Peter Peterson, chairman of The Blackstone Group, speaks during an interview in their New York offices. (Photographer: Daniel Acker/Bloomberg News)

Peter G. Peterson, Blackstone's Co-Founder, Dies at 91

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(Bloomberg) -- Peter G. Peterson, the Wall Street rainmaker with global connections who emerged from a fight for control of Lehman Bros. to become a billionaire as co-founder of the private-equity firm Blackstone Group LP, has died. He was 91.

He died Tuesday at his home in New York City, according to an emailed statement from his family.

The son of Greek immigrants, Peterson served as U.S. Commerce secretary under President Richard Nixon and assembled contacts and diplomatic skills that he used to become a leading architect of international business deals. After a tumultuous turn at Lehman, he teamed with Stephen Schwarzman to create Blackstone, and helped make it the world’s largest private-equity firm.

When Blackstone went public in 2007, Peterson became a billionaire. He accumulated an estimated net worth of $2 billion, according to Forbes magazine.

‘Great Partner’

“Pete and I worked together for 35 years,” Blackstone CEO Schwarzman said Tuesday in a phone interview. “He was a great partner. We both had no idea when we started Blackstone in 1985 that the firm would grow to this scale and importance. The firm was his pride and joy.”

Like other Wall Street figures such as Felix Rohatyn and David Rockefeller, Peterson bridged finance and public policy throughout his business career. He was chairman of the Council on Foreign Relations for two decades and co-founded the Concord Coalition, a nonpartisan advocacy group, to sound the alarm about mounting government deficits.

“Pete Peterson was one of the great patriots and philanthropists of our time, and he was a great friend whom I deeply admired,” Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP, said in a statement. “He brought people of different backgrounds together to tackle some of the toughest challenges facing our country, and he was often a lonely voice for fiscal responsibility, when others were kicking the can down the road.”

Peterson’s career pivoted on two partnerships -- one that failed, one that flourished.

Lehman Infighting

The first was his legendary battle with Lewis Glucksman at the helm of New York-based Lehman. Peterson joined the firm in 1973, after his stint in Nixon’s Cabinet, as vice chairman focusing on investment banking. He said Lehman deserved its reputation as a “dog-eat-dog world in which the traders and the investment bankers, among others, eyed each other with unalloyed suspicion.”

Within two months, he was elevated to chairman and chief executive officer and began dealing with millions of dollars in losses suffered by the firm’s government bond-trading business, part of Glucksman’s domain.

Peterson oversaw a companywide restructuring that included layoffs, eliminating noncore businesses and raising capital. “Back From the Brink Comes Lehman Bros.,” Business Week declared in a 1975 cover story that said the firm, under Peterson, “is a happier as well as a more profitable institution.” In 1977, Lehman merged with Kuhn, Loeb & Co., a New York investment bank.

Sharing Power

“I never worked so hard in my life to save an institution,” Peterson said in a 2009 interview with Charlie Rose on PBS.

In 1983, Peterson agreed to share his CEO title with Glucksman, a partner since 1966 who had risen through the trading side. Within weeks, Glucksman was agitating to hold the top job by himself. Peterson chose to leave rather than fight.

“Glucksman thought Peterson was self-centered, haughty, uncaring,” Ken Auletta wrote in his 1985 book, “Greed and Glory on Wall Street: The Fall of the House of Lehman.”

Glucksman, who died in 2006, told Auletta: “Pete was a guy totally obsessed with the world hearing the name Pete Peterson.”

Firm’s ‘Rudder’

Peterson, according to Auletta, “rightly believed it was he who set the strategic framework for the firm’s success and who acted as rudder for Glucksman, an opinion shared by many partners.”

Glucksman’s short, unhappy tenure as sole CEO ended with the 1984 sale of Lehman for about $375 million to Shearson/American Express Inc. What could have been merely a moral victory for Peterson was also a windfall, since he had insisted in his departure agreement that he would receive a portion of the proceeds if Lehman were sold within three years.

More importantly, leaving Lehman freed Peterson to focus on what interested him most, owning and running companies.

“I had a few million dollars, but that’s all I had at the time,” he told Rose. “How could I have imagined that little Blackstone, with four people, could have developed into what it did?”

Starting Blackstone

He and Schwarzman, who had collaborated on deals at Lehman, created Blackstone in 1985 by each writing a check for $200,000. Peterson, then 59, became chairman. Schwarzman, then 38, became CEO. Roger Altman, who would later serve in the Treasury Department under President Bill Clinton, filled out the management committee as vice chairman.

Blackstone swiftly became a leader in mergers and acquisitions involving U.S. and Japanese companies, guiding Sony Corp.’s purchases of CBS Records Inc. and Columbia Pictures and advising Firestone Tire & Rubber Co. in its acquisition by Bridgestone Corp.

Peterson and Schwarzman raised $840 million for a private-equity fund, Blackstone Capital Partners. The fixed-income investment group they created was bought by PNC Bank Corp. in 1994 and is now BlackRock Inc., the world’s biggest money manager.

The Schwarzman-Peterson partnership was strained by the lavish 60th birthday party Schwarzman threw for himself in February 2007, just months before Blackstone’s initial public offering. The party for 500, with entertainment by Rod Stewart, fueled the movement in Congress to raise taxes on executives at private-equity and venture-capital firms.

“Today, I am sorry to say that when people think about Steve, the 60th birthday party often detracts from his many accomplishments,” Peterson wrote in his 2009 memoir.

IPO Windfall

Blackstone’s IPO in June 2007 brought Peterson $1.85 billion, before taxes. He retired at the end of 2008 and put much of his money and time into the Peter G. Peterson Foundation, which advocates reducing budget deficits, curtailing federal entitlement programs and reducing dependence on oil.

“When it comes to the long-term fiscal and economic future, U.S. leaders are mute not only on domestic challenges but on global challenges too,” he wrote in his 2004 book, “Running on Empty.”

Peter George Peterson was born on June 5, 1926, in Kearney, Nebraska, a product of what he called that state’s “small and highly interwoven” Greek community.

Great Depression

His father, George Peterson -- born Georgios Petropoulos in Greece -- came to the U.S. at 17 and, in 1923, opened a 24-hour restaurant near Kearney’s railroad station. He married Venetia Papapavlou, another emigre from Greece.

Peterson worked in the restaurant as a boy and never forgot his father’s cry, during the Great Depression, of “Economia!” when he noticed lights left on or money otherwise wasted. Two siblings followed -- a sister, Elaine, who died at 1, and a brother, John.

Peterson was expelled from the Massachusetts Institute of Technology in 1944, his freshman year, for plagiarism after consulting -- though not copying, he always insisted -- a term paper written by a friend of a friend. The author of the paper was Roy Cohn, then a student at Columbia College, who later as a lawyer helped Senator Joseph McCarthy investigate alleged Communist sympathizers in the 1950s.

Academic Revival

To restore his academic standing, Peterson worked at MIT’s Radiation Laboratory. He later concluded that his job had involved tracking atomic-bomb components for the top-secret Manhattan Project. He attended Northwestern University and graduated summa cum laude in 1947.

At the University of Chicago’s Graduate School of Business, on his way to a master’s degree in 1951, Peterson listened to economist Milton Friedman explain the power of free markets “unhampered by interference and Keynesian manipulations,” as Peterson recalled. In his later careers in Washington and on Wall Street, Peterson honed a contrary view.

“If Milton were alive today,” he wrote in his memoir, “I would be inclined to say, ‘Milton, I must say to you that today’s real economies may be more complicated than you would seem to suggest.’”

Peterson joined the advertising firm McCann-Erickson as director of marketing sales in 1953 and was head of the Chicago office two years later, at 27. In 1958 he became an executive with a McCann-Erickson client, Bell & Howell, a maker of movie, microfilm and audiovisual equipment. Promoted to CEO in 1963, he carried out layoffs and cost-cutting and attempted to diversify the company to keep up with innovations in home movie making.

At the invitation of George Shultz, a friend from business school who was Nixon’s director of the Office of Management and Budget, Peterson moved to Washington in 1971 to become assistant to the president for international economic affairs, a new post.

‘Economic Kissinger’

He attended the August 1971 meeting at Camp David that resulted in Nixon ending the gold standard as part of his so-called New Economic Policy. By the time Peterson released a study of world trade and monetary issues, he was known as the “economic Kissinger,” a flattering comparison to the influence of Nixon’s national security adviser, Henry Kissinger.

Peterson was one of five Cabinet secretaries purged by Nixon after his 1972 re-election victory.

He considered himself a Rockefeller Republican, “conservative on fiscal matters and moderate or liberal on social issues,” though his worry about escalating federal spending transcended party loyalty.

Peterson became an outspoken critic of pairing tax cuts with large increases in military spending. In an analysis of rising Social Security spending published in the New York Review of Books, he called for limiting cost-of-living increases, taxing some benefits and gradually raising the retirement age.

Concord Coalition

With former Democratic Senator Paul Tsongas and former Republican Senator Warren Rudman, Peterson founded the Concord Coalition in 1992, to advocate what it calls “generationally responsible fiscal policy.”

As chairman of the Federal Reserve Bank of New York from 2000 to 2004, he recruited Timothy Geithner to become its president in 2003. Geithner later became Treasury Secretary under President Barack Obama.

Peterson’s first marriage, to a college classmate, ended in divorce. With his second wife, the former Sally Hornbogen, he had five children: John, Jim, David, Holly and Michael. After that marriage ended in divorce, he married Joan Ganz Cooney, co-founder of Sesame Street and Children’s Television Workshop.

In addition to his wife and children, he is survived by his younger brother, John, and nine grandchildren.

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