Transcription
People often think, you know, how do I get an organization to head in a certain direction? And it's not by putting plaques up on the wall with mottos, who you hire, who you fire, who you promote.
If you have people who share your values, who share the drive and they're the ones who are succeeding, then the younger people are going to look around and say, Oh, that person who took a risk, they moved to a new place. They found this new way to invest capital. Oh, I want to follow them. And I think that in many ways is the best way to model things. And also just the way you act, you know, the way you conduct yourself sends a powerful signal to others.
This week, I'm speaking to Jon Gray, the president and chief operating officer of the private equity giant Blackstone. A so-called 'lifer'. He joined the company in 1992 at just 22 years old under the mentorship of chair and chief executive Steve Schwarzman. Gray began on the real estate side of the business, helping it become the largest private equity real estate investor in the world. And since assuming his current role in 2018, Blackstone says its assets have nearly tripled to over .3 trillion.
So at a time of global upheaval, I was keen to catch up with Gray about how he leads through crises while maintaining trust. The challenges facing Blackstone's flagship private credit fund, how he retains talent and what that tells us about his own sense of loyalty. Jon Gray, thank you so much for joining us.
It's great to be with you, Francine. You're known as the Hilton deal guy, right? 20 years ago, you take this massive bet on Hilton, you pay 26 billion for it. At Blackstone with 20 billion debt. What were you thinking?
I wasn't as wise back then. I guess at the time, if you go back, this is right before the financial crisis and I was running our real estate business and what we were looking for was how could we buy great real estate or operating businesses at reasonable prices? And there were so much debt in the market fueling private real estate values that we found we could buy the public companies at better prices. So we ended up paying a big premium, 30 plus percent over where the company was trading. And we committed in July of '07. We closed in late October by early. Okay, things are going badly. The financial crisis really picks up and the company has a 20% decline in revenue and a 40% decline in cash flow. And we put a lot of debt on it. And I would say at that moment it did feel like it was career shortening and that I shouldn't be sitting here today.
Did you think, what have I done or did you think that there was?
I think there was part of me that was what have I done? But there was also part of me that was this is a great business. We still thought that travel was a long term growth business and that the core of the company, the branded hotel business, where you manage in franchise hotels. Hilton, Hilton, Garden, Hampton Waldorf, that that business could grow a lot beyond the United States and that we just had to weather this storm. And so we ended up putting in an extra $800 million at the bottom. By the way, we rode off quite a storm. It was quite a storm. We wrote down the investment by 71%. So the largest investment in our firm's history, we wrote down by 71%. You had to go to meetings with investors and I'd had to say to them, Hey, I know we've done this, but it's unrealized. We're going to get through this. And there was obviously rightfully a lot of concern. Ultimately, the sun came back out. The business grew. We took the company public and we made 4 billion. And by all accounts, that should not have happened.
And so the question becomes, what do you learn?
One is the importance of staying calm. So I always say to my kids and now I say to everyone in Blackstone, stay calm, stay positive, never give up. And I think that was really important in a moment like this. And by the way, in all different times we've seen this in Covid, we've seen it when markets react to Liberation Day, having this sense of equanimity is really important because you have to be clear thinking, because sometimes you may have made a really bad decision. In the case of Hilton, we actually had invested in a great company. Our timing was terrible, but if we had the staying power to get to the other side, we thought we could make it. So stay calm.
The second thing as an investor, which has really informed how I think about deploying capital, is so often in my training I'd focus on whether I pay 98 or 100 for something. What the footnote on page 52 says in the investment memo, But it's really that first paragraph. You know, what? What is the basis? How good of a business is it? The biggest thing on the investing side is it led to this idea of what are the best neighborhoods to invest in. You know, there's a shortage of global housing or, you know, consumers are moving to buying things from from stores to online. So logistics will do well. More recently, the importance of data centers and and fabs and energy and and thinking about investing and not necessarily just the individual. We're going to price everything, but we've got a better chance of success if we pick better neighborhoods, better management teams. And in this case, we felt great about the business in the neighborhood. But timing is everything. So you can see how the world evolves, but you don't know whether it's five years or ten years.
Yeah, I'd say timing is very important because it can impact your returns. I think I would say it's slightly different the way I'd see the long term trends. If we had bought a different kind of business and gone through this crisis, we may have lost it. In this case, the underlying business and industry were so good that we were able to ride through it, and that was the key learning.
I mean, it's very easy to say, stay calm. Yeah, those moments, I mean, can you learn to stay calm or focused or is it so is it temperament you're born with?
I don't know. I think you can learn. I think the more I feel like in my day job, every day, I get pieces of bad news, right? Because it invariably comes up. And so you have to you begin to absorb that in a better way when you're accustomed to it. And so part of it may be your nature, your fundamental optimism, but part of it is having experience and understanding. That these crises, there is another side and you have to make decisions. Keeping that in mind.
You're a lifer at Blackstone. Lifer for 34 years plus. 34 years. Is that what you want from your staff as well? Loyalty.
Well, if they love what they're doing and the people they're doing it with, then yes, I think the culture that Steve Schwarzman has really created a place where people are striving for excellence, trying very hard to deliver for our underlying clients, where people treat each other well. And ultimately, if you do a great job, you get rewarded. Your hope is that you can attract the best and the brightest and that they're going to want to stay and grow. And I'm very blessed to work with people who've been at the firm for decades. At the same time, I think what's important at a firm is that it grows because one of the problems with some of the smaller firms is there's not a space. You know, that smaller tree can't get sunlight. And so what's great about this firm is its push to grow gives young people a chance to say, even though I'm joining a bigger firm today, I still have a lot of opportunity.
How do you think about retaining talent? Do you first of all, do you see it as a personal mission? And actually, what do people want?
I think it's a personal mission for sure. I think what people want is the opportunity to grow, to learn, to have responsibility, to be at a place they're valued, obviously, to have professional advancement and also financial rewards. And I do think they care about where they work and what the culture is like. Yes, money matters, but if you genuinely like the people you work with, if you feel a sense of mission, you're proud of the place you work. And and I would say if there's an entrepreneurial flair to the place, then I think you're going to stay engaged. As we've grown from the firm, I joined with 75 people to a firm that now is more than 5000 people. We've got to make sure people seem excited, are excited about coming to work every day.
Have you ever thought of leaving?
No. Never. No. And there's nothing.
What? I mean. What attracts you to Blackstone? You're also seen as the heir in waiting.
I've woken up every day intellectually challenged by what I do. And I love the people and I love the drive in the world to win.
How has your relationship with Steve Schwarzman changed over the years?
Oh, wow. We you know, when I joined, I was a kid, right? I was 22 years old, was a tiny little firm. And obviously, as I've grown up over time, you know, the relationship as somebody just learning the business to somebody how running the firm is is different. But I would say there's remarkable continuity. Steve's just always pushing for the best. And even at a young age, one of the great things about Steve in the firm is this openness to listen at the table. So even when I was very young, once I sort of got my sea legs and I said, Oh, I don't like this transaction for whatever reason you were heard. And so I think Steve just appreciates drive carrying an entrepreneurial spirit. And for me, it's one of the great gifts of really my not only my career, my life, to have been able to work so closely with him, to be able to learn so much from somebody who's so wise, who always has equanimity in in whatever the situation, that's been really helpful. And he's also pushed me. I never would have been somebody who would have thought as big, you know, that's his thing. He extends the playing field and makes you think about, can we build this business to a billion? Why don't we build it to ten or 00 billion? And when you work with and for somebody like that, it inspires you.
Jon, how do you you know, as the firm grows, how do you make sure everybody feels like that?
Yeah. So that feedback, yeah, it's like one eighties reviews, compensation. Every Monday we do what we call B TV. It's not Bloomberg TV, it's our internal zoom call. But we're communicating messages about, you know, what people are doing investing, raising money, providing legal. We're constantly calling out people who find interesting and new ways to do things. And then we're rewarding and promoting those people because it's interesting. People often think, you know, how do I get an organization to head in a certain direction? And it's not by putting plaques up on the wall with mottos, who you hire, who you fire, who you promote. If you have people who share your values, who share the drive and they're the ones who are succeeding, then the younger people are going to look around and say, Oh, that person who took a risk, they moved to a new place. They found this new way to invest capital. Oh, I want to follow them. And I think that in many ways is the best way to model things. And also just the way you act, you know, the way you conduct yourself sends a powerful signal to others.
Blackstone's flagship $82 billion private credit fund BCRED made headlines in March. Bloomberg reported that around 25 Blackstone senior employees were putting in roughly 50 million of their own money to offset record customer withdrawal requests. The management move has been described as old fashioned door knocking, and I wanted to know from Gray what it was like to go out and ask colleagues to open their wallets. Jon, talk to me about BCRED. How difficult was it to convince employees to put money in it?
So in the case of BCRED, which lends senior loans to basically private equity companies, we built this to be an $80 billion plus vehicle. It's done a terrific job, ten plus percent annual return since inception six years ago. There's been obviously a lot of noise around private credit. And one of the things that's really important to us is that our investors recognize that we're aligned with them. So what we did recently was put up some capital from the individuals of the firm because we wanted to show that alignment. And the key is you're in the investing business. It's a trust business. And when there's a lot of noise and people are saying this is that there's nothing more powerful than sort of putting some money in and say, Hey, look, I'm aligned with you. This is my money. I believe in what I'm saying. And in the fullness of time, again, investors will look back and say, hey, they did a good job. And I think again and again for us focusing on that Northstar, which is performance and building trust with our clients, that's what really matters.
But was it difficult for you to convince other employees to join in or is it again just part of the culture?
I think it's part of the culture. I mean, obviously when you're asking people to make personal contributions, that's a that's something. But I do think it's part of who we are. And I do think people recognize that being seen as caring deeply about your clients and being aligned matters.
I mean, what was the you've you've had difficult times. Yes. What was your most difficult.
Oh, well, definitely the most difficult would have been last summer. We had this horrible shooting at the firm. We lost an amazing woman, Wesley LePatner, who was somebody I had worked closely with, long time senior executive in our real estate business. Incredibly talented, rising star. But beyond business, great mother, daughter, wife gave back philanthropically and was probably the best mentor I knew, particularly to other young women. And I would send so many her way saying, Look, can you help this young woman? She she wants to have a career in investing. She wants to have a family. And I'd always be like, call Wesley and to be in the office one day and to have this kind of horrific mass shooting and then also the trauma of a lot of people who were in the building for hours with high degree of uncertainty. That was a really hard thing. And there's no playbook for that sort of thing. And so I think the key learning from that was just the importance of being sort of who you are. And everybody was in pain at that point and then having as much communication and then trying to find your footing. How do you get back to work? We have a lot of responsibility, but also something really traumatic has happened. That was hard, finding the balance. That was definitely the toughest thing and I certainly hope I never experience anything like that again.
I remember you were you felt that you were quite close to employees. How did you do that? How did you learn how to do that? How did you know that that was the right thing?
You know, I think for both Steve and myself, it was just a natural thing to connect with human beings. You know, we you know, we met everybody as we reopened the building. When we had people come back, we did a bunch of sessions. And one of my colleagues here in London actually said it was the worst of times, but the best of Blackstone, because it really showed a humanity that that again, made me proud in a very, very difficult situation. Even in the worst situation, you've got to still, particularly if you're in a leadership role, you still have to maintain that calm. You have to give people a sense. Both one yes, you're in pain like they are, but two, we're going to get to the other side because they want to know that we're going to get through this. And and we ultimately did. But as I said, it was an awful thing. And at the end of the day, we lost somebody who's really special.
Jon Gray has become well-known for his distinct online videos, not in the boardroom, but on runs. I've got a crazy week ahead. It's Thursday morning. I'm in Riyadh, Saudi Arabia. We're also going to see, I think, some of these geopolitical hot spots cool down. We keep burning wherever we go. I wanted to know how this casual approach came about and whether it's just a bit of fun or a helpful business tool. Jon, I wanted to talk to you a little bit about your communications because a lot of people follow you on LinkedIn. Do you enjoy communicating directly? First of all, who are they for? Is it employees or investors?
So if I roll the tape back, Christine Anderson, who you know, who runs our corporate affairs, was pushing me for a number of years. You've got to go on LinkedIn. You've got to communicate. Our business is growing. We have a lot of stakeholders. And I was resistant, but I ultimately conceded because I was like, you know what? We should do this. And I was in Australia and I often would send to my family not post, but like, Hey, I'm here in London, this is what's going on. And instead I did it for a broader audience and we put it on LinkedIn and it went viral. So I was like, Oh, I can do other cities. This isn't that hard. And what I found was that people really enjoyed seeing the travel, seeing sort of the human side of this. Seeing a little bit of self-deprecating humor. You know, when you're doing TV, it's hard to sort of show who you are at times. And this felt like a direct way to communicate unfiltered. And yes, we've got a lot of stakeholders. There are only so many then you can see in a given year and they can see who you are. And and going back to my earlier comments, it is about trust. So if people are going to invest with us, knowing who the people leading the business are and that they seem like decent human beings, that's helpful. And I describe what I produce as sort of dorky dad vibes. And and I think it gives people a sense of sort of who we are, what we care about, some of the insights we can give in the world, and do it in a very informal way. And that's worked at some point, there will have been too many running videos and it'll be like, enough. For now, We keep running.
But you you enjoy it. Is that you? Is it your personality? Actually.
It's definitely my personality, which is optimistic and and yeah, a little bit self-deprecating. And I'm practically British and. Yeah, exactly. Not quite as dry on the humor side. And when I show up in meetings so often people are saying, I saw that. It makes for a good conversation starter. And when we do want to get out a message on something, we can do it in a direct way with a large audience. So it has a business purpose as well.
And then you do these holiday videos, which are, you know, a lot of people's highlights for the holidays.
Yeah. Again, why? Why do it? The holiday videos are a little crazy. I don't know who's inside that costume, but I love what Mr. Stone is bringing to this firm. Surprised I can dunk. Yeah. Well, I've got to go. I've got some holiday cheer to spread and some books to sell. When I got this job eight years ago, we realized that we'd grown too large to have a Christmas party at the firm. And I was like, Wow, I'm going to be like Scrooge. I will have canceled the Christmas party. So we need to do something that is more fun and make up for this. And we decided to do this video and originally it was just internal and it sort of got out and people thought it was really funny. And so again, it was like, Hey, this works. And I think again, the element of this that's helpful is it shows the humanity of the firm that we can make fun of ourselves, that it's not just tough Wall Street investors and now it's become a thing and our clients love it.
Tell me a Jon Gray day. So is it, you know, what time do you start?
Get up six ish in the morning. Try to read the newspapers. Bloomberg, of course, always, always get a sense of what's happening in the world. Catch up if I'm in New York on the Asia and Europe, emails that have come in overnight probably read some stuff that if I didn't get through the night before prepping for the day ahead, get to the office and chockablock meetings, investment committees, internal meetings, client meetings, policymakers run through the day. If I'm not traveling, I like to go home for dinner and then I do emails and calls and read documents, investment committee documents at night. And then I tend to read a lot of investment committee memos over the weekend. So it's pretty all encompassing. It's a 24 seven experience. But again, you know, for me, using an American metaphor, I get to play shortstop at Yankee Stadium, right? I get to be in this amazing seat. Thinking about ultimately investing is betting on the future. And you're thinking about where are things going, What does it mean for medicine, for media, for real estate, for all sorts of things, and doing it with incredible people.
Rapid Fire top tip for holding a highly effective meeting.
I think having action items when the meetings are over, meetings that end with just a lack of clarity of where you're going. To me that's not good. So what you want is the meetings over and the takeaway is we're going to go do this for this client or we're going to go do this due diligence on this company and then we're going to come back. Action is the thing that matters.
Would you rather lead on your own or by committee?
On my own. But but I still think of some things like investing. I prefer the committee. But in terms of final decisions, I think one person has to have responsibility.
Top tip for motivating people.
I think giving people a sense that there is no limit to what they can achieve, that their potential is enormous and really encouraging people to be entrepreneurial. It's not just Steve Jobs in the garage. You can be an entrepreneur as an investor, as a fundraiser, or frankly, as an accountant, as a lawyer. You can think about how can I do things better, How can I innovate? You want to encourage people that there's tons of opportunity wherever they are in the organization and they should think like an entrepreneur.
Jon Gray, thank you so much for joining us.
Francine. It was great. Thank you.