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Speaker 1: One of the company at with earnings today and we

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Speaker 1: really need to talk about this is Blackstone, so profit

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Speaker 1: has been slumping along with deals. That's an obvious kind

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Speaker 1: of connection to make. Shanelli Basselecht, who's having a very

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Speaker 1: busy week, sat down with Jonathan Gray, Blackstone's presidents and COO.

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Speaker 2: John it's a pretty pivotal moment in Blackstone's history, reaching

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Speaker 2: a trillion dollars in assets under management.

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Speaker 3: But what does it really.

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Speaker 2: Mean both for the growth of Blackstone as well as

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Speaker 2: the industry.

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Speaker 4: Well, Shanali, it's great to be with you. Yes, this

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Speaker 4: is an important milestone for our firm. When you think

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Speaker 4: about Blackstone started by Pete Peterson and Steve Schwarzman in

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Speaker 4: nineteen eighty five with four hundred thousand dollars and a dream,

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Speaker 4: and today crossing a trillion dollars, that's a pretty remarkable achievement.

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Speaker 5: It's a real credit to our people.

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Speaker 4: It's a credit to the performance we've delivered to customers.

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Speaker 5: Nothing matters more than that.

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Speaker 4: And it's also reflects the real spirit of innovation of

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Speaker 4: this firm. We're constantly looking for new ways to serve

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Speaker 4: our customers, new vehicles, new geographies, to operate in and

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Speaker 4: when we look forward, what excites us is that investors

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Speaker 4: are increasingly seeing alternatives as a core portion of their portfolio.

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Speaker 4: Alternatives are really coming of age. They're saying, I can

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Speaker 4: trade liquidity for higher returns for a portion of our portfolios.

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Speaker 4: And as results, we're seeing insurance companies, individual investors, pension

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Speaker 4: funds who've been added for some time increase their allocations

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Speaker 4: and that gives our business a lot of runway as

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Speaker 4: we look forward.

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Speaker 2: More investors, more assets under management. The reality is that

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Speaker 2: being bigger comes with more eyeballs as well. Do you

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Speaker 2: expect more regulation to come as you grow.

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Speaker 4: Well, we've always been regulated, and obviously as you get bigger,

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Speaker 4: you get more focus. I think the key thing about

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Speaker 4: us as a firm is we operate always by following

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Speaker 4: the rules, but also as a capital light asset manager,

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Speaker 4: so versus banks, who are critically important financial institutions. We

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Speaker 4: operate with virtually no net debt. We obviously don't take

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Speaker 4: any deposits either, and we're very thoughtful on the structures

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Speaker 4: we use to match the duration of our liabilities to

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Speaker 4: our assets. So we think we're very well positioned and

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Speaker 4: we're providing a valuable function both to the investors out there,

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Speaker 4: but also to the economy at large.

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Speaker 2: You know, in that trillion dollars, you're sitting on a

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Speaker 2: record amount of money, a record amount of dry powder.

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Speaker 2: This is almost two hundred billion dollars.

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Speaker 3: You have to put to work.

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Speaker 2: At What scale do you start putting that money to

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Speaker 2: work and how soon? If you look across Wall Street,

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Speaker 2: there's a lot of frustration about this deal drought that

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Speaker 2: has persisted.

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Speaker 4: Well, you tend to see a slowdown in deal activity

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Speaker 4: when levels of uncertainty are very high. And so if

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Speaker 4: you think about this year, you had a lot of

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Speaker 4: concern about where inflation was going, a lot of concern

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Speaker 4: about how far the Fed would go. You had the

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Speaker 4: banking crisis in March, and naturally you see a slow

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Speaker 4: down and deal activity. I think the good news is

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Speaker 4: the tone has improved as we've worked through this quarter.

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Speaker 4: The deal market feels like it's unfreezing a bit. If

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Speaker 4: you look at our credit area, our direct lending, our

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Speaker 4: pipeline is up more than double than where it was

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Speaker 4: ninety days ago. So we're seeing more activity there, more

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Speaker 4: activity in our tactical opportunities area where we help companies

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Speaker 4: and investors. By providing flexible capital, our secondary's business is

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Speaker 4: seeing more activity.

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Speaker 5: So I think as.

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Speaker 4: People feel better about the we're all picture a little

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Speaker 4: more certainty. I think we'll see deal volume pickup as

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Speaker 4: we move forward.

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Speaker 2: Are the financing markets becoming open enough for you to

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Speaker 2: do something big at what time? When we see Blackstone

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Speaker 2: doing multi billion dollar deals, perhaps deals along with partners

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Speaker 2: again at that scale.

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Speaker 5: Well, we've done a few large deals this year.

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Speaker 4: We announced at the end of last year Emerson's climate

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Speaker 4: technology business for fourteen billion dollars. We privatize Seevent and

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Speaker 4: online event management business and multi billion dollar transaction. We're

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Speaker 4: looking at a number of things of scale. Obviously, the

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Speaker 4: financing markets make it a little bit trickier, and you've

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Speaker 4: got to be creative and trying to pull transactions together.

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Speaker 5: So this takes some time.

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Speaker 4: But the good news is, as you point out, we've

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Speaker 4: got two hundred billion dollars of dry powder, and that

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Speaker 4: dry powder allows us to move when opportunities arise.

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Speaker 5: I think we'll see more of the opportunities over the

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Speaker 5: next year.

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Speaker 4: It's hard to put our finger on it exactly when

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Speaker 4: it will happen, but I just feel across our platform,

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Speaker 4: There'll be some interesting things, and scale is a real

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Speaker 4: advantage for us.

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Speaker 2: I want to talk about AI for a second here,

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Speaker 2: because your data center business is one of the places

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Speaker 2: where Blackstone has clearly been investing, both in the United

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Speaker 2: States and abroad. It has been appreciated quite significantly. Where

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Speaker 2: do you see AI going and how are you making

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Speaker 2: investments around that trend?

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Speaker 4: So I think AI is going to have a profound

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Speaker 4: impact on virtually every element of the global economies.

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Speaker 5: Obviously some areas more than others.

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Speaker 4: For us, the good news is we started building out

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Speaker 4: a data science team back in twenty fifteen. We've got

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Speaker 4: more than fifty plus data scientists. We also own two

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Speaker 4: hundred plus companies ten thousand plus real estate assets, so

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Speaker 4: we get a lot of proprietary data ourselves that we're

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Speaker 4: looking to harvest to make better decisions for our investors.

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Speaker 4: When you think about the impact of AI, it's pretty significant.

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Speaker 4: Machines can now not just compute around numbers, but also

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Speaker 4: texts and images and give us results in the form

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Speaker 4: of text and images, and so there are businesses that'll

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Speaker 4: be more vulnerable. If you think about lower value add

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Speaker 4: service businesses, maybe a call center business, you've got to

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Speaker 4: be cautious. There'll be businesses like data centers where we've

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Speaker 4: seen a step function increase in demand. We bought a

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Speaker 4: company QTS where we've grown its capacity we think in

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Speaker 4: the next three or four years by sixfold versus what

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Speaker 4: it was when we bought it for ten billion dollars

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Speaker 4: two years ago. And then there are all sorts of

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Speaker 4: companies where you've got to think about the processes that

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Speaker 4: they operate with. So if you think about healthcare companies

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Speaker 4: or financial institutions, how they can reduce costs with these

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Speaker 4: new productivity tools. So Blackstone is totally focused on this.

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Speaker 4: We think we can bring our companies real competitive advantages.

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Speaker 5: But you've got to devote the resources.

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Speaker 2: You know, how do you think about this in terms

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Speaker 2: of the talent story. Are you hiring from different places

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Speaker 2: than you may have before, knowing that technology is so

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Speaker 2: much of the future.

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Speaker 4: Well, there's no question that we didn't have a data

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Speaker 4: science business, as I said before twenty fifteen. So we've

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Speaker 4: got a different crew of people. We're obviously hiring more

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Speaker 4: people in our internal technology function. We open up an

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Speaker 4: office in Miami to get more diverse tech talent, which

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Speaker 4: I think has been super helpful for our business. We've

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Speaker 4: grown our growth business. We've been looking for more people

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Speaker 4: who have tech expertise. We've brought on a number of

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Speaker 4: senior advisors in technology overall, and our head of Portfolio Operations,

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Speaker 4: Jen Morgan, came from SAP where she was the co CEO.

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Speaker 4: So yeah, we understand the world's changing and we need

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Speaker 4: people with the right expertise and then against that, of course,

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Speaker 4: maintain our real rigor and financial discipline.

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Speaker 2: Let's talk about the macro environment for a second, John,

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Speaker 2: because earlier you talked about uncertainty being kind of the

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Speaker 2: killer of dealmaking. Here is some of that uncertainty clearing,

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Speaker 2: particularly as it comes to inflation.

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Speaker 5: Yeah.

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Speaker 4: I think the good news on inflation is it's trending down.

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Speaker 4: The Fed is really winning this war. They're not ready

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Speaker 4: to declear victory.

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Speaker 5: But what we see in our.

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Speaker 4: Portfolio companies is input costs really coming down now to

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Speaker 4: less than two percent. We see wages which were running

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Speaker 4: higher than seven percent mid last year to growing it

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Speaker 4: less than five percent. Forward indicators and hiring and vacancies

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Speaker 4: are also positive. So the labor market is starting to soften.

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Speaker 4: It's still pretty strong. But I think that's going to

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Speaker 4: be helpful. As the FED looks forward, Now, what do

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Speaker 4: I think happens. I think they're going to raise rates

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Speaker 4: It sounds like one more time, and then they're going

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Speaker 4: to hold them here for a longer period of time

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Speaker 4: to try to slow the economy. And we expect they'll

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Speaker 4: be successful in doing that. We don't think this is

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Speaker 4: eight oh nine in terms of a slowdown, but you

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Speaker 4: do have to anticipate some slowing of economic activity, some

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Speaker 4: increase in unemployment. But we have at this point gone

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Speaker 4: through an inflation shock, We've gone through an interest rate shock,

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Speaker 4: and now we've got a bit of an economic slowdown.

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Speaker 4: But we're getting through this, and I think that's one

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Speaker 4: of the reasons why we see some enthusiasm in the market.

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Speaker 2: When people think about concerns still left about the economy.

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Speaker 2: There are still a lot of concerns, and you see

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Speaker 2: it in the write downs already for certain companies.

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Speaker 3: When it comes to commercial real.

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Speaker 2: Estate, I know that your portfolio, you've leaned out of

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Speaker 2: office for a while. Now, how do you feel about

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Speaker 2: the direction of travel for the property industry moving forward?

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Speaker 2: What are the pitfall falls that some investors might be

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Speaker 2: falling into here.

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Speaker 4: Well, I think there are continue to be big challenges

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Speaker 4: in traditional office buildings in the US picularly older buildings.

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Speaker 4: Vacancy levels are very high, rents are under pressure. But

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Speaker 4: where you invest matters. So if you are deployed today

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Speaker 4: in stronger areas like logistics and student housing data centers,

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Speaker 4: which we talked about, the fundamentals there are very strong.

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Speaker 4: And geographically, obviously some cities are under significant pressure. Let's

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Speaker 4: use San Francisco as an example, and yet we see

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Speaker 4: a lot of strength in Texas and Florida, and so

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Speaker 4: where you invest that is key. I think our team

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Speaker 4: in real estate has done a terrific job. And then

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Speaker 4: looking forward, the positives are rates are coming down or

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Speaker 4: at least are no longer going up at the short

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Speaker 4: end like they were, and the long end seems to

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Speaker 4: have stabilized, and that is helpful for commercial real estate values. Also,

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Speaker 4: new supply is coming down, which is another positive when

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Speaker 4: you think about.

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Speaker 5: Commercial real estate.

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Speaker 4: So both of those things give us some confidence as

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Speaker 4: we look over the intermediate term.

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Speaker 2: Speaking of ESA, also, there's a lot of news over

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Speaker 2: the last couple of months here about be read this

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Speaker 2: is the product do you have for retail investors semi

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Speaker 2: liquid tied to the real estate industry. Do you see

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Speaker 2: withdrawal pressure starting to ease on that business?

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Speaker 4: Well, what we've seen here is decline and share redemptions.

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Speaker 4: They peaked in January, they're down nearly thirty percent at

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Speaker 4: this point. That's obviously a positive sign. We've said we

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Speaker 4: think it'll take time to work through the backlog, but

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Speaker 4: the key is performance, and we've delivered three times the

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Speaker 4: public Read Index over six and a half years. We

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Speaker 4: put the capital and what we think are the right

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Speaker 4: places logistics, rental, housing data centers in the Sunbelt, and

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Speaker 4: ultimately investors appreciate that performance. And I would just point

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Speaker 4: out on the redemptions, if you were an investor who

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Speaker 4: put in for a redemption at the end of November

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Speaker 4: and you continued to do that at this point, you'd

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Speaker 4: have more than ninety percent of your money back. So

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Speaker 4: we feel good about the product and the way it's

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Speaker 4: working for our investors.

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Speaker 2: You know, if you think about where we were a

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Speaker 2: year ago and where we are now, it's kind of

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Speaker 2: like a one to eighty reversal here, both in the

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Speaker 2: markets as well as how you are benefiting from them.

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Speaker 3: Higher revenue, more profit.

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Speaker 2: Your stock right now as it stands of Thursday morning,

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Speaker 2: is worth more than ten billion dollars in market value

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Speaker 2: than at Goldman Socks. With kind of this reversal of

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Speaker 2: fortunes and this appreciation of your earnings and your stock price,

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Speaker 2: do you think that you have space to be adding

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Speaker 2: more people on?

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Speaker 3: How are you thinking about growth?

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Speaker 4: Well, we continue to see a lot of runway for

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Speaker 4: our business. You know, this movement towards alternatives continues. Pension

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Speaker 4: funds now looking much more at private credit, which they're

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Speaker 4: excited about as we are as well, given the returns

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Speaker 4: you can generate as a lender. Today, on a senior basis,

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Speaker 4: we see lots of opportunity and asset classes like infrastructure

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Speaker 4: opportunityities in places like India, where we've been the leading

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Speaker 4: real estate and private equity investor for a number of years.

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Speaker 4: We see investors opening up in terms of who's willing

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Speaker 4: to look at alternatives. Insurance companies an area we've grown

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Speaker 4: quite a bit individual investors which we touched on, and

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Speaker 4: so we see both very compelling places to deploy capital

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Speaker 4: and to raise capital. So we still see a very

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Speaker 4: bright future for our business.

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Speaker 2: Is there an uptick and the amount of resumes you're

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Speaker 2: given given this movement into alternatives.

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Speaker 4: Well, it's interesting this year I just spoke to this

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Speaker 4: starting analyst. We have one hundred and sixty seven starting

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Speaker 4: analysts at the firm this year. That's versus more than

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Speaker 4: sixty thousand resumes we receive. So it is very competitive

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Speaker 4: getting a job at Blackstone. But that's another reason I

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Speaker 4: feel so good about the firm. There's so many talented

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Speaker 4: people who want to work here. And when you think

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Speaker 4: about a firm like ours, what really matters.

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Speaker 5: It's about having.

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Speaker 4: Great people who care a ton, and we've got a

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Speaker 4: lot of that.

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Speaker 3: John.

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Speaker 2: It's funny you heard Jimmie Diamond call Blackstone out by

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Speaker 2: name and their own earnings report.

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Speaker 3: As a function of regulation shrinking the banks.

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Speaker 2: Money moving into private assets, Blackstone being a potential beneficiary

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Speaker 2: of this. Do you see that movement that he says,

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Speaker 2: you guys are dancing in the streets.

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Speaker 4: Well, I think banks play such a critical role in

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Speaker 4: the US economy. They're very important, but obviously they're quite

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Speaker 4: different than capital light asset managers like ourselves. You know, banks,

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Speaker 4: one of the challenges that has emerged that we saw

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Speaker 4: earlier this year is that deposits, given technology, can move

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Speaker 4: very quickly, and of course deposits are backed by the

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Speaker 4: federal government. And so the nice thing about US is

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Speaker 4: as a firm, we have a virtually no net debt.

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Speaker 4: We operate our vehicles with very limited beverage and match

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Speaker 4: funded in terms of asset and liability length, and that

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Speaker 4: allows us to originate and hold debt for long periods

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Speaker 4: of time. And so if you think about US investing

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Speaker 4: on behalf of our insurance clients, they've got a very

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Speaker 4: long duration, so they can hold certain consumer loans and

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Speaker 4: equipment loans. And so it's a natural reason why for

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Speaker 4: US partnering with the banks makes sense because we have

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Speaker 4: the right kind of balance sheets to hold things for

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Speaker 4: long term. So I think this is a very healthy

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Speaker 4: thing for the system, which is we not only have

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Speaker 4: a robust banking system, strong capital markets, but now private

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Speaker 4: capital with longer duration structures can hold because we're really

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Speaker 4: in the storage business on behalf of our clients, and

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Speaker 4: I think that's a very healthy sign for the system.

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Speaker 2: Before I let you go, is there some sort of

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Speaker 2: celebration inside of Blackstone on reaching a trillion dollars? How

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Speaker 2: are the people celebrating.

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Speaker 4: You know, I think, well, we're going to have our

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Speaker 4: regular Monday BXT. We'll talk about this event, but we're

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Speaker 4: not really celebratory in that nature. We think the key

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Speaker 4: thing is this is a long journey. We've got to

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Speaker 4: continue to deliver for our customers. It's a reminder that

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Speaker 4: we have come a long way, that what Steve created

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Speaker 4: here is really incredible, and that we should feel proud

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Speaker 4: about that. But we just go back to our day jobs,

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Speaker 4: do our work, and try to deliver for our customers.

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Speaker 1: That was Jonathan Gray, Blackstone President and speaking with Shanali

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Speaker 1: Bossik