December 4, 2014 / 6:04 AM / 3 years ago

Exclusive: Tony James looks beyond Blackstone - sources

Tony James arrives as a panel member for the breakout session at the Clinton Global Initiative 2014 (CGI) in New York, September 23, 2014. REUTERS/Shannon Stapleton

NEW YORK (Reuters) - Blackstone Group LP’s (BX.N) No. 2 executive Tony James is considering taking a role outside the world’s largest alternative asset manager, including seeking a top job in a future U.S. government, according to people familiar with his thinking.

James, 63, has not disclosed when or whether he will step down from being president and chief operating officer at the firm. The sources stressed that senior Blackstone executives see him as fully committed to his current role and do not expect his resignation in the coming months.

Yet James has been quietly preparing the ground to step down at some point, grooming leaders at each of Blackstone’s major divisions as possible successors, the sources said. The move would be the biggest change in Blackstone’s leadership since co-founder and Chief Executive Stephen Schwarzman, 67, hired James in 2002.

Reuters has learned that James was offered the job of commerce secretary when President Barack Obama reshuffled his cabinet two years ago. He turned down the previously undisclosed offer because he wanted the post of Treasury secretary or national economic adviser, one of the sources who was briefed about the offer said. The White House did not immediately respond to a request for comment.

A Democrat, James wants to become more involved in U.S. politics and he is a backer of Hillary Clinton, who is widely expected to seek to be elected U.S. President in 2016, though she has yet to declare whether she will run.

However, James sees his chances of a cabinet position in any Clinton administration as slim because he has not cultivated his ties with her as much as he did with Obama, the sources said. He has no plans to run for office himself, they added.

A Clinton spokesman offered no immediate comment. A Blackstone spokesman declined to comment.

James’ mulling of his next step sheds new light on succession planning at Blackstone, which has almost $300 billion in assets under management, spanning real estate, private equity, alternative credit and hedge fund investments.

As chief operating officer, James oversees the day-to-day running of the New York-based firm. His successor is expected to effectively run Blackstone and eventually succeed Schwarzman, who has already delegated many of the firm’s operational decisions to James.

    

POSSIBLE SUCCESSORS

James’ most likely successor is seen by Blackstone investment staff to be Jonathan Gray, the global head of Blackstone’s real estate team. But the sources stressed head of private equity Joseph Baratta, head of credit investments Bennett Goodman, and head of tactical opportunities David Blitzer are also in contention. Blackstone declined to comment on their behalf.

It would be controversial for any Democrat President to appoint someone who has been so integral to Wall Street’s buyout industry to the most senior finance job. The private equity industry, which is epitomized by Blackstone, has often come under fire for the low tax rates on profits that its partners like James pay under the current tax system. Buyout firms are also often criticized for cost cutting, including making layoffs, at some companies they take over.

Friends and former colleagues of James said that it would be a waste for any U.S. administration to ignore his talent given his track record of developing successful businesses and his understanding of the financial system.

“Tony James would succeed in anything you put in front of him,” said Ken Moelis, CEO of investment bank Moelis & Co (MC.N). Moelis was a former colleague of James at Donaldson, Lufkin & Jenrette and has kept in touch with him. 

Other interests James will pursue once he steps down include charitable work and environmental causes, one of the sources said. He sits on the board of trustees of New York’s Metropolitan Museum of Art and on the board of Costco Wholesale Corp (COST.O), and would consider other corporate directorships, that person added.  

James is likely to continue to be involved with Blackstone in some capacity once he steps down, the sources said. James has a net worth of $1.7 billion, according to Forbes. More than $1.5 billion of that is the value of his Blackstone shares.

He has been one of Obama’s most loyal backers on Wall Street, hosting fundraisers for him at his home and providing a counterweight to Schwarzman’s Republican allegiances.

James has met Clinton less than ten times, one of the sources said. James meets occasionally with Thomas Nides, a Morgan Stanley (MS.N) veteran who served Clinton in the State Department between 2011 and 2013 as deputy secretary and has historically been one of her closest connections with Wall Street. James worked with Nides when they were both at Credit Suisse Group AG CSGN.VX. A Morgan Stanley spokewoman conveyed a request for comment to Nides, but offered no immediate comment.

Even if James does not get an official government role, he will likely continue to try to affect policy through think tanks such as the Center for American Progress, on whose board he sits, and through his connections with political insiders, the sources said.

Editing by Martin Howell

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