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Speaker 1: This is Masters in Business with Very Red Holds on

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Speaker 1: Bloomberg Radio. This week on the podcast, I have an

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Speaker 1: extra special guest. Joe Barada is the global head of

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Speaker 1: Private Equity at PE Giant Blackstone, where he has worked

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Speaker 1: since nineteen ninety eight. I found this to be a

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Speaker 1: fascinating conversation because Joe's career has very much paralleled the

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Speaker 1: growth of private equity. When he began, PE was a

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Speaker 1: little bit of a niche boutique sort of investment, and

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Speaker 1: over the ensuing twenty five years it has grown to

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Speaker 1: be really a major asset class with giant opportunities that

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Speaker 1: have been expressed by then small now very large companies,

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Speaker 1: of which Blackstone is one of the largest. He is

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Speaker 1: very familiar with everything from M and A to credit,

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Speaker 1: to real estate, on and on, and has had experiences

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Speaker 1: both in the US and overseas, really a global perspective

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Speaker 1: on what took place in private equity in the past

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Speaker 1: and what the future looks like. I thought the conversation

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Speaker 1: was quite fascinating, and I think you will as well

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Speaker 1: with no further ado, my discussion of private equity with Blackstones.

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Speaker 1: Joe Barratta. Joe Barratta, Welcome to Bloomberg. Thank you, happy

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Speaker 1: to be here, Happy to have you. Let's start out

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Speaker 1: with just a little background on your career. You began

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Speaker 1: more or less in the M and A space at

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Speaker 1: Morgan Stanley, Is that right? Yeah? Right after I graduated college,

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Speaker 1: I went to Georgetown in nineteen ninety three, I got

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Speaker 1: an analyst job at Morgan Stanley in the M and

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Speaker 1: A group and that's a kind of two year training program.

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Speaker 1: And I did that and I was painful. You can imagine.

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Speaker 1: It sounds like a good background for someone who eventually

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Speaker 1: ends up buying companies. Yeah, I'm I knew nothing about finance.

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Speaker 1: I grew up in Sacramento, California. My dad was a

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Speaker 1: bodybuilder and owned three gems in Sacramento. Really yeah, and

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Speaker 1: so I didn't know, you know, what finance was all about.

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Speaker 1: I had never been to New York City until I

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Speaker 1: was I think twenty years old, and I had some

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Speaker 1: roommates who grew up in New York City who had

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Speaker 1: gone to Dalton High School here, so completely different world. Yeah.

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Speaker 1: When I came to the city, I was like, Wow,

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Speaker 1: this place is amazing. And you know, I needed to

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Speaker 1: earn some money and I was adept in finance. I'd

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Speaker 1: studied finance, it was my major at Georgetown, and I

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Speaker 1: was hoping to get a job somewhere, and I got

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Speaker 1: a job at Morgan Stanley, which way exceeded my dreams

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Speaker 1: at that point. Huh. So, eventually you leave Morgan Stanley,

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Speaker 1: you end up at Tentacom Incorporated and McCallen Dulu and Company.

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Speaker 1: I'm assuming these are both related, m M and A

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Speaker 1: type firms or probate. Yeah, the first job from Morgan

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Speaker 1: Stanley was McCallen delou and So in the early nineties,

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Speaker 1: analysts at these big investment banks Morgan Stanley, Goldman Sachs

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Speaker 1: had sort of two or three options. You could stay

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Speaker 1: there and become an investment banker and do that for

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Speaker 1: a career. You could go into the emerging fields of

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Speaker 1: investing in private equity or in hedge funds, or you

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Speaker 1: go to business school or maybe go to business school later.

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Speaker 1: I really wanted to learn how to invest money, not

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Speaker 1: just be an advisor. And I thought private equity was

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Speaker 1: cool because you weren't at the whim of the market.

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Speaker 1: You know, in the market's like if you start at

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Speaker 1: the wrong time, if you're wrong for a few quarters

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Speaker 1: like boom, like the career is abbreviated. And I thought

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Speaker 1: private equity was interesting because you could live with those

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Speaker 1: investments for a longer period of time. You had a

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Speaker 1: longer period of time to figure out if you were

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Speaker 1: right or not. And I think fundamentals mattered more in

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Speaker 1: private equity than they did in public market investing. So

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Speaker 1: I wanted to get a job at a private equity firm.

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Speaker 1: I wanted to do fundamentals matter more? Or is it

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Speaker 1: really just a question of how far away from fundamentals

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Speaker 1: can public equities get, either to the upside or the

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Speaker 1: downside where it creates some form of opportunity, which kind

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Speaker 1: of raises the question how closely do private market fundamentals

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Speaker 1: track what's going on in the public markets. Yeah, in

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Speaker 1: the long run they do. In the short run, there

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Speaker 1: can be distortions in public market valuations as we saw

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Speaker 1: in two thousand and one, and we saw prior to

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Speaker 1: that in two thousand and seven, and prior to that

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Speaker 1: in two thousand and ninety nine. So yes, you're right, Like,

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Speaker 1: in the long run, fundamentals drive determine share prices in

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Speaker 1: private equity. You know, we're owning things for five, six, ten, years,

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Speaker 1: and we're not subject to like the vicissitudes of the

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Speaker 1: market in the short run. We never have to sell,

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Speaker 1: only only when we want to because we control We

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Speaker 1: control the companies, and to me, that was a more

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Speaker 1: comfortable form of investing in it and where I wanted

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Speaker 1: to bet my career. So you end up at Blackstone

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Speaker 1: in nineteen ninety eight at a time when public equity

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Speaker 1: prices became a little unmoored and were on the way

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Speaker 1: up to a real bubble. What was it like on

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Speaker 1: the private side at the end of the nineties. Yeah,

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Speaker 1: I started at Blackstone in July of ninety eight, and

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Speaker 1: I guess what was going on that year? You had um,

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Speaker 1: you had like a Southeast Asian currency crisis. He had

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Speaker 1: stuff going on in Latin America, had the Russia crisis.

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Speaker 1: He had Lehman almost go bust. I think around that

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Speaker 1: time for maybe at the first or second time, and

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Speaker 1: so yeah, there was a lot of volatility. Private equity

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Speaker 1: was still, i'd say, in the in the first phase

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Speaker 1: of its ofs of its existence, and Blackstone was one

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Speaker 1: of them. That's why I joined Blackstone. It was one

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Speaker 1: of the leading firms in that moment. It had a

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Speaker 1: lot of momentum. I think they were. They were operating

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Speaker 1: at the really top of the industry, really smart people,

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Speaker 1: good track record, and I wanted to attach myself at

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Speaker 1: that point in my career, I was twenty I think

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Speaker 1: twenty seven years old. I wanted to attach myself to

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Speaker 1: affirm that I thought really had a lot of growth

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Speaker 1: potential where I could learn from the best people in

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Speaker 1: the industry. That certainly was what I found there. And

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Speaker 1: today private equity has become immense compared to twenty twenty

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Speaker 1: five years ago. We'll talk a little bit about your

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Speaker 1: time in London later, but I love the announcement when

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Speaker 1: you were promoted to a global head of pe from Blackstone.

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Speaker 1: They said, the seventy three investments and pending deals you're

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Speaker 1: involved in combined for one hundred and seventeen billion dollars

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Speaker 1: in revenue, the equivalent of the thirteenth largest company by

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Speaker 1: revenue on the Fortune five hundred lists, Meaning your team,

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Speaker 1: your group would be a Fortune top twenty company. Yeah,

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Speaker 1: tell us what that growth has been like over the

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Speaker 1: past five years. It seems a house of fire. Yeah.

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Speaker 1: When I started at Blackstone, we were I think we

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Speaker 1: just started investing our third private equity fund, it was

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Speaker 1: about three billion dollars in total size. We had our

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Speaker 1: second real estate fund, which was I think about a

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Speaker 1: billion two or three size. I think we just raised

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Speaker 1: a small credit fund which is nine hundred million, and

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Speaker 1: then we had an m and a advisory business, and

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Speaker 1: the whole firm was maybe maybe two hundred total employees,

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Speaker 1: not just investment people, total staff. And today we're knocking

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Speaker 1: on the door of five thousand. I think we're forty

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Speaker 1: five hundred something like that. And the size of our

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Speaker 1: private equity business is you know, we're now on our

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Speaker 1: ninth fund. We have associated funds in Asia, and an

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Speaker 1: energy transition and a long dated vehicle that allows us

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Speaker 1: to hold things for fifteen plus years. And I think

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Speaker 1: if you add it all up, we have about forty

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Speaker 1: billion dollars of funds that we're currently investing in their period.

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Speaker 1: And the total aum of our private equity business a

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Speaker 1: UM assets under management is roughly eighty ninety billion. So

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Speaker 1: I mean, we're materially bigger than we were twenty five

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Speaker 1: years ago. Even when you read that announcement from two

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Speaker 1: that was twenty twelve, we're probably three times this size

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Speaker 1: is we were in twenty twelve, both in terms of

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Speaker 1: the aggregate revenue of our companies, size of our portfolio.

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Speaker 1: We're probably now something like one hundred and fifty total investments,

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Speaker 1: many hundreds of billions of revenue, hundreds of thousands of

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Speaker 1: employees if you add up all of the companies in

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Speaker 1: which we're invested. So it's been really significant growth. And

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Speaker 1: you know why is that? I think because the private

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Speaker 1: equity investing model has been really good for our clients,

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Speaker 1: which our state pension plan, sovereign wealth funds, you know,

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Speaker 1: ensuring the retirement safety of many tens of millions of people.

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Speaker 1: So you're you're anticipating one of the questions I'm going

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Speaker 1: to ask you, which might as well bring it up

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Speaker 1: now over that twenty five year period or even the

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Speaker 1: past decade where you've tripled in size, it's more than

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Speaker 1: just quantitative. It seems like private equity is qualitatively different

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Speaker 1: than it was back in the early days. Is this

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Speaker 1: simply becoming institutionalized or has the asset class been validated

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Speaker 1: and now people are treating it differently than they did

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Speaker 1: in the nineties where it was kind of a small

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Speaker 1: niche backwater. I'm exaggerating that at all, whereas no, No,

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Speaker 1: it was more of a cottage industry. There were a

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Speaker 1: few firms, a couple of big leaders like KKR. Blackstone

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Speaker 1: was what was right on their heels back then. But

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Speaker 1: it's nothing like it is today. It is that it

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Speaker 1: is an institutionalized asset class. There's definitely been proof of

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Speaker 1: concept for large scale institutional investors and even retail investors

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Speaker 1: that we can produce sustainable, predictable above public market returns.

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Speaker 1: And we've become better at what we do in buying

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Speaker 1: control of companies, engaging with them, making them better, helping

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Speaker 1: them grow, and so and so. Yeah, and we've had

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Speaker 1: limited partners in our funds who've been with us since

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Speaker 1: the early nineties now and keep reupping because we deliver

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Speaker 1: a good return for their beneficiaries. So let's talk about

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Speaker 1: some of those different types of funds. You mentioned private credit,

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Speaker 1: you mentioned real estate, private equity, M and A what

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Speaker 1: is energy transition? That sounds quite fascinating. Yeah. Energy has

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Speaker 1: been a major investment theme across many of our businesses

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Speaker 1: and credit and in corporate private equity, and we have

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Speaker 1: for the last six or seven years. The way we've

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Speaker 1: been expressing investing in energy is an energy transition, So

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Speaker 1: in companies that are helping accelerate the transition from burning

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Speaker 1: hydrocarbons to produce electricity and energy to renewable sources, and

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Speaker 1: so in private renewable meaning wind solar, nuclear or whatever,

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Speaker 1: wind solar, electrifying the economy, getting off of oil and gas,

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Speaker 1: and it's all kinds of companies engage. It's not just

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Speaker 1: power generation from those sources, but it's companies that are

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Speaker 1: involved in in consulting and utility services, in companies that

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Speaker 1: make components that are helping electrify the economy, and electric

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Speaker 1: vehicles or in HVAC systems. So it's a whole broad

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Speaker 1: spectrum of investing in the energy complex focused on the

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Speaker 1: transition from hydrocarbons to renewable. So we take for granted

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Speaker 1: totally that you're out in a car, you could pull

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Speaker 1: over anywhere and tank up with gas. It feels like

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Speaker 1: we're very early stages of transitioning to being able to

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Speaker 1: pull up somewhere and spend ten minutes charging the car

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Speaker 1: to get you another hundred miles or so. Is that

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Speaker 1: the sort of infrastructure we're talking about, in addition to

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Speaker 1: all the obvious ones we've yeah, that's part of it.

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Speaker 1: I mean we're not specifically investing in charging stations, we

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Speaker 1: actually have assets where those are going in, or we're

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Speaker 1: investing in components that are part of manufacturing those those facilities.

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Speaker 1: But yes, that's the kind of thing we're talking about

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Speaker 1: that is part of the energy transition. And you had

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Speaker 1: mentioned private credit before. That seems to have been a

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Speaker 1: giant growth area, especially when rates were at zero, when

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Speaker 1: people weren't seeing a whole lot of returns from fixed income. Well, yeah,

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Speaker 1: the private credit market I think is really attractive and

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Speaker 1: it's actually been around a long time. I mean there

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Speaker 1: have been leverage loans and high yield bonds since the

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Speaker 1: nineteen eighties, and as an asset class, they've performed extremely

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Speaker 1: well with low incidents of loss, good returns. You get

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Speaker 1: paid for the incremental risk that you're taking in a

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Speaker 1: more leveraged capital structure. So it's been a great asset class.

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Speaker 1: It's attracted a lot of capital, and the way buyouts

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Speaker 1: are being financed is evolving away from syndicated, big syndicated

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Speaker 1: capital structures to buy banks to now the people who

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Speaker 1: are actually going to hold the risk, firms like Ours

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Speaker 1: and Apollo and areas and others who are actually lending

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Speaker 1: money directly to the people who are borrowing instead of

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Speaker 1: going through the banking intermediaries. So how much of this

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Speaker 1: is a function of trend we sort of began in

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Speaker 1: the nineteen nineties. As companies got larger and larger, it

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Speaker 1: seemed like banks went upscale with them and left sort

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Speaker 1: of a gaping void in the middle where, you know,

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Speaker 1: mid market companies didn't have a merchant bank that that

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Speaker 1: could facilitate UM loans, credit, anything along those lines. I

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Speaker 1: think private credit has filled the hole for these smaller businesses.

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Speaker 1: But but really, um, not on the full banking suite.

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Speaker 1: There's plenty of great smaller banks, uh whose whose business

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Speaker 1: strategy it is to serve smaller and medium sized businesses.

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Speaker 1: But in financing acquisitions and capital needs of these middle

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Speaker 1: market companies, a private credit market has played an important

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Speaker 1: role in that. Yeah, really quite interesting. Let's talk a

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Speaker 1: little bit about your career at Blackstone. You've been there

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Speaker 1: for twenty five years. That's a pretty good run. What

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Speaker 1: attracted you to them in nineteen ninety eight when they

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Speaker 1: were still kind of a modest, small firm. Yeah, I

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Speaker 1: mean I was in my mid twenties and you know,

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Speaker 1: looking to build a career in private equity. I liked it.

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Speaker 1: I thought I could, I could build a successful career.

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Speaker 1: It was I recognize that it was still pretty early

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Speaker 1: in the development and there should be a lot of

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Speaker 1: growth in these firms. And I wanted to work at

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Speaker 1: a place that was operating at the highest level with

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Speaker 1: the smartest people, where I could learn the most and

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Speaker 1: see if I could hang, you know, so to speak

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Speaker 1: with keep up with the big dogs. Yeah, and I

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Speaker 1: think I had very modest expectations, like, jeezus, I can

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Speaker 1: last two or three years. At least I will have

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Speaker 1: done it. I will learn something and I'll have something

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Speaker 1: else to do on the other side of it. So

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Speaker 1: you lasted two or three years and then you get

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Speaker 1: tapped to go to London in two thousand and one.

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Speaker 1: That had to be a giant challenge, especially given what

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Speaker 1: was taking place that dot COM's had just imploded. It

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Speaker 1: wasn't very long after the handover of Hong Kong China,

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Speaker 1: like a lot of things were changing in both the

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Speaker 1: UK and Europe. What was that like going over to

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Speaker 1: the EU in England during that period, Yeah, I mean

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Speaker 1: it was it certainly not expected. I'd never lived abroad.

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Speaker 1: I think i'd been to London. I'm not even sure

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Speaker 1: i'd been to London. I'd been to like Paris and

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Speaker 1: Venice or something. And the guy who was going over

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Speaker 1: truly lead at David Blitzer, who was was was a

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Speaker 1: good friend in colleague, and he sort of said, geez,

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Speaker 1: why don't you come and do this with me? He

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Speaker 1: was a senior, the senior guy at the time, and

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Speaker 1: I was like, geez, okay, well you're like late twenties

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Speaker 1: at this. Yeah, I'm I'm twenty nine when I'm asked,

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Speaker 1: I'm thirty when I move, you know. And yeah, because

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Speaker 1: it was two thousand and one, and you know, it

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Speaker 1: was just after September eleventh. I'd agreed to go before

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Speaker 1: Strumber eleventh happened. I was supposed to go over, you know,

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Speaker 1: in November. I ended up doing that. I remember a

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Speaker 1: completely empty plane flying over to London with my with

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Speaker 1: my then girlfriend. Moving to London. I had no language skills.

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Speaker 1: The firm had had need language skills in England, not

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Speaker 1: in England. But but you're still dealing with a lot

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Speaker 1: of Europe And yeah, I'm not being sarcastic, You're still

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Speaker 1: dealing with people in Brussels and people in Paris and

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Speaker 1: people in Milan. It has to be useful skills. No,

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Speaker 1: of course, I mean France, Germany, Italy, Spain, you know,

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Speaker 1: the whole Nordic region, Sweden, to say nothing of two

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Speaker 1: people separated by a common language, right exactly. Now, In

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Speaker 1: that moment, Americans were sort of viewed as positively and

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Speaker 1: as neutral, so you know, you could go to France.

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Speaker 1: Maybe they didn't love, you know, any Germans as much,

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Speaker 1: but they sort of Americans were tolerated, you know, and

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Speaker 1: we were kind of oddities at the time, particularly in

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Speaker 1: private equity, which was still in its infancy in November

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Speaker 1: of two thousand and one. When I moved over, the

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Speaker 1: industry wasn't called private equity. It was called venture capital,

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Speaker 1: and it was in real technology. Venture capital was the

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Speaker 1: nomenclature for everything that was basically a private investment. But

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Speaker 1: you're not dealing with startups, you're dealing with correct seven

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Speaker 1: more mature companies. Yes, but you know, when I moved,

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Speaker 1: you didn't have the single currency in circulation until January

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Speaker 1: vote two, so there was still French francs and you know,

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Speaker 1: Lira and German deutsch Marks, and so that didn't happen

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Speaker 1: until two thousand and two, and it took the year

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Speaker 1: for all of those local currencies to literally paper and

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Speaker 1: coin currencies to come out of circulation and have so

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Speaker 1: Europe really a period of transition, and and you're stepping

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Speaker 1: right into the thick of it, right into the thick

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Speaker 1: of it, trying to figure out what are too young?

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Speaker 1: My colleague David Blitzer, I think he was maybe thirty one.

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Speaker 1: I was twenty nine, and there we were two young Americans,

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Speaker 1: no language skills, like, what are we supposed to do now?

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Speaker 1: The firm had had assets in the UK. We owned

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Speaker 1: the Savoy group of hotels, which is the Connaught and

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Speaker 1: Carriages and Savoy Nice saw his property nice yeah, which

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Speaker 1: is a good asset, a nice calling card. We had

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Speaker 1: actually two investments in Germany in telecom infrastructure that in

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Speaker 1: that moment we're doing that great um and so we did,

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Speaker 1: but we were kind of trying to do deals by

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Speaker 1: airplane from New York and that's not functional. So Steve said,

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Speaker 1: we got to have a real presence. We have some assets.

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Speaker 1: We had some real estate guys there, my friend and

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Speaker 1: former Morgan san Lano's colleague Chad Pike ran our our

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Speaker 1: European real estate stuff, and David and I moved over

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Speaker 1: to do the private act. And when you say Steve,

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Speaker 1: for those people who may tell us, tell us about

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Speaker 1: Blackstone's boss, Steve, Steve Schwarzman our our co founder and

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Speaker 1: CEO and chairman, and you know, amazing mentor and great

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Speaker 1: by the way, we were supposed to have on the show,

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Speaker 1: and a little thing called COVID came along and interrupted

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Speaker 1: us or like literally that end of March, beginning of

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Speaker 1: April when his book came out. Yeah, and well you

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Speaker 1: have to get him back. He's way more interesting than me. Well,

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Speaker 1: so far you're pretty interesting. So you're you're raising the bar.

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Speaker 1: So so you moved to the UK, Yeah, you're you're

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Speaker 1: an hour or two hop from all the key places

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Speaker 1: in Europe. How did the build out go for a

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Speaker 1: couple of young Americans saying, Hey, we want to play

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Speaker 1: with this private equity thing in the EU. Yea, So

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Speaker 1: our our strategy was and it sort of David had

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Speaker 1: conceptualized like we're going to be the neutral Americans who

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Speaker 1: can work with the locally European firms to help him

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Speaker 1: get deals done. So we kind of went on, did

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Speaker 1: some missionary work, meeting the local private equity firms in

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Speaker 1: France and of course in the UK and Germany, up

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Speaker 1: in the Nordic region in Italy, and we just met

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Speaker 1: all the other players. It was this small industry. There

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Speaker 1: weren't that many people. There weren't that many firms, and

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Speaker 1: we were like, look, we'd we'd be great partners as

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Speaker 1: you're looking at ass The first deal we looked at

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Speaker 1: was in France. We were looking at taking remember Vivendi

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Speaker 1: at the time, the media conglomerate. They had bought a

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Speaker 1: bunch of educational publishing assets, including US textbook company Hote

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Speaker 1: and Mifflin. Back when there were actually textbooks in schools

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Speaker 1: and there's still textbooks in school You could just access

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Speaker 1: everything online as well if you want fewer of them. Yeah,

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Speaker 1: but and so we partnered with a few local firms

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Speaker 1: and actually one of our US competitors to look at

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Speaker 1: this big asset because it was quite big, and in

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Speaker 1: the end we ended up just buying the US textbook business,

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Speaker 1: Hote and Mifflin. That was our first deal in Europe,

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Speaker 1: which was actually a US deal, but we probably wouldn't

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Speaker 1: have done it had we not been there looking at

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Speaker 1: the divestiture from Vivendi, and so you know, that was

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Speaker 1: kind of the the strategy day one, and then it evolved.

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Speaker 1: You know, I sort of looked at, well, the industry

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Speaker 1: in Europe is a good decade or two behind the US.

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Speaker 1: So I said, well, what kind of deals were worked

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Speaker 1: in the US in the early nineties in my experience,

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Speaker 1: And you know what I sort of decided as well,

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Speaker 1: fragmented industries where you could drive consolidation that had happened

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Speaker 1: already in the US, things like um, you know, in

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Speaker 1: the UK pubs there was a big consolidation and lots

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Speaker 1: of divestitures of pubs that were owned by brewers in

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Speaker 1: the time, and there were rules came down that brewers

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Speaker 1: can't own distributors similar to US any trust rules exactly

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Speaker 1: diversify and or I'm sorry, they made them divest those

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Speaker 1: vertically integrated holdings exactly. So the second deal we did

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Speaker 1: was we worked with another firm, a local UK firm

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Speaker 1: called CVC and also TPG to buy Scottish and Newcastle's

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Speaker 1: pub divestiture. Scottish and Newcastle was a big brewer up

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Speaker 1: up in Scotland at the time, and so we bought

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Speaker 1: the pub business, we combined it with another one, we

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Speaker 1: bought some more and that was a pretty successful investment.

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Speaker 1: Then we did other similar investments, particularly with real estate intent.

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Speaker 1: The pubs all own their real estate, so we were

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Speaker 1: working with our real estate guys in healthcare facilities and

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Speaker 1: visitor attractions and theme parks. So we did a lot

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Speaker 1: of these sort of consolidation place a broad spectrum of

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Speaker 1: different holdings. One of the things that I have to

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Speaker 1: follow up with is how important was it partnering with

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Speaker 1: local other investors and other vcs or ps. I don't

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Speaker 1: know what they called themselves back then, and vcs at

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Speaker 1: the time, but they were private equity. How important was

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Speaker 1: it finding a local partner to you know, hook up

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Speaker 1: with and be able to participate in deals with. I

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Speaker 1: think early on it was important until we established ourselves,

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Speaker 1: and then we did less of that. We started doing

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Speaker 1: deals on our own. Probably somewhere around two thousand and

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Speaker 1: four or five, we started doing things by ourselves. We

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Speaker 1: were much more networked, you know, people knew who we were.

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Speaker 1: Blackstone as a brand name was becoming more known just everywhere,

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Speaker 1: but in particular in Europe. Because we weren't particularly well

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Speaker 1: known at that time, and so yeah, it was helped

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Speaker 1: kind of helped us get off the ground, so to speak.

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Speaker 1: And so you guys are expanding in the two thousands

404
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Speaker 1: in Europe. When did Blackstone start to look at Asia?

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Speaker 1: When did that? Beckon? I think it was two thousand

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Speaker 1: and five when we started to look at in China

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Speaker 1: and in India in particular, and also Japan. And it

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Speaker 1: really most of our expansion started with our real estate business,

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Speaker 1: because that's a it's a little bit easier to expand

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Speaker 1: globally in real estate because it's more asset based rather

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Speaker 1: than like you know, company based, and so we sort

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Speaker 1: of followed our real estate colleagues where they win, established

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Speaker 1: a tohold, became successful. So really in private equity, our

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Speaker 1: first adventure outside of Western Europe was in India and China,

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Speaker 1: and that was somewhere around two thousand and five. Really

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Speaker 1: quite interesting. I have to point out out that your

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Speaker 1: life history is a series of ever worsening weather. You

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00:24:06,200 --> 00:24:09,359
Speaker 1: start out in California, you go to DC, you go

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Speaker 1: to New York, you end up in London. So so

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Speaker 1: warm sunshine, no interest, I don't know, no, I mean,

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Speaker 1: I I go back to California all the time. I

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Speaker 1: got a lot of good friends from high school, and

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Speaker 1: you know, I grew up into at the foothills of

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Speaker 1: the Sierra Nevada Mountains and I love to go there.

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Speaker 1: But I can't explain it. You just like life gets

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Speaker 1: in the way. And I had it, you know, a

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Speaker 1: cool career going, and I just and I stuck with it.

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Speaker 1: And you know, I've lived in great places. I've been

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Speaker 1: super lucky to have these fun adventures, whether or notwithstanding.

430
00:24:38,400 --> 00:24:40,720
Speaker 1: So let's talk a little bit about some of those places.

431
00:24:40,800 --> 00:24:47,800
Speaker 1: Your base of operations when you're in the UK is London,

432
00:24:48,400 --> 00:24:52,320
Speaker 1: but you're back and forth to multiple countries. What's it

433
00:24:52,480 --> 00:24:57,840
Speaker 1: like trying to manage a rapidly growing private business with

434
00:24:59,040 --> 00:25:02,000
Speaker 1: Eventually the current he's became more or less uniform, but

435
00:25:02,480 --> 00:25:07,880
Speaker 1: different languages, different customs, different culture, different ways of doing business.

436
00:25:07,920 --> 00:25:11,359
Speaker 1: All the places you've mentioned, like Germany is very different

437
00:25:11,359 --> 00:25:14,439
Speaker 1: than the Switzerland, Switzerland, which is very different than the

438
00:25:14,520 --> 00:25:17,720
Speaker 1: Nordic countries. How do how do you keep all that straight? No,

439
00:25:17,840 --> 00:25:20,800
Speaker 1: it's it's hard. And what what we began to do

440
00:25:20,880 --> 00:25:24,439
Speaker 1: is hire local people. So one of our first hires

441
00:25:24,520 --> 00:25:27,840
Speaker 1: now that the man who runs our business in Europe.

442
00:25:28,359 --> 00:25:31,159
Speaker 1: We hired this guy, Leon Alison, who's French, and we

443
00:25:31,240 --> 00:25:34,680
Speaker 1: hired Germans. We for for a brief while we had

444
00:25:35,000 --> 00:25:38,960
Speaker 1: an office in Hamburg. We hired an Italian silt the firm,

445
00:25:38,960 --> 00:25:42,800
Speaker 1: Andrea Vlarry. Uh. And so we began to hire local

446
00:25:42,880 --> 00:25:45,160
Speaker 1: people who were young in their careers. These are people

447
00:25:45,200 --> 00:25:48,200
Speaker 1: who were, you know, in their late twenties, early thirties,

448
00:25:48,680 --> 00:25:51,800
Speaker 1: oldest maybe mid thirties. Uh. And they and they kind

449
00:25:51,800 --> 00:25:54,040
Speaker 1: of grew up with the firm and they were able

450
00:25:54,119 --> 00:25:57,600
Speaker 1: to be the translator, so to speak, both both physically

451
00:25:57,600 --> 00:26:01,040
Speaker 1: and culturally. Uh. In these some of these other countries,

452
00:26:01,400 --> 00:26:06,760
Speaker 1: any memorable snaffoos either culturally or language wise when you're up,

453
00:26:06,880 --> 00:26:08,960
Speaker 1: you know, when you're bouncing from you know, you go

454
00:26:09,000 --> 00:26:13,159
Speaker 1: to Frankfort to Denmark, two totally different worlds. Now, the

455
00:26:13,200 --> 00:26:16,640
Speaker 1: funniest story I can remember is in these early days

456
00:26:16,640 --> 00:26:18,960
Speaker 1: when we were out trying to introduce ourselves to the

457
00:26:19,000 --> 00:26:24,720
Speaker 1: local private equity firms. UM I went to Paris and

458
00:26:25,000 --> 00:26:27,320
Speaker 1: went to Lazard Frere, which was you know that is

459
00:26:27,359 --> 00:26:31,440
Speaker 1: the bastion of like French establishment business. And they had

460
00:26:31,480 --> 00:26:34,280
Speaker 1: like bottles of Bordeaux on the conference room table. I

461
00:26:34,320 --> 00:26:36,600
Speaker 1: mean that's you know, this is this is probably two

462
00:26:36,640 --> 00:26:40,040
Speaker 1: thousand and two. And they introduced me to and I

463
00:26:40,119 --> 00:26:42,920
Speaker 1: won't I won't name names. He's a wonderful guy, but

464
00:26:43,240 --> 00:26:45,919
Speaker 1: in the moment it was less wonderful. They introduced me

465
00:26:45,960 --> 00:26:48,479
Speaker 1: to the head of a of a significant private equity

466
00:26:48,520 --> 00:26:51,000
Speaker 1: firm in Europe, and I was doing my pitch. So

467
00:26:51,080 --> 00:26:53,680
Speaker 1: here I am thirty years old, he's probably forty two

468
00:26:53,760 --> 00:26:56,200
Speaker 1: or three. I'm doing my pitch on Black Center. We're

469
00:26:56,200 --> 00:26:58,320
Speaker 1: good friends, and we don't have an ego, and you know,

470
00:26:58,320 --> 00:27:02,440
Speaker 1: we could help facilitate transactions whatever US perspective and global perspective.

471
00:27:02,920 --> 00:27:05,280
Speaker 1: And the guy looks at me like I had, you know,

472
00:27:05,440 --> 00:27:07,880
Speaker 1: two horns coming out of my like who's this young American?

473
00:27:08,240 --> 00:27:10,439
Speaker 1: Why am I? Why am I talking to him? I

474
00:27:10,480 --> 00:27:13,880
Speaker 1: mean his family dates back to like Louis Katurs. I mean,

475
00:27:13,920 --> 00:27:16,720
Speaker 1: this is this is the ultimate French establishment. And here's

476
00:27:16,760 --> 00:27:21,400
Speaker 1: this like schmuck from Sacramento, like, you know, thirty years old,

477
00:27:21,800 --> 00:27:24,760
Speaker 1: like pitching him on why he should why we'd be

478
00:27:24,800 --> 00:27:27,160
Speaker 1: a good partner for him, and he was in that

479
00:27:27,200 --> 00:27:31,040
Speaker 1: moment completely dismissive. About ten or fifteen years later, we

480
00:27:31,080 --> 00:27:34,560
Speaker 1: actually did work together and he acknowledged that moment and said, God,

481
00:27:34,600 --> 00:27:37,560
Speaker 1: I just thought you guys were just such jokes, but

482
00:27:37,600 --> 00:27:39,800
Speaker 1: it had ended up being you know, that was like

483
00:27:39,920 --> 00:27:42,880
Speaker 1: an example of like I just think we were discounted,

484
00:27:43,440 --> 00:27:45,600
Speaker 1: but it was. It was really early in the development

485
00:27:45,600 --> 00:27:48,560
Speaker 1: of private equity, so even like undergone us could be

486
00:27:49,040 --> 00:27:51,440
Speaker 1: could be successful. And I was waiting for you to say.

487
00:27:51,480 --> 00:27:53,440
Speaker 1: And it was ten am and they broke open the

488
00:27:53,440 --> 00:27:56,679
Speaker 1: bottles aboard. They definitely did that, and everybody started drinking

489
00:27:56,680 --> 00:27:58,399
Speaker 1: and we looked at each other. Can we have a

490
00:27:58,520 --> 00:28:01,320
Speaker 1: drink that morning? That is very Yeah. And you couldn't

491
00:28:01,320 --> 00:28:03,280
Speaker 1: wear brown shoes. You can only wear black shoes. You

492
00:28:03,320 --> 00:28:06,080
Speaker 1: weren't taken seriously is that true? You know, the whole

493
00:28:06,160 --> 00:28:09,560
Speaker 1: dressing custom what you know, we're both sitting here in

494
00:28:09,680 --> 00:28:14,639
Speaker 1: blazers without ties. Yeah, who cares about brown shoes? What

495
00:28:14,760 --> 00:28:16,840
Speaker 1: is that was? It's a real thing. And you're I mean,

496
00:28:16,880 --> 00:28:20,040
Speaker 1: at least it was back then. Yes, brown shoes are

497
00:28:20,080 --> 00:28:23,600
Speaker 1: for like, you know, shooting or something. Oh really, yeah,

498
00:28:23,640 --> 00:28:26,640
Speaker 1: I never would have guessed that really quite quite interesting. Yeah,

499
00:28:26,800 --> 00:28:29,040
Speaker 1: by the way, there are a lot of different names

500
00:28:29,080 --> 00:28:33,359
Speaker 1: for Blackstone. It's I've heard people say Blackstone, Blackstone Group,

501
00:28:33,359 --> 00:28:36,600
Speaker 1: black Stone Partners. I know there are lots of different funds.

502
00:28:36,960 --> 00:28:40,840
Speaker 1: I'm assuming that all these different names will come from

503
00:28:41,040 --> 00:28:45,160
Speaker 1: different work products, different strategies, different funds, or is just

504
00:28:45,200 --> 00:28:47,520
Speaker 1: everybody getting this wrong? Yeah? No, no, that's right. I

505
00:28:47,560 --> 00:28:53,000
Speaker 1: mean the firm's called Blackstone period Um, and within black

506
00:28:53,080 --> 00:28:57,719
Speaker 1: Zone in our private equity funds are called Blackstone Capital Partners. Uh.

507
00:28:57,800 --> 00:29:00,000
Speaker 1: In our real estate it's black Zone real Estate Partners.

508
00:29:00,000 --> 00:29:02,760
Speaker 1: And then there are variants on that theme. But you're

509
00:29:02,760 --> 00:29:05,680
Speaker 1: not wrong. I mean there's different names within the individual businesses,

510
00:29:05,680 --> 00:29:10,400
Speaker 1: but we all work at Blackstone. It's one firm. Makes

511
00:29:10,440 --> 00:29:12,520
Speaker 1: a lot of sense. So let's talk a little bit

512
00:29:12,760 --> 00:29:17,240
Speaker 1: about the state of pe investing today. We're coming off

513
00:29:17,280 --> 00:29:21,000
Speaker 1: a period of low inflation, low rates, and suddenly we

514
00:29:21,080 --> 00:29:24,760
Speaker 1: have higher inflation and rising rates. What sort of a

515
00:29:24,880 --> 00:29:29,880
Speaker 1: challenge does that present for private markets? Yeah? Well, if

516
00:29:29,880 --> 00:29:32,120
Speaker 1: you do this, if you've been doing this long enough,

517
00:29:32,280 --> 00:29:36,920
Speaker 1: which fortunately I have since really nineteen ninety five, you know,

518
00:29:36,960 --> 00:29:40,320
Speaker 1: you see different cycles, and you see what happens when

519
00:29:41,200 --> 00:29:46,080
Speaker 1: capital becomes cheap and money becomes easy, and interest rates

520
00:29:46,400 --> 00:29:50,400
Speaker 1: or lower or not really a factor, valuations go up.

521
00:29:50,440 --> 00:29:52,640
Speaker 1: And you saw it, of course in the late nineties

522
00:29:52,680 --> 00:29:55,480
Speaker 1: and the tech sector. You saw it into financial services

523
00:29:55,480 --> 00:30:01,719
Speaker 1: sector in two thousand six seven eight ual crisis. And

524
00:30:01,800 --> 00:30:07,400
Speaker 1: so as we were watching the fed's reaction to the

525
00:30:07,440 --> 00:30:11,160
Speaker 1: financial crisis, pushing rates down and keeping them down, we

526
00:30:11,240 --> 00:30:14,960
Speaker 1: were like, geez, this probably is not gonna last for ever,

527
00:30:15,160 --> 00:30:17,200
Speaker 1: and that that doesn't seem to be the natural state

528
00:30:17,200 --> 00:30:21,360
Speaker 1: of affairs. A growing economy, zero cost to capital, markets

529
00:30:21,400 --> 00:30:26,479
Speaker 1: compounding at fifteen sixteen secs like that probably isn't going

530
00:30:26,520 --> 00:30:30,360
Speaker 1: to happen forever. And so, you know, my base case

531
00:30:30,480 --> 00:30:33,160
Speaker 1: was that it wouldn't and you'd have I called it

532
00:30:33,200 --> 00:30:36,400
Speaker 1: wonkily like mean reversion and global cost to capital, which

533
00:30:36,440 --> 00:30:40,360
Speaker 1: means rates would go up, market risk premiums would go up,

534
00:30:41,760 --> 00:30:45,360
Speaker 1: you know, pe multiples would calm down, credit spreads would

535
00:30:45,400 --> 00:30:49,040
Speaker 1: probably gap out. Not to say like we executed on

536
00:30:49,080 --> 00:30:51,959
Speaker 1: that vision perfectly, I mean, we will have made some mistakes,

537
00:30:52,000 --> 00:30:56,480
Speaker 1: but we definitely became much more cautious when the bull

538
00:30:56,560 --> 00:31:01,040
Speaker 1: market really ramped up, in particular post COVID, when not

539
00:31:01,120 --> 00:31:03,160
Speaker 1: only did you have the low rates which the FED

540
00:31:03,200 --> 00:31:07,720
Speaker 1: double down on, you had this huge transfer payment from

541
00:31:08,040 --> 00:31:12,520
Speaker 1: the federal government into people's pocketbooks, which which massively accelerated

542
00:31:12,520 --> 00:31:14,840
Speaker 1: the economy and rates sayed low. And then we started

543
00:31:14,880 --> 00:31:18,720
Speaker 1: seeing significant signs in inflation, particularly in our real estate business,

544
00:31:18,720 --> 00:31:21,880
Speaker 1: with rents going up significantly, wages going up, across our

545
00:31:21,920 --> 00:31:26,080
Speaker 1: private equity portfolio, beginning to see pricing power for many

546
00:31:26,080 --> 00:31:27,920
Speaker 1: of our companies that they hadn't had in a long time.

547
00:31:28,160 --> 00:31:30,760
Speaker 1: And we're like, whoa, this is the sign, Like this

548
00:31:30,800 --> 00:31:33,000
Speaker 1: is the canary in the coal mine. There's real inflation.

549
00:31:33,040 --> 00:31:36,920
Speaker 1: The FED was saying, no, it's transitory or whatever adjective

550
00:31:36,960 --> 00:31:41,800
Speaker 1: they used, and we did. We became more cautious, and

551
00:31:41,840 --> 00:31:47,200
Speaker 1: so I'm proud of how we navigated that cycle. And

552
00:31:47,320 --> 00:31:49,200
Speaker 1: I think we're in a more normal world. To me,

553
00:31:49,320 --> 00:31:53,760
Speaker 1: this world is normal, not abnormal, with you know, real

554
00:31:54,040 --> 00:31:57,120
Speaker 1: positive real interest rates. I mean, inflation is higher than

555
00:31:57,640 --> 00:32:00,160
Speaker 1: than normal, but that's going to come down. But I

556
00:32:00,200 --> 00:32:01,800
Speaker 1: don't think we're going to go back to the days

557
00:32:01,840 --> 00:32:05,520
Speaker 1: of twenty nineteen to twenty twenty one. So here's the

558
00:32:05,560 --> 00:32:13,600
Speaker 1: really interesting observation that that you're making Blackstone has boots

559
00:32:13,600 --> 00:32:17,760
Speaker 1: on the ground and all these different sectors. You see

560
00:32:17,800 --> 00:32:20,120
Speaker 1: these things before they start to show up in the

561
00:32:20,120 --> 00:32:23,120
Speaker 1: economic data. You see it in real time across real estate,

562
00:32:23,160 --> 00:32:26,800
Speaker 1: across labor, across all these different inputs. How do you

563
00:32:26,960 --> 00:32:30,280
Speaker 1: use all of this data that's generated by all of

564
00:32:30,320 --> 00:32:36,720
Speaker 1: your portfolio companies to navigate the world at large. Well,

565
00:32:36,840 --> 00:32:39,840
Speaker 1: one thing that that John and Steve have done is

566
00:32:40,280 --> 00:32:42,680
Speaker 1: to make sure the firm is really joined up across

567
00:32:42,720 --> 00:32:46,280
Speaker 1: our investment businesses. So we share themes, and we share

568
00:32:46,320 --> 00:32:51,080
Speaker 1: these economic signals and so. And at the top of

569
00:32:51,120 --> 00:32:54,320
Speaker 1: the firm, Steve, John, a few others of us who

570
00:32:54,360 --> 00:32:57,600
Speaker 1: are on the management committee are really able to push

571
00:32:57,640 --> 00:33:00,440
Speaker 1: down into the organization like what we're seeing to change

572
00:33:00,520 --> 00:33:04,880
Speaker 1: investment behaviors. And so that's what we were able to

573
00:33:04,920 --> 00:33:08,400
Speaker 1: do to a large degree, is to is to become

574
00:33:08,440 --> 00:33:13,520
Speaker 1: more conservative, to to become more cautious on valuations, you know,

575
00:33:13,560 --> 00:33:17,400
Speaker 1: as we started seeing evidence of inflation and thinking that

576
00:33:17,520 --> 00:33:19,880
Speaker 1: rates were probably going to go up at some point. Again,

577
00:33:19,920 --> 00:33:22,840
Speaker 1: we're not perfect. I'm not saying we're clairvoyant and we

578
00:33:22,920 --> 00:33:27,120
Speaker 1: handled everything perfectly, but in general we became much more

579
00:33:27,560 --> 00:33:30,840
Speaker 1: risk averse risk off in that you know, mid twenty

580
00:33:30,880 --> 00:33:34,040
Speaker 1: twenty one period. So it's it's not like the public

581
00:33:34,080 --> 00:33:36,800
Speaker 1: markets where you could say sell here by there because

582
00:33:36,920 --> 00:33:42,920
Speaker 1: you have such an obvious prints in prices, but you're

583
00:33:42,960 --> 00:33:45,640
Speaker 1: looking at valuations and what sort of multiples you want

584
00:33:45,640 --> 00:33:48,080
Speaker 1: to pay. Yes, you're looking at the cost of capital

585
00:33:48,240 --> 00:33:51,520
Speaker 1: and how much margin or leverage you want to assume.

586
00:33:51,840 --> 00:33:57,880
Speaker 1: So when you're adjusting your investment posture, you're basically saying

587
00:33:57,880 --> 00:34:00,560
Speaker 1: we're going to take more risk or less risk based

588
00:34:00,600 --> 00:34:04,240
Speaker 1: on what's going on. So clearly that was a great

589
00:34:04,320 --> 00:34:07,320
Speaker 1: time to pull back in mid twenty twenty and we

590
00:34:07,440 --> 00:34:10,080
Speaker 1: sold what we could right as much as we could,

591
00:34:10,440 --> 00:34:12,399
Speaker 1: you know, to your point, like it's hard to turn

592
00:34:12,480 --> 00:34:14,120
Speaker 1: on a diamond, say it's all the whole portfolio. We

593
00:34:14,160 --> 00:34:16,880
Speaker 1: can't do that, but we can things that are mature,

594
00:34:16,920 --> 00:34:20,200
Speaker 1: things where we've realized value. Sometimes we've taken companies public

595
00:34:20,239 --> 00:34:23,719
Speaker 1: and we can sell stock. We we leaned in to

596
00:34:24,000 --> 00:34:27,280
Speaker 1: exiting what we could in that in that period. So

597
00:34:27,280 --> 00:34:30,160
Speaker 1: so here we are, end of the first quarter twenty

598
00:34:30,239 --> 00:34:34,520
Speaker 1: twenty three. What's the environment look like relative to mid

599
00:34:34,560 --> 00:34:39,280
Speaker 1: twenty twenty one. Obviously rates are higher, but prices seem

600
00:34:39,320 --> 00:34:41,560
Speaker 1: to have come down a bit. How are you looking

601
00:34:41,600 --> 00:34:47,440
Speaker 1: at the investment environment today? I think starting with the fundamentals,

602
00:34:47,520 --> 00:34:50,880
Speaker 1: the you know, the economies quite sound. We're seeing in

603
00:34:50,920 --> 00:34:55,719
Speaker 1: our businesses real stability across most sectors. So let me

604
00:34:55,719 --> 00:34:58,640
Speaker 1: interrupt you right there. I've been hearing recession chatter. It

605
00:34:58,680 --> 00:35:02,839
Speaker 1: seems like for six months at least, sounds like you

606
00:35:02,840 --> 00:35:06,520
Speaker 1: guys aren't aggressively in the wearing a recession or about

607
00:35:06,520 --> 00:35:09,880
Speaker 1: to have a recession. Six months. It's been almost a year.

608
00:35:10,360 --> 00:35:13,040
Speaker 1: People were declaring last summer we're already in a recession.

609
00:35:13,360 --> 00:35:16,040
Speaker 1: I'm assuming you guys, we're not seeing evidence of it

610
00:35:16,080 --> 00:35:18,520
Speaker 1: in the portfolio. I mean there's some degree of like

611
00:35:19,320 --> 00:35:22,839
Speaker 1: heightened caution concern because when you do take rates up

612
00:35:23,120 --> 00:35:26,400
Speaker 1: and really tighten financial conditions, there are consequences in the

613
00:35:26,440 --> 00:35:31,359
Speaker 1: economy at some point, but we're not seeing it. We're

614
00:35:31,400 --> 00:35:35,480
Speaker 1: seeing maybe wage increases beginning to decline, so the rate

615
00:35:35,520 --> 00:35:39,719
Speaker 1: of increases is declining. We're seeing some companies have less

616
00:35:39,719 --> 00:35:42,960
Speaker 1: pricing power maybe than they had a year ago. But

617
00:35:43,000 --> 00:35:48,480
Speaker 1: we're seeing solid demand. We're seeing full employment. We still

618
00:35:48,520 --> 00:35:52,120
Speaker 1: continue in many of our companies to struggle to fill

619
00:35:52,160 --> 00:35:57,600
Speaker 1: open rolls. So overall, the picture we see is of

620
00:35:56,920 --> 00:36:00,960
Speaker 1: a of a reasonable economy with some risks to the future.

621
00:36:01,000 --> 00:36:04,080
Speaker 1: But I don't whatever recession we may have, I don't

622
00:36:04,120 --> 00:36:08,000
Speaker 1: think it is going to be you know, really significant.

623
00:36:08,160 --> 00:36:10,839
Speaker 1: And you guys, your your bread and butter is not

624
00:36:11,320 --> 00:36:13,480
Speaker 1: forecasting the econom I don't want to I don't want

625
00:36:13,520 --> 00:36:16,160
Speaker 1: to suggest that that's what we hear. But it is

626
00:36:16,239 --> 00:36:19,560
Speaker 1: looking at what's more attractive and what's less attractive. So

627
00:36:19,680 --> 00:36:23,640
Speaker 1: let's talk about geographies, and let's talk about sectors, what's appealing. Well,

628
00:36:23,719 --> 00:36:27,560
Speaker 1: we're spending all in our private equity business, We're spending

629
00:36:27,560 --> 00:36:30,360
Speaker 1: all of our time looking at things that touch the

630
00:36:30,400 --> 00:36:33,719
Speaker 1: public markets, because that is where the valuation correction, you know,

631
00:36:33,719 --> 00:36:37,240
Speaker 1: it's really happened, where where you can transact at prices

632
00:36:37,320 --> 00:36:41,640
Speaker 1: lower today than they were two years ago. And so

633
00:36:41,760 --> 00:36:44,560
Speaker 1: corporate carve outs public to privates. You know, the last

634
00:36:44,560 --> 00:36:47,000
Speaker 1: few deals we've done a bit a large corporate carve

635
00:36:47,000 --> 00:36:49,840
Speaker 1: out from a from a large important American corporate, Emerson.

636
00:36:49,880 --> 00:36:53,520
Speaker 1: We bought their climate technologies business called Copeland. We recently

637
00:36:53,560 --> 00:36:55,719
Speaker 1: announced to take private of a of a of a

638
00:36:55,760 --> 00:36:59,680
Speaker 1: technology company called c Event, which is publicly traded. And

639
00:37:00,040 --> 00:37:03,439
Speaker 1: so as in terms of where our teams are spending time,

640
00:37:03,440 --> 00:37:06,000
Speaker 1: it's in and around sort of public markets. That's very

641
00:37:06,040 --> 00:37:10,320
Speaker 1: interesting because we typically think of private equity as looking

642
00:37:10,320 --> 00:37:14,560
Speaker 1: at these mature, non public companies I guess you kind

643
00:37:14,600 --> 00:37:17,799
Speaker 1: of forget hey, when stock prices come down enough at

644
00:37:17,800 --> 00:37:21,440
Speaker 1: a certain point that valuation becomes really attractive if the

645
00:37:21,600 --> 00:37:24,600
Speaker 1: assets themselves are productive enough. Yeah, I think a big

646
00:37:24,680 --> 00:37:28,279
Speaker 1: chuck of what we do over our history has been

647
00:37:28,400 --> 00:37:32,200
Speaker 1: taking companies private and doing corporate carve outs from public companies,

648
00:37:32,200 --> 00:37:37,280
Speaker 1: so non core assets that are large company's, divesting family

649
00:37:37,280 --> 00:37:40,760
Speaker 1: owned businesses. Sometimes we buy things from our competitors, particularly

650
00:37:40,800 --> 00:37:42,320
Speaker 1: if we think we can make them a lot bigger

651
00:37:42,320 --> 00:37:45,680
Speaker 1: through acquisition or other things. But that's not uncommon to

652
00:37:45,719 --> 00:37:50,360
Speaker 1: see private equity firms taking companies private and transacting with

653
00:37:50,440 --> 00:37:58,359
Speaker 1: public companies. In terms of sectors, I think the real

654
00:37:58,440 --> 00:38:02,759
Speaker 1: value dislocations have happened the technology industry. So certain elements

655
00:38:02,800 --> 00:38:07,200
Speaker 1: of technology, particularly in software, we think are much more

656
00:38:07,239 --> 00:38:09,160
Speaker 1: attractive than they were a couple of years ago. Not

657
00:38:09,200 --> 00:38:12,680
Speaker 1: to say they look overwhelmingly cheap, but certainly more attractive

658
00:38:12,680 --> 00:38:17,080
Speaker 1: than they were. I think that also there's a bunch

659
00:38:17,120 --> 00:38:20,360
Speaker 1: of businesses that are manufacturing things that must exist in

660
00:38:20,400 --> 00:38:24,040
Speaker 1: the physical world, you know, to to cool or heat

661
00:38:24,080 --> 00:38:31,560
Speaker 1: the environment, food, the distribution of essential medical products, you know,

662
00:38:31,560 --> 00:38:35,960
Speaker 1: the whole energy transition. These are these are physical assets

663
00:38:35,960 --> 00:38:38,440
Speaker 1: and we want to invest not just in digital virtual assets,

664
00:38:38,480 --> 00:38:41,040
Speaker 1: but also in physical assets. So I think that's and

665
00:38:41,239 --> 00:38:45,640
Speaker 1: the market hasn't loved owning manufacturing, industrial type businesses. Those

666
00:38:45,680 --> 00:38:49,640
Speaker 1: do seem to be valued relatively more attractively. Well the

667
00:38:49,680 --> 00:38:55,400
Speaker 1: past decade, the intangibles have been super attractive. Anything with

668
00:38:55,480 --> 00:38:59,440
Speaker 1: the patents of copyright an algorithm underneath it, because you

669
00:38:59,480 --> 00:39:01,719
Speaker 1: don't have the obviously, and I'm not going to teach

670
00:39:01,760 --> 00:39:05,239
Speaker 1: you about the private equity business, but for listeners, you know,

671
00:39:05,280 --> 00:39:07,239
Speaker 1: you don't have the same capital cost you don't have

672
00:39:07,280 --> 00:39:10,960
Speaker 1: the same labor costs. There's a scalability there that you

673
00:39:11,000 --> 00:39:14,480
Speaker 1: don't get in the real world, which probably is why

674
00:39:14,719 --> 00:39:18,440
Speaker 1: a lot of real world assets eventually become attractively priced.

675
00:39:18,719 --> 00:39:20,839
Speaker 1: Does that a fair fair way? And businesses that just

676
00:39:20,960 --> 00:39:24,600
Speaker 1: have to exist? What about geographies? Where are you looking

677
00:39:24,640 --> 00:39:29,600
Speaker 1: around the world? What's an attractive place that people probably overlook?

678
00:39:29,800 --> 00:39:32,400
Speaker 1: I think people are very negative on the UK and

679
00:39:33,000 --> 00:39:35,720
Speaker 1: post brexit. Is that the driver not only post Brexit,

680
00:39:35,840 --> 00:39:38,359
Speaker 1: but but now you know in the in this kind

681
00:39:38,360 --> 00:39:42,520
Speaker 1: of world of inflation and in dislocation, and you know,

682
00:39:42,640 --> 00:39:46,759
Speaker 1: conflict near the continent, like all of that is conspiring.

683
00:39:46,880 --> 00:39:50,160
Speaker 1: I think to make markets look relatively attractive, in particular

684
00:39:50,200 --> 00:39:52,720
Speaker 1: in the UK, where we own a lot of assets

685
00:39:52,719 --> 00:39:57,280
Speaker 1: and will continue to buy businesses. India is very attractive.

686
00:39:57,920 --> 00:40:02,080
Speaker 1: It is a rapidly growing economy with a highly educated

687
00:40:02,120 --> 00:40:08,840
Speaker 1: workforce that with supply chain chain dynamics now moving toward

688
00:40:09,200 --> 00:40:13,680
Speaker 1: Southeast Asia and India. We've had a big business there

689
00:40:13,719 --> 00:40:15,520
Speaker 1: for a long time. And let see, let me ask you,

690
00:40:15,880 --> 00:40:18,040
Speaker 1: let me ask you about India, because it feels like,

691
00:40:18,160 --> 00:40:21,960
Speaker 1: at least in the public markets, India is always on

692
00:40:22,480 --> 00:40:25,120
Speaker 1: like a year or two away from being the next

693
00:40:25,120 --> 00:40:29,080
Speaker 1: big thing, and it just hasn't seemed to happen. What

694
00:40:29,200 --> 00:40:32,600
Speaker 1: are the challenges of investing in a place like India.

695
00:40:32,719 --> 00:40:35,879
Speaker 1: What we've found is that control is important in India.

696
00:40:36,040 --> 00:40:37,880
Speaker 1: You know, you want to be able to control the exit.

697
00:40:37,960 --> 00:40:40,000
Speaker 1: You want to be able to ensure that you're bringing

698
00:40:40,000 --> 00:40:44,920
Speaker 1: in best in class management that's really perfectly aligned with you,

699
00:40:44,920 --> 00:40:47,480
Speaker 1: you know, economically, that's a big thing. In sin of

700
00:40:47,520 --> 00:40:50,360
Speaker 1: alignment in India has been a harder thing, and I

701
00:40:50,400 --> 00:40:54,799
Speaker 1: think largely you want to avoid highly regulated industries where

702
00:40:54,800 --> 00:40:57,319
Speaker 1: you're relying on the government to do something. There's a

703
00:40:57,360 --> 00:41:02,359
Speaker 1: little more friction in the types of industries, and so

704
00:41:02,520 --> 00:41:06,400
Speaker 1: we've pursued in the last decade of control strategy and

705
00:41:06,600 --> 00:41:10,640
Speaker 1: largely where we are an outsourcing partner providing a critical

706
00:41:10,680 --> 00:41:14,560
Speaker 1: component or service to Western companies. So taking advantage of

707
00:41:14,600 --> 00:41:18,080
Speaker 1: the currency declining a lower cost base in India, but

708
00:41:18,239 --> 00:41:23,759
Speaker 1: revenues denominated in dollars or euros really interesting. The war

709
00:41:23,840 --> 00:41:30,080
Speaker 1: in Ukraine surprisingly hasn't had a negative impact or at

710
00:41:30,120 --> 00:41:33,600
Speaker 1: least not as much as I expected in the public markets.

711
00:41:34,120 --> 00:41:37,560
Speaker 1: How are you looking at a geopolitical event like that

712
00:41:38,080 --> 00:41:43,239
Speaker 1: affecting you know, what's taking place on the continent. Yeah,

713
00:41:43,400 --> 00:41:48,600
Speaker 1: we don't spend too much time thinking about like the

714
00:41:49,840 --> 00:41:52,640
Speaker 1: when that might end in the ramifications of it, we

715
00:41:52,760 --> 00:41:56,520
Speaker 1: do think at some level it does affect the cost structures.

716
00:41:56,600 --> 00:42:03,000
Speaker 1: You know, energy prices are higher, inflation is significant, uh,

717
00:42:03,200 --> 00:42:06,520
Speaker 1: and you know cost structures are are a little less

718
00:42:06,520 --> 00:42:11,480
Speaker 1: efficient there maybe than in the US now. So we're

719
00:42:11,600 --> 00:42:14,319
Speaker 1: very much open for business in Europe in the UK,

720
00:42:16,160 --> 00:42:20,040
Speaker 1: you know this. The conflict has definitely been a drag

721
00:42:20,120 --> 00:42:23,799
Speaker 1: to some degree in the economy and introduces some uncertainty.

722
00:42:24,320 --> 00:42:26,160
Speaker 1: But if we can find a great business at a

723
00:42:26,160 --> 00:42:29,360
Speaker 1: reasonable price in Europe, you know we're going to buy it, huh,

724
00:42:29,400 --> 00:42:34,080
Speaker 1: really interesting. We talked earlier about inflation and rising rates.

725
00:42:34,800 --> 00:42:38,560
Speaker 1: Private credit deals tend to be so for plus. So

726
00:42:38,600 --> 00:42:43,320
Speaker 1: when I look at the world of higher rates, is

727
00:42:43,360 --> 00:42:46,880
Speaker 1: it have a big impact on how you structure deals

728
00:42:47,239 --> 00:42:49,040
Speaker 1: or is it just a factor that's going to move

729
00:42:49,120 --> 00:42:52,239
Speaker 1: up and down and everybody just changes their spreadsheets and

730
00:42:52,280 --> 00:42:55,040
Speaker 1: the numbers will just move higher. I mean, there's no

731
00:42:55,160 --> 00:42:58,720
Speaker 1: question that financing costs are higher, both debt and equity,

732
00:42:59,400 --> 00:43:03,000
Speaker 1: which is a healthy thing because I think the cost

733
00:43:03,040 --> 00:43:06,760
Speaker 1: of global cost capital was too low, induced by super

734
00:43:06,800 --> 00:43:11,960
Speaker 1: low rates and capital allocation to riskier assets, institutional investor's

735
00:43:12,040 --> 00:43:15,000
Speaker 1: chasing return. You see that on the private market. It's

736
00:43:15,080 --> 00:43:18,960
Speaker 1: obvious in the public markets things get frothy people, you know,

737
00:43:19,239 --> 00:43:22,080
Speaker 1: when there is no alternative, people just pile into equity,

738
00:43:22,120 --> 00:43:25,480
Speaker 1: and for a while it looked like the lower quality

739
00:43:25,920 --> 00:43:28,879
Speaker 1: the stock was, the better it did. Do you have

740
00:43:28,920 --> 00:43:31,640
Speaker 1: the same phenomenon in the private market. I think private

741
00:43:31,680 --> 00:43:34,839
Speaker 1: market valuations are driven to a large degree by what's

742
00:43:34,840 --> 00:43:38,279
Speaker 1: going on in the public markets. So if your alternative

743
00:43:38,320 --> 00:43:40,440
Speaker 1: as a company is to go public at a given price,

744
00:43:40,719 --> 00:43:42,400
Speaker 1: you're probably not going to sell it to a private

745
00:43:42,400 --> 00:43:45,400
Speaker 1: equity firm at a much lower price. So yes, private

746
00:43:45,400 --> 00:43:49,560
Speaker 1: equity valuations are influenced very significantly by what's going on

747
00:43:49,560 --> 00:43:52,359
Speaker 1: in the public markets. That's why as an investor I'm

748
00:43:52,400 --> 00:43:55,600
Speaker 1: much happier today because we're able to buy things more cheaply.

749
00:43:55,840 --> 00:43:58,360
Speaker 1: And the fact that financing costs are higher kind of

750
00:43:58,440 --> 00:44:01,160
Speaker 1: isn't either here nor there, because our returns are not

751
00:44:01,239 --> 00:44:05,239
Speaker 1: predicated really on the cost of financing. They're predicated on

752
00:44:05,920 --> 00:44:08,239
Speaker 1: buying a good business, doing something to make it grow

753
00:44:08,480 --> 00:44:12,839
Speaker 1: more quickly, and having an attractive exit when we come

754
00:44:12,920 --> 00:44:14,400
Speaker 1: to sell it, which means it has to be a

755
00:44:14,440 --> 00:44:17,440
Speaker 1: good business, it has to be growing, and the financing,

756
00:44:18,160 --> 00:44:20,960
Speaker 1: the cost of financing in the quantum isn't the biggest

757
00:44:21,040 --> 00:44:25,240
Speaker 1: driver of our returns. Really interesting, So, given the change

758
00:44:25,280 --> 00:44:29,080
Speaker 1: in size of private equity over the past twenty five years,

759
00:44:29,680 --> 00:44:32,000
Speaker 1: is there a sweet spot? I mean, some of your

760
00:44:32,000 --> 00:44:36,840
Speaker 1: holdings like Hilton obviously, Giant, I know the Savoy is

761
00:44:37,400 --> 00:44:41,520
Speaker 1: in the UK and in Europe. You guys seem to

762
00:44:41,640 --> 00:44:45,839
Speaker 1: play across a lot of different sizes. Where is the

763
00:44:45,920 --> 00:44:49,719
Speaker 1: most fertile ground for growth size wise? Well, I think

764
00:44:50,840 --> 00:44:54,360
Speaker 1: if you look at the evolution of the size of

765
00:44:54,360 --> 00:44:57,920
Speaker 1: private equity transactions over the last decade, they're actually they

766
00:44:57,960 --> 00:45:01,040
Speaker 1: haven't grown very much, notwithstanding the fact that the equity

767
00:45:01,040 --> 00:45:03,440
Speaker 1: capital market caps like three or four times bigger than

768
00:45:03,440 --> 00:45:05,600
Speaker 1: it was in two thousand and seven. You know, we

769
00:45:05,680 --> 00:45:09,120
Speaker 1: bought Hilton in June of two thousand and seven, and

770
00:45:09,160 --> 00:45:11,680
Speaker 1: I don't know the size. It was thirty two three

771
00:45:11,760 --> 00:45:14,920
Speaker 1: four five billion dollars, like the last thirty billion dollars

772
00:45:15,000 --> 00:45:17,120
Speaker 1: deal we did. I mean that we bought Medline in

773
00:45:17,360 --> 00:45:21,799
Speaker 1: you know, in two thousand twenty one, in twenty twenty one.

774
00:45:21,920 --> 00:45:25,680
Speaker 1: So I actually think at the large end the private

775
00:45:25,680 --> 00:45:29,279
Speaker 1: equity market, we're undercapitalized. It's very hard for us to

776
00:45:29,320 --> 00:45:31,839
Speaker 1: assemble much more than a five billion dollar equity check.

777
00:45:32,080 --> 00:45:34,920
Speaker 1: And there are thousands of companies in the US that

778
00:45:36,160 --> 00:45:39,840
Speaker 1: are ten to fifteen billion dollars plus enterprise value company.

779
00:45:39,920 --> 00:45:43,240
Speaker 1: So we have to work with our investors, our limited partners,

780
00:45:43,280 --> 00:45:46,560
Speaker 1: other private equity firms to assemble a deal that gets

781
00:45:46,680 --> 00:45:48,799
Speaker 1: much more than ten billion of enterprise value. And there

782
00:45:48,800 --> 00:45:51,600
Speaker 1: are many more ten billion dollar companies today than there

783
00:45:51,680 --> 00:45:54,560
Speaker 1: was fifteen, twelve or fifteen years ago. So I think

784
00:45:54,560 --> 00:45:56,239
Speaker 1: the large end of the market, we think is the

785
00:45:56,239 --> 00:45:58,719
Speaker 1: most attractive. It's where we play it's where we have

786
00:45:58,760 --> 00:46:02,960
Speaker 1: competitive differentiation, and it's where you find better quality businesses.

787
00:46:03,120 --> 00:46:07,320
Speaker 1: At what point does size become the enemy? It sounds

788
00:46:07,360 --> 00:46:10,040
Speaker 1: like you can scale up by partnering with lots of

789
00:46:10,040 --> 00:46:14,839
Speaker 1: other PE firms. Is there a ceiling or at what

790
00:46:14,880 --> 00:46:17,319
Speaker 1: point do you look at something and say, hey, that's

791
00:46:17,400 --> 00:46:19,759
Speaker 1: just too big to try and take a boy? I mean,

792
00:46:19,800 --> 00:46:22,279
Speaker 1: I think the biggest deal that's been done in the

793
00:46:22,360 --> 00:46:26,600
Speaker 1: last you know, ten years is around thirty billion dollars

794
00:46:27,080 --> 00:46:28,880
Speaker 1: and that you know, Yeah, to get that done, we

795
00:46:28,920 --> 00:46:32,560
Speaker 1: had to work with um two of our competitors, which

796
00:46:32,600 --> 00:46:34,960
Speaker 1: is fine, but we'd prefer to buy things on our own,

797
00:46:35,000 --> 00:46:37,400
Speaker 1: just Black Sun, with our with our limited partners. You

798
00:46:37,480 --> 00:46:40,799
Speaker 1: want the control and be able to to set how

799
00:46:40,840 --> 00:46:42,759
Speaker 1: you're going to exit or how the farm's going to

800
00:46:42,840 --> 00:46:46,200
Speaker 1: be run. Well, it's not necessarily a problem to do

801
00:46:46,239 --> 00:46:49,200
Speaker 1: that with some of our friendly competitors, but like, really

802
00:46:49,640 --> 00:46:51,759
Speaker 1: our preference is to do it just on our just

803
00:46:51,840 --> 00:46:56,600
Speaker 1: by ourselves. Um so, uh, you know the answers, We

804
00:46:56,640 --> 00:47:00,399
Speaker 1: can't really get deals much bigger than you know, ten

805
00:47:00,440 --> 00:47:03,840
Speaker 1: to fifteen billion dollars done on our own, and I

806
00:47:03,840 --> 00:47:06,160
Speaker 1: think that's right now a little bit. Plus the financing

807
00:47:06,160 --> 00:47:09,839
Speaker 1: markets are less liquid and there's less quantum available. So

808
00:47:09,880 --> 00:47:11,960
Speaker 1: I think that's kind of the realm we're in. And

809
00:47:12,000 --> 00:47:14,719
Speaker 1: like I said, those companies aren't too big to make

810
00:47:14,760 --> 00:47:17,360
Speaker 1: good returns with. I mean, you have a bunch of

811
00:47:17,360 --> 00:47:20,640
Speaker 1: companies that have trillion dollars plus market caps, That's right,

812
00:47:20,719 --> 00:47:22,759
Speaker 1: So what is ten billion dollars? If Apple decides it

813
00:47:22,800 --> 00:47:25,760
Speaker 1: wants to buy something for you know, ten, twenty, thirty, forty,

814
00:47:26,480 --> 00:47:28,040
Speaker 1: it doesn't blink in. There are a lot of companies

815
00:47:28,080 --> 00:47:31,520
Speaker 1: like that. Huh, really really quite fascinating. So you do

816
00:47:31,600 --> 00:47:37,359
Speaker 1: some really interesting work at Blackstone, including serving on a

817
00:47:37,360 --> 00:47:41,920
Speaker 1: lot of portfolio companies boards first EGIL Investment Management. You

818
00:47:41,960 --> 00:47:46,560
Speaker 1: mentioned Menline earlier, Ancestry dot com is probably things people

819
00:47:46,560 --> 00:47:50,200
Speaker 1: are are familiar with. Tell us about those experiences. What

820
00:47:50,360 --> 00:47:53,040
Speaker 1: is it like being on these boards and what sort

821
00:47:53,040 --> 00:47:56,719
Speaker 1: of input do you give to management? Though? Well, what

822
00:47:56,880 --> 00:48:00,640
Speaker 1: brings me energy and joy in my job is investing

823
00:48:00,680 --> 00:48:04,040
Speaker 1: capital and working with companies. So the way I do

824
00:48:04,360 --> 00:48:07,239
Speaker 1: you know this job in addition to you know, managing

825
00:48:07,680 --> 00:48:10,080
Speaker 1: a bunch of our people and you know, engaging and

826
00:48:10,120 --> 00:48:12,120
Speaker 1: other stuff at the firm, is I want to keep

827
00:48:12,440 --> 00:48:17,040
Speaker 1: a hand in Uh, the investing and and and engaging

828
00:48:17,040 --> 00:48:20,080
Speaker 1: with our companies. So yeah, there's a few companies where

829
00:48:20,080 --> 00:48:22,920
Speaker 1: where I'm closely involved and I sit on the board

830
00:48:22,920 --> 00:48:27,000
Speaker 1: and I help their management teams, um, you know, plot

831
00:48:27,080 --> 00:48:31,719
Speaker 1: strategy and deal with you know, important strategic issues. Our

832
00:48:31,760 --> 00:48:34,240
Speaker 1: model is not to run the companies. We find great

833
00:48:34,280 --> 00:48:39,120
Speaker 1: management teams, we back them with capital and support, and

834
00:48:39,160 --> 00:48:41,239
Speaker 1: we let them run the run the businesses. So we

835
00:48:41,280 --> 00:48:44,480
Speaker 1: operate from a board level and really focused on key

836
00:48:44,520 --> 00:48:50,680
Speaker 1: strategic and risk management variables. Really quite interesting, what what

837
00:48:50,840 --> 00:48:53,759
Speaker 1: sort of new markets are you guys considering? What are

838
00:48:53,760 --> 00:48:56,799
Speaker 1: you looking at that might not have been on the

839
00:48:56,800 --> 00:49:02,120
Speaker 1: table a decade ago. Um, you know, the whole notion

840
00:49:02,160 --> 00:49:04,719
Speaker 1: of energy transition is a market that you know, a

841
00:49:04,760 --> 00:49:08,040
Speaker 1: decade ago, energy investors were investing in upstream oil and

842
00:49:08,080 --> 00:49:14,360
Speaker 1: gas or in midstream companies, and today the clear direction

843
00:49:14,360 --> 00:49:18,120
Speaker 1: to travel is toward weaning ourselves at these big economies

844
00:49:18,760 --> 00:49:21,759
Speaker 1: off of hydrocarbon's for power. So that is that is

845
00:49:21,840 --> 00:49:24,520
Speaker 1: one sector that that we're investing in that a decade

846
00:49:24,520 --> 00:49:28,840
Speaker 1: ago we wouldn't. And also, um, there's new business models,

847
00:49:28,880 --> 00:49:30,879
Speaker 1: new media models. You know, we we spent a lot

848
00:49:30,880 --> 00:49:36,200
Speaker 1: of time looking at traditional media businesses that UM linear TV,

849
00:49:36,840 --> 00:49:40,560
Speaker 1: satellite broadcast, regional sports networks, all those thingsagies that that

850
00:49:40,680 --> 00:49:43,200
Speaker 1: the direction of travels, those aren't really investable. The streaming

851
00:49:43,200 --> 00:49:46,800
Speaker 1: services direct a consumer. Uh, And so instead of investing

852
00:49:46,800 --> 00:49:49,799
Speaker 1: in those, we decided to back Kevin Mayer and Tom

853
00:49:49,840 --> 00:49:52,960
Speaker 1: Staggs to x Disney, guys really well regarded guys in

854
00:49:53,000 --> 00:49:55,920
Speaker 1: the business, guys in the entertainment industry, to build an

855
00:49:55,920 --> 00:49:59,920
Speaker 1: independent content creation business, which we've done both in children's

856
00:50:00,040 --> 00:50:04,719
Speaker 1: content with Moonbug and in live action entertainment with Hello Sunshine,

857
00:50:04,920 --> 00:50:06,880
Speaker 1: which was the business at Reese Withers been started. So

858
00:50:06,960 --> 00:50:09,080
Speaker 1: that's the type of thing that a decade ago we

859
00:50:09,120 --> 00:50:13,400
Speaker 1: wouldn't have invested in. You know, big bigger technology company

860
00:50:13,520 --> 00:50:17,520
Speaker 1: software businesses that have proven they've got really durable, sticky

861
00:50:17,560 --> 00:50:21,239
Speaker 1: revenue models. Maybe they're not run that efficiently you can

862
00:50:21,280 --> 00:50:24,760
Speaker 1: take margins up. That's another in market that we're investing

863
00:50:24,800 --> 00:50:27,359
Speaker 1: in today that maybe a decade ago we wouldn't have been. Huh.

864
00:50:27,400 --> 00:50:31,520
Speaker 1: That's really interesting. How often does a new business model

865
00:50:31,640 --> 00:50:36,360
Speaker 1: come along that's really notably different from what proceeded it?

866
00:50:36,400 --> 00:50:40,320
Speaker 1: Is this just part of the life cycle of business?

867
00:50:40,560 --> 00:50:44,959
Speaker 1: Or do you go through these periodic spasms where everything changes. Well,

868
00:50:45,000 --> 00:50:49,120
Speaker 1: I would say in my twenty five year history of Blackstone,

869
00:50:49,280 --> 00:50:51,719
Speaker 1: there were certain industries that were growth industries that we

870
00:50:51,719 --> 00:50:54,200
Speaker 1: were investing in in the mid nineties and late nineties

871
00:50:54,200 --> 00:50:57,080
Speaker 1: and early two thousands that now are no longer investable.

872
00:50:57,120 --> 00:50:59,840
Speaker 1: So as an investor, you have to be nimble. You

873
00:51:00,160 --> 00:51:03,320
Speaker 1: have to have like an open mind and realize that

874
00:51:03,400 --> 00:51:07,920
Speaker 1: things are changing. Industry structures are changing, business models are changing,

875
00:51:08,000 --> 00:51:11,920
Speaker 1: and now the rate of change is much more quick.

876
00:51:12,920 --> 00:51:17,640
Speaker 1: Um with with with the advent of technology, ubiquitous broadband,

877
00:51:18,360 --> 00:51:21,560
Speaker 1: which really enabled the internet, changed the way we watch media,

878
00:51:21,880 --> 00:51:25,120
Speaker 1: changed the way we shopped, changed the way we we

879
00:51:25,280 --> 00:51:29,640
Speaker 1: we found information. Um uh, it changed the way we

880
00:51:29,680 --> 00:51:33,640
Speaker 1: communicated with each other. Um and and now I think,

881
00:51:33,640 --> 00:51:36,120
Speaker 1: you know, AI could be it probably is one of

882
00:51:36,160 --> 00:51:40,160
Speaker 1: those other major c changes where business models turning on

883
00:51:40,239 --> 00:51:43,680
Speaker 1: human beings doing wrote tasks you know, probably is not

884
00:51:43,800 --> 00:51:46,480
Speaker 1: the future. And and a lot of businesses are going

885
00:51:46,520 --> 00:51:48,200
Speaker 1: to be dislocated. So a big part of what we

886
00:51:48,239 --> 00:51:50,359
Speaker 1: do is trying to figure out where we don't want

887
00:51:50,400 --> 00:51:54,640
Speaker 1: to invest and what's going to be dislocated by ubiquitous broadband.

888
00:51:54,680 --> 00:51:57,360
Speaker 1: Back in two thousand and five, six seven, and now

889
00:51:58,280 --> 00:52:03,560
Speaker 1: AI with the rate of sophistication of that technology, so

890
00:52:03,840 --> 00:52:07,480
Speaker 1: we see a lot of hype business come along. Clearly,

891
00:52:07,480 --> 00:52:10,520
Speaker 1: there was a ton of hype in crypto, and then

892
00:52:10,600 --> 00:52:13,480
Speaker 1: the metaverse you know, kind of came, almost came and

893
00:52:13,520 --> 00:52:17,279
Speaker 1: went already a lot of hype there. My sense is

894
00:52:17,320 --> 00:52:22,880
Speaker 1: that AI and cha chat bots and the recent you know,

895
00:52:23,000 --> 00:52:26,480
Speaker 1: multibillion dollar acquisitions that have been done by firms like

896
00:52:26,760 --> 00:52:30,600
Speaker 1: Microsoft and Google, this doesn't seem to be that sort

897
00:52:30,640 --> 00:52:35,440
Speaker 1: of ephemeral hype story. This seems to really be a

898
00:52:35,480 --> 00:52:39,880
Speaker 1: potential sea change. I agree with you. I mean, like

899
00:52:39,920 --> 00:52:44,960
Speaker 1: I said, there's a few fundamental enabling technologies that happen.

900
00:52:45,760 --> 00:52:48,720
Speaker 1: Ubiquitous broadband internet to your house, to your mobile device,

901
00:52:49,040 --> 00:52:52,840
Speaker 1: which really enabled a change in retail and media models,

902
00:52:52,920 --> 00:52:56,480
Speaker 1: in communication models, and now this, you know, the blockchain.

903
00:52:56,920 --> 00:52:59,360
Speaker 1: When it came, people like Hm, I always went like,

904
00:52:59,400 --> 00:53:02,480
Speaker 1: what's the use case? Right, It's a solution of a

905
00:53:02,560 --> 00:53:07,120
Speaker 1: problem exactly, and it's cool, and you know, bitcoin or whatever.

906
00:53:07,160 --> 00:53:09,839
Speaker 1: They're probably a real store of value, but that's not

907
00:53:10,040 --> 00:53:14,480
Speaker 1: really investable for us. It is AI investable because it

908
00:53:14,520 --> 00:53:17,920
Speaker 1: looks like a couple of big companies, UH push their

909
00:53:17,920 --> 00:53:20,600
Speaker 1: way in there are a couple of transactions, or is

910
00:53:20,640 --> 00:53:23,920
Speaker 1: this gonna, you know, be the fertilizer that launches a

911
00:53:24,960 --> 00:53:27,640
Speaker 1: thousand blooms or whatever the express it may be invested.

912
00:53:27,760 --> 00:53:31,839
Speaker 1: It's it's certainly investable for venture investors and smaller guys

913
00:53:31,880 --> 00:53:34,080
Speaker 1: who are willing to sort of dig holes in the

914
00:53:34,080 --> 00:53:36,680
Speaker 1: ground and hope something comes out. I mean for us

915
00:53:36,760 --> 00:53:39,520
Speaker 1: in corporate private equity. No, but what it what it

916
00:53:39,840 --> 00:53:42,680
Speaker 1: is is we have to figure out what businesses are

917
00:53:42,680 --> 00:53:45,879
Speaker 1: going to be disrupted and avoid those and figure out

918
00:53:45,960 --> 00:53:49,600
Speaker 1: what what mature businesses will be enabled by this and

919
00:53:49,719 --> 00:53:53,240
Speaker 1: invest Like look at Disney. You know, Disney, in large

920
00:53:53,239 --> 00:53:56,759
Speaker 1: part was was hugely enabled by streaming services because of

921
00:53:57,040 --> 00:53:59,919
Speaker 1: the amazing content it owned, So it was a bit

922
00:54:00,120 --> 00:54:04,400
Speaker 1: ficiary of the technology change. But cable television models or

923
00:54:04,440 --> 00:54:07,960
Speaker 1: satellite TV like those, those those suffered. And so we're

924
00:54:07,960 --> 00:54:10,319
Speaker 1: trying to find the businesses that are going to be

925
00:54:10,480 --> 00:54:14,319
Speaker 1: enabled and benefited by AI and avoid the things that

926
00:54:14,360 --> 00:54:18,239
Speaker 1: are going to be dislocated. That's quite quite interesting. So

927
00:54:18,680 --> 00:54:20,600
Speaker 1: I read a quote of yours that cracked me up.

928
00:54:20,640 --> 00:54:23,799
Speaker 1: I have to ask you about you said, if you

929
00:54:23,960 --> 00:54:27,880
Speaker 1: weren't working in private equity, the next best job would

930
00:54:27,880 --> 00:54:31,080
Speaker 1: be general manager of the Dallas Cowboys. I mean, with

931
00:54:31,239 --> 00:54:33,640
Speaker 1: all respect to the Joneses who run that team, you know,

932
00:54:33,640 --> 00:54:35,800
Speaker 1: and have to particularly this off season, They've done a

933
00:54:35,880 --> 00:54:39,279
Speaker 1: nice job. I've been a Dallas Cowboys fan since I'm

934
00:54:39,280 --> 00:54:40,920
Speaker 1: seven years old. And you say we'll get a kid

935
00:54:40,920 --> 00:54:44,640
Speaker 1: from Sacramento, a Dallas Cowboys fan and an America's team.

936
00:54:44,680 --> 00:54:46,799
Speaker 1: I was watching the ten am game back talk about

937
00:54:46,840 --> 00:54:49,040
Speaker 1: linear TV. There were two games, one at ten, one

938
00:54:49,040 --> 00:54:51,680
Speaker 1: at one, and the Cowboys playing in the NFC East

939
00:54:51,680 --> 00:54:54,040
Speaker 1: were always on the ten am game and it was

940
00:54:54,040 --> 00:54:57,440
Speaker 1: America's team. So I'm watching the Cowboys like every Sunday.

941
00:54:57,520 --> 00:54:59,800
Speaker 1: And then when the Niners got good, I became a

942
00:55:00,080 --> 00:55:02,560
Speaker 1: cherry and said, no, I'm a root for the Cowboys really,

943
00:55:02,600 --> 00:55:06,799
Speaker 1: even though they lost so similar Jerry Rice didn't no bid,

944
00:55:07,160 --> 00:55:10,960
Speaker 1: no bid really that Rogers sawback, Tony Dorset, Tony Hill

945
00:55:10,960 --> 00:55:14,640
Speaker 1: those and then of course and now look they're fun

946
00:55:14,680 --> 00:55:17,799
Speaker 1: to watch. I love football. I don't miss a game.

947
00:55:18,200 --> 00:55:20,799
Speaker 1: And yes, if Jerry needs some help, you know, he

948
00:55:20,840 --> 00:55:23,640
Speaker 1: knows you knows, you know, he reach out to Steve.

949
00:55:23,680 --> 00:55:26,640
Speaker 1: Steve will put you in touch. And then we talked

950
00:55:26,680 --> 00:55:29,880
Speaker 1: about the companies that you're on the boards of, but

951
00:55:29,920 --> 00:55:33,920
Speaker 1: you're also a trustee of the Tate Foundation, which I

952
00:55:34,000 --> 00:55:38,120
Speaker 1: assume is related to the giant Tape Museum in London.

953
00:55:38,680 --> 00:55:40,239
Speaker 1: Tell us a little bit about the work you do

954
00:55:40,320 --> 00:55:44,400
Speaker 1: with them. That sounds like a fascinating organization. Yeah, the

955
00:55:44,480 --> 00:55:47,919
Speaker 1: Tate is is such a significant cultural institution in the UK.

956
00:55:48,280 --> 00:55:52,120
Speaker 1: It's it's funded largely by the by the state um.

957
00:55:52,160 --> 00:55:55,480
Speaker 1: The Tate Foundation is the private philanthropic arm of the

958
00:55:55,560 --> 00:55:59,279
Speaker 1: Tate that helps fund special projects, whether it's exhibitions or

959
00:55:59,600 --> 00:56:03,000
Speaker 1: building buildings. You know, the big Tate Modern Gallery was

960
00:56:03,040 --> 00:56:06,719
Speaker 1: in large part funded by private donations. And you know,

961
00:56:06,800 --> 00:56:09,719
Speaker 1: philanthropy in the UK is at a different scale than

962
00:56:09,760 --> 00:56:12,160
Speaker 1: in the US. So for not a lot of money,

963
00:56:12,360 --> 00:56:15,560
Speaker 1: you know, I could like get engaged in the arts

964
00:56:15,560 --> 00:56:18,560
Speaker 1: in a really important cultural institution, where in the UK

965
00:56:18,760 --> 00:56:21,640
Speaker 1: it's less sort of focused on the elite and more

966
00:56:21,680 --> 00:56:25,840
Speaker 1: focused on like the democratization of art and culture for

967
00:56:26,000 --> 00:56:28,839
Speaker 1: the people of the UK. And I really identified with that.

968
00:56:29,239 --> 00:56:34,279
Speaker 1: I didn't realize philanthropy was that different overseas than is here. Yeah,

969
00:56:34,480 --> 00:56:36,799
Speaker 1: first of all, how did you first get involved with them?

970
00:56:36,800 --> 00:56:39,279
Speaker 1: By the way, my wife loves the Tate Modern one

971
00:56:39,320 --> 00:56:42,880
Speaker 1: of our favorite. It's a great building and a beautiful collection. Yeah,

972
00:56:42,920 --> 00:56:45,359
Speaker 1: how did you first get get involved with them? You know?

973
00:56:45,400 --> 00:56:49,319
Speaker 1: I just I had I had young kids. From two

974
00:56:49,320 --> 00:56:52,319
Speaker 1: thousand and four until two thousand and ten, we were

975
00:56:52,360 --> 00:56:54,719
Speaker 1: having babies and one of the places we'd always go

976
00:56:54,800 --> 00:56:57,960
Speaker 1: is either Tape Written or Tape Modern. You could consume

977
00:56:58,160 --> 00:57:01,239
Speaker 1: saturdays with kids running around, and like I said, they're

978
00:57:01,360 --> 00:57:05,200
Speaker 1: very accessible, there's nothing intimidating about those institutions. And then

979
00:57:05,200 --> 00:57:08,399
Speaker 1: I knew some people who are involved, and I met

980
00:57:08,440 --> 00:57:11,800
Speaker 1: the director one day and um, you know, they asked

981
00:57:11,800 --> 00:57:13,400
Speaker 1: me to, you know, get involved. And so for the

982
00:57:13,440 --> 00:57:15,799
Speaker 1: last maybe I don't know, twelve or so years, I've

983
00:57:15,840 --> 00:57:18,080
Speaker 1: been involved with the Tape Foundation. It's a great, great

984
00:57:18,080 --> 00:57:23,480
Speaker 1: group of people, great organization. So yeah, that's been a fun.

985
00:57:23,280 --> 00:57:25,600
Speaker 1: Sound it sounds like a lot of fun. So so

986
00:57:25,640 --> 00:57:27,480
Speaker 1: before we let you go, we're going to jump to

987
00:57:27,480 --> 00:57:30,560
Speaker 1: our favorite questions that we ask all of our guests.

988
00:57:31,040 --> 00:57:35,000
Speaker 1: Starting with you mentioned streaming. Tell us what you've been watching.

989
00:57:35,040 --> 00:57:38,680
Speaker 1: What keeps the family entertained? I just got done with

990
00:57:38,880 --> 00:57:41,600
Speaker 1: Daisy Jones in the six I'm halfway through it, really

991
00:57:41,640 --> 00:57:45,480
Speaker 1: loving it. Which where the music is amazing. The whole

992
00:57:45,600 --> 00:57:48,480
Speaker 1: aesthetic of it is amazing, the acting is amazing, the

993
00:57:48,600 --> 00:57:51,600
Speaker 1: music is great. And it also happens to be a

994
00:57:51,600 --> 00:57:55,240
Speaker 1: production of one of our portfolio companies, Hello Sunshine, and

995
00:57:55,280 --> 00:57:58,800
Speaker 1: it is the perfect example of what we thought Hello

996
00:57:58,840 --> 00:58:01,680
Speaker 1: Sunshine could do. Then leaning power to as symbol that

997
00:58:01,760 --> 00:58:07,960
Speaker 1: amazing ensemble, cast amazing music creators and create something that

998
00:58:07,960 --> 00:58:11,600
Speaker 1: that UM is really is really important to to. In

999
00:58:11,600 --> 00:58:14,800
Speaker 1: this case, Amazon Prime to be an important counterparty of

1000
00:58:14,800 --> 00:58:17,400
Speaker 1: the streamer. So I'm really proud of what they did there.

1001
00:58:17,400 --> 00:58:20,120
Speaker 1: And it's a great show. Yeah, supposed to be sort

1002
00:58:20,160 --> 00:58:25,000
Speaker 1: of loosely fashioned after the Fleetwood Mac story with all

1003
00:58:25,080 --> 00:58:27,240
Speaker 1: the christ and I think they nailed it. I really think.

1004
00:58:27,800 --> 00:58:30,000
Speaker 1: The other one I love is White Lotus, which is fantastic,

1005
00:58:30,000 --> 00:58:33,000
Speaker 1: not a not a Black sunrelated thing, also awesome. So

1006
00:58:33,360 --> 00:58:36,400
Speaker 1: I really like the first season. I haven't gotten into

1007
00:58:36,400 --> 00:58:40,000
Speaker 1: the second season yet, um and people said it's even better.

1008
00:58:40,360 --> 00:58:43,440
Speaker 1: It's wilder and crazier, yeah than the first one. So

1009
00:58:43,440 --> 00:58:46,880
Speaker 1: so let's talk about your mentors, who who helped shape

1010
00:58:46,920 --> 00:58:51,600
Speaker 1: your career. I've I've been really fortunate in my life

1011
00:58:51,600 --> 00:58:54,440
Speaker 1: where I've had, you know, along the way in the journey,

1012
00:58:54,600 --> 00:58:59,320
Speaker 1: Morgan Stanley at mccundeloo, at Tinnacum, which is the Ruttenberg family,

1013
00:59:00,280 --> 00:59:02,439
Speaker 1: where in each of those places I've had somebody who

1014
00:59:02,520 --> 00:59:04,840
Speaker 1: really helped me in my career and with whom I'm

1015
00:59:04,960 --> 00:59:09,200
Speaker 1: very close even today. And then at Blackstone, you know,

1016
00:59:09,200 --> 00:59:14,080
Speaker 1: Steve Schwarzman changed my life and Tony James who started

1017
00:59:14,160 --> 00:59:17,120
Speaker 1: when I was about four years into Blackstone and really

1018
00:59:17,320 --> 00:59:19,720
Speaker 1: helped transform the firm and make it what it is today.

1019
00:59:19,760 --> 00:59:24,640
Speaker 1: Those two men really were extremely important in my professional development,

1020
00:59:24,720 --> 00:59:29,360
Speaker 1: my personal development. Great amazing mentors. Let's talk about books.

1021
00:59:29,400 --> 00:59:31,160
Speaker 1: What are some of your favorites? What are you reading

1022
00:59:31,240 --> 00:59:35,160
Speaker 1: right now? You know the book I most recently finished

1023
00:59:35,840 --> 00:59:39,240
Speaker 1: by Arthur Brooks, a book on happiness. Yeah, I've been

1024
00:59:39,280 --> 00:59:42,280
Speaker 1: following that series in the Atlantic. It's really quite fascinating. Yeah,

1025
00:59:42,320 --> 00:59:44,720
Speaker 1: he's He's amazing And in fact I invited him to

1026
00:59:44,720 --> 00:59:46,840
Speaker 1: come talk to our partner group. We had a global

1027
00:59:46,920 --> 00:59:50,400
Speaker 1: partner off site in Private Equity in London in September.

1028
00:59:50,440 --> 00:59:53,240
Speaker 1: I had him come to talk about like what it

1029
00:59:53,280 --> 00:59:56,040
Speaker 1: means to be where from where you should be deriving

1030
00:59:56,040 --> 00:59:59,919
Speaker 1: your happiness. It's not just like the next the next deal,

1031
01:00:00,040 --> 01:00:02,480
Speaker 1: the next promotion, the name in the paper or whatever,

1032
01:00:02,880 --> 01:00:04,720
Speaker 1: you got to get it elsewhere. And I think it's

1033
01:00:04,720 --> 01:00:08,520
Speaker 1: really important for people who are workaholics, who are high

1034
01:00:08,520 --> 01:00:11,920
Speaker 1: achievers to put, you know, everything that we're doing every

1035
01:00:11,960 --> 01:00:14,680
Speaker 1: day into context and to find happiness kind of outside

1036
01:00:14,840 --> 01:00:19,480
Speaker 1: that box. So that's been a really important book I've

1037
01:00:19,520 --> 01:00:23,439
Speaker 1: read recently, and I think he's great, really interesting. We're

1038
01:00:23,640 --> 01:00:26,560
Speaker 1: down to our last two questions. What sort of advice

1039
01:00:26,920 --> 01:00:29,440
Speaker 1: would you give to a recent college grad who was

1040
01:00:29,600 --> 01:00:34,080
Speaker 1: interested in a career in private equity Patience. I think

1041
01:00:34,080 --> 01:00:37,160
Speaker 1: the one thing I've seen in this generation of people

1042
01:00:37,240 --> 01:00:41,680
Speaker 1: like me and you is we all were impatient. We

1043
01:00:41,720 --> 01:00:43,320
Speaker 1: all wanted to get there fast. But I think it's

1044
01:00:43,440 --> 01:00:47,080
Speaker 1: entered a new level because people start so early. You

1045
01:00:47,120 --> 01:00:49,600
Speaker 1: have to do so much to get in college. We're

1046
01:00:49,680 --> 01:00:52,919
Speaker 1: hiring summer interns now who are nineteen and twenty years old.

1047
01:00:53,560 --> 01:00:56,480
Speaker 1: You know that did not happen when we were kids. Uh,

1048
01:00:56,560 --> 01:00:58,600
Speaker 1: And they and they sort of by the time they're thirty.

1049
01:00:58,640 --> 01:01:00,360
Speaker 1: They want to have had like declare vic jury on

1050
01:01:00,400 --> 01:01:03,400
Speaker 1: the career that doesn't happen, and enjoy the journey that

1051
01:01:03,480 --> 01:01:06,760
Speaker 1: it takes a long time to figure out, like how

1052
01:01:06,960 --> 01:01:09,320
Speaker 1: you how you get good at something and in the

1053
01:01:09,400 --> 01:01:11,680
Speaker 1: particular way you want to do it, and you have

1054
01:01:11,720 --> 01:01:16,960
Speaker 1: to enjoy that process and enjoy like the time it takes.

1055
01:01:17,040 --> 01:01:19,080
Speaker 1: And then by the time you're in your forties you

1056
01:01:19,120 --> 01:01:20,840
Speaker 1: can actually be good at this job. And by the

1057
01:01:20,840 --> 01:01:23,160
Speaker 1: time you're in your fifties, with some wisdom, you can

1058
01:01:23,160 --> 01:01:25,080
Speaker 1: be really good at the job. But it doesn't just

1059
01:01:25,200 --> 01:01:28,120
Speaker 1: happen like that, And I think people just need to relax,

1060
01:01:28,640 --> 01:01:31,360
Speaker 1: take a deep breath in the early days, do what's

1061
01:01:31,400 --> 01:01:33,160
Speaker 1: asked of them, do it as well as they can,

1062
01:01:33,480 --> 01:01:36,760
Speaker 1: and move on to the next step. Really really interesting

1063
01:01:36,800 --> 01:01:39,680
Speaker 1: answer our final question, what do you know about the

1064
01:01:39,720 --> 01:01:43,200
Speaker 1: world of investing today you wish you knew back in

1065
01:01:43,240 --> 01:01:47,000
Speaker 1: the nineties when you were first getting started. I think

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Speaker 1: that it changes so much and fundamentally that you can't

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Speaker 1: hold on to like, um, you know, absolutes. There's really

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Speaker 1: no absolutes. There's some like risk management things that you

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Speaker 1: that you always need to be mindful of. But I

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Speaker 1: could have evolved more quickly as an investor, you know, overtime,

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Speaker 1: and I continue to learn that lesson really intriguing. Thank

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Speaker 1: you Joe for being so generous with your time. We

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Speaker 1: have been speaking with Joe Barratta. He is Global head

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Speaker 1: of Private Equity at Blackstone. If you enjoy this conversation,

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01:02:23,760 --> 01:02:26,480
Speaker 1: well he sure and check out any of the previous

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Speaker 1: five hundred or so we've done over the past eight years.

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Speaker 1: You can find those at YouTube, iTunes, Spotify, wherever you

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01:02:35,280 --> 01:02:38,600
Speaker 1: find your favorite podcasts. Feel free to sign up for

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Speaker 1: my daily reading list at Ridholtz dot com. Follow me

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01:02:41,920 --> 01:02:45,840
Speaker 1: on Twitter at Ridholtz. Follow all of the fine family

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Speaker 1: of Bloomberg Podcasts on Twitter at podcast I would be

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Speaker 1: remiss if I did not thank the fine team who

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01:02:53,360 --> 01:02:58,120
Speaker 1: helped put this conversation together each week. Sebastian Escobar is

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01:02:58,200 --> 01:03:03,040
Speaker 1: my audio engineer. Ris Wold is my producer. Fatica Valbron

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01:03:03,160 --> 01:03:07,680
Speaker 1: is our project manager. Sean Russo is my researcher. I'm

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Speaker 1: Barry Ridholds. You've been listening to Master's Business on Bloomberg Radio.