WEBVTT - Joseph Baratta on the Future of Private Equity 0:00:01.960 --> 0:00:06.040 This is Masters in Business with Very Red Holds on 0:00:06.200 --> 0:00:10.200 Bloomberg Radio. This week on the podcast, I have an 0:00:10.200 --> 0:00:13.920 extra special guest. Joe Barada is the global head of 0:00:13.960 --> 0:00:17.720 Private Equity at PE Giant Blackstone, where he has worked 0:00:17.720 --> 0:00:20.720 since nineteen ninety eight. I found this to be a 0:00:20.880 --> 0:00:26.560 fascinating conversation because Joe's career has very much paralleled the 0:00:26.600 --> 0:00:30.600 growth of private equity. When he began, PE was a 0:00:30.640 --> 0:00:34.720 little bit of a niche boutique sort of investment, and 0:00:34.880 --> 0:00:37.680 over the ensuing twenty five years it has grown to 0:00:37.800 --> 0:00:43.519 be really a major asset class with giant opportunities that 0:00:43.560 --> 0:00:48.520 have been expressed by then small now very large companies, 0:00:48.520 --> 0:00:52.559 of which Blackstone is one of the largest. He is 0:00:52.800 --> 0:00:56.440 very familiar with everything from M and A to credit, 0:00:56.520 --> 0:01:01.279 to real estate, on and on, and has had experiences 0:01:01.280 --> 0:01:05.720 both in the US and overseas, really a global perspective 0:01:06.200 --> 0:01:10.200 on what took place in private equity in the past 0:01:10.319 --> 0:01:13.319 and what the future looks like. I thought the conversation 0:01:13.400 --> 0:01:16.320 was quite fascinating, and I think you will as well 0:01:16.480 --> 0:01:21.400 with no further ado, my discussion of private equity with Blackstones. 0:01:21.800 --> 0:01:29.240 Joe Barratta. Joe Barratta, Welcome to Bloomberg. Thank you, happy 0:01:29.280 --> 0:01:31.959 to be here, Happy to have you. Let's start out 0:01:32.000 --> 0:01:34.720 with just a little background on your career. You began 0:01:35.160 --> 0:01:36.800 more or less in the M and A space at 0:01:36.840 --> 0:01:40.399 Morgan Stanley, Is that right? Yeah? Right after I graduated college, 0:01:40.400 --> 0:01:43.280 I went to Georgetown in nineteen ninety three, I got 0:01:43.319 --> 0:01:45.560 an analyst job at Morgan Stanley in the M and 0:01:45.600 --> 0:01:49.160 A group and that's a kind of two year training program. 0:01:49.200 --> 0:01:53.160 And I did that and I was painful. You can imagine. 0:01:53.200 --> 0:01:56.760 It sounds like a good background for someone who eventually 0:01:56.880 --> 0:02:01.720 ends up buying companies. Yeah, I'm I knew nothing about finance. 0:02:02.440 --> 0:02:05.560 I grew up in Sacramento, California. My dad was a 0:02:05.600 --> 0:02:10.800 bodybuilder and owned three gems in Sacramento. Really yeah, and 0:02:10.880 --> 0:02:13.839 so I didn't know, you know, what finance was all about. 0:02:13.880 --> 0:02:15.560 I had never been to New York City until I 0:02:15.600 --> 0:02:18.320 was I think twenty years old, and I had some 0:02:18.400 --> 0:02:20.400 roommates who grew up in New York City who had 0:02:20.480 --> 0:02:25.239 gone to Dalton High School here, so completely different world. Yeah. 0:02:25.320 --> 0:02:26.960 When I came to the city, I was like, Wow, 0:02:26.960 --> 0:02:29.640 this place is amazing. And you know, I needed to 0:02:29.720 --> 0:02:32.160 earn some money and I was adept in finance. I'd 0:02:32.160 --> 0:02:36.160 studied finance, it was my major at Georgetown, and I 0:02:36.200 --> 0:02:37.960 was hoping to get a job somewhere, and I got 0:02:37.960 --> 0:02:41.240 a job at Morgan Stanley, which way exceeded my dreams 0:02:41.240 --> 0:02:44.800 at that point. Huh. So, eventually you leave Morgan Stanley, 0:02:44.840 --> 0:02:50.040 you end up at Tentacom Incorporated and McCallen Dulu and Company. 0:02:50.080 --> 0:02:53.799 I'm assuming these are both related, m M and A 0:02:53.960 --> 0:02:58.120 type firms or probate. Yeah, the first job from Morgan 0:02:58.120 --> 0:03:02.000 Stanley was McCallen delou and So in the early nineties, 0:03:03.280 --> 0:03:06.520 analysts at these big investment banks Morgan Stanley, Goldman Sachs 0:03:06.520 --> 0:03:09.560 had sort of two or three options. You could stay 0:03:09.600 --> 0:03:11.880 there and become an investment banker and do that for 0:03:11.919 --> 0:03:15.280 a career. You could go into the emerging fields of 0:03:16.360 --> 0:03:19.720 investing in private equity or in hedge funds, or you 0:03:19.880 --> 0:03:22.200 go to business school or maybe go to business school later. 0:03:22.680 --> 0:03:25.040 I really wanted to learn how to invest money, not 0:03:25.120 --> 0:03:27.880 just be an advisor. And I thought private equity was 0:03:27.919 --> 0:03:31.880 cool because you weren't at the whim of the market. 0:03:32.200 --> 0:03:33.920 You know, in the market's like if you start at 0:03:33.919 --> 0:03:36.080 the wrong time, if you're wrong for a few quarters 0:03:36.120 --> 0:03:40.400 like boom, like the career is abbreviated. And I thought 0:03:40.440 --> 0:03:43.840 private equity was interesting because you could live with those 0:03:43.880 --> 0:03:45.680 investments for a longer period of time. You had a 0:03:45.680 --> 0:03:47.440 longer period of time to figure out if you were 0:03:47.520 --> 0:03:51.280 right or not. And I think fundamentals mattered more in 0:03:51.280 --> 0:03:53.880 private equity than they did in public market investing. So 0:03:54.960 --> 0:03:57.360 I wanted to get a job at a private equity firm. 0:03:57.440 --> 0:04:00.320 I wanted to do fundamentals matter more? Or is it 0:04:00.360 --> 0:04:05.360 really just a question of how far away from fundamentals 0:04:05.720 --> 0:04:09.600 can public equities get, either to the upside or the 0:04:09.640 --> 0:04:14.040 downside where it creates some form of opportunity, which kind 0:04:14.040 --> 0:04:19.320 of raises the question how closely do private market fundamentals 0:04:19.680 --> 0:04:22.039 track what's going on in the public markets. Yeah, in 0:04:22.040 --> 0:04:24.680 the long run they do. In the short run, there 0:04:24.720 --> 0:04:28.520 can be distortions in public market valuations as we saw 0:04:28.960 --> 0:04:31.440 in two thousand and one, and we saw prior to 0:04:31.440 --> 0:04:33.320 that in two thousand and seven, and prior to that 0:04:33.480 --> 0:04:37.039 in two thousand and ninety nine. So yes, you're right, Like, 0:04:37.160 --> 0:04:42.680 in the long run, fundamentals drive determine share prices in 0:04:42.680 --> 0:04:46.799 private equity. You know, we're owning things for five, six, ten, years, 0:04:47.200 --> 0:04:49.839 and we're not subject to like the vicissitudes of the 0:04:49.880 --> 0:04:52.080 market in the short run. We never have to sell, 0:04:52.960 --> 0:04:55.800 only only when we want to because we control We 0:04:55.839 --> 0:04:58.520 control the companies, and to me, that was a more 0:04:58.600 --> 0:05:01.760 comfortable form of investing in it and where I wanted 0:05:01.800 --> 0:05:04.880 to bet my career. So you end up at Blackstone 0:05:04.880 --> 0:05:09.480 in nineteen ninety eight at a time when public equity 0:05:09.480 --> 0:05:13.320 prices became a little unmoored and were on the way 0:05:13.440 --> 0:05:16.520 up to a real bubble. What was it like on 0:05:16.560 --> 0:05:20.080 the private side at the end of the nineties. Yeah, 0:05:20.080 --> 0:05:23.960 I started at Blackstone in July of ninety eight, and 0:05:24.000 --> 0:05:26.400 I guess what was going on that year? You had um, 0:05:27.560 --> 0:05:30.640 you had like a Southeast Asian currency crisis. He had 0:05:30.960 --> 0:05:33.880 stuff going on in Latin America, had the Russia crisis. 0:05:33.960 --> 0:05:36.920 He had Lehman almost go bust. I think around that 0:05:36.960 --> 0:05:41.200 time for maybe at the first or second time, and 0:05:41.360 --> 0:05:44.359 so yeah, there was a lot of volatility. Private equity 0:05:44.440 --> 0:05:47.200 was still, i'd say, in the in the first phase 0:05:47.279 --> 0:05:52.440 of its ofs of its existence, and Blackstone was one 0:05:52.440 --> 0:05:54.680 of them. That's why I joined Blackstone. It was one 0:05:54.720 --> 0:05:57.760 of the leading firms in that moment. It had a 0:05:57.760 --> 0:06:01.120 lot of momentum. I think they were. They were operating 0:06:01.160 --> 0:06:04.440 at the really top of the industry, really smart people, 0:06:04.760 --> 0:06:08.000 good track record, and I wanted to attach myself at 0:06:08.000 --> 0:06:10.000 that point in my career, I was twenty I think 0:06:10.000 --> 0:06:13.880 twenty seven years old. I wanted to attach myself to 0:06:13.880 --> 0:06:16.360 affirm that I thought really had a lot of growth 0:06:16.360 --> 0:06:18.599 potential where I could learn from the best people in 0:06:18.600 --> 0:06:21.800 the industry. That certainly was what I found there. And 0:06:22.360 --> 0:06:27.120 today private equity has become immense compared to twenty twenty 0:06:27.160 --> 0:06:30.160 five years ago. We'll talk a little bit about your 0:06:30.160 --> 0:06:34.479 time in London later, but I love the announcement when 0:06:34.520 --> 0:06:38.480 you were promoted to a global head of pe from Blackstone. 0:06:38.520 --> 0:06:41.640 They said, the seventy three investments and pending deals you're 0:06:41.680 --> 0:06:45.040 involved in combined for one hundred and seventeen billion dollars 0:06:45.080 --> 0:06:49.200 in revenue, the equivalent of the thirteenth largest company by 0:06:49.279 --> 0:06:52.320 revenue on the Fortune five hundred lists, Meaning your team, 0:06:52.360 --> 0:06:56.920 your group would be a Fortune top twenty company. Yeah, 0:06:57.040 --> 0:06:59.520 tell us what that growth has been like over the 0:06:59.560 --> 0:07:03.400 past five years. It seems a house of fire. Yeah. 0:07:03.440 --> 0:07:08.000 When I started at Blackstone, we were I think we 0:07:08.120 --> 0:07:10.760 just started investing our third private equity fund, it was 0:07:10.800 --> 0:07:14.200 about three billion dollars in total size. We had our 0:07:14.200 --> 0:07:16.240 second real estate fund, which was I think about a 0:07:16.240 --> 0:07:19.600 billion two or three size. I think we just raised 0:07:19.640 --> 0:07:22.560 a small credit fund which is nine hundred million, and 0:07:22.600 --> 0:07:24.320 then we had an m and a advisory business, and 0:07:24.360 --> 0:07:27.960 the whole firm was maybe maybe two hundred total employees, 0:07:29.440 --> 0:07:33.760 not just investment people, total staff. And today we're knocking 0:07:33.800 --> 0:07:36.200 on the door of five thousand. I think we're forty 0:07:36.200 --> 0:07:39.320 five hundred something like that. And the size of our 0:07:39.360 --> 0:07:41.960 private equity business is you know, we're now on our 0:07:42.040 --> 0:07:45.880 ninth fund. We have associated funds in Asia, and an 0:07:45.960 --> 0:07:49.400 energy transition and a long dated vehicle that allows us 0:07:49.400 --> 0:07:54.000 to hold things for fifteen plus years. And I think 0:07:54.040 --> 0:07:56.440 if you add it all up, we have about forty 0:07:56.440 --> 0:08:00.640 billion dollars of funds that we're currently investing in their period. 0:08:00.800 --> 0:08:03.880 And the total aum of our private equity business a 0:08:04.040 --> 0:08:07.840 UM assets under management is roughly eighty ninety billion. So 0:08:07.880 --> 0:08:10.880 I mean, we're materially bigger than we were twenty five 0:08:10.960 --> 0:08:14.360 years ago. Even when you read that announcement from two 0:08:14.520 --> 0:08:19.080 that was twenty twelve, we're probably three times this size 0:08:19.360 --> 0:08:22.160 is we were in twenty twelve, both in terms of 0:08:22.400 --> 0:08:25.600 the aggregate revenue of our companies, size of our portfolio. 0:08:25.880 --> 0:08:29.600 We're probably now something like one hundred and fifty total investments, 0:08:30.520 --> 0:08:33.600 many hundreds of billions of revenue, hundreds of thousands of 0:08:33.600 --> 0:08:35.880 employees if you add up all of the companies in 0:08:35.920 --> 0:08:39.200 which we're invested. So it's been really significant growth. And 0:08:39.800 --> 0:08:44.480 you know why is that? I think because the private 0:08:44.520 --> 0:08:47.360 equity investing model has been really good for our clients, 0:08:47.360 --> 0:08:50.800 which our state pension plan, sovereign wealth funds, you know, 0:08:51.280 --> 0:08:57.400 ensuring the retirement safety of many tens of millions of people. 0:08:57.520 --> 0:09:01.040 So you're you're anticipating one of the questions I'm going 0:09:01.120 --> 0:09:03.200 to ask you, which might as well bring it up 0:09:03.240 --> 0:09:06.240 now over that twenty five year period or even the 0:09:06.280 --> 0:09:09.600 past decade where you've tripled in size, it's more than 0:09:09.640 --> 0:09:14.520 just quantitative. It seems like private equity is qualitatively different 0:09:14.920 --> 0:09:17.520 than it was back in the early days. Is this 0:09:17.720 --> 0:09:23.720 simply becoming institutionalized or has the asset class been validated 0:09:23.679 --> 0:09:27.559 and now people are treating it differently than they did 0:09:27.559 --> 0:09:30.040 in the nineties where it was kind of a small 0:09:30.160 --> 0:09:33.959 niche backwater. I'm exaggerating that at all, whereas no, No, 0:09:34.320 --> 0:09:36.320 it was more of a cottage industry. There were a 0:09:36.360 --> 0:09:39.319 few firms, a couple of big leaders like KKR. Blackstone 0:09:39.400 --> 0:09:42.560 was what was right on their heels back then. But 0:09:42.679 --> 0:09:45.760 it's nothing like it is today. It is that it 0:09:45.840 --> 0:09:49.280 is an institutionalized asset class. There's definitely been proof of 0:09:49.320 --> 0:09:54.040 concept for large scale institutional investors and even retail investors 0:09:54.440 --> 0:10:00.439 that we can produce sustainable, predictable above public market returns. 0:10:00.720 --> 0:10:05.559 And we've become better at what we do in buying 0:10:05.600 --> 0:10:08.760 control of companies, engaging with them, making them better, helping 0:10:08.760 --> 0:10:11.760 them grow, and so and so. Yeah, and we've had 0:10:12.120 --> 0:10:14.280 limited partners in our funds who've been with us since 0:10:14.320 --> 0:10:17.120 the early nineties now and keep reupping because we deliver 0:10:18.040 --> 0:10:21.679 a good return for their beneficiaries. So let's talk about 0:10:21.760 --> 0:10:25.000 some of those different types of funds. You mentioned private credit, 0:10:25.080 --> 0:10:29.400 you mentioned real estate, private equity, M and A what 0:10:29.600 --> 0:10:33.440 is energy transition? That sounds quite fascinating. Yeah. Energy has 0:10:33.480 --> 0:10:37.800 been a major investment theme across many of our businesses 0:10:37.800 --> 0:10:40.960 and credit and in corporate private equity, and we have 0:10:41.040 --> 0:10:42.720 for the last six or seven years. The way we've 0:10:42.720 --> 0:10:46.120 been expressing investing in energy is an energy transition, So 0:10:46.200 --> 0:10:51.280 in companies that are helping accelerate the transition from burning 0:10:51.360 --> 0:10:56.079 hydrocarbons to produce electricity and energy to renewable sources, and 0:10:56.120 --> 0:10:59.840 so in private renewable meaning wind solar, nuclear or whatever, 0:11:00.040 --> 0:11:03.800 wind solar, electrifying the economy, getting off of oil and gas, 0:11:03.840 --> 0:11:06.319 and it's all kinds of companies engage. It's not just 0:11:06.920 --> 0:11:09.840 power generation from those sources, but it's companies that are 0:11:09.880 --> 0:11:14.040 involved in in consulting and utility services, in companies that 0:11:14.080 --> 0:11:17.880 make components that are helping electrify the economy, and electric 0:11:17.960 --> 0:11:21.600 vehicles or in HVAC systems. So it's a whole broad 0:11:21.720 --> 0:11:25.360 spectrum of investing in the energy complex focused on the 0:11:25.400 --> 0:11:29.760 transition from hydrocarbons to renewable. So we take for granted 0:11:30.000 --> 0:11:32.360 totally that you're out in a car, you could pull 0:11:32.400 --> 0:11:37.040 over anywhere and tank up with gas. It feels like 0:11:37.160 --> 0:11:41.400 we're very early stages of transitioning to being able to 0:11:41.440 --> 0:11:44.360 pull up somewhere and spend ten minutes charging the car 0:11:44.440 --> 0:11:48.240 to get you another hundred miles or so. Is that 0:11:48.240 --> 0:11:51.480 the sort of infrastructure we're talking about, in addition to 0:11:51.760 --> 0:11:54.080 all the obvious ones we've yeah, that's part of it. 0:11:54.120 --> 0:12:00.480 I mean we're not specifically investing in charging stations, we 0:12:00.520 --> 0:12:03.160 actually have assets where those are going in, or we're 0:12:03.240 --> 0:12:09.280 investing in components that are part of manufacturing those those facilities. 0:12:09.280 --> 0:12:11.280 But yes, that's the kind of thing we're talking about 0:12:11.280 --> 0:12:13.679 that is part of the energy transition. And you had 0:12:13.720 --> 0:12:17.600 mentioned private credit before. That seems to have been a 0:12:17.880 --> 0:12:21.959 giant growth area, especially when rates were at zero, when 0:12:21.960 --> 0:12:25.240 people weren't seeing a whole lot of returns from fixed income. Well, yeah, 0:12:25.280 --> 0:12:30.080 the private credit market I think is really attractive and 0:12:30.120 --> 0:12:32.160 it's actually been around a long time. I mean there 0:12:32.160 --> 0:12:35.680 have been leverage loans and high yield bonds since the 0:12:35.760 --> 0:12:40.280 nineteen eighties, and as an asset class, they've performed extremely 0:12:40.280 --> 0:12:43.360 well with low incidents of loss, good returns. You get 0:12:43.360 --> 0:12:46.200 paid for the incremental risk that you're taking in a 0:12:46.240 --> 0:12:49.680 more leveraged capital structure. So it's been a great asset class. 0:12:49.840 --> 0:12:53.600 It's attracted a lot of capital, and the way buyouts 0:12:53.600 --> 0:12:57.960 are being financed is evolving away from syndicated, big syndicated 0:12:58.000 --> 0:13:02.280 capital structures to buy banks to now the people who 0:13:02.320 --> 0:13:05.040 are actually going to hold the risk, firms like Ours 0:13:05.080 --> 0:13:08.880 and Apollo and areas and others who are actually lending 0:13:08.920 --> 0:13:12.679 money directly to the people who are borrowing instead of 0:13:12.679 --> 0:13:15.800 going through the banking intermediaries. So how much of this 0:13:15.920 --> 0:13:20.040 is a function of trend we sort of began in 0:13:20.080 --> 0:13:24.160 the nineteen nineties. As companies got larger and larger, it 0:13:24.280 --> 0:13:27.960 seemed like banks went upscale with them and left sort 0:13:27.960 --> 0:13:31.440 of a gaping void in the middle where, you know, 0:13:31.480 --> 0:13:35.680 mid market companies didn't have a merchant bank that that 0:13:35.760 --> 0:13:40.120 could facilitate UM loans, credit, anything along those lines. I 0:13:40.160 --> 0:13:44.280 think private credit has filled the hole for these smaller businesses. 0:13:44.320 --> 0:13:47.920 But but really, um, not on the full banking suite. 0:13:47.960 --> 0:13:52.240 There's plenty of great smaller banks, uh whose whose business 0:13:52.240 --> 0:13:55.400 strategy it is to serve smaller and medium sized businesses. 0:13:55.440 --> 0:13:59.640 But in financing acquisitions and capital needs of these middle 0:13:59.679 --> 0:14:02.320 market companies, a private credit market has played an important 0:14:02.400 --> 0:14:06.200 role in that. Yeah, really quite interesting. Let's talk a 0:14:06.200 --> 0:14:10.360 little bit about your career at Blackstone. You've been there 0:14:10.400 --> 0:14:13.920 for twenty five years. That's a pretty good run. What 0:14:14.120 --> 0:14:16.800 attracted you to them in nineteen ninety eight when they 0:14:16.800 --> 0:14:21.560 were still kind of a modest, small firm. Yeah, I 0:14:21.560 --> 0:14:24.240 mean I was in my mid twenties and you know, 0:14:24.440 --> 0:14:26.960 looking to build a career in private equity. I liked it. 0:14:27.000 --> 0:14:30.160 I thought I could, I could build a successful career. 0:14:30.160 --> 0:14:32.880 It was I recognize that it was still pretty early 0:14:32.920 --> 0:14:35.080 in the development and there should be a lot of 0:14:35.120 --> 0:14:37.000 growth in these firms. And I wanted to work at 0:14:37.000 --> 0:14:39.560 a place that was operating at the highest level with 0:14:39.600 --> 0:14:42.880 the smartest people, where I could learn the most and 0:14:42.960 --> 0:14:45.440 see if I could hang, you know, so to speak 0:14:45.480 --> 0:14:47.840 with keep up with the big dogs. Yeah, and I 0:14:48.000 --> 0:14:51.360 think I had very modest expectations, like, jeezus, I can 0:14:51.480 --> 0:14:53.560 last two or three years. At least I will have 0:14:53.600 --> 0:14:56.480 done it. I will learn something and I'll have something 0:14:56.480 --> 0:14:57.920 else to do on the other side of it. So 0:14:58.520 --> 0:15:00.800 you lasted two or three years and then you get 0:15:00.840 --> 0:15:04.200 tapped to go to London in two thousand and one. 0:15:04.520 --> 0:15:09.640 That had to be a giant challenge, especially given what 0:15:09.760 --> 0:15:12.800 was taking place that dot COM's had just imploded. It 0:15:12.880 --> 0:15:16.840 wasn't very long after the handover of Hong Kong China, 0:15:17.040 --> 0:15:19.440 like a lot of things were changing in both the 0:15:19.560 --> 0:15:23.320 UK and Europe. What was that like going over to 0:15:23.920 --> 0:15:26.920 the EU in England during that period, Yeah, I mean 0:15:26.960 --> 0:15:30.120 it was it certainly not expected. I'd never lived abroad. 0:15:30.200 --> 0:15:32.760 I think i'd been to London. I'm not even sure 0:15:32.760 --> 0:15:34.480 i'd been to London. I'd been to like Paris and 0:15:34.680 --> 0:15:38.720 Venice or something. And the guy who was going over 0:15:39.200 --> 0:15:41.880 truly lead at David Blitzer, who was was was a 0:15:41.920 --> 0:15:45.160 good friend in colleague, and he sort of said, geez, 0:15:45.160 --> 0:15:47.520 why don't you come and do this with me? He 0:15:47.640 --> 0:15:50.320 was a senior, the senior guy at the time, and 0:15:50.360 --> 0:15:53.080 I was like, geez, okay, well you're like late twenties 0:15:53.120 --> 0:15:56.080 at this. Yeah, I'm I'm twenty nine when I'm asked, 0:15:56.120 --> 0:15:58.400 I'm thirty when I move, you know. And yeah, because 0:15:58.400 --> 0:15:59.840 it was two thousand and one, and you know, it 0:15:59.880 --> 0:16:02.720 was just after September eleventh. I'd agreed to go before 0:16:03.160 --> 0:16:06.120 Strumber eleventh happened. I was supposed to go over, you know, 0:16:06.160 --> 0:16:07.960 in November. I ended up doing that. I remember a 0:16:07.960 --> 0:16:11.480 completely empty plane flying over to London with my with 0:16:11.520 --> 0:16:15.320 my then girlfriend. Moving to London. I had no language skills. 0:16:16.200 --> 0:16:19.760 The firm had had need language skills in England, not 0:16:19.840 --> 0:16:22.280 in England. But but you're still dealing with a lot 0:16:22.280 --> 0:16:25.480 of Europe And yeah, I'm not being sarcastic, You're still 0:16:25.520 --> 0:16:27.600 dealing with people in Brussels and people in Paris and 0:16:27.640 --> 0:16:31.160 people in Milan. It has to be useful skills. No, 0:16:31.320 --> 0:16:35.080 of course, I mean France, Germany, Italy, Spain, you know, 0:16:35.160 --> 0:16:38.680 the whole Nordic region, Sweden, to say nothing of two 0:16:38.720 --> 0:16:41.760 people separated by a common language, right exactly. Now, In 0:16:41.800 --> 0:16:46.400 that moment, Americans were sort of viewed as positively and 0:16:46.520 --> 0:16:48.680 as neutral, so you know, you could go to France. 0:16:48.760 --> 0:16:52.560 Maybe they didn't love, you know, any Germans as much, 0:16:52.920 --> 0:16:56.120 but they sort of Americans were tolerated, you know, and 0:16:56.160 --> 0:16:58.360 we were kind of oddities at the time, particularly in 0:16:58.360 --> 0:17:02.240 private equity, which was still in its infancy in November 0:17:02.240 --> 0:17:04.280 of two thousand and one. When I moved over, the 0:17:04.320 --> 0:17:06.840 industry wasn't called private equity. It was called venture capital, 0:17:06.920 --> 0:17:09.960 and it was in real technology. Venture capital was the 0:17:10.040 --> 0:17:13.919 nomenclature for everything that was basically a private investment. But 0:17:14.000 --> 0:17:16.639 you're not dealing with startups, you're dealing with correct seven 0:17:16.680 --> 0:17:19.760 more mature companies. Yes, but you know, when I moved, 0:17:19.880 --> 0:17:24.600 you didn't have the single currency in circulation until January 0:17:24.680 --> 0:17:29.320 vote two, so there was still French francs and you know, 0:17:29.680 --> 0:17:33.200 Lira and German deutsch Marks, and so that didn't happen 0:17:33.320 --> 0:17:35.160 until two thousand and two, and it took the year 0:17:35.240 --> 0:17:37.800 for all of those local currencies to literally paper and 0:17:38.080 --> 0:17:40.800 coin currencies to come out of circulation and have so 0:17:40.960 --> 0:17:45.040 Europe really a period of transition, and and you're stepping 0:17:45.160 --> 0:17:47.280 right into the thick of it, right into the thick 0:17:47.280 --> 0:17:48.760 of it, trying to figure out what are too young? 0:17:48.960 --> 0:17:52.680 My colleague David Blitzer, I think he was maybe thirty one. 0:17:52.760 --> 0:17:56.520 I was twenty nine, and there we were two young Americans, 0:17:56.560 --> 0:17:59.320 no language skills, like, what are we supposed to do now? 0:17:59.359 --> 0:18:03.040 The firm had had assets in the UK. We owned 0:18:03.080 --> 0:18:05.240 the Savoy group of hotels, which is the Connaught and 0:18:05.280 --> 0:18:09.120 Carriages and Savoy Nice saw his property nice yeah, which 0:18:09.119 --> 0:18:11.440 is a good asset, a nice calling card. We had 0:18:11.560 --> 0:18:15.640 actually two investments in Germany in telecom infrastructure that in 0:18:15.640 --> 0:18:19.080 that moment we're doing that great um and so we did, 0:18:19.119 --> 0:18:20.840 but we were kind of trying to do deals by 0:18:20.880 --> 0:18:25.320 airplane from New York and that's not functional. So Steve said, 0:18:25.600 --> 0:18:27.680 we got to have a real presence. We have some assets. 0:18:27.720 --> 0:18:31.280 We had some real estate guys there, my friend and 0:18:31.320 --> 0:18:34.440 former Morgan san Lano's colleague Chad Pike ran our our 0:18:34.480 --> 0:18:39.000 European real estate stuff, and David and I moved over 0:18:39.080 --> 0:18:41.479 to do the private act. And when you say Steve, 0:18:41.640 --> 0:18:45.359 for those people who may tell us, tell us about 0:18:46.119 --> 0:18:49.600 Blackstone's boss, Steve, Steve Schwarzman our our co founder and 0:18:49.760 --> 0:18:53.240 CEO and chairman, and you know, amazing mentor and great 0:18:53.800 --> 0:18:56.080 by the way, we were supposed to have on the show, 0:18:57.000 --> 0:19:00.600 and a little thing called COVID came along and interrupted 0:19:00.680 --> 0:19:03.520 us or like literally that end of March, beginning of 0:19:03.600 --> 0:19:06.480 April when his book came out. Yeah, and well you 0:19:06.600 --> 0:19:09.680 have to get him back. He's way more interesting than me. Well, 0:19:09.720 --> 0:19:13.280 so far you're pretty interesting. So you're you're raising the bar. 0:19:13.720 --> 0:19:17.480 So so you moved to the UK, Yeah, you're you're 0:19:17.560 --> 0:19:20.960 an hour or two hop from all the key places 0:19:21.000 --> 0:19:24.359 in Europe. How did the build out go for a 0:19:24.359 --> 0:19:27.280 couple of young Americans saying, Hey, we want to play 0:19:27.280 --> 0:19:30.160 with this private equity thing in the EU. Yea, So 0:19:30.200 --> 0:19:33.440 our our strategy was and it sort of David had 0:19:33.440 --> 0:19:36.200 conceptualized like we're going to be the neutral Americans who 0:19:36.200 --> 0:19:39.520 can work with the locally European firms to help him 0:19:39.520 --> 0:19:41.640 get deals done. So we kind of went on, did 0:19:41.640 --> 0:19:45.080 some missionary work, meeting the local private equity firms in 0:19:45.160 --> 0:19:49.200 France and of course in the UK and Germany, up 0:19:49.200 --> 0:19:52.000 in the Nordic region in Italy, and we just met 0:19:52.040 --> 0:19:54.560 all the other players. It was this small industry. There 0:19:54.600 --> 0:19:57.159 weren't that many people. There weren't that many firms, and 0:19:57.200 --> 0:19:59.119 we were like, look, we'd we'd be great partners as 0:19:59.119 --> 0:20:01.920 you're looking at ass The first deal we looked at 0:20:02.000 --> 0:20:05.000 was in France. We were looking at taking remember Vivendi 0:20:05.040 --> 0:20:08.000 at the time, the media conglomerate. They had bought a 0:20:08.040 --> 0:20:12.760 bunch of educational publishing assets, including US textbook company Hote 0:20:12.760 --> 0:20:16.160 and Mifflin. Back when there were actually textbooks in schools 0:20:16.640 --> 0:20:20.360 and there's still textbooks in school You could just access 0:20:20.400 --> 0:20:23.600 everything online as well if you want fewer of them. Yeah, 0:20:23.640 --> 0:20:26.879 but and so we partnered with a few local firms 0:20:26.880 --> 0:20:30.960 and actually one of our US competitors to look at 0:20:30.960 --> 0:20:33.560 this big asset because it was quite big, and in 0:20:33.640 --> 0:20:36.280 the end we ended up just buying the US textbook business, 0:20:36.280 --> 0:20:38.480 Hote and Mifflin. That was our first deal in Europe, 0:20:38.480 --> 0:20:40.760 which was actually a US deal, but we probably wouldn't 0:20:40.800 --> 0:20:43.520 have done it had we not been there looking at 0:20:43.520 --> 0:20:46.720 the divestiture from Vivendi, and so you know, that was 0:20:46.840 --> 0:20:51.440 kind of the the strategy day one, and then it evolved. 0:20:51.520 --> 0:20:54.760 You know, I sort of looked at, well, the industry 0:20:54.840 --> 0:20:58.200 in Europe is a good decade or two behind the US. 0:20:58.240 --> 0:21:00.200 So I said, well, what kind of deals were worked 0:21:00.200 --> 0:21:03.240 in the US in the early nineties in my experience, 0:21:04.080 --> 0:21:07.160 And you know what I sort of decided as well, 0:21:07.600 --> 0:21:12.560 fragmented industries where you could drive consolidation that had happened 0:21:12.600 --> 0:21:16.879 already in the US, things like um, you know, in 0:21:16.920 --> 0:21:19.920 the UK pubs there was a big consolidation and lots 0:21:19.920 --> 0:21:22.879 of divestitures of pubs that were owned by brewers in 0:21:22.920 --> 0:21:24.920 the time, and there were rules came down that brewers 0:21:24.960 --> 0:21:28.920 can't own distributors similar to US any trust rules exactly 0:21:29.040 --> 0:21:32.960 diversify and or I'm sorry, they made them divest those 0:21:33.119 --> 0:21:36.399 vertically integrated holdings exactly. So the second deal we did 0:21:36.600 --> 0:21:40.080 was we worked with another firm, a local UK firm 0:21:40.080 --> 0:21:44.000 called CVC and also TPG to buy Scottish and Newcastle's 0:21:44.080 --> 0:21:48.280 pub divestiture. Scottish and Newcastle was a big brewer up 0:21:48.600 --> 0:21:50.680 up in Scotland at the time, and so we bought 0:21:50.680 --> 0:21:53.520 the pub business, we combined it with another one, we 0:21:53.600 --> 0:21:56.240 bought some more and that was a pretty successful investment. 0:21:56.280 --> 0:22:00.280 Then we did other similar investments, particularly with real estate intent. 0:22:00.520 --> 0:22:02.600 The pubs all own their real estate, so we were 0:22:02.640 --> 0:22:05.679 working with our real estate guys in healthcare facilities and 0:22:05.840 --> 0:22:08.360 visitor attractions and theme parks. So we did a lot 0:22:08.359 --> 0:22:11.639 of these sort of consolidation place a broad spectrum of 0:22:11.680 --> 0:22:15.080 different holdings. One of the things that I have to 0:22:15.119 --> 0:22:20.560 follow up with is how important was it partnering with 0:22:20.720 --> 0:22:25.160 local other investors and other vcs or ps. I don't 0:22:25.200 --> 0:22:27.320 know what they called themselves back then, and vcs at 0:22:27.320 --> 0:22:30.520 the time, but they were private equity. How important was 0:22:30.560 --> 0:22:34.440 it finding a local partner to you know, hook up 0:22:34.440 --> 0:22:37.760 with and be able to participate in deals with. I 0:22:37.800 --> 0:22:40.800 think early on it was important until we established ourselves, 0:22:40.840 --> 0:22:43.200 and then we did less of that. We started doing 0:22:43.240 --> 0:22:45.879 deals on our own. Probably somewhere around two thousand and 0:22:45.880 --> 0:22:49.639 four or five, we started doing things by ourselves. We 0:22:49.640 --> 0:22:53.520 were much more networked, you know, people knew who we were. 0:22:53.840 --> 0:22:57.520 Blackstone as a brand name was becoming more known just everywhere, 0:22:57.520 --> 0:23:00.840 but in particular in Europe. Because we weren't particularly well 0:23:00.840 --> 0:23:03.680