In Good Company with Nicolai Tangen - Blackstone President and COO: Investment Decisions, Entrepreneurial Drive and Company Culture

Episode Date: January 2, 2025

oin Nicolai Tangen as he sits down with Jonathan Gray, COO of Blackstone and former head of its real estate division. Gray shares what drives Blackstone’s success, the evolution of their investment philosophy, and the process for identifying outstanding businesses. He also provides insights into Blackstone's entrepreneurial culture, their approach to private equity and credit markets, and why scale and innovation are key to staying ahead. Tune in for a masterclass in leadership and investing!In Good Company is hosted by Nicolai Tangen, CEO of Norges Bank Investment Management. New full episodes every Wednesday, and don't miss our Highlight episodes every Friday.The production team for this episode includes Isabelle Karlsson and PLAN-B's Niklas Figenschau Johansen, Sebastian Langvik-Hansen and Pål Huuse. Background research was conducted by Sara Arnesen.Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi everybody, I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund, and today I'm here with John Gray. Now, John Gray, COO of Blackstone, previously the head of real estate here, and incredibly under his leadership, Blackstone's real estate division has become the biggest in the world. You grew it from some 5 billion to more than 300 billion, and you're known for some of the best deals in real estate the world has ever seen, such as the Hilton Hotel, which you took off market and then back on the market.

And wow, well done. Great to be here with you, Nikolai. And you've taken off the tie today. I took off the tie because I watched your stuff and I didn't want to be overdressed. Now, in short, why has Blackstone been successful? I think we've been successful for a couple of reasons. The main one is we've never forgotten what our mission is, which is delivering for our customers.

And that means delivering premium returns. If you invest in private markets instead of liquid markets, we have to deliver a premium. And because we focused intensely on that across all our different business units, doesn't mean we've always gotten it right. But that focus on returns has been so important to our success over time. And how much money do you need to make for your clients for them to be happy? It depends on the risk return strategy. So if you're in things like private equity or real estate private equity, then you need

to produce meaningful premiums because you're taking on larger risk. The capital's tied up for a long period of time. You might have to, you want to produce 500 basis points of access return, let's say. But if you're talking about investment grade private credit, then maybe it's 150 or 200 basis points. But you definitely have to produce a premium. The other thing I'd say- Which means that instead of putting money in the bank at 3%, you need to deliver 5%.

Yes. That's what you need to do. And for higher returning equities, instead of producing 10, maybe you need to produce 15 net to the customers. The other thing I'd say to our success, and this is really a credit to Steve Schwarzman, who you know, it's been the push to be entrepreneurial and find new geographies to invest, new products to deliver to customers, new customers. It's a constant sort of energy restlessness in this place that we can

do more, we can serve our customers better. And the combination of delivering great returns and this sort of dynamism, that's what's led to this place today that has over a trillion one of capital and north of a $200 billion market cap. I joined a firm 33 years ago that managed less than $1 billion here. So it's been a dramatic difference. But again, we've never lost sight of what's mattered. And I would add to that, of course, the people. I mean, if you know it, in the investment business, it's who you've got in the building that makes all the difference.

You said that you needed to be entrepreneurial. I think Steve said that you can't teach entrepreneurialism. So would you hire people who are entrepreneurs then? You know, I would say I think it's a little bit of both. I don't think you can really teach people who are extreme entrepreneurs, somebody like Steve where it's sort of born into his DNA. But if you bring people into a culture and you encourage this and you say to them, hey, get on that plane, find that new customer, think about a new way of investing capital, a new market, then it sort of breeds this,

it's encouraged. And that's what I feel like is in the water here. There's a desire to not only succeed at what we're doing, but thinking about how we can expand it, and that as we expand it, it brings more benefit to the original business we started with. I think you said that cycles are inevitable, but you want to find the great companies and own them for the long term. So in your mind, what's a good business? What are the characteristics? Characteristics of a good business, it's in a large market that's growing as opposed to a little nichey market.

It's a business that has some moat around it, either a physical moat or something that makes it special, a brand. And as a result, you have higher margin. Generally, higher margin businesses say something about a company. It's a business generally with less capital intensity. Sometimes there are highly capital intense businesses

that are great, but you love businesses that are capital intensity. Sometimes there are highly capital intense businesses that are great, but you love businesses that are capital light. You love businesses that have recurring revenues as opposed to having to start over every year. They're not exposed to one client or the government stroke of a pen risk. And there's a potential to do things adjacent to the business. And I would- So tell me, give me one example, what's the best business you've seen? Well I've been the chairman of Hilton Hotels, you brought it up at the beginning for 17 years, and it's global travel is an enormous growth business. But it's capital incentive.

It's not the way they do it. So the way the business used to be, they used to own the hotels and lease it. Today, what a company like Hilton is, is a management company and a franchisor. So the physical real estate is owned by third parties, investors, and they just get paid as a percentage of revenues, maybe a percentage of the bottom line. And that allows them to grow without a lot of capital. Blackstone similarly, and of course the power of the brand, there's a network effect. Once you become a frequent traveler with Hilton, you're gonna stay at a DoubleTree or a Waldorf

or a Hampton Inn around the world. And then other owners of hotels are gonna build and want to affiliate with the system. And I'd say similarly with Blackstone, it's a capital-like business, it's based on brand, and it's able to grow into a very fast-growing alternatives private capital market. So I like businesses that don't use a lot of capital and have a really great brand, and of course, deliver to their customer. In the case of Hilton or in the case of Blackstone, that's core to what you do. I suspect if you've been on

the board there for 17 years, you spent a fair amount of time in Hilton Hotels. I do. That is absolutely true. But the credit there goes to CEO Chris Nassetta. Yeah. Now, how has the investment philosophy changed over time for Blackstone? Or is it the same kind of things you look for? Well, I would say this. The rigor of the process has stayed.

So when I joined this place way back when we had pre-investment committees and sometimes heads up memos and rigorous debates in the investment committee, that has stayed and that in some ways has gotten even more fulsome over time and has gotten better because we're not just doing one or two things, we get this big, much broader lens.

So I would say the process has saved. What has probably changed is at the beginning, we were probably more classic value investors. You could sort of invest in anything, project out a series of cash flows, and value this. And I think where we've moved is more to being a little more high conviction. What are the areas of the world that we believe are going to get better? What's a good neighborhood? Physical goods are moving from retail, the way we traditionally think about it, to online. So let's really lean into global logistics, where we become the largest investor in the

world. What's happening in AI and cloud migration is leading to enormous demand for data centers. And so let's lean in there. Let's lean into the power that's going to support that. It's the same thing in life sciences, what we're seeing there with genomics, and AI and big data, precision medicine. And so let's own the buildings,

let's own the companies that run trials, let's invest in the phase three drugs themselves. And so I'd say the basic rigor, the focus on doing tons of due diligence, we just had one this morning on a large public company, we're looking at buying in private equity. And the debate sounds remarkably similar. We have more tools at our disposal, more people who can add value.

But I'd say what we become more aware of is trying to buy better businesses in better places. I'd love to drill down on the investment committees, which I think it's, which I suspect you do a bit differently than other people. So for instance, how many investment committees do you sit on? A lot. Like how many? A double digit number of investment committees, but I sit across pretty much all the firm's

investment committees. I spend my weekends, most people do other things, I spend my weekends reading investment committee memos. That's what I do. So you are, let's say you are on what, 15 committees, 10, 12? 10, 12 committees. Okay, 12 committees. And how often do they meet? Most of them, not all of them meet weekly, at least every two weeks. So if you looked at my calendar, there's a lot of time spent on those. And even sometimes when I'm traveling, I can't join, I will read the memos, I'll send in

my comments if I have a very strong view or send my questions. So if you said, what do I probably spend the most time on during the week, particularly the weekends, is just reading these memos. And it can range from a Japanese pharmaceutical company to a European energy company. How long are these memos? We try to limit them. We're getting better, trying to keep them shorter. We try to keep the text upfront to sort of three pages or less,

and then try to keep the overall memo less than 20 pages. It can be a lot of graphs and charts. I'd say we've come to realize more and more in the investment committee process that it's less about page 58 in the footnote and more about those first couple paragraphs. That neighborhood we're investing in, the quality of the underlying business, and then what are the big factors around technological disintermediation, risks on labor costs, risks on government regulation, in some ways forcing people to really focus on the big stuff. So now you are, you're coming to an investment meeting.

How many investments are you discussing? Depends on the group. In credit, it'll be a higher volume because you're doing more volume. So those you might do three or four. For private equity or real estate private equity those might be one, maybe two, but it tends to be a smaller number. And the good news is, remember in our investment committee there are the partners generally who are working on the transaction. There are the senior partners in that group and then a handful of us and it's not always the same people who are sitting across these.

We have a co-CIO function. We have some CIOs within business units. So we're trying to get the best of all worlds. So how many people would you be in the room? Oh, it depends on the group. It could range from 10 to 25 people. Oftentimes, we want the deal teams to speak up. We will go around in many of these committees

and ask the most junior people in the room, hey, what do you think? Because we want them to articulate why they have conviction. So now I'm 25, right? Straight out of business school. Very lucky being hired by you. And I'm presenting my investment case to, you know, the big John Gray.

So I'm pretty nervous, right? It's scary. Scary. I've been working for three months. Gee, have I done spreadsheets? Yeah. And so I come here and then do I start to meeting and tell you why you should buy it? Well, yeah, the way it would work is, we're not the most patient group of people. So oftentimes, maybe the young person will start it's probably The the youngest person may not be the one talking and maybe the principal somebody let's say early 30s

But the young people will be sitting there next to him and often they'll start talking but the way it tends to work is the memo will have come out and There'll be a series of questions people are really drilling in on. This company, it looks good overall, but it's been helped by an acquisition. And what we're seeing is the capital intensity, the working capital, and the capex are going up. And so there have been a flurry of questions.

And so oftentimes, because people will have read the materials, they'll immediately go to the heart of the issue. So hopefully people, and what we try to do is make sure a lot of please and thank yous and be appreciative to the group. But there's a really sort of a truth telling exercise. We also have, you know, we have the teams do business quality scorecards on each of the things we're investing in. And sometimes we may push back and say, you gave that a green that really feels like a yellow or red. But the scorecard is like a tick list.

So as if you were a pilot and take off a plane and you have to remember to turn on the fuel and that kind of stuff. I'd say it's a little more of the margin, the capital intensity, the quality of management, what are the weaknesses? And the investment committee's job is generally to find, you know, what is not right about this, or what should we be concerned about? Is the structure wrong? Is the alignment wrong?

Is there something wrong with the business? Or you could come in and say, hey, I think we're being too conservative. This is going to be a more competitive auction. Are we leaning in enough? And what I love about our firm is there's a really healthy balance between sort of the entrepreneurial spirit of the people identifying opportunities and sectors and the control mechanism of the investment process.

So what percent of the cases you bring up actually go through to positive decision? The way I think about it is it's an evolution as opposed to once every couple months a deal comes up and then you're like this. Typically within the business unit, the people who are the leaders of those businesses will get these early on or the heads of acquisitions, they'll do screening, and they'll kick out a bunch of stuff. And they may make modifications and say, look, we're not willing to do this under this structure, or we have to own 100%, or we can't buy this division.

It may go to a pre-investment committee, again, with more people than in the group, other senior investors in the group. And generally, when I'm seeing this, it's more towards the end of the process. So there, the percentage is higher, because you've already, it's like you're going through this quality control process. So would you say 50-50, or more of them would go through? I would say when it's getting to me, it's a higher percentage. But remember, it can still be, hey, this doesn't work for us for non-economic reason.

I'm concerned about the legal or press ramifications. I think we do a good job of this, but sometimes there are those. Maybe pricing. So it's not that- Do you have to have a thumbs up for it to pass? We try to do it in a consensus way. I know, but if you don't like it, then it doesn't happen. I try to do that rarely because I think you want to have this group sense.

Every once in a while, there may be something that I'm just like, hey, from my standpoint, what I'm trying to do is signal things that I like, don't like, because generally within a fund or a strategy, that one deal is not gonna be determinative of the future. But if it's a type of business that I don't love, then I'm signaling, hey, let's try to do some other stuff. But again, there are lots of- But if you had this team who've been working for months,

a day and night, because here they work around the clock, right? This poor thing. They work very hard. Very hard. So they've been spending a lot of time on this, and then you come in and you just don't think it works. Does it make you feel bad or good or? Badly.

What I'd say is, again, the process is more iterative. If it's a regular way deal, in a sector, we have high conviction. We've done a lot in this geography. Or we've done a lot in this particular area of software. We've had a ton of great success in it. The odds are it's going through. And if we're in an auction, we're debating price, that sort of thing. What the teams have, I think, really do well is when you find something that's off the run

and you realize it's got a feature to it that me or other senior investment folks are gonna say, ah, then they'll pre-screen that earlier oftentimes. So it's not nearly as much like you're up on some chair and you go up and you go this or that. It's a much more iterative process. And again, if you're within a business unit and the deal team is supportive and the senior partners in the business are supportive, my view is unless I've got a really strong reason,

I don't think I should be saying no. I can be highlighting things. I view this as a consensus driven process. And the other nice thing is in a number of these deals, we have multiple investment committees. So we just did, as I mentioned one this morning, and we had a ton of questions. So we just said to them, like, go back, these four areas, you've really got to dig in on this and come back to us and we'll have another meeting. But consensus deals, are they really the best?

I mean, let's say now Mark Zuckerberg had come here from his Harvard dorm room and said, hey, John, do you want to invest in this company? I'm connecting some people here and there, and you click and you like it. Do you really think you would have said yes? I bet you would have said no. Yeah. So it's difficult to get consensus for the best deals. What I would say is in our business, that's particularly hard in early stage VC because

it is much more of a gut thing. So much of what we do, there are cash flows, there are histories. We do have views about what's happening in most sectors. I found that the deals, when I say consensus, the driver of the deal is not, there's somebody who's the champion who really believes in that. And it's their job to convince the people who are skeptical. And we've had people do that. How did we become the biggest investor in data centers?

We had some people who championed a large data center transaction three and a half years ago and it turned out to be a brilliant decision to do that. We had some people who championed a large data center transaction three and a half years ago. And it turned out to be a brilliant decision to do that. And they were able to make the case for this. So I think we, as a firm, do a good job evaluating risk. We don't always get it right. And it is harder when you're going earlier stages. But it feels to me like most of the time

we're getting it right, and what we're trying to do is avoid really big mistakes, something that's structurally flawed, or if we think a business just doesn't meet sort of that quality standard. What kind of decision maker are you? Are you a pattern recognition slash gut feeling kind of guy or analytical or how do you shift

between the two? I think you've got to be both, right? Because the data tells you something, right? I mean, certainly you can look at a business, you can say, you know, over the last 20 years, every year the revenue of this business has grown 4%. That tells you something. It sounds more like a long-term infrastructure asset. And you want to look at what's happening under the hood.

You want to read the memo and look at the numbers. On the other hand, the past doesn't tell you the future. The past wouldn't tell you that data center demand would go up 20-fold in two and a half years. The past wouldn't tell you that power usage, which in the United States has been flat for 20 years, is all of a sudden gonna go up by 4% a year going forward because of the electrification. So I think you need to have both a quantitative side to you,

but then an instinctual side that says, look, this really feels good. And by the way, the other area where it's really hard to put on a piece of paper is management teams. Because if you look in so many industries, right, there are five players in the industry, and one has grown to enormous size, three have treaded water, one went out of business,

and they all had the exact same conditions. We've seen the same in the alternative business. So that is by definition instinctual. And so you've got to really try to understand, do we have the right horse or it's a great business and you need to change horses and the potential is a lot greater than you expect. I actually, for the sake of really disclosure here,

I did a master thesis on decision-making and interviewed the 20 best investors in Europe. What did they say? So the best ones move between analysis and gut feel. Now nobody wants to admit when it's called gut feel, but when you call it pattern recognition, they all think it's much better. You need to be pretty senior to use it because you need to be in a position where you actually can trust your gut feel, where you don't have to back it up with a loan analysis.

And of course, nobody trusts anybody else's gut feel. But it's a fascinating thing. I do think if you think of investing and boil it down, it is pattern recognition. It's connecting dots. So our competitive advantage is 230 companies, 13,000 pieces of real estate. And so we're getting all this data. So if you can connect that data in a way, and then transmit that into investment,

then you have an advantage in using your gut. Let's move on to that. How do you connect all these dots, right? You own all these companies, you own all these properties. Do you have a systematic way of organizing the signals and the information you get from this? I'd love to say we have some whopper supercomputer that gives us all the answers.

We don't, but I'd say we're getting better and better. So what we're doing now is trying to pull the KPIs, the key performance indicators, from lots of businesses, particularly the larger size ones, the infrastructure, some of the real estate portfolio companies, some of our biggest private equity businesses, that give you data about what's happening in wages, what's happening in inflation, and then you try to share that as broadly as you can, subject to limitations. Some things have to be anonymous and so forth across Chinese walls. So capture that data on Share that as broadly as you can, subject to limitations. Some things have to be anonymous and so forth across Chinese walls.

So capture that data on a regular basis and share it. We do surveys on a quarterly basis of our companies where we'll ask, do the CEOs, what are they seeing in terms of trends, costs, revenues? Do they think a recession's coming? In the third quarter, we asked, you know, do you see a recession? Only 16% of US CEOs see that. What do they see now? They see a pretty good economy.

I would say now our European CEOs see a much tougher environment. But our US CEOs, this is even pre-election, saw a pretty good environment. They generally see inflation coming down. And so for most of them, they feel pretty good. There is weakness on the consumer side a little bit. Some of that was there was some COVID booms and a lot of price and some of that's reversing. But I'd say most of them see a decent,

pretty decent business environment and declining inflation, which has been helpful for their margins. Are there any advantages of being as big as you are? I'd say the—I mean, look, scale has been our calling card. So, one, it's I've got all this information, and it allows us to see things in a differentiated way. We certainly saw inflation across our rental housing portfolio

or the biggest ports business in the United States. So definitely the information. it allows us to have resources Both at the firm and at our companies so we can have 50 plus data scientists We can have people on talent management We have enormous scale on purchasing and we can bring those to bear at the companies we buy Yeah, you don't need you don't need a trillion dollars to afford that No, but it definitely helps. But is it more difficult to generate returns?

I don't believe so, because in private markets, it's an advantage. The other thing, and what I'd say on that is, if you think about it, liquid markets, something you know a lot about, if you want to buy a million dollars of stock and I want to buy a billion, you've got the advantage, because I'm going to move the stock price. It's the exact opposite in private markets. So when AirTrunk, the biggest data center company in Asia, was up for sale that we bought this summer

for $16 billion, that, because we could write the check ourselves, was a competitive advantage. When we're writing a check for a $3 billion loan and we can do that by ourselves, that's a competitive advantage. Same thing in secondaries, all our different activities. So for us, being able to do big transactions is a competitive advantage. Having all the information, all the resources

is a competitive advantage. And then the other thing I'd say is we become increasingly sort of a full service capital solution provider. So if you come to us and say, I want senior investment grade debt, we can give you that from our insurance companies. We can do Mez. We can do preferred equity.

We can do minority stakes. We can do control, the whole range of things. And so it allows us to have much more robust discussions with corporates and other alternative firms. So we're finding scales and advantage. The risk is that you lose the entrepreneurial spirit, that what you end up with is a very bureaucratic investment process, people who stop innovating, and we just can't allow that to happen.

We've got to make sure people wake up here every day with a ton of energy, ton of dynamism, and that we're rewarding them in a real meritocracy for finding new opportunities, for taking risk, for generating great returns. But if you can harness the scale and keep that drive, to me, that's a special science. You have mentioned data centers a couple of times, and it's been one of your themes, right? Yes.

And data centers is where the big hyposcalers, you know, have all their computers, to put it simply. Now, massive demand, but also massive supply coming on. Are you worried about the outlook for that? I'm not in the near term. The reason why, one is, obviously the demand is enormous. The compute power, putting those NVIDIA GPUs together, what's happening, cloud migration, and now AI,

it's just enormous. And when you read the earnings call, and I read a summary, and you listen to the biggest tech companies, they are all in, and they see the potential. So demand I see, but your point, Nikolai, which is totally right, is we saw it with railroads back in the 19th century, we saw it with railroads back in the 19th century.

We saw it with the build out of cellular. What tends to happen is people overbuild. Yeah, and at some stage, for sure, it will happen here. Yes. The difference is- When do you think it will happen? There are two limiting factors which have made this much less prone to the bubble risk that you would expect.

One is you do not go out and build a $2 billion speculative data center. Nobody can make those economics work. So you actually need a long-term lease in place to do this. So that's limiting. The second thing is because you need power, and power around the world is increasingly in short supply, the negotiation with the tenant is much more balanced than you'd expect. So if you've got a site that is approved, you have the know-how how to build, and you have access to power, you can sign a long-term lease with the biggest and fastest growing

companies in the world today. So that has protected it. But to your point, we have to constantly ask ourselves, this is a good neighborhood. Is it getting over invested in? Because my great neighborhoods are valuable. But if you pay way too high a price, or you buy a bad business in a good neighborhood, you could still lose money. Today, I would say, if you have a scale player, and we have the biggest in the US, the biggest in Asia, the biggest powered land bank in Europe, and you have the know-how and the confidence of the major tech companies, and you've gone out there and arranged to get power, I think you're

in a pretty interesting spot. So we're still leaning in, but we're also playing it on a bunch of derivative ways, power generation, power transmission, all sorts of backup power. We're helping companies like CoreWeave, we're doing financings, we're financing other people's data centers. It's this good neighborhood, flood-the-zone theory. We feel like this has a long way to run. You've been out or you've avoided office buildings and shopping centers for a little while now.

Do you think it's time to go back in? I think it is interesting. We announced yesterday a small shopping center deal, small by our standards, Grocery Anchor, not big regional malls, but I think convenience retail, because we thought it represented good value, and no one's building shopping centers these days. And that to us means the lack of new supply,

even as e-commerce happens, I think there's an opportunity. We like grocery anchored, harder to move online, less CapEx. And then on office buildings, I would say, you wanna focus on the best quality office buildings. I mean, the values have fallen very significantly. We left office buildings for the most part a while ago

because we were worried about the capital intensity. We didn't buildings for the most part a while ago because we were worried about the capital intensity. We didn't know COVID was coming. People were going to stop coming to the office. But you need to own the very best quality buildings and I would say buying those buildings at a significant discount is interesting, but we'll do that selectively. You're also in private equity, and you built this up to be a very, very big business. Some people in my part of the world

are a bit skeptical when it comes to private equity. Are they right? Are they wrong? Well, obviously, as the biggest private equity investor, we don't think they're right. I'd say I think it's some. Let's start the other way. What are the reasons to be the biggest private equity investor, we don't think they're right. I'd say, I think it's... Let's start the other way. What are the reasons to be skeptical to private equity?

The reasons to be skeptical are why the business or how the business started, right? If you went back in time, it was in the 80s, there was a lot of leverage used. You were often buying divisions of bigger public companies. They were industrial companies. So leverage, either took on a lot of loans. A lot of loans. Borrowed money in the bank. They were, the return often came from taking out

maybe some cost firing workers. You weren't enhancing the business that much. You didn't have much operational expertise. It was mostly financial arbitrage. If you flash ahead to what the business is today, it's very different. You look at the two biggest deals we did this year, Smartsheet, which is a workflow software business, or we did a large business, Tropical Smoothie, in the fast food franchising business. These are fast growing businesses.

The amount of leverage we use is a fraction of what was done in the past. The returns are going to come by enhancing growth, bringing in our resources to help these companies grow faster. And that's how you're going to generate excess returns. So you hire, so these companies hire people? Well, they will hire people, you'll give them more resources to grow. You might expand them internationally. And what kind of expertise do you help them with? Well, oftentimes it could be things like their go to market strategy.

It could be how they organize themselves to to sell. It could be their quality control, it could be their marketing. You're bringing all these tools to bear of scale to the company. And so what I think where the business started, which was a financial exercise, it's become a much more operational, growth-oriented business. And if you look, I mentioned Hilton before, what Hilton was when we bought it versus what it is today is night and day.

And it's not just, it's done a great job for its employees, for its investors, but it's also probably the leading company on sustainability, on diversity. They've done a terrific job as a business. And so I think people have in their minds that, I think sometimes the press, because there's been a lot of money made in private equity,

those stories are not great. And they're really telling the stories of how somebody has taken a business and really grown it and created opportunity and created jobs. And so I think the nature of what we do, we have a career pathways program where we try to hire people from underserved communities

at our companies. We have a program where we share some of the rewards at some of our largest companies. I think what private equity was and what it is today are very different. And so that's part of the reason why I think the returns and the return premium is enduring. Now, you're also into private credit,

which is lending money to two companies, kind of in a, you know, going into the market of banks, right, and that's been exploding as well. Why has that gone up so much, that market? So, I'd say a couple of things. First, that has grown to be our largest business by AUM. It's $430 billion. And we do it a little differently

than some of the other players. We're just a third-party manager. So we haven't become an insurance company, been like a bank where you borrow money and then make a premium. We're just doing it like we do in private equity or real estate as a third-party manager. The reason the business is exploding,

I'd give you three reasons. One is you're essentially bringing the investor, pension fund, endowments, individual investors, sovereign wealth fund, right up to the borrower. And you're taking out a lot of origination, securitization, financing costs. It's basically a farm to table model. And that ends up with the investor getting a higher return. They trade away a bit of liquidity for that, but they get a better experience.

So if you're in the hold to maturity business, you get a higher return. The second thing I'd say is from the borrower's standpoint, because banks are often in the distribution business, they'll say to the borrower, the price is 300 over on your loan, but if I can't sell it at this level, I can flex you to 400 over. And because we're running a storage business, not a moving business, you're giving more certainty to the borrowers. The final thing, which is really helpful for the financial system, is we're duration matching. So if you think about First Republic, which went bust here in the US, they had a $70 billion super prime mortgage book that had almost no defaults at all.

But they went bust because the 20-year mortgages were against 20-second deposits. If they had been held by a life insurance company, those mortgage loans, there wouldn't have been an issue. And so today- But do you think private credit will be more regulated going forward? company, those mortgage loans, there wouldn't have been an issue. But do you think private credit will be more regulated going forward? Well, I think if the private credit is what we're doing, which is simply taking loans and directly putting them on insurance company balance sheets like they've done with mortgage

loans for a long time, I think people may look more. But I think that is different. Now as private credit players become more and more insurance companies, take on more annuities, issue more debt, there probably will be more focus. Now I would say our competitors are doing that, I think are doing a very good job, and they do have a longer duration balance sheet than a bank. And if you really think about it, the mistakes in financing blow up

come from too much leverage and mismatched duration. Do you think these things will be available for private clients, for retail clients? So far it's like big institutions who have had access to private equity and private credit. Well, we actually, non-investment create private credit. What we do in our BDCs, lending to private equity and private credit? Well, we actually, non-investment create private credit. What we do in our BDCs, lending to private equity managers,

that we do for individual investors. We have a product that today has 60 billion of total AUM. It's the largest player in that space. We also have a public BDC that you can buy Blackstone Secured Lending. So individuals can access it for higher yielding. And we've done very well having these products for the last four years. I think they'll grow over time. On the investment grade side, I think it'll be some time before individuals get access, but I think they will as well there.

There just won't be the same kind of liquidity. will as well there, there just won't be the same kind of liquidity. You joined this firm straight after school, right? Yes. We happened to go to the same school pretty much at the same time, I think, even. I think we may have been at the same time. Did you graduate in 92? Yeah. Yeah.

But I don't know whether you were in the library and I was not all the other way around. Perhaps you were more in the library than me. I'm not sure. Maybe I was a little more. Never saw you there, actually. No, I don't know if you were in the library and I was not all the other way around. Perhaps you were more in the library than me, I'm not sure. Never saw you there actually. No, I don't know if it was in the library. Probably a bit of library, bit of the fraternity house. I was fortunate, my wife there, so she was also a classmate of mine.

She looked after you. Yes. Now, when you joined, it was a small firm, right? Now it's huge. How is the corporate culture different? I think that's the thing that's probably kept the firm and kept it so successful is that there is still sort of a small firm mentality. When I joined it, it was something like 75 people.

But we still stay remarkably connected. Obviously it's bigger, there's more process. But we try hard to keep sort of this one firm, one culture idea. Every Monday we do something called Blackstone TV, which is an internal Zoom call where we talk about what we see in markets, where we're investing capital, what's happening in the economy. And then we have a photo contest. But also, do you record it or is everybody on? Is it a live Zoom call?

It's live. We just started recording it because the people in Australia and California rightfully said this is a little crazy. But we basically are trying to encourage everybody to tune in. And how long is it for? It's for 45 minutes. Can everybody speak? No, we have guest speakers. So we're talking to the world, but we bring guests in from different parts

of the firm talking about it. And it's designed for people to understand what we're doing, understand the mission and have a sense of why the firm's succeeding, how it's dealing with challenges. Talk about some of the things we do to give back in communities. What proportion of the people here actually watch it?

Pretty high percentage of the professionals. We don't really make it. It's not so optional. It's really designed to be a way so that everybody feels a collective sense of mission here. Well, so we do exactly the same. We have a Monday meeting. When we do a half an hour, everybody, you know, we have more than half of the people in the firm tunes into that. I think it's a cool thing.

I mean, it focuses in on why we're there. And if you think about going back to some of these ideas about good neighborhoods or when you see things, if we see things in our inflation data or economic data, what's the best way to communicate it at scale than to get on there and say, we see this, and this is influencing how we're seeing things? We think inflation's coming down. We think the Fed will thus lower rates, things we started saying 18 months ago. Let's invest before the all-clear sign. And what's the best sort of bullhorn way to do that? Well, an all-firm Zoom call with all your professionals tuned in.

But again, it's back to this cultural idea of having people say like, oh, there are nice people who work at this place. They care about others. They care about communities. It's you're trying to give people a sense that they're part of a broader purpose. Obviously you're managing the wealth of a country, and I'm sure the folks who work for you. Not alone with a big team.

Yes, but everybody has a sense of mission. So that's what I think you're trying to inculcate, shared values and how you're seeing the world. Yeah, what kind of people do you hire? We try to hire people who are obviously smart, hire people who are driven. I think if you ask me one quality, that's the most important one, you said it.

This is not a nine to five, five day a week job. Most of the people here work very hard and you need somebody who really cares. How do you use screen for drive? You know, obviously you're finding out where they used to work or what they do. Sometimes there are telltale signs, you know, people who are in athletics getting up at five in the morning, people who've, you know, came here as either parents or immigrants and to get to some elite school they had to do extraordinary things to get to where they have.

I don't know. You're trying to get a sense of somebody who just really cares a lot about what they do. Do people who put in the longest hours, do they do the best here? I don't think it's the longest hours. It's really about caring. So I would say you really care about what you're doing, and nobody's checking where you at your cube at 8.32 a.m., but do you really care about the quality of the presentations, the quality of your investment committee materials? There's something about you that makes you want

to get it right. But then I would add to this, we want people who believe in team play, because investing in private markets, somebody's got to raise the money, do the investments, run the models. Somebody's got to do the finance, the legal, deal with the exit. We need people who believe in team play. We need people who are nice. And you also need people with EQ because you're not just trading on a screen, right? You're dealing almost all our functions with people on the outside or internally. And so you're just trying to get like really driven,

great people who care a ton, who have good judgment and are nice. And if you can find that, that's amazing. Are you nice? I hope to be, I try to be. But I would say this, Nikolai, that- Well, your job is not to be nice, right? No, I think my job is to want the best for the firm,

to be demanding, but it doesn't mean you can't treat people well. Everybody up and down. And I would say this, I think as leaders of businesses, the most important signal is who you hire, who you fire, who you promote. So if you give a big job to the brilliant jerk who puts points on the board but treats everybody terribly, that sends a very powerful signal.

And so I think trying to get people who are nicer, better quality human beings who also happen to be great at what they do. I think that helps you build a wonderful culture. And if you don't, it's hard to get people to stay because it's not just about financial reward. People who are successful, they want to be around people they genuinely like. I believe you initially wanted to become a journalist. Do you think you would have been a good one? I don't know.

I don't know. I think I fell in love with this investing thing. So I mean, my guess is... So the thing is that it has a lot in common, right? You need to be really curious, search for some kind of truth. I think there's a lot of similarity because I have a daughter who's in the media business and does podcasting. And a lot of what she does

is she's writing a story, she's talking to a lot of people, she's reading a bunch, she's trying to get the facts, and then she's telling a narrative and drawing a conclusion, and to your point, there's a lot of similarity. And if you said to me, what do I love the most about the investing business? It's this intellectual excitement

to try to figure out where the world's going and to analyze something and come to a conclusion and you see the world somehow slightly differently than other people. And as a result, you express a view. And unlike most other jobs, you literally know afterwards, I put $100 in that. Did I lose it? Did I get back $100? Or did I get back $300? Yeah, I just think it's the most interesting thing you could do. It's like everything you eat and drive and wear is made by somebody. It's about psychology. It's about management.

It's about greed and fear and macro geopolitics. Everything changes all the time. And you're doing it around the world. And so next week, I'll be in the Middle East. The following week, I'll be in Asia. You're learning, you're talking to people, you're just trying to take in as much information and you're trying to transform that into actionable investment.

Talking about being around the world and action. So you are a runner, you run all over the world and you post on LinkedIn. Yes. Tell me about it. It's very funny. So when I travel, I often would send my family, my wife and daughters, you know, a clip saying,

oh, here I am, I'm in some place around the world, you may forget who I am and whatever. And I got on LinkedIn about a year ago. I thought, you know, I did sort of the corporatist stuff at the beginning and it wasn't that interesting to me. And I was in Sydney jogging by the Opera House and I was like, wow, this is amazing. I love being here. We have a big business here, a bunch of people, clients.

So I literally just took the camera and said, I'm in Sydney, this and that, da da da da da. And I sent it to our people and they put it on LinkedIn. And all of a sudden the thing sort of goes viral. So you don't have to be that smart. It's like, oh there's demand for last mile logistics, let's buy more last mile logistics. In this case, there is demand for these LinkedIn sort of human videos showing you jogging. I do that.

And so you do it in Seoul, you do it in California. And what's the coolest place you run? The coolest place I run. I would say I always love Washington, DC when I jog up to SEPs, to the Lincoln Memorial. It has this profound feeling to me. I love, in Japan, there's a 5K jog around sort of the Imperial Gardens where the Emperor's Palace is.

Obviously the cities in Europe all have great runs along the water. You were supposed to say Oslo. I should say Oslo's great, because that main street in Oslo, what is that, up to the parliament at the top is a great run too. But when you travel, one of the things you know is it's just hard on your body.

So if you can get up and go out, and you don't need to run a marathon, you could run two or three miles, and all of a sudden you feel a little better about the day ahead. And this has been fun, but I've sort of created a monster and I've joked at some point I'll jump the shark, but for now I keep going. Absolutely. John, what is your advice to young people? I think it goes back to some of the earlier stuff,

which is you gotta really work hard, you gotta care a ton about what you're doing. And I think that ties to the passion. I think one of the reasons we're having success at what we do is because we like it, right? And if you don't feel this genuine passion for what you're doing, I think it's hard and you should find another career. The other advice I would say is don't be afraid to speak up.

I think one of the challenges oftentimes, particularly people show up at businesses and they sit quietly. And once you start to get a sense of what makes this business you're working at tick, it could be a nonprofit organization, whatever it is, you want to be an agent for change. And almost every company, Blackstone included, can do things better. You can serve your customers better. You can shorten some of the paperwork. You can find a new market, a new opportunity. If you think of yourself as an entrepreneur and an agent of change in whatever you're doing,

it makes your job more fun. The people you work with really appreciate it. You get more out of it. And then the final thing I'd say is wherever you work, you wanna be, feel intellectually challenged, you're still learning, I think. I mean, I think the best part of the job is this constant learning.

That's why I've never looked for another job because I'm always like, wow, I'm learning something new. So if you go to a place and you feel like you're continually moving up in terms of what you're learning, what the challenge is, finding that kind of opportunity again, gives you a lot of psychological rewards. Well, John, you for sure have passion and working very hard. And if you are looking for another job,

I'm sure we can fit you in somewhere. I will not be looking, but I love seeing you here, Nikolaj. Thank you so much. Thank you. Thank you.