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Speaker 1: As promised, Let's take you to the World Economic Forum

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Speaker 1: in Davos. Bloom we're experiencing lackwise doinged by Blackstone Chairman

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Speaker 1: and CEO Steve Schwartzman Brand.

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Speaker 2: Yeah, thank you so much, Alex. I'm really delighted to

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Speaker 2: be here by see well, joined here by Steve Schwartzman.

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Speaker 2: Stay four. So we're struggling to talk a little.

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Speaker 3: Bit, Steve.

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Speaker 2: I mean, it's been like NonStop this year because there's

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Speaker 2: been so many people. The talk is of course about

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Speaker 2: the conflicts the impact that has on the economy. Are

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Speaker 2: you confident about twenty twenty four.

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Speaker 3: Well, I think twenty twenty four will be a good year.

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Speaker 1: It'll be start out slower in the sense that, you know,

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Speaker 1: interest rates are still pretty high and the Fed will keep.

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Speaker 3: Them that way.

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Speaker 1: Everybody has their own guests, you know, probably till the

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Speaker 1: second half at some point in there, so that'll sort

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Speaker 1: of have a little bit of.

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Speaker 3: Sort of a baffling effect.

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Speaker 1: Stock market had such a run in the fourth quarter

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Speaker 1: that you wouldn't expect that to really take off and go,

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Speaker 1: and the economy is slowing a bit.

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Speaker 3: That's normal with high interest rates. So on the other

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Speaker 3: side of the Ledger.

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Speaker 1: The expectation that interest rates are going down is creating

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Speaker 1: animal spirits again, and we did at Blackstone. We did

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Speaker 1: six private equity investments in six weeks at the end

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Speaker 1: of the year after a slow year. We're much busier now.

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Speaker 1: In a way is represent some type of capitulation for

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Speaker 1: people who are holding back for two years. So we're

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Speaker 1: optimistic for this year.

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Speaker 2: See, are you worried that if actually we don't get

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Speaker 2: those cuts promised by the Fed, because a lot of

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Speaker 2: the good users already priced in markets, that people will

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Speaker 2: start waning on the deals a little bit. So for

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Speaker 2: the moment, you're optimistic. His second half of the year

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Speaker 2: a little bit trickier, we will get.

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Speaker 1: The cuts because the way we measure inflation Blackstone, we're

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Speaker 1: already right around the two percent. The fact that the

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Speaker 1: FED is using different numbers for rents in real estate,

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Speaker 1: we think they're sort of looking at six percent inflation

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Speaker 1: and rents in residential real estate, and we're the largest

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Speaker 1: donor of residential real estate.

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Speaker 3: We think it's zero to one.

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Speaker 1: Let's bet on us on this one because with the

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Speaker 1: people actually doing it, and if you correct the index

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Speaker 1: for that difference between what's really going on, and they're

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Speaker 1: saying it's six point two get you get around two percent,

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Speaker 1: So I think it's I'm quite confident that they'll be

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Speaker 1: lowering rates. Some people are like overly enthusiastic about when

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Speaker 1: they do it. We don't really care when they do it.

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Speaker 1: It's just the fact that we're going to go from

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Speaker 1: a period of rising rates to a period of lowering rates.

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Speaker 2: So where do you see the best deals, Where do

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Speaker 2: you think that the market is really ripe and kind

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Speaker 2: of ready to go.

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Speaker 1: Well, there are different different things. You know, data centers

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Speaker 1: now are really interesting. Energy transition, you know, that's more

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Speaker 1: of a book value kind of think because you're building

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Speaker 1: things typically and we've done extremely well in that area.

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Speaker 1: We have healthcare types of things where you're inventing drugs

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Speaker 1: through stage three trials. That's uncorrelated. We're looking at very

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Speaker 1: interesting things in European real estate. Now that's counter right, counterintuitive.

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Speaker 1: So there's always an actual reason why it's interesting, not

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Speaker 1: an assertion. So the reason is that people who own

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Speaker 1: real estate in Europe used to be paying almost nothing

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Speaker 1: in interest because rates were negative for governments and even deposits,

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Speaker 1: and now it's costing them about five hundred bases points

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Speaker 1: more to carry their positions. If you are highly leveraged,

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Speaker 1: then you're having a lot of difficulty holding your positions,

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Speaker 1: and and the actual interline real estate isn't necessarily.

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Speaker 3: Growing that much.

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Speaker 1: So the way out of this dilemma is to sell assets.

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Speaker 1: And there's hardly anybody in Europe who wants to buy them,

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Speaker 1: but Blackstain. We're the largest owner of commercial real estate.

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Speaker 1: We've got plenty of money. We want to buy that

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Speaker 1: real estate, but only the good kinds of real estate,

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Speaker 1: the data centers, the warehouses, the student housing, which is

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Speaker 1: all doing well. So what we normally do is tell

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Speaker 1: them to go back and just bring us that stuff

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Speaker 1: and we'll buy all of it to give them liquidity.

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Speaker 1: And we're finding that that's happening a lot, and that's

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Speaker 1: creating things because we only buy them at a price

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Speaker 1: we think makes sense.

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Speaker 3: So we now have.

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Speaker 1: Not only willing sellers who have to sell, and at

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Speaker 1: a very willing buyer. So we're going to create a

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Speaker 1: lot of very interesting investments. So what you find fran

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Speaker 1: scene in almost every environment, if all you're doing is

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Speaker 1: what everybody does, it's not so interesting. If you have

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Speaker 1: different inputs, you can create things with very good rates

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Speaker 1: of return.

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Speaker 2: How do you look at AI? So is AI something

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Speaker 2: that's embedded in the future of what you're buying or

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Speaker 2: do you go straight for airplay.

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Speaker 1: There are certain types of things when you look at them,

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Speaker 1: you have to, as part of an analysis say if

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Speaker 1: AI was more developed, is that good or bad for

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Speaker 1: this type of business? So there are certain types of

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Speaker 1: businesses really not good for certain types can really be improved.

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Speaker 3: And so that's now on the.

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Speaker 1: Checklist, if you will, or due diligence and AI itself,

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Speaker 1: we've marshaled almost all of our portfolio companies.

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Speaker 3: I gave a zoom with all of.

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Speaker 1: Them, all the CEOs, about six months ago, and I

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Speaker 1: told them AI is no longer an elective course. This

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Speaker 1: is core curriculum and you're going to learn to love

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Speaker 1: it and the reason and understand it well, understand it

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Speaker 1: as best you can, and it will help you and

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Speaker 1: affect Blackstone Parent and a lot of companies. We embed

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Speaker 1: data scientists to serve as a.

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Speaker 3: Link and.

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Speaker 1: One of the things that we really want to do

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Speaker 1: is to make sure that every company has a plan,

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Speaker 1: because if you don't and somebody else does, this is

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Speaker 1: an area where if you're not the first mover and

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Speaker 1: your competitor implements AI and they have bigger margins or

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Speaker 1: more new products, then you're going to start losing your

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Speaker 1: market share. And some people, some businesses who aren't in

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Speaker 1: the game, are going to be really adversely infected. And

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Speaker 1: I explained to them that can't be you. You want

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Speaker 1: to oversee somebody else taking your market share and hurting

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Speaker 1: your business.

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Speaker 3: They all understand.

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Speaker 2: This, This is a good thing. Do you worry about

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Speaker 2: liquidity crises in certain pockets? I know Carson Block was talking,

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Speaker 2: for example about VXMT.

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Speaker 1: No not no. You know we have I think ninety

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Speaker 1: seven percent of loans.

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Speaker 3: Paying and.

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Speaker 1: You know we've done our own analysis on that, and

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Speaker 1: we're not particularly concerned about that. In terms of liquidity.

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Speaker 1: There'll be office buildings which will have that issue. Although

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Speaker 1: office buildings, particularly the United States as a rule, are

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Speaker 1: a lot lower leveraged than they used to be. When

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Speaker 1: you were covering the global financial crisis, then office buildings

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Speaker 1: were seventy five to eighty percent leverage. Now they're fifty

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Speaker 1: five to sixty percent leverage. So to the extent that

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Speaker 1: those buildings get in trouble there's much more equity in them,

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Speaker 1: so this is going to be an unfortunate moment for

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Speaker 1: the actual owners rather than just the banks.

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Speaker 2: Do you think private equity have a has a place

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Speaker 2: in people's for a one case?

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Speaker 3: Oh absolutely, geez.

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Speaker 1: You know, we're selling a lot of money to private

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Speaker 1: wealth twenty five percent of Blackstone's assets or to private

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Speaker 1: wealth customers. So that's two hundred and fifty billion dollars.

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Speaker 1: And you know that that is a little cyclical because

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Speaker 1: private wealth customers sometimes get you know, affected more than

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Speaker 1: institutions when markets go down and their threats of that type.

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Speaker 1: On the other hand, there's eighty trillion dollars with probably

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Speaker 1: that says a market opportunity with probably only two percent

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Speaker 1: penetrated when I started in nineteen eighty five back in

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Speaker 1: the Middle Ages. That that's just the way institutions work.

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Speaker 1: Institutions now are twenty five percent. And the reason is

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Speaker 1: you get much higher returns over time than the stock market.

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Speaker 1: You know, probably around five hundred and six hundred basis points.

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Speaker 1: You give up some liquidity and now we're inventing new

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Speaker 1: products that can be put into liquid form, if not

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Speaker 1: daily liquid, periodic liquid. So you give up some liquidity,

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Speaker 1: but you make a lot more money.

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Speaker 2: See you've talked mem about the US elections, so you've

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Speaker 2: you've always had a candidate and you're on defense for

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Speaker 2: the moment, like what will how will you make up

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Speaker 2: your mind?

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Speaker 1: Well, you know, all I do is read polls and media,

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Speaker 1: and you know, we've only had one election and it

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Speaker 1: wasn't even an election, it was a caucus. So I think,

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Speaker 1: you know, I'd like to see what the public thinks

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Speaker 1: rather than what I think.

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Speaker 3: So that'll take a little bit.

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Speaker 2: Is that because you want to back the winner or

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Speaker 2: because you want to see someone that that could possibly

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Speaker 2: be Trump?

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Speaker 1: Well, I just want to see how the game plays.

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Speaker 1: And you know, the world's complex with all of this

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Speaker 1: presidential politics now, and you know, so I've always learned

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Speaker 1: to trust my instincts. But when I want to see more,

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Speaker 1: I just want to see more, and you know, obviously

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Speaker 1: I'll make some decisions at some point. But this is

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Speaker 1: the start of the game. For people who've been covering

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Speaker 1: this like a blood sport.

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Speaker 3: It's it's been going on.

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Speaker 1: For a year, year and a half already, but the

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Speaker 1: actual game has just started.

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Speaker 2: But New Hampshire is a big one, right New Hampshire

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Speaker 2: is going to be interesting. That's next week. But do

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Speaker 2: you know, is there a chance that the Republican nominee

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Speaker 2: is not Donald Trump?

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Speaker 1: I've asked the pollsters, ask the political experts.

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Speaker 2: You trust the pollsters.

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Speaker 3: You know.

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Speaker 1: What's amazing, having had such a bad record in the

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Speaker 1: twenty twenty elections, and even in the midterms, they got

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Speaker 1: Iowa virtually identically.

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Speaker 3: What as to what happened?

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Speaker 1: So i was actually kind of like a major victory

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Speaker 1: for polling, you know, as well as the winner.

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Speaker 2: See, we talk a lot about, you know, what would

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Speaker 2: happen to the economy, to domestic policies, to foreign policy

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Speaker 2: until Donald Trump. What do you think will happen under

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Speaker 2: a second term President Biden?

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Speaker 1: Well, we've seen a lot of that, and we've now

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Speaker 1: got too brillion dollars deficits with no end in sight.

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Speaker 1: We've got our debt to GDP going up. We've got

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Speaker 1: open borders with eight million people coming over. You know,

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Speaker 1: I don't know that the country frankly is prepared for

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Speaker 1: four more years of that because those things all pull

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Speaker 1: very negatively. So I can't really project, you know, what

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Speaker 1: would happen.

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Speaker 2: See when the debts becomes an issue, would it be

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Speaker 2: a failed treasury auction? Like, could there actually be a

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Speaker 2: big financial event that makes people, you know, wonder about

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Speaker 2: the future of this.

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Speaker 1: Well, theoretically, Usually financial crises come when you don't expect them,

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Speaker 1: and they come quickly. I think we have a ways

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Speaker 1: to go, you know, in terms of people buying treasury bills.

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Speaker 1: I don't worry about that as a practical issue. You know,

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Speaker 1: you have a country like Japan, which you know is

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Speaker 1: like two hundred and fifty three hundred percent from GDP.

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Speaker 1: They're still there now. Most countries who have that situation

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Speaker 1: self finance, and the US is dependent upon more global finance.

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Speaker 1: So it would be good if we could get our

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Speaker 1: financial house in order.

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Speaker 2: Steve, thank you so much for joining us today. That was,

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Speaker 2: of course, Steve Schwartz and Blackstone Truman and chief Executive