WEBVTT - Blackstone President Jonathan Gray Talks AI Infrastructure

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Blackstone, the world's largest alternative asset manager, expects twenty twenty

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<v Speaker 2>six to be its best year ever for IPOs. I

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<v Speaker 2>spoke with the company's president and COO, John Gray on

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<v Speaker 2>a wide range of topics, including concerns around private credit.

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<v Speaker 1>When you have this much noise in the system and

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<v Speaker 1>concern it will result in investors potentially looking for liquidity,

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<v Speaker 1>So it's not unreasonable to expect this will take some

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<v Speaker 1>time to work through. The chem will be do the

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<v Speaker 1>products continue to show resiliency. And what's nice is because

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<v Speaker 1>the yields are high, in the case of our BBC

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<v Speaker 1>b cred more than a nine percent yield, you can

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<v Speaker 1>absorb losses and you have a very lowly leveraged structure.

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<v Speaker 1>So if you think about a bank that's typically call

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<v Speaker 1>it twelve times levered, these vehicles for US less than

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<v Speaker 1>one times levered. These vehicles can deliver a premium in

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<v Speaker 1>performance as they have to liquid leverage loans. Investors will say, wow,

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<v Speaker 1>these things are more resilient than I expected. They continue

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<v Speaker 1>to deliver positive results and then this will ebb over time,

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<v Speaker 1>but it may take a bit to work through well.

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<v Speaker 2>What's a bit is that like quarters years? What does

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<v Speaker 2>it look like?

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<v Speaker 1>You know, it's hard to say. I would think it

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<v Speaker 1>would be more quarters than years, but you'll have to

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<v Speaker 1>see how the environment evolves. And obviously as base rates

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<v Speaker 1>come down, that of course is a headwind as well

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<v Speaker 1>from an absolute return standpoint, but not from a relative

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<v Speaker 1>return standpoint.

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<v Speaker 2>Even with the fears in private credit, it has been

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<v Speaker 2>capital markets and M and A and activity that has

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<v Speaker 2>been extremely robust. And John, I think that would surprise

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<v Speaker 2>a lot of people coming into this year, considering we've

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<v Speaker 2>had the fears over AI disruption, still on trade and

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<v Speaker 2>now war on our hands. What are you seeing in

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<v Speaker 2>your portfolio companies or are there any stresses around energy

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<v Speaker 2>costs and inflation?

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<v Speaker 1>What we've seen is remarkably strong. I mean, in Q one,

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<v Speaker 1>our private equity portfolio had ten percent revenue growth, which

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<v Speaker 1>was an acceleration from Q four and so yes, there

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<v Speaker 1>are isolated companies, particularly in Europe, who are facing higher

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<v Speaker 1>energy costs. Their natural gas has gone up quite a bit,

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<v Speaker 1>which is very different than the United States. Some companies

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<v Speaker 1>are still dealing with some terrif issues. There's slowness or

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<v Speaker 1>more challenges. I would say in mid and lower end

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<v Speaker 1>consumer businesses, but in aggregate the picture is pretty good.

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<v Speaker 1>And the big driver goes back to what we talked

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<v Speaker 1>about at the beginning, This huge AI infrastructure room five

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<v Speaker 1>companies spending seven hundred billion dollars in capital just US alone.

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<v Speaker 1>We think this year our data center business that we

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<v Speaker 1>could lease across all our platforms six gigawatts. Six gigawatts,

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<v Speaker 1>to put in context, is almost one hundred billion dollars

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<v Speaker 1>of data centers. There'll be another couple hundred billion of

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<v Speaker 1>chips put in by the hyperscalers. That's three hundred billion

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<v Speaker 1>of aggregate spend. That's like the economy of Portugal or Finland.

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<v Speaker 1>And so I think that tailwind to the overall economy globally,

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<v Speaker 1>but particularly in the United States is powerful, which is

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<v Speaker 1>one of the reasons why even as we have a

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<v Speaker 1>shock like we're seeing with the war, we can continue

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<v Speaker 1>to power through. Our expectation is we'll see a pretty

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<v Speaker 1>healthy economy despite these headwinds.

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<v Speaker 2>Those numbers boggle my puny, little human brain, so that

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<v Speaker 2>you were laying them out. But as we see higher

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<v Speaker 2>energy prices still the straight of hormous is closed. Gasoline

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<v Speaker 2>prices go up. It's a market, and I know you're

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<v Speaker 2>in private markets for a reason, but public markets are

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<v Speaker 2>trading at all time highs. Do you think there is

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<v Speaker 2>an element at which we are maybe a little bit

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<v Speaker 2>too sanguine about wider risks and disruption from what's happening

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<v Speaker 2>in the Middle East.

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<v Speaker 1>Well, I think the market has begun to develop a

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<v Speaker 1>perspective because this is now the fifth time since twenty

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<v Speaker 1>twenty we're in the first quarter of the year. We've

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<v Speaker 1>had a shock, right COVID, which was obviously very big.

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<v Speaker 1>We had the Russia invasion of Ukraine which created an

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<v Speaker 1>energy crisis. We had Silicon Valley Bank which shook the

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<v Speaker 1>financial markets. We had Liberation Day which hit companies and markets,

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<v Speaker 1>and now this And in each one of those previous experiences,

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<v Speaker 1>the market traded off, people were highly concerned, and ultimately

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<v Speaker 1>the returns the market were covered by the end of

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<v Speaker 1>the year. And so I think the market has now

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<v Speaker 1>been conditioned a little bit to say, hey, we should

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<v Speaker 1>have a bit of patient that there will at some

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<v Speaker 1>point here be a resolution and we'll go back to

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<v Speaker 1>underlying fundamentals, which again is a pretty healthy global economy

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<v Speaker 1>and inflation away from energy prices generally heading lower in

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<v Speaker 1>terms of certainly rental housing costs, labor market cooling, and

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<v Speaker 1>then these big productivity gains which should be beneficial for

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<v Speaker 1>earnings growth and economic growth. So I'm not sure the

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<v Speaker 1>market has it wrong. If the conflict escalates, and things

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<v Speaker 1>could obviously change, but based on past history and the

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<v Speaker 1>underlying strength of the US economy in particular, I think

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<v Speaker 1>it's reasonable for the market to stay optimistic.

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<v Speaker 2>Related to this, John, is the year of the IPO.

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<v Speaker 2>I know you said it to start the year. There

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<v Speaker 2>are some question marks because of everything we're discussing, but

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<v Speaker 2>given the resiliency, the fact that lift off, yes gets delayed,

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<v Speaker 2>but it's back on the docket. Jersey Mike's also going

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<v Speaker 2>to becoming public too. At this point, Can anything stop

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<v Speaker 2>the Year of the IPO or is this a train

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<v Speaker 2>that's just going to keep running?

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<v Speaker 1>Well, I would say I still think, as you noted,

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<v Speaker 1>this is the year of the IPO. That prediction was

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<v Speaker 1>not looking so good thirty days ago. But I think

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<v Speaker 1>because of this strength in AI and three of the

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<v Speaker 1>biggest tech companies in the world are likely over the

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<v Speaker 1>next twelve eighteen months to go public. We're fortunately in

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<v Speaker 1>our wealth vehicle investors in all three We have a

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<v Speaker 1>number of companies. I can't comment on specifics that are

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<v Speaker 1>on the docket that we think the market will receive well,

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<v Speaker 1>but what I'd say is there's really a bifurcation. There

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<v Speaker 1>are companies that are in sort of the path of

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<v Speaker 1>AI direct beneficiaries. The market wants more exposure to those companies.

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<v Speaker 1>There are companies that are sort of AI unaffected, like

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<v Speaker 1>our medline business which we took public at the end

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<v Speaker 1>of last year, and medical supplies. There's a lot of

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<v Speaker 1>enthusiasm for that. The one area where I would say

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<v Speaker 1>it's much tougher is in those white collar sort of

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<v Speaker 1>job services areas. That's professional services, information services, software there,

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<v Speaker 1>because the market has concerns about what the business model

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<v Speaker 1>will look like over time, that's going to be tough

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<v Speaker 1>for But the rest of that market's big enough that

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<v Speaker 1>I think he can support a fair number of IPOs.

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<v Speaker 1>We right now have nine of them filed globally in

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<v Speaker 1>the US, Europe, and Asia. So we do think this

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<v Speaker 1>should be our busiest year ever for IPOs at Blackstone.

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<v Speaker 2>My interview with Blackstone President and COO John Gray, and

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<v Speaker 2>I got to say I mean, he was measured in

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<v Speaker 2>both the IPO response and in just the idea of

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<v Speaker 2>how they're navigating all of the software stuff. He was like, look,

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<v Speaker 2>there is still more pain to come out there. We

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<v Speaker 2>talked about Tom of Bravo's Medalia. He mentioned that they

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<v Speaker 2>lost more than five billion dollars on the deal too,

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<v Speaker 2>so he said, yeah, things look good, but not Tolebravo

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<v Speaker 2>lost more than five billion dollar correct, not to be

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<v Speaker 2>very clear. Not because they bought Medalia for like six

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<v Speaker 2>and a half and now it looks like they're ready

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<v Speaker 2>to pass the keys.