving chief executives with ties to Mr. Trump were announced during his visit to Saudi Arabia.

Andrew Liveris, the chairman and chief executive of Dow Chemical, reached an agreement to invest $100 million in a Saudi manufacturing facility. Mr. Liveris, who led the president’s manufacturing council until it was disbanded this past week, has done business in Saudi Arabia for years. And before the president’s visit, Mr. Liveris offered to introduce Mr. Kushner to the Saudi energy minister, according to two people with knowledge of the matter.

In all, there were more than 40 signed agreements between Saudi Arabia and largely American corporations, including General Electric and the defense contractor Lockheed Martin. The deal signings, which Mr. Trump said were valued at nearly $400 billion, came on the same day that about 50 chief executives from the United States and Saudi Arabia had gathered at the Four Seasons Hotel in Riyadh to discuss business opportunities.

It is routine for the Commerce Department to advocate American companies — and for trade missions to lead to the signing of partnerships — but the scale of the Saudi event was unusual compared with previous United States-Saudi gatherings, according to people who attended.

The Saudi sovereign wealth fund did not respond to requests for comment.

While Mr. Schwarzman’s support for the president caused a public relations headache for Blackstone this past week, friends say he is not the type of corporate leader to express regrets about taking on a prominent role in Washington.

“Steve Schwarzman is not a person who second guesses himself, and I don’t believe anything catches him off guard,” said Kathryn S. Wylde, president and chief executive of the Partnership for New York City, a business group focused on economic policy.

Ms. Wylde said she had spoken this month with Mr. Schwarzman, who is co-chairman of the group’s board, and found him to be in good spirits. “He was speaking from a position of strength,” she said.

Mr. Schwarzman and Mr. Trump are hardly old friends.

Mr. Schwarzman, a Republican billionaire, did not support Mr. Trump during the election and gave no contributions to his campaign. Two of Mr. Schwarzman’s top deputies at Blackstone are big Democratic donors.

But while Mr. Schwarzman’s alliance with Mr. Trump is new, his ties to Mr. Kushner, the president’s son-in-law, run deeper. Mr. Kushner and his wife, Ivanka Trump, attended Mr. Schwarzman’s 70th birthday party in February at his home in Palm Beach, Fla., near Mr. Trump’s Mar-a-Lago estate.

In 2013, well before Mr. Trump was even a candidate, Blackstone financed the purchase of a few warehouses and industrial buildings by Mr. Kushner’s family company, according to a person briefed on the transaction.

Blackstone also made a loan, which has since been paid off, to Kushner Companies on a Rector Street property in Manhattan. And last summer, an entity controlled by Blackstone lent $376 million to Mr. Kushner’s company to purchase a large property in Brooklyn that the Jehovah’s Witnesses had operated for many years, real estate records show.

Mr. Kushner is also friendly with Jon Gray, a senior Blackstone executive who runs its real estate business. (Blackstone is the largest commercial real estate investor in the world.)

Mr. Kushner and Mr. Gray, a Democrat, have been photographed together at Manhattan social events, and before the election, Mr. Kushner urged the staff at the Commercial Observer newspaper, which Mr. Kushner used to run, to place Mr. Gray higher on its list of “Power 100” real estate executives, according to a former employee with knowledge of the list. In 2016, Mr. Gray was No. 1 on that list.

Blackstone said it had no knowledge of efforts to influence the ranking, but Mr. Gray often lands at the top of lists of leading players in real estate.

Separately, Mr. Kushner and Ms. Trump invested up to $500,000 in a fund that Blackstone manages. The couple is now in the process of divesting, according to the couple’s financial disclosure. Blackstone declined to comment on specific investors, but a spokeswoman noted that the firm had thousands of investors across its many funds.

Shortly after the election, Mr. Trump asked Mr. Schwarzman to lead the Strategic and Policy Forum, a group of executives from big banks and other companies that would advise the president on economic issues. The group met only twice before being disbanded this past week in the wake of the president’s comments about Charlottesville.

In those two meetings, the group discussed issues important to business like infrastructure and regulations. Within hours of the first meeting in February, Mr. Trump signed an executive order seeking to roll back Obama-era financial rules.

Weeks after the group met in April, Mr. Schwarzman addressed the board of the Partnership for New York City. He made a case that Mr. Trump was good for business and in turn the country, according to two people who attended. Unlike many people in Washington, Mr. Schwarzman said, Mr. Trump could accomplish tax policy reform and an infrastructure overhaul.

Mr. Schwarzman speaks with Mr. Trump as much as once a week, typically about the economy though also about social policy, including a conversation in which Mr. Schwarzman advised the president to continue shielding young undocumented immigrants from deportation, according to a person briefed on their calls. The two men sometimes go weeks without talking, said the person, who added that they do not discuss Blackstone’s business.

Blackstone manages about $370 billion. But the private equity firm is always on the hunt for more — and Saudi Arabia was ripe for the picking.

The kingdom has been looking to diversify its economy beyond fossil fuels and to make investments in other areas like tech and infrastructure.

Last year, the Saudi sovereign wealth fund began soliciting bids from multiple investment firms to manage an infrastructure fund, according to two people briefed on the matter. Blackstone and other American asset managers were among those to have discussions with the kingdom, the people said.

In May 2016, Mr. Schwarzman flew to Riyadh to speak with Mohammed bin Salman, then the deputy crown prince of the Saudi royal family. The prince, who has since ascended to become first in line to the throne, was overseeing the sovereign wealth fund, known as the public investment fund. Mr. Schwarzman and the prince met again about a month later in New York, in part to discuss infrastructure, a person briefed on the meeting said.

It was not until months later that the selection process formally gained momentum — and by then, a lot had changed. The newly elected Trump administration signaled that its policies, particularly the president’s hard line against Iran, would be more amenable to the Saudis than President Barack Obama’s agenda for the region.

In March, the Saudis hired an American adviser to help vet the investment firms vying for the infrastructure deal. By April, Blackstone stood out as the winner, a person briefed on the deal said. (Some of the other firms are still discussing other infrastructure projects with the kingdom.)

The timeline for announcing the infrastructure fund manager was suddenly accelerated when the White House said in early May that Mr. Trump would make Saudi Arabia the destination of his first foreign trip as president.

It was a big moment for the kingdom. After years of complex relations with Mr. Obama, Mr. Trump offered the Saudis a more straightforward alliance.

“They felt they could do business with the Trump administration without any real focus on thorny issues such as human rights or questions of governance that have complicated bilateral ties with other presidencies in the past,” said Kristian Coates Ulrichsen, a fellow for the Middle East at Rice University’s Baker Institute for Public Policy.

The Saudis scrambled to put together a business meeting on the same weekend as Mr. Trump’s visit — when the world’s news media would be glued to the new president’s first foreign trip.

Dow Chemical’s chief executive, Mr. Liveris, worked with the Saudis to organize a meeting that would showcase the country’s many opportunities for global businesses.

By then, Blackstone was exchanging formal documents with the Saudi sovereign wealth fund. But if it wanted the infrastructure deal to proceed, Blackstone had to agree to a nonbinding version of the deal in time for the president’s visit.

Dozens of chief executives from across the United States faced pressure over the meeting. Some of them, speaking on the condition of anonymity, said they had felt they had no choice but to go if they wanted to do business in Saudi Arabia. One executive said that he had planned to send a subordinate, but that an event organizer had told him that he should attend.

The guest list included an oil executive, defense contractors and a college president. Michael Corbat, the chief executive of Citigroup, was also at the meeting. In April, his bank had received a capital markets license in Saudi Arabia that would allow it do more business there, after being frozen out for many years.

Also invited was Kirill Dmitriev, the chief executive of a Russian sovereign wealth fund who has spoken publicly of his support for Mr. Trump, according to a private list of attendees. Mr. Dmitriev’s fund was created as part of VEB, a bank wholly owned by the Russian state that has figured in the federal investigation into Russian meddling in the election.

Mr. Schwarzman and other American executives had joined Mr. Dmitriev’s international advisory board seven years earlier, but most resigned after Moscow’s military intervention in Crimea.

The celebration in Saudi Arabia stretched throughout the weekend, highlighted by a lunch at the royal palace and a dinner at the home of Yasir Al Rumayyan, the managing director of Saudi Arabia’s Public Investment Fund, the fund that is working with Blackstone, according to people who attended the dinner.

The day after the deals were announced, Mr. Trump gave a speech, thanking the Saudis for their hospitality and their willingness to cooperate on terrorism and business matters.

The president also called the deals that Americans companies had struck “blessed news.”