Speaker 1: This is Masters in Business with Very Red Holds on
Speaker 1: Bloomberg Radio. This week on the podcast, I have an
Speaker 1: extra special guest. Joe Barada is the global head of
Speaker 1: Private Equity at PE Giant Blackstone, where he has worked
Speaker 1: since nineteen ninety eight. I found this to be a
Speaker 1: fascinating conversation because Joe's career has very much paralleled the
Speaker 1: growth of private equity. When he began, PE was a
Speaker 1: little bit of a niche boutique sort of investment, and
Speaker 1: over the ensuing twenty five years it has grown to
Speaker 1: be really a major asset class with giant opportunities that
Speaker 1: have been expressed by then small now very large companies,
Speaker 1: of which Blackstone is one of the largest. He is
Speaker 1: very familiar with everything from M and A to credit,
Speaker 1: to real estate, on and on, and has had experiences
Speaker 1: both in the US and overseas, really a global perspective
Speaker 1: on what took place in private equity in the past
Speaker 1: and what the future looks like. I thought the conversation
Speaker 1: was quite fascinating, and I think you will as well
Speaker 1: with no further ado, my discussion of private equity with Blackstones.
Speaker 1: Joe Barratta. Joe Barratta, Welcome to Bloomberg. Thank you, happy
Speaker 1: to be here, Happy to have you. Let's start out
Speaker 1: with just a little background on your career. You began
Speaker 1: more or less in the M and A space at
Speaker 1: Morgan Stanley, Is that right? Yeah? Right after I graduated college,
Speaker 1: I went to Georgetown in nineteen ninety three, I got
Speaker 1: an analyst job at Morgan Stanley in the M and
Speaker 1: A group and that's a kind of two year training program.
Speaker 1: And I did that and I was painful. You can imagine.
Speaker 1: It sounds like a good background for someone who eventually
Speaker 1: ends up buying companies. Yeah, I'm I knew nothing about finance.
Speaker 1: I grew up in Sacramento, California. My dad was a
Speaker 1: bodybuilder and owned three gems in Sacramento. Really yeah, and
Speaker 1: so I didn't know, you know, what finance was all about.
Speaker 1: I had never been to New York City until I
Speaker 1: was I think twenty years old, and I had some
Speaker 1: roommates who grew up in New York City who had
Speaker 1: gone to Dalton High School here, so completely different world. Yeah.
Speaker 1: When I came to the city, I was like, Wow,
Speaker 1: this place is amazing. And you know, I needed to
Speaker 1: earn some money and I was adept in finance. I'd
Speaker 1: studied finance, it was my major at Georgetown, and I
Speaker 1: was hoping to get a job somewhere, and I got
Speaker 1: a job at Morgan Stanley, which way exceeded my dreams
Speaker 1: at that point. Huh. So, eventually you leave Morgan Stanley,
Speaker 1: you end up at Tentacom Incorporated and McCallen Dulu and Company.
Speaker 1: I'm assuming these are both related, m M and A
Speaker 1: type firms or probate. Yeah, the first job from Morgan
Speaker 1: Stanley was McCallen delou and So in the early nineties,
Speaker 1: analysts at these big investment banks Morgan Stanley, Goldman Sachs
Speaker 1: had sort of two or three options. You could stay
Speaker 1: there and become an investment banker and do that for
Speaker 1: a career. You could go into the emerging fields of
Speaker 1: investing in private equity or in hedge funds, or you
Speaker 1: go to business school or maybe go to business school later.
Speaker 1: I really wanted to learn how to invest money, not
Speaker 1: just be an advisor. And I thought private equity was
Speaker 1: cool because you weren't at the whim of the market.
Speaker 1: You know, in the market's like if you start at
Speaker 1: the wrong time, if you're wrong for a few quarters
Speaker 1: like boom, like the career is abbreviated. And I thought
Speaker 1: private equity was interesting because you could live with those
Speaker 1: investments for a longer period of time. You had a
Speaker 1: longer period of time to figure out if you were
Speaker 1: right or not. And I think fundamentals mattered more in
Speaker 1: private equity than they did in public market investing. So
Speaker 1: I wanted to get a job at a private equity firm.
Speaker 1: I wanted to do fundamentals matter more? Or is it
Speaker 1: really just a question of how far away from fundamentals
Speaker 1: can public equities get, either to the upside or the
Speaker 1: downside where it creates some form of opportunity, which kind
Speaker 1: of raises the question how closely do private market fundamentals
Speaker 1: track what's going on in the public markets. Yeah, in
Speaker 1: the long run they do. In the short run, there
Speaker 1: can be distortions in public market valuations as we saw
Speaker 1: in two thousand and one, and we saw prior to
Speaker 1: that in two thousand and seven, and prior to that
Speaker 1: in two thousand and ninety nine. So yes, you're right, Like,
Speaker 1: in the long run, fundamentals drive determine share prices in
Speaker 1: private equity. You know, we're owning things for five, six, ten, years,
Speaker 1: and we're not subject to like the vicissitudes of the
Speaker 1: market in the short run. We never have to sell,
Speaker 1: only only when we want to because we control We
Speaker 1: control the companies, and to me, that was a more
Speaker 1: comfortable form of investing in it and where I wanted
Speaker 1: to bet my career. So you end up at Blackstone
Speaker 1: in nineteen ninety eight at a time when public equity
Speaker 1: prices became a little unmoored and were on the way
Speaker 1: up to a real bubble. What was it like on
Speaker 1: the private side at the end of the nineties. Yeah,
Speaker 1: I started at Blackstone in July of ninety eight, and
Speaker 1: I guess what was going on that year? You had um,
Speaker 1: you had like a Southeast Asian currency crisis. He had
Speaker 1: stuff going on in Latin America, had the Russia crisis.
Speaker 1: He had Lehman almost go bust. I think around that
Speaker 1: time for maybe at the first or second time, and
Speaker 1: so yeah, there was a lot of volatility. Private equity
Speaker 1: was still, i'd say, in the in the first phase
Speaker 1: of its ofs of its existence, and Blackstone was one
Speaker 1: of them. That's why I joined Blackstone. It was one
Speaker 1: of the leading firms in that moment. It had a
Speaker 1: lot of momentum. I think they were. They were operating
Speaker 1: at the really top of the industry, really smart people,
Speaker 1: good track record, and I wanted to attach myself at
Speaker 1: that point in my career, I was twenty I think
Speaker 1: twenty seven years old. I wanted to attach myself to
Speaker 1: affirm that I thought really had a lot of growth
Speaker 1: potential where I could learn from the best people in
Speaker 1: the industry. That certainly was what I found there. And
Speaker 1: today private equity has become immense compared to twenty twenty
Speaker 1: five years ago. We'll talk a little bit about your
Speaker 1: time in London later, but I love the announcement when
Speaker 1: you were promoted to a global head of pe from Blackstone.
Speaker 1: They said, the seventy three investments and pending deals you're
Speaker 1: involved in combined for one hundred and seventeen billion dollars
Speaker 1: in revenue, the equivalent of the thirteenth largest company by
Speaker 1: revenue on the Fortune five hundred lists, Meaning your team,
Speaker 1: your group would be a Fortune top twenty company. Yeah,
Speaker 1: tell us what that growth has been like over the
Speaker 1: past five years. It seems a house of fire. Yeah.
Speaker 1: When I started at Blackstone, we were I think we
Speaker 1: just started investing our third private equity fund, it was
Speaker 1: about three billion dollars in total size. We had our
Speaker 1: second real estate fund, which was I think about a
Speaker 1: billion two or three size. I think we just raised
Speaker 1: a small credit fund which is nine hundred million, and
Speaker 1: then we had an m and a advisory business, and
Speaker 1: the whole firm was maybe maybe two hundred total employees,
Speaker 1: not just investment people, total staff. And today we're knocking
Speaker 1: on the door of five thousand. I think we're forty
Speaker 1: five hundred something like that. And the size of our
Speaker 1: private equity business is you know, we're now on our
Speaker 1: ninth fund. We have associated funds in Asia, and an
Speaker 1: energy transition and a long dated vehicle that allows us
Speaker 1: to hold things for fifteen plus years. And I think
Speaker 1: if you add it all up, we have about forty
Speaker 1: billion dollars of funds that we're currently investing in their period.
Speaker 1: And the total aum of our private equity business a
Speaker 1: UM assets under management is roughly eighty ninety billion. So
Speaker 1: I mean, we're materially bigger than we were twenty five
Speaker 1: years ago. Even when you read that announcement from two
Speaker 1: that was twenty twelve, we're probably three times this size
Speaker 1: is we were in twenty twelve, both in terms of
Speaker 1: the aggregate revenue of our companies, size of our portfolio.
Speaker 1: We're probably now something like one hundred and fifty total investments,
Speaker 1: many hundreds of billions of revenue, hundreds of thousands of
Speaker 1: employees if you add up all of the companies in
Speaker 1: which we're invested. So it's been really significant growth. And
Speaker 1: you know why is that? I think because the private
Speaker 1: equity investing model has been really good for our clients,
Speaker 1: which our state pension plan, sovereign wealth funds, you know,
Speaker 1: ensuring the retirement safety of many tens of millions of people.
Speaker 1: So you're you're anticipating one of the questions I'm going
Speaker 1: to ask you, which might as well bring it up
Speaker 1: now over that twenty five year period or even the
Speaker 1: past decade where you've tripled in size, it's more than
Speaker 1: just quantitative. It seems like private equity is qualitatively different
Speaker 1: than it was back in the early days. Is this
Speaker 1: simply becoming institutionalized or has the asset class been validated
Speaker 1: and now people are treating it differently than they did
Speaker 1: in the nineties where it was kind of a small
Speaker 1: niche backwater. I'm exaggerating that at all, whereas no, No,
Speaker 1: it was more of a cottage industry. There were a
Speaker 1: few firms, a couple of big leaders like KKR. Blackstone
Speaker 1: was what was right on their heels back then. But
Speaker 1: it's nothing like it is today. It is that it
Speaker 1: is an institutionalized asset class. There's definitely been proof of
Speaker 1: concept for large scale institutional investors and even retail investors
Speaker 1: that we can produce sustainable, predictable above public market returns.
Speaker 1: And we've become better at what we do in buying
Speaker 1: control of companies, engaging with them, making them better, helping
Speaker 1: them grow, and so and so. Yeah, and we've had
Speaker 1: limited partners in our funds who've been with us since
Speaker 1: the early nineties now and keep reupping because we deliver
Speaker 1: a good return for their beneficiaries. So let's talk about
Speaker 1: some of those different types of funds. You mentioned private credit,
Speaker 1: you mentioned real estate, private equity, M and A what
Speaker 1: is energy transition? That sounds quite fascinating. Yeah. Energy has
Speaker 1: been a major investment theme across many of our businesses
Speaker 1: and credit and in corporate private equity, and we have
Speaker 1: for the last six or seven years. The way we've
Speaker 1: been expressing investing in energy is an energy transition, So
Speaker 1: in companies that are helping accelerate the transition from burning
Speaker 1: hydrocarbons to produce electricity and energy to renewable sources, and
Speaker 1: so in private renewable meaning wind solar, nuclear or whatever,
Speaker 1: wind solar, electrifying the economy, getting off of oil and gas,
Speaker 1: and it's all kinds of companies engage. It's not just
Speaker 1: power generation from those sources, but it's companies that are
Speaker 1: involved in in consulting and utility services, in companies that
Speaker 1: make components that are helping electrify the economy, and electric
Speaker 1: vehicles or in HVAC systems. So it's a whole broad
Speaker 1: spectrum of investing in the energy complex focused on the
Speaker 1: transition from hydrocarbons to renewable. So we take for granted
Speaker 1: totally that you're out in a car, you could pull
Speaker 1: over anywhere and tank up with gas. It feels like
Speaker 1: we're very early stages of transitioning to being able to
Speaker 1: pull up somewhere and spend ten minutes charging the car
Speaker 1: to get you another hundred miles or so. Is that
Speaker 1: the sort of infrastructure we're talking about, in addition to
Speaker 1: all the obvious ones we've yeah, that's part of it.
Speaker 1: I mean we're not specifically investing in charging stations, we
Speaker 1: actually have assets where those are going in, or we're
Speaker 1: investing in components that are part of manufacturing those those facilities.
Speaker 1: But yes, that's the kind of thing we're talking about
Speaker 1: that is part of the energy transition. And you had
Speaker 1: mentioned private credit before. That seems to have been a
Speaker 1: giant growth area, especially when rates were at zero, when
Speaker 1: people weren't seeing a whole lot of returns from fixed income. Well, yeah,
Speaker 1: the private credit market I think is really attractive and
Speaker 1: it's actually been around a long time. I mean there
Speaker 1: have been leverage loans and high yield bonds since the
Speaker 1: nineteen eighties, and as an asset class, they've performed extremely
Speaker 1: well with low incidents of loss, good returns. You get
Speaker 1: paid for the incremental risk that you're taking in a
Speaker 1: more leveraged capital structure. So it's been a great asset class.
Speaker 1: It's attracted a lot of capital, and the way buyouts
Speaker 1: are being financed is evolving away from syndicated, big syndicated
Speaker 1: capital structures to buy banks to now the people who
Speaker 1: are actually going to hold the risk, firms like Ours
Speaker 1: and Apollo and areas and others who are actually lending
Speaker 1: money directly to the people who are borrowing instead of
Speaker 1: going through the banking intermediaries. So how much of this
Speaker 1: is a function of trend we sort of began in
Speaker 1: the nineteen nineties. As companies got larger and larger, it
Speaker 1: seemed like banks went upscale with them and left sort
Speaker 1: of a gaping void in the middle where, you know,
Speaker 1: mid market companies didn't have a merchant bank that that
Speaker 1: could facilitate UM loans, credit, anything along those lines. I
Speaker 1: think private credit has filled the hole for these smaller businesses.
Speaker 1: But but really, um, not on the full banking suite.
Speaker 1: There's plenty of great smaller banks, uh whose whose business
Speaker 1: strategy it is to serve smaller and medium sized businesses.
Speaker 1: But in financing acquisitions and capital needs of these middle
Speaker 1: market companies, a private credit market has played an important
Speaker 1: role in that. Yeah, really quite interesting. Let's talk a
Speaker 1: little bit about your career at Blackstone. You've been there
Speaker 1: for twenty five years. That's a pretty good run. What
Speaker 1: attracted you to them in nineteen ninety eight when they
Speaker 1: were still kind of a modest, small firm. Yeah, I
Speaker 1: mean I was in my mid twenties and you know,
Speaker 1: looking to build a career in private equity. I liked it.
Speaker 1: I thought I could, I could build a successful career.
Speaker 1: It was I recognize that it was still pretty early
Speaker 1: in the development and there should be a lot of
Speaker 1: growth in these firms. And I wanted to work at
Speaker 1: a place that was operating at the highest level with
Speaker 1: the smartest people, where I could learn the most and
Speaker 1: see if I could hang, you know, so to speak
Speaker 1: with keep up with the big dogs. Yeah, and I
Speaker 1: think I had very modest expectations, like, jeezus, I can
Speaker 1: last two or three years. At least I will have
Speaker 1: done it. I will learn something and I'll have something
Speaker 1: else to do on the other side of it. So
Speaker 1: you lasted two or three years and then you get
Speaker 1: tapped to go to London in two thousand and one.
Speaker 1: That had to be a giant challenge, especially given what
Speaker 1: was taking place that dot COM's had just imploded. It
Speaker 1: wasn't very long after the handover of Hong Kong China,
Speaker 1: like a lot of things were changing in both the
Speaker 1: UK and Europe. What was that like going over to
Speaker 1: the EU in England during that period, Yeah, I mean
Speaker 1: it was it certainly not expected. I'd never lived abroad.
Speaker 1: I think i'd been to London. I'm not even sure
Speaker 1: i'd been to London. I'd been to like Paris and
Speaker 1: Venice or something. And the guy who was going over
Speaker 1: truly lead at David Blitzer, who was was was a
Speaker 1: good friend in colleague, and he sort of said, geez,
Speaker 1: why don't you come and do this with me? He
Speaker 1: was a senior, the senior guy at the time, and
Speaker 1: I was like, geez, okay, well you're like late twenties
Speaker 1: at this. Yeah, I'm I'm twenty nine when I'm asked,
Speaker 1: I'm thirty when I move, you know. And yeah, because
Speaker 1: it was two thousand and one, and you know, it
Speaker 1: was just after September eleventh. I'd agreed to go before
Speaker 1: Strumber eleventh happened. I was supposed to go over, you know,
Speaker 1: in November. I ended up doing that. I remember a
Speaker 1: completely empty plane flying over to London with my with
Speaker 1: my then girlfriend. Moving to London. I had no language skills.
Speaker 1: The firm had had need language skills in England, not
Speaker 1: in England. But but you're still dealing with a lot
Speaker 1: of Europe And yeah, I'm not being sarcastic, You're still
Speaker 1: dealing with people in Brussels and people in Paris and
Speaker 1: people in Milan. It has to be useful skills. No,
Speaker 1: of course, I mean France, Germany, Italy, Spain, you know,
Speaker 1: the whole Nordic region, Sweden, to say nothing of two
Speaker 1: people separated by a common language, right exactly. Now, In
Speaker 1: that moment, Americans were sort of viewed as positively and
Speaker 1: as neutral, so you know, you could go to France.
Speaker 1: Maybe they didn't love, you know, any Germans as much,
Speaker 1: but they sort of Americans were tolerated, you know, and
Speaker 1: we were kind of oddities at the time, particularly in
Speaker 1: private equity, which was still in its infancy in November
Speaker 1: of two thousand and one. When I moved over, the
Speaker 1: industry wasn't called private equity. It was called venture capital,
Speaker 1: and it was in real technology. Venture capital was the
Speaker 1: nomenclature for everything that was basically a private investment. But
Speaker 1: you're not dealing with startups, you're dealing with correct seven
Speaker 1: more mature companies. Yes, but you know, when I moved,
Speaker 1: you didn't have the single currency in circulation until January
Speaker 1: vote two, so there was still French francs and you know,
Speaker 1: Lira and German deutsch Marks, and so that didn't happen
Speaker 1: until two thousand and two, and it took the year
Speaker 1: for all of those local currencies to literally paper and
Speaker 1: coin currencies to come out of circulation and have so
Speaker 1: Europe really a period of transition, and and you're stepping
Speaker 1: right into the thick of it, right into the thick
Speaker 1: of it, trying to figure out what are too young?
Speaker 1: My colleague David Blitzer, I think he was maybe thirty one.
Speaker 1: I was twenty nine, and there we were two young Americans,
Speaker 1: no language skills, like, what are we supposed to do now?
Speaker 1: The firm had had assets in the UK. We owned
Speaker 1: the Savoy group of hotels, which is the Connaught and
Speaker 1: Carriages and Savoy Nice saw his property nice yeah, which
Speaker 1: is a good asset, a nice calling card. We had
Speaker 1: actually two investments in Germany in telecom infrastructure that in
Speaker 1: that moment we're doing that great um and so we did,
Speaker 1: but we were kind of trying to do deals by
Speaker 1: airplane from New York and that's not functional. So Steve said,
Speaker 1: we got to have a real presence. We have some assets.
Speaker 1: We had some real estate guys there, my friend and
Speaker 1: former Morgan san Lano's colleague Chad Pike ran our our
Speaker 1: European real estate stuff, and David and I moved over
Speaker 1: to do the private act. And when you say Steve,
Speaker 1: for those people who may tell us, tell us about
Speaker 1: Blackstone's boss, Steve, Steve Schwarzman our our co founder and
Speaker 1: CEO and chairman, and you know, amazing mentor and great
Speaker 1: by the way, we were supposed to have on the show,
Speaker 1: and a little thing called COVID came along and interrupted
Speaker 1: us or like literally that end of March, beginning of
Speaker 1: April when his book came out. Yeah, and well you
Speaker 1: have to get him back. He's way more interesting than me. Well,
Speaker 1: so far you're pretty interesting. So you're you're raising the bar.
Speaker 1: So so you moved to the UK, Yeah, you're you're
Speaker 1: an hour or two hop from all the key places
Speaker 1: in Europe. How did the build out go for a
Speaker 1: couple of young Americans saying, Hey, we want to play
Speaker 1: with this private equity thing in the EU. Yea, So
Speaker 1: our our strategy was and it sort of David had
Speaker 1: conceptualized like we're going to be the neutral Americans who
Speaker 1: can work with the locally European firms to help him
Speaker 1: get deals done. So we kind of went on, did
Speaker 1: some missionary work, meeting the local private equity firms in
Speaker 1: France and of course in the UK and Germany, up
Speaker 1: in the Nordic region in Italy, and we just met
Speaker 1: all the other players. It was this small industry. There
Speaker 1: weren't that many people. There weren't that many firms, and
Speaker 1: we were like, look, we'd we'd be great partners as
Speaker 1: you're looking at ass The first deal we looked at
Speaker 1: was in France. We were looking at taking remember Vivendi
Speaker 1: at the time, the media conglomerate. They had bought a
Speaker 1: bunch of educational publishing assets, including US textbook company Hote
Speaker 1: and Mifflin. Back when there were actually textbooks in schools
Speaker 1: and there's still textbooks in school You could just access
Speaker 1: everything online as well if you want fewer of them. Yeah,
Speaker 1: but and so we partnered with a few local firms
Speaker 1: and actually one of our US competitors to look at
Speaker 1: this big asset because it was quite big, and in
Speaker 1: the end we ended up just buying the US textbook business,
Speaker 1: Hote and Mifflin. That was our first deal in Europe,
Speaker 1: which was actually a US deal, but we probably wouldn't
Speaker 1: have done it had we not been there looking at
Speaker 1: the divestiture from Vivendi, and so you know, that was
Speaker 1: kind of the the strategy day one, and then it evolved.
Speaker 1: You know, I sort of looked at, well, the industry
Speaker 1: in Europe is a good decade or two behind the US.
Speaker 1: So I said, well, what kind of deals were worked
Speaker 1: in the US in the early nineties in my experience,
Speaker 1: And you know what I sort of decided as well,
Speaker 1: fragmented industries where you could drive consolidation that had happened
Speaker 1: already in the US, things like um, you know, in
Speaker 1: the UK pubs there was a big consolidation and lots
Speaker 1: of divestitures of pubs that were owned by brewers in
Speaker 1: the time, and there were rules came down that brewers
Speaker 1: can't own distributors similar to US any trust rules exactly
Speaker 1: diversify and or I'm sorry, they made them divest those
Speaker 1: vertically integrated holdings exactly. So the second deal we did
Speaker 1: was we worked with another firm, a local UK firm
Speaker 1: called CVC and also TPG to buy Scottish and Newcastle's
Speaker 1: pub divestiture. Scottish and Newcastle was a big brewer up
Speaker 1: up in Scotland at the time, and so we bought
Speaker 1: the pub business, we combined it with another one, we
Speaker 1: bought some more and that was a pretty successful investment.
Speaker 1: Then we did other similar investments, particularly with real estate intent.
Speaker 1: The pubs all own their real estate, so we were
Speaker 1: working with our real estate guys in healthcare facilities and
Speaker 1: visitor attractions and theme parks. So we did a lot
Speaker 1: of these sort of consolidation place a broad spectrum of
Speaker 1: different holdings. One of the things that I have to
Speaker 1: follow up with is how important was it partnering with
Speaker 1: local other investors and other vcs or ps. I don't
Speaker 1: know what they called themselves back then, and vcs at
Speaker 1: the time, but they were private equity. How important was
Speaker 1: it finding a local partner to you know, hook up
Speaker 1: with and be able to participate in deals with. I
Speaker 1: think early on it was important until we established ourselves,
Speaker 1: and then we did less of that. We started doing
Speaker 1: deals on our own. Probably somewhere around two thousand and
Speaker 1: four or five, we started doing things by ourselves. We
Speaker 1: were much more networked, you know, people knew who we were.
Speaker 1: Blackstone as a brand name was becoming more known just everywhere,
Speaker 1: but in particular in Europe. Because we weren't particularly well
Speaker 1: known at that time, and so yeah, it was helped
Speaker 1: kind of helped us get off the ground, so to speak.
Speaker 1: And so you guys are expanding in the two thousands
Speaker 1: in Europe. When did Blackstone start to look at Asia?
Speaker 1: When did that? Beckon? I think it was two thousand
Speaker 1: and five when we started to look at in China
Speaker 1: and in India in particular, and also Japan. And it
Speaker 1: really most of our expansion started with our real estate business,
Speaker 1: because that's a it's a little bit easier to expand
Speaker 1: globally in real estate because it's more asset based rather
Speaker 1: than like you know, company based, and so we sort
Speaker 1: of followed our real estate colleagues where they win, established
Speaker 1: a tohold, became successful. So really in private equity, our
Speaker 1: first adventure outside of Western Europe was in India and China,
Speaker 1: and that was somewhere around two thousand and five. Really
Speaker 1: quite interesting. I have to point out out that your
Speaker 1: life history is a series of ever worsening weather. You
Speaker 1: start out in California, you go to DC, you go
Speaker 1: to New York, you end up in London. So so
Speaker 1: warm sunshine, no interest, I don't know, no, I mean,
Speaker 1: I I go back to California all the time. I
Speaker 1: got a lot of good friends from high school, and
Speaker 1: you know, I grew up into at the foothills of
Speaker 1: the Sierra Nevada Mountains and I love to go there.
Speaker 1: But I can't explain it. You just like life gets
Speaker 1: in the way. And I had it, you know, a
Speaker 1: cool career going, and I just and I stuck with it.
Speaker 1: And you know, I've lived in great places. I've been
Speaker 1: super lucky to have these fun adventures, whether or notwithstanding.
Speaker 1: So let's talk a little bit about some of those places.
Speaker 1: Your base of operations when you're in the UK is London,
Speaker 1: but you're back and forth to multiple countries. What's it
Speaker 1: like trying to manage a rapidly growing private business with
Speaker 1: Eventually the current he's became more or less uniform, but
Speaker 1: different languages, different customs, different culture, different ways of doing business.
Speaker 1: All the places you've mentioned, like Germany is very different
Speaker 1: than the Switzerland, Switzerland, which is very different than the
Speaker 1: Nordic countries. How do how do you keep all that straight? No,
Speaker 1: it's it's hard. And what what we began to do
Speaker 1: is hire local people. So one of our first hires
Speaker 1: now that the man who runs our business in Europe.
Speaker 1: We hired this guy, Leon Alison, who's French, and we
Speaker 1: hired Germans. We for for a brief while we had
Speaker 1: an office in Hamburg. We hired an Italian silt the firm,
Speaker 1: Andrea Vlarry. Uh. And so we began to hire local
Speaker 1: people who were young in their careers. These are people
Speaker 1: who were, you know, in their late twenties, early thirties,
Speaker 1: oldest maybe mid thirties. Uh. And they and they kind
Speaker 1: of grew up with the firm and they were able
Speaker 1: to be the translator, so to speak, both both physically
Speaker 1: and culturally. Uh. In these some of these other countries,
Speaker 1: any memorable snaffoos either culturally or language wise when you're up,
Speaker 1: you know, when you're bouncing from you know, you go
Speaker 1: to Frankfort to Denmark, two totally different worlds. Now, the
Speaker 1: funniest story I can remember is in these early days
Speaker 1: when we were out trying to introduce ourselves to the
Speaker 1: local private equity firms. UM I went to Paris and
Speaker 1: went to Lazard Frere, which was you know that is
Speaker 1: the bastion of like French establishment business. And they had
Speaker 1: like bottles of Bordeaux on the conference room table. I
Speaker 1: mean that's you know, this is this is probably two
Speaker 1: thousand and two. And they introduced me to and I
Speaker 1: won't I won't name names. He's a wonderful guy, but
Speaker 1: in the moment it was less wonderful. They introduced me
Speaker 1: to the head of a of a significant private equity
Speaker 1: firm in Europe, and I was doing my pitch. So
Speaker 1: here I am thirty years old, he's probably forty two
Speaker 1: or three. I'm doing my pitch on Black Center. We're
Speaker 1: good friends, and we don't have an ego, and you know,
Speaker 1: we could help facilitate transactions whatever US perspective and global perspective.
Speaker 1: And the guy looks at me like I had, you know,
Speaker 1: two horns coming out of my like who's this young American?
Speaker 1: Why am I? Why am I talking to him? I
Speaker 1: mean his family dates back to like Louis Katurs. I mean,
Speaker 1: this is this is the ultimate French establishment. And here's
Speaker 1: this like schmuck from Sacramento, like, you know, thirty years old,
Speaker 1: like pitching him on why he should why we'd be
Speaker 1: a good partner for him, and he was in that
Speaker 1: moment completely dismissive. About ten or fifteen years later, we
Speaker 1: actually did work together and he acknowledged that moment and said, God,
Speaker 1: I just thought you guys were just such jokes, but
Speaker 1: it had ended up being you know, that was like
Speaker 1: an example of like I just think we were discounted,
Speaker 1: but it was. It was really early in the development
Speaker 1: of private equity, so even like undergone us could be
Speaker 1: could be successful. And I was waiting for you to say.
Speaker 1: And it was ten am and they broke open the
Speaker 1: bottles aboard. They definitely did that, and everybody started drinking
Speaker 1: and we looked at each other. Can we have a
Speaker 1: drink that morning? That is very Yeah. And you couldn't
Speaker 1: wear brown shoes. You can only wear black shoes. You
Speaker 1: weren't taken seriously is that true? You know, the whole
Speaker 1: dressing custom what you know, we're both sitting here in
Speaker 1: blazers without ties. Yeah, who cares about brown shoes? What
Speaker 1: is that was? It's a real thing. And you're I mean,
Speaker 1: at least it was back then. Yes, brown shoes are
Speaker 1: for like, you know, shooting or something. Oh really, yeah,
Speaker 1: I never would have guessed that really quite quite interesting. Yeah,
Speaker 1: by the way, there are a lot of different names
Speaker 1: for Blackstone. It's I've heard people say Blackstone, Blackstone Group,
Speaker 1: black Stone Partners. I know there are lots of different funds.
Speaker 1: I'm assuming that all these different names will come from
Speaker 1: different work products, different strategies, different funds, or is just
Speaker 1: everybody getting this wrong? Yeah? No, no, that's right. I
Speaker 1: mean the firm's called Blackstone period Um, and within black
Speaker 1: Zone in our private equity funds are called Blackstone Capital Partners. Uh.
Speaker 1: In our real estate it's black Zone real Estate Partners.
Speaker 1: And then there are variants on that theme. But you're
Speaker 1: not wrong. I mean there's different names within the individual businesses,
Speaker 1: but we all work at Blackstone. It's one firm. Makes
Speaker 1: a lot of sense. So let's talk a little bit
Speaker 1: about the state of pe investing today. We're coming off
Speaker 1: a period of low inflation, low rates, and suddenly we
Speaker 1: have higher inflation and rising rates. What sort of a
Speaker 1: challenge does that present for private markets? Yeah? Well, if
Speaker 1: you do this, if you've been doing this long enough,
Speaker 1: which fortunately I have since really nineteen ninety five, you know,
Speaker 1: you see different cycles, and you see what happens when
Speaker 1: capital becomes cheap and money becomes easy, and interest rates
Speaker 1: or lower or not really a factor, valuations go up.
Speaker 1: And you saw it, of course in the late nineties
Speaker 1: and the tech sector. You saw it into financial services
Speaker 1: sector in two thousand six seven eight ual crisis. And
Speaker 1: so as we were watching the fed's reaction to the
Speaker 1: financial crisis, pushing rates down and keeping them down, we
Speaker 1: were like, geez, this probably is not gonna last for ever,
Speaker 1: and that that doesn't seem to be the natural state
Speaker 1: of affairs. A growing economy, zero cost to capital, markets
Speaker 1: compounding at fifteen sixteen secs like that probably isn't going
Speaker 1: to happen forever. And so, you know, my base case
Speaker 1: was that it wouldn't and you'd have I called it
Speaker 1: wonkily like mean reversion and global cost to capital, which
Speaker 1: means rates would go up, market risk premiums would go up,
Speaker 1: you know, pe multiples would calm down, credit spreads would
Speaker 1: probably gap out. Not to say like we executed on
Speaker 1: that vision perfectly, I mean, we will have made some mistakes,
Speaker 1: but we definitely became much more cautious when the bull
Speaker 1: market really ramped up, in particular post COVID, when not
Speaker 1: only did you have the low rates which the FED
Speaker 1: double down on, you had this huge transfer payment from
Speaker 1: the federal government into people's pocketbooks, which which massively accelerated
Speaker 1: the economy and rates sayed low. And then we started
Speaker 1: seeing significant signs in inflation, particularly in our real estate business,
Speaker 1: with rents going up significantly, wages going up, across our
Speaker 1: private equity portfolio, beginning to see pricing power for many
Speaker 1: of our companies that they hadn't had in a long time.
Speaker 1: And we're like, whoa, this is the sign, Like this
Speaker 1: is the canary in the coal mine. There's real inflation.
Speaker 1: The FED was saying, no, it's transitory or whatever adjective
Speaker 1: they used, and we did. We became more cautious, and
Speaker 1: so I'm proud of how we navigated that cycle. And
Speaker 1: I think we're in a more normal world. To me,
Speaker 1: this world is normal, not abnormal, with you know, real
Speaker 1: positive real interest rates. I mean, inflation is higher than
Speaker 1: than normal, but that's going to come down. But I
Speaker 1: don't think we're going to go back to the days
Speaker 1: of twenty nineteen to twenty twenty one. So here's the
Speaker 1: really interesting observation that that you're making Blackstone has boots
Speaker 1: on the ground and all these different sectors. You see
Speaker 1: these things before they start to show up in the
Speaker 1: economic data. You see it in real time across real estate,
Speaker 1: across labor, across all these different inputs. How do you
Speaker 1: use all of this data that's generated by all of
Speaker 1: your portfolio companies to navigate the world at large. Well,
Speaker 1: one thing that that John and Steve have done is
Speaker 1: to make sure the firm is really joined up across
Speaker 1: our investment businesses. So we share themes, and we share
Speaker 1: these economic signals and so. And at the top of
Speaker 1: the firm, Steve, John, a few others of us who
Speaker 1: are on the management committee are really able to push
Speaker 1: down into the organization like what we're seeing to change
Speaker 1: investment behaviors. And so that's what we were able to
Speaker 1: do to a large degree, is to is to become
Speaker 1: more conservative, to to become more cautious on valuations, you know,
Speaker 1: as we started seeing evidence of inflation and thinking that
Speaker 1: rates were probably going to go up at some point. Again,
Speaker 1: we're not perfect. I'm not saying we're clairvoyant and we
Speaker 1: handled everything perfectly, but in general we became much more
Speaker 1: risk averse risk off in that you know, mid twenty
Speaker 1: twenty one period. So it's it's not like the public
Speaker 1: markets where you could say sell here by there because
Speaker 1: you have such an obvious prints in prices, but you're
Speaker 1: looking at valuations and what sort of multiples you want
Speaker 1: to pay. Yes, you're looking at the cost of capital
Speaker 1: and how much margin or leverage you want to assume.
Speaker 1: So when you're adjusting your investment posture, you're basically saying
Speaker 1: we're going to take more risk or less risk based
Speaker 1: on what's going on. So clearly that was a great
Speaker 1: time to pull back in mid twenty twenty and we
Speaker 1: sold what we could right as much as we could,
Speaker 1: you know, to your point, like it's hard to turn
Speaker 1: on a diamond, say it's all the whole portfolio. We
Speaker 1: can't do that, but we can things that are mature,
Speaker 1: things where we've realized value. Sometimes we've taken companies public
Speaker 1: and we can sell stock. We we leaned in to
Speaker 1: exiting what we could in that in that period. So
Speaker 1: so here we are, end of the first quarter twenty
Speaker 1: twenty three. What's the environment look like relative to mid
Speaker 1: twenty twenty one. Obviously rates are higher, but prices seem
Speaker 1: to have come down a bit. How are you looking
Speaker 1: at the investment environment today? I think starting with the fundamentals,
Speaker 1: the you know, the economies quite sound. We're seeing in
Speaker 1: our businesses real stability across most sectors. So let me
Speaker 1: interrupt you right there. I've been hearing recession chatter. It
Speaker 1: seems like for six months at least, sounds like you
Speaker 1: guys aren't aggressively in the wearing a recession or about
Speaker 1: to have a recession. Six months. It's been almost a year.
Speaker 1: People were declaring last summer we're already in a recession.
Speaker 1: I'm assuming you guys, we're not seeing evidence of it
Speaker 1: in the portfolio. I mean there's some degree of like
Speaker 1: heightened caution concern because when you do take rates up
Speaker 1: and really tighten financial conditions, there are consequences in the
Speaker 1: economy at some point, but we're not seeing it. We're
Speaker 1: seeing maybe wage increases beginning to decline, so the rate
Speaker 1: of increases is declining. We're seeing some companies have less
Speaker 1: pricing power maybe than they had a year ago. But
Speaker 1: we're seeing solid demand. We're seeing full employment. We still
Speaker 1: continue in many of our companies to struggle to fill
Speaker 1: open rolls. So overall, the picture we see is of
Speaker 1: a of a reasonable economy with some risks to the future.
Speaker 1: But I don't whatever recession we may have, I don't
Speaker 1: think it is going to be you know, really significant.
Speaker 1: And you guys, your your bread and butter is not
Speaker 1: forecasting the econom I don't want to I don't want
Speaker 1: to suggest that that's what we hear. But it is
Speaker 1: looking at what's more attractive and what's less attractive. So
Speaker 1: let's talk about geographies, and let's talk about sectors, what's appealing. Well,
Speaker 1: we're spending all in our private equity business, We're spending
Speaker 1: all of our time looking at things that touch the
Speaker 1: public markets, because that is where the valuation correction, you know,
Speaker 1: it's really happened, where where you can transact at prices
Speaker 1: lower today than they were two years ago. And so
Speaker 1: corporate carve outs public to privates. You know, the last
Speaker 1: few deals we've done a bit a large corporate carve
Speaker 1: out from a from a large important American corporate, Emerson.
Speaker 1: We bought their climate technologies business called Copeland. We recently
Speaker 1: announced to take private of a of a of a
Speaker 1: technology company called c Event, which is publicly traded. And
Speaker 1: so as in terms of where our teams are spending time,
Speaker 1: it's in and around sort of public markets. That's very
Speaker 1: interesting because we typically think of private equity as looking
Speaker 1: at these mature, non public companies I guess you kind
Speaker 1: of forget hey, when stock prices come down enough at
Speaker 1: a certain point that valuation becomes really attractive if the
Speaker 1: assets themselves are productive enough. Yeah, I think a big
Speaker 1: chuck of what we do over our history has been
Speaker 1: taking companies private and doing corporate carve outs from public companies,
Speaker 1: so non core assets that are large company's, divesting family
Speaker 1: owned businesses. Sometimes we buy things from our competitors, particularly
Speaker 1: if we think we can make them a lot bigger
Speaker 1: through acquisition or other things. But that's not uncommon to
Speaker 1: see private equity firms taking companies private and transacting with
Speaker 1: public companies. In terms of sectors, I think the real
Speaker 1: value dislocations have happened the technology industry. So certain elements
Speaker 1: of technology, particularly in software, we think are much more
Speaker 1: attractive than they were a couple of years ago. Not
Speaker 1: to say they look overwhelmingly cheap, but certainly more attractive
Speaker 1: than they were. I think that also there's a bunch
Speaker 1: of businesses that are manufacturing things that must exist in
Speaker 1: the physical world, you know, to to cool or heat
Speaker 1: the environment, food, the distribution of essential medical products, you know,
Speaker 1: the whole energy transition. These are these are physical assets
Speaker 1: and we want to invest not just in digital virtual assets,
Speaker 1: but also in physical assets. So I think that's and
Speaker 1: the market hasn't loved owning manufacturing, industrial type businesses. Those
Speaker 1: do seem to be valued relatively more attractively. Well the
Speaker 1: past decade, the intangibles have been super attractive. Anything with
Speaker 1: the patents of copyright an algorithm underneath it, because you
Speaker 1: don't have the obviously, and I'm not going to teach
Speaker 1: you about the private equity business, but for listeners, you know,
Speaker 1: you don't have the same capital cost you don't have
Speaker 1: the same labor costs. There's a scalability there that you
Speaker 1: don't get in the real world, which probably is why
Speaker 1: a lot of real world assets eventually become attractively priced.
Speaker 1: Does that a fair fair way? And businesses that just
Speaker 1: have to exist? What about geographies? Where are you looking
Speaker 1: around the world? What's an attractive place that people probably overlook?
Speaker 1: I think people are very negative on the UK and
Speaker 1: post brexit. Is that the driver not only post Brexit,
Speaker 1: but but now you know in the in this kind
Speaker 1: of world of inflation and in dislocation, and you know,
Speaker 1: conflict near the continent, like all of that is conspiring.
Speaker 1: I think to make markets look relatively attractive, in particular
Speaker 1: in the UK, where we own a lot of assets
Speaker 1: and will continue to buy businesses. India is very attractive.
Speaker 1: It is a rapidly growing economy with a highly educated
Speaker 1: workforce that with supply chain chain dynamics now moving toward
Speaker 1: Southeast Asia and India. We've had a big business there
Speaker 1: for a long time. And let see, let me ask you,
Speaker 1: let me ask you about India, because it feels like,
Speaker 1: at least in the public markets, India is always on
Speaker 1: like a year or two away from being the next
Speaker 1: big thing, and it just hasn't seemed to happen. What
Speaker 1: are the challenges of investing in a place like India.
Speaker 1: What we've found is that control is important in India.
Speaker 1: You know, you want to be able to control the exit.
Speaker 1: You want to be able to ensure that you're bringing
Speaker 1: in best in class management that's really perfectly aligned with you,
Speaker 1: you know, economically, that's a big thing. In sin of
Speaker 1: alignment in India has been a harder thing, and I
Speaker 1: think largely you want to avoid highly regulated industries where
Speaker 1: you're relying on the government to do something. There's a
Speaker 1: little more friction in the types of industries, and so
Speaker 1: we've pursued in the last decade of control strategy and
Speaker 1: largely where we are an outsourcing partner providing a critical
Speaker 1: component or service to Western companies. So taking advantage of
Speaker 1: the currency declining a lower cost base in India, but
Speaker 1: revenues denominated in dollars or euros really interesting. The war
Speaker 1: in Ukraine surprisingly hasn't had a negative impact or at
Speaker 1: least not as much as I expected in the public markets.
Speaker 1: How are you looking at a geopolitical event like that
Speaker 1: affecting you know, what's taking place on the continent. Yeah,
Speaker 1: we don't spend too much time thinking about like the
Speaker 1: when that might end in the ramifications of it, we
Speaker 1: do think at some level it does affect the cost structures.
Speaker 1: You know, energy prices are higher, inflation is significant, uh,
Speaker 1: and you know cost structures are are a little less
Speaker 1: efficient there maybe than in the US now. So we're
Speaker 1: very much open for business in Europe in the UK,
Speaker 1: you know this. The conflict has definitely been a drag
Speaker 1: to some degree in the economy and introduces some uncertainty.
Speaker 1: But if we can find a great business at a
Speaker 1: reasonable price in Europe, you know we're going to buy it, huh,
Speaker 1: really interesting. We talked earlier about inflation and rising rates.
Speaker 1: Private credit deals tend to be so for plus. So
Speaker 1: when I look at the world of higher rates, is
Speaker 1: it have a big impact on how you structure deals
Speaker 1: or is it just a factor that's going to move
Speaker 1: up and down and everybody just changes their spreadsheets and
Speaker 1: the numbers will just move higher. I mean, there's no
Speaker 1: question that financing costs are higher, both debt and equity,
Speaker 1: which is a healthy thing because I think the cost
Speaker 1: of global cost capital was too low, induced by super
Speaker 1: low rates and capital allocation to riskier assets, institutional investor's
Speaker 1: chasing return. You see that on the private market. It's
Speaker 1: obvious in the public markets things get frothy people, you know,
Speaker 1: when there is no alternative, people just pile into equity,
Speaker 1: and for a while it looked like the lower quality
Speaker 1: the stock was, the better it did. Do you have
Speaker 1: the same phenomenon in the private market. I think private
Speaker 1: market valuations are driven to a large degree by what's
Speaker 1: going on in the public markets. So if your alternative
Speaker 1: as a company is to go public at a given price,
Speaker 1: you're probably not going to sell it to a private
Speaker 1: equity firm at a much lower price. So yes, private
Speaker 1: equity valuations are influenced very significantly by what's going on
Speaker 1: in the public markets. That's why as an investor I'm
Speaker 1: much happier today because we're able to buy things more cheaply.
Speaker 1: And the fact that financing costs are higher kind of
Speaker 1: isn't either here nor there, because our returns are not
Speaker 1: predicated really on the cost of financing. They're predicated on
Speaker 1: buying a good business, doing something to make it grow
Speaker 1: more quickly, and having an attractive exit when we come
Speaker 1: to sell it, which means it has to be a
Speaker 1: good business, it has to be growing, and the financing,
Speaker 1: the cost of financing in the quantum isn't the biggest
Speaker 1: driver of our returns. Really interesting, So, given the change
Speaker 1: in size of private equity over the past twenty five years,
Speaker 1: is there a sweet spot? I mean, some of your
Speaker 1: holdings like Hilton obviously, Giant, I know the Savoy is
Speaker 1: in the UK and in Europe. You guys seem to
Speaker 1: play across a lot of different sizes. Where is the
Speaker 1: most fertile ground for growth size wise? Well, I think
Speaker 1: if you look at the evolution of the size of
Speaker 1: private equity transactions over the last decade, they're actually they
Speaker 1: haven't grown very much, notwithstanding the fact that the equity
Speaker 1: capital market caps like three or four times bigger than
Speaker 1: it was in two thousand and seven. You know, we
Speaker 1: bought Hilton in June of two thousand and seven, and
Speaker 1: I don't know the size. It was thirty two three
Speaker 1: four five billion dollars, like the last thirty billion dollars
Speaker 1: deal we did. I mean that we bought Medline in
Speaker 1: you know, in two thousand twenty one, in twenty twenty one.
Speaker 1: So I actually think at the large end the private
Speaker 1: equity market, we're undercapitalized. It's very hard for us to
Speaker 1: assemble much more than a five billion dollar equity check.
Speaker 1: And there are thousands of companies in the US that
Speaker 1: are ten to fifteen billion dollars plus enterprise value company.
Speaker 1: So we have to work with our investors, our limited partners,
Speaker 1: other private equity firms to assemble a deal that gets
Speaker 1: much more than ten billion of enterprise value. And there
Speaker 1: are many more ten billion dollar companies today than there
Speaker 1: was fifteen, twelve or fifteen years ago. So I think
Speaker 1: the large end of the market, we think is the
Speaker 1: most attractive. It's where we play it's where we have
Speaker 1: competitive differentiation, and it's where you find better quality businesses.
Speaker 1: At what point does size become the enemy? It sounds
Speaker 1: like you can scale up by partnering with lots of
Speaker 1: other PE firms. Is there a ceiling or at what
Speaker 1: point do you look at something and say, hey, that's
Speaker 1: just too big to try and take a boy? I mean,
Speaker 1: I think the biggest deal that's been done in the
Speaker 1: last you know, ten years is around thirty billion dollars
Speaker 1: and that you know, Yeah, to get that done, we
Speaker 1: had to work with um two of our competitors, which
Speaker 1: is fine, but we'd prefer to buy things on our own,
Speaker 1: just Black Sun, with our with our limited partners. You
Speaker 1: want the control and be able to to set how
Speaker 1: you're going to exit or how the farm's going to
Speaker 1: be run. Well, it's not necessarily a problem to do
Speaker 1: that with some of our friendly competitors, but like, really
Speaker 1: our preference is to do it just on our just
Speaker 1: by ourselves. Um so, uh, you know the answers, We
Speaker 1: can't really get deals much bigger than you know, ten
Speaker 1: to fifteen billion dollars done on our own, and I
Speaker 1: think that's right now a little bit. Plus the financing
Speaker 1: markets are less liquid and there's less quantum available. So
Speaker 1: I think that's kind of the realm we're in. And
Speaker 1: like I said, those companies aren't too big to make
Speaker 1: good returns with. I mean, you have a bunch of
Speaker 1: companies that have trillion dollars plus market caps, That's right,
Speaker 1: So what is ten billion dollars? If Apple decides it
Speaker 1: wants to buy something for you know, ten, twenty, thirty, forty,
Speaker 1: it doesn't blink in. There are a lot of companies
Speaker 1: like that. Huh, really really quite fascinating. So you do
Speaker 1: some really interesting work at Blackstone, including serving on a
Speaker 1: lot of portfolio companies boards first EGIL Investment Management. You
Speaker 1: mentioned Menline earlier, Ancestry dot com is probably things people
Speaker 1: are are familiar with. Tell us about those experiences. What
Speaker 1: is it like being on these boards and what sort
Speaker 1: of input do you give to management? Though? Well, what
Speaker 1: brings me energy and joy in my job is investing
Speaker 1: capital and working with companies. So the way I do
Speaker 1: you know this job in addition to you know, managing
Speaker 1: a bunch of our people and you know, engaging and
Speaker 1: other stuff at the firm, is I want to keep
Speaker 1: a hand in Uh, the investing and and and engaging
Speaker 1: with our companies. So yeah, there's a few companies where
Speaker 1: where I'm closely involved and I sit on the board
Speaker 1: and I help their management teams, um, you know, plot
Speaker 1: strategy and deal with you know, important strategic issues. Our
Speaker 1: model is not to run the companies. We find great
Speaker 1: management teams, we back them with capital and support, and
Speaker 1: we let them run the run the businesses. So we
Speaker 1: operate from a board level and really focused on key
Speaker 1: strategic and risk management variables. Really quite interesting, what what
Speaker 1: sort of new markets are you guys considering? What are
Speaker 1: you looking at that might not have been on the
Speaker 1: table a decade ago. Um, you know, the whole notion
Speaker 1: of energy transition is a market that you know, a
Speaker 1: decade ago, energy investors were investing in upstream oil and
Speaker 1: gas or in midstream companies, and today the clear direction
Speaker 1: to travel is toward weaning ourselves at these big economies
Speaker 1: off of hydrocarbon's for power. So that is that is
Speaker 1: one sector that that we're investing in that a decade
Speaker 1: ago we wouldn't. And also, um, there's new business models,
Speaker 1: new media models. You know, we we spent a lot
Speaker 1: of time looking at traditional media businesses that UM linear TV,
Speaker 1: satellite broadcast, regional sports networks, all those thingsagies that that
Speaker 1: the direction of travels, those aren't really investable. The streaming
Speaker 1: services direct a consumer. Uh, And so instead of investing
Speaker 1: in those, we decided to back Kevin Mayer and Tom
Speaker 1: Staggs to x Disney, guys really well regarded guys in
Speaker 1: the business, guys in the entertainment industry, to build an
Speaker 1: independent content creation business, which we've done both in children's
Speaker 1: content with Moonbug and in live action entertainment with Hello Sunshine,
Speaker 1: which was the business at Reese Withers been started. So
Speaker 1: that's the type of thing that a decade ago we
Speaker 1: wouldn't have invested in. You know, big bigger technology company
Speaker 1: software businesses that have proven they've got really durable, sticky
Speaker 1: revenue models. Maybe they're not run that efficiently you can
Speaker 1: take margins up. That's another in market that we're investing
Speaker 1: in today that maybe a decade ago we wouldn't have been. Huh.
Speaker 1: That's really interesting. How often does a new business model
Speaker 1: come along that's really notably different from what proceeded it?
Speaker 1: Is this just part of the life cycle of business?
Speaker 1: Or do you go through these periodic spasms where everything changes. Well,
Speaker 1: I would say in my twenty five year history of Blackstone,
Speaker 1: there were certain industries that were growth industries that we
Speaker 1: were investing in in the mid nineties and late nineties
Speaker 1: and early two thousands that now are no longer investable.
Speaker 1: So as an investor, you have to be nimble. You
Speaker 1: have to have like an open mind and realize that
Speaker 1: things are changing. Industry structures are changing, business models are changing,
Speaker 1: and now the rate of change is much more quick.
Speaker 1: Um with with with the advent of technology, ubiquitous broadband,
Speaker 1: which really enabled the internet, changed the way we watch media,
Speaker 1: changed the way we shopped, changed the way we we
Speaker 1: we found information. Um uh, it changed the way we
Speaker 1: communicated with each other. Um and and now I think,
Speaker 1: you know, AI could be it probably is one of
Speaker 1: those other major c changes where business models turning on
Speaker 1: human beings doing wrote tasks you know, probably is not
Speaker 1: the future. And and a lot of businesses are going
Speaker 1: to be dislocated. So a big part of what we
Speaker 1: do is trying to figure out where we don't want
Speaker 1: to invest and what's going to be dislocated by ubiquitous broadband.
Speaker 1: Back in two thousand and five, six seven, and now
Speaker 1: AI with the rate of sophistication of that technology, so
Speaker 1: we see a lot of hype business come along. Clearly,
Speaker 1: there was a ton of hype in crypto, and then
Speaker 1: the metaverse you know, kind of came, almost came and
Speaker 1: went already a lot of hype there. My sense is
Speaker 1: that AI and cha chat bots and the recent you know,
Speaker 1: multibillion dollar acquisitions that have been done by firms like
Speaker 1: Microsoft and Google, this doesn't seem to be that sort
Speaker 1: of ephemeral hype story. This seems to really be a
Speaker 1: potential sea change. I agree with you. I mean, like
Speaker 1: I said, there's a few fundamental enabling technologies that happen.
Speaker 1: Ubiquitous broadband internet to your house, to your mobile device,
Speaker 1: which really enabled a change in retail and media models,
Speaker 1: in communication models, and now this, you know, the blockchain.
Speaker 1: When it came, people like Hm, I always went like,
Speaker 1: what's the use case? Right, It's a solution of a
Speaker 1: problem exactly, and it's cool, and you know, bitcoin or whatever.
Speaker 1: They're probably a real store of value, but that's not
Speaker 1: really investable for us. It is AI investable because it
Speaker 1: looks like a couple of big companies, UH push their
Speaker 1: way in there are a couple of transactions, or is
Speaker 1: this gonna, you know, be the fertilizer that launches a
Speaker 1: thousand blooms or whatever the express it may be invested.
Speaker 1: It's it's certainly investable for venture investors and smaller guys
Speaker 1: who are willing to sort of dig holes in the
Speaker 1: ground and hope something comes out. I mean for us
Speaker 1: in corporate private equity. No, but what it what it
Speaker 1: is is we have to figure out what businesses are
Speaker 1: going to be disrupted and avoid those and figure out
Speaker 1: what what mature businesses will be enabled by this and
Speaker 1: invest Like look at Disney. You know, Disney, in large
Speaker 1: part was was hugely enabled by streaming services because of
Speaker 1: the amazing content it owned, So it was a bit
Speaker 1: ficiary of the technology change. But cable television models or
Speaker 1: satellite TV like those, those those suffered. And so we're
Speaker 1: trying to find the businesses that are going to be
Speaker 1: enabled and benefited by AI and avoid the things that
Speaker 1: are going to be dislocated. That's quite quite interesting. So
Speaker 1: I read a quote of yours that cracked me up.
Speaker 1: I have to ask you about you said, if you
Speaker 1: weren't working in private equity, the next best job would
Speaker 1: be general manager of the Dallas Cowboys. I mean, with
Speaker 1: all respect to the Joneses who run that team, you know,
Speaker 1: and have to particularly this off season, They've done a
Speaker 1: nice job. I've been a Dallas Cowboys fan since I'm
Speaker 1: seven years old. And you say we'll get a kid
Speaker 1: from Sacramento, a Dallas Cowboys fan and an America's team.
Speaker 1: I was watching the ten am game back talk about
Speaker 1: linear TV. There were two games, one at ten, one
Speaker 1: at one, and the Cowboys playing in the NFC East
Speaker 1: were always on the ten am game and it was
Speaker 1: America's team. So I'm watching the Cowboys like every Sunday.
Speaker 1: And then when the Niners got good, I became a
Speaker 1: cherry and said, no, I'm a root for the Cowboys really,
Speaker 1: even though they lost so similar Jerry Rice didn't no bid,
Speaker 1: no bid really that Rogers sawback, Tony Dorset, Tony Hill
Speaker 1: those and then of course and now look they're fun
Speaker 1: to watch. I love football. I don't miss a game.
Speaker 1: And yes, if Jerry needs some help, you know, he
Speaker 1: knows you knows, you know, he reach out to Steve.
Speaker 1: Steve will put you in touch. And then we talked
Speaker 1: about the companies that you're on the boards of, but
Speaker 1: you're also a trustee of the Tate Foundation, which I
Speaker 1: assume is related to the giant Tape Museum in London.
Speaker 1: Tell us a little bit about the work you do
Speaker 1: with them. That sounds like a fascinating organization. Yeah, the
Speaker 1: Tate is is such a significant cultural institution in the UK.
Speaker 1: It's it's funded largely by the by the state um.
Speaker 1: The Tate Foundation is the private philanthropic arm of the
Speaker 1: Tate that helps fund special projects, whether it's exhibitions or
Speaker 1: building buildings. You know, the big Tate Modern Gallery was
Speaker 1: in large part funded by private donations. And you know,
Speaker 1: philanthropy in the UK is at a different scale than
Speaker 1: in the US. So for not a lot of money,
Speaker 1: you know, I could like get engaged in the arts
Speaker 1: in a really important cultural institution, where in the UK
Speaker 1: it's less sort of focused on the elite and more
Speaker 1: focused on like the democratization of art and culture for
Speaker 1: the people of the UK. And I really identified with that.
Speaker 1: I didn't realize philanthropy was that different overseas than is here. Yeah,
Speaker 1: first of all, how did you first get involved with them?
Speaker 1: By the way, my wife loves the Tate Modern one
Speaker 1: of our favorite. It's a great building and a beautiful collection. Yeah,
Speaker 1: how did you first get get involved with them? You know?
Speaker 1: I just I had I had young kids. From two
Speaker 1: thousand and four until two thousand and ten, we were
Speaker 1: having babies and one of the places we'd always go
Speaker 1: is either Tape Written or Tape Modern. You could consume
Speaker 1: saturdays with kids running around, and like I said, they're
Speaker 1: very accessible, there's nothing intimidating about those institutions. And then
Speaker 1: I knew some people who are involved, and I met
Speaker 1: the director one day and um, you know, they asked
Speaker 1: me to, you know, get involved. And so for the
Speaker 1: last maybe I don't know, twelve or so years, I've
Speaker 1: been involved with the Tape Foundation. It's a great, great
Speaker 1: group of people, great organization. So yeah, that's been a fun.
Speaker 1: Sound it sounds like a lot of fun. So so
Speaker 1: before we let you go, we're going to jump to
Speaker 1: our favorite questions that we ask all of our guests.
Speaker 1: Starting with you mentioned streaming. Tell us what you've been watching.
Speaker 1: What keeps the family entertained? I just got done with
Speaker 1: Daisy Jones in the six I'm halfway through it, really
Speaker 1: loving it. Which where the music is amazing. The whole
Speaker 1: aesthetic of it is amazing, the acting is amazing, the
Speaker 1: music is great. And it also happens to be a
Speaker 1: production of one of our portfolio companies, Hello Sunshine, and
Speaker 1: it is the perfect example of what we thought Hello
Speaker 1: Sunshine could do. Then leaning power to as symbol that
Speaker 1: amazing ensemble, cast amazing music creators and create something that
Speaker 1: that UM is really is really important to to. In
Speaker 1: this case, Amazon Prime to be an important counterparty of
Speaker 1: the streamer. So I'm really proud of what they did there.
Speaker 1: And it's a great show. Yeah, supposed to be sort
Speaker 1: of loosely fashioned after the Fleetwood Mac story with all
Speaker 1: the christ and I think they nailed it. I really think.
Speaker 1: The other one I love is White Lotus, which is fantastic,
Speaker 1: not a not a Black sunrelated thing, also awesome. So
Speaker 1: I really like the first season. I haven't gotten into
Speaker 1: the second season yet, um and people said it's even better.
Speaker 1: It's wilder and crazier, yeah than the first one. So
Speaker 1: so let's talk about your mentors, who who helped shape
Speaker 1: your career. I've I've been really fortunate in my life
Speaker 1: where I've had, you know, along the way in the journey,
Speaker 1: Morgan Stanley at mccundeloo, at Tinnacum, which is the Ruttenberg family,
Speaker 1: where in each of those places I've had somebody who
Speaker 1: really helped me in my career and with whom I'm
Speaker 1: very close even today. And then at Blackstone, you know,
Speaker 1: Steve Schwarzman changed my life and Tony James who started
Speaker 1: when I was about four years into Blackstone and really
Speaker 1: helped transform the firm and make it what it is today.
Speaker 1: Those two men really were extremely important in my professional development,
Speaker 1: my personal development. Great amazing mentors. Let's talk about books.
Speaker 1: What are some of your favorites? What are you reading
Speaker 1: right now? You know the book I most recently finished
Speaker 1: by Arthur Brooks, a book on happiness. Yeah, I've been
Speaker 1: following that series in the Atlantic. It's really quite fascinating. Yeah,
Speaker 1: he's He's amazing And in fact I invited him to
Speaker 1: come talk to our partner group. We had a global
Speaker 1: partner off site in Private Equity in London in September.
Speaker 1: I had him come to talk about like what it
Speaker 1: means to be where from where you should be deriving
Speaker 1: your happiness. It's not just like the next the next deal,
Speaker 1: the next promotion, the name in the paper or whatever,
Speaker 1: you got to get it elsewhere. And I think it's
Speaker 1: really important for people who are workaholics, who are high
Speaker 1: achievers to put, you know, everything that we're doing every
Speaker 1: day into context and to find happiness kind of outside
Speaker 1: that box. So that's been a really important book I've
Speaker 1: read recently, and I think he's great, really interesting. We're
Speaker 1: down to our last two questions. What sort of advice
Speaker 1: would you give to a recent college grad who was
Speaker 1: interested in a career in private equity Patience. I think
Speaker 1: the one thing I've seen in this generation of people
Speaker 1: like me and you is we all were impatient. We
Speaker 1: all wanted to get there fast. But I think it's
Speaker 1: entered a new level because people start so early. You
Speaker 1: have to do so much to get in college. We're
Speaker 1: hiring summer interns now who are nineteen and twenty years old.
Speaker 1: You know that did not happen when we were kids. Uh,
Speaker 1: And they and they sort of by the time they're thirty.
Speaker 1: They want to have had like declare vic jury on
Speaker 1: the career that doesn't happen, and enjoy the journey that
Speaker 1: it takes a long time to figure out, like how
Speaker 1: you how you get good at something and in the
Speaker 1: particular way you want to do it, and you have
Speaker 1: to enjoy that process and enjoy like the time it takes.
Speaker 1: And then by the time you're in your forties you
Speaker 1: can actually be good at this job. And by the
Speaker 1: time you're in your fifties, with some wisdom, you can
Speaker 1: be really good at the job. But it doesn't just
Speaker 1: happen like that, And I think people just need to relax,
Speaker 1: take a deep breath in the early days, do what's
Speaker 1: asked of them, do it as well as they can,
Speaker 1: and move on to the next step. Really really interesting
Speaker 1: answer our final question, what do you know about the
Speaker 1: world of investing today you wish you knew back in
Speaker 1: the nineties when you were first getting started. I think
Speaker 1: that it changes so much and fundamentally that you can't
Speaker 1: hold on to like, um, you know, absolutes. There's really
Speaker 1: no absolutes. There's some like risk management things that you
Speaker 1: that you always need to be mindful of. But I
Speaker 1: could have evolved more quickly as an investor, you know, overtime,
Speaker 1: and I continue to learn that lesson really intriguing. Thank
Speaker 1: you Joe for being so generous with your time. We
Speaker 1: have been speaking with Joe Barratta. He is Global head
Speaker 1: of Private Equity at Blackstone. If you enjoy this conversation,
Speaker 1: well he sure and check out any of the previous
Speaker 1: five hundred or so we've done over the past eight years.
Speaker 1: You can find those at YouTube, iTunes, Spotify, wherever you
Speaker 1: find your favorite podcasts. Feel free to sign up for
Speaker 1: my daily reading list at Ridholtz dot com. Follow me
Speaker 1: on Twitter at Ridholtz. Follow all of the fine family
Speaker 1: of Bloomberg Podcasts on Twitter at podcast I would be
Speaker 1: remiss if I did not thank the fine team who
Speaker 1: helped put this conversation together each week. Sebastian Escobar is
Speaker 1: my audio engineer. Ris Wold is my producer. Fatica Valbron
Speaker 1: is our project manager. Sean Russo is my researcher. I'm
Speaker 1: Barry Ridholds. You've been listening to Master's Business on Bloomberg Radio.