← Leaders with Francine Lacqua
Leaders with Francine Lacqua
Blackstone's Jon Gray on Building a $1.3 Trillion Wall Street Giant
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- [00:00]
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Cincinnati Insurance Narrator
Bloomberg Audio Studios, podcasts, radio news.
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John Gray
People often think, you know, how do I get an organization to head in a certain direction? And it's not by putting plaques up on the wall with mottos. Who you hire, who you fire, who you promote. Then the younger people are going to look around and say, oh, that person who took a risk. Oh, I want to follow them. And I think that in many ways is the best way to model things.
- [02:19]
Francine Lacqua
I'm Francine and this is Leaders, the podcast that explores what drives the world's most influential people. This week I'm speaking to John Gray. Now he's the president and chief operating officer of the private equity giant Blackstone. A so called lifer, he joined the company back in 1992 at just 22 years old under the mentorship of the chair and chief executive Steve Schwarzman. Gray began in the real estate side of the business. He helped it become the largest private equity real estate investor in the world. And since assuming his current role in 2018, Blackstone says its assets have no nearly tripled to $1.3 trillion. So at a time of global upheaval, I was really keen to catch up With Gray about how he leads through crisis while maintaining trust, but also the challenges facing Blackstone's flagship private credit fund, how he retains talent, and what that tells us about his own sense of loyalty. John Gray, thank you so much for joining us.
- [03:21]
John Gray
It's great to be with you.
- [03:22]
Francine Lacqua
Francine, you're known as the Hilton deal guy, right? 20 years ago, you take this massive bet on Hilton, you pay 26 billion dol for it at Blackstone with 20 billion debt, what were you thinking?
- [03:34]
John Gray
I wasn't as wise back then, I guess at the time. If you go back, this is right before the financial crisis and I was running our real estate business and what we were looking for was how could we buy great real estate or operating businesses at reasonable prices. And there was so much debt in the market fueling private real estate values that we found we could buy the public companies at better prices. So we ended up paying a big premium, 30 plus percent over where the company was trading. And we committed in July of 07. We closed in late October. By early 08, things are going badly. The financial crisis really picks up and the company has a 20% decline in revenue and a 40% decline in cash flow. And we put a lot of debt on it. And I would say at that moment it did feel like it was career shortening and that I shouldn't be sitting here today.
- [04:34]
Francine Lacqua
Did you think, what have I done? Or did you think, yeah, I mean, I knew it.
- [04:37]
John Gray
I think there was part of me that was what have I done? But there was also part of me that was, this is a great business. We still thought that travel was a long term growth business and that the core of the company, the branded hotel business, where you manage and franchise hotels, Hilton, Hilton Garden in Hampton, Waldorf, that that business could grow a lot beyond the United States and that we just had to weather this storm. And so we ended up putting in an extra $800 million at the bottom. By the way we wrote off, it's quite a storm. It was quite a storm. We wrote down the investment by 71%. So the largest investment in our firm's history, we wrote down by 71%. You had to go to meetings with investors and I'd had to say to them, hey, I know we've done this, but it's unrealized. We're going to get through this. And there was obviously rightfully a lot of concern. Ultimately the sun came back out, the business grew, we took the company public and we made $14 billion. And by all accounts, that should not have happened. And so the question becomes, what do you learn? One is the importance of staying calm. So I always say to my kids, and now I say to everyone at Blackstone, stay calm, stay positive, never give up. And I think that was really important in a moment like this. And by the way, in all different times we've seen this in Covid, we've seen it when markets react to liberation Day. Having this sense of equanimity is really important because you have to be clear thinking because sometimes you may have made a really bad decision. In the case of Hilton, we actually had invested in a great company. Our timing was terrible, but if we had the staying power to get to the other side, we thought we could make it. So stay calm. The second thing as an investor, which has really informed how I think about deploying capital is so often in my training I'd focus on whether I pay 98 or 100 for something. What the footnote on page 52 says in the investment memo, but it's really that first paragraph. What is the basis? How good of a business is it? Biggest thing on the investing side is it led to this idea of what are the best neighborhoods to invest in. There's a shortage of global housing or consumers are moving to buying things from stores to online, so logistics will do well. More recently, the importance of data centers and fabs and energy and thinking about investing in not necessarily just the individual. We're going to price everything, but we've got a better chance of success if we pick better neighborhoods, better management teams. And in this case, we felt great about the business and the neighborhood, but timing is everything.
- [07:27]
Francine Lacqua
So you can see how the world evolves, but you don't know whether it's five years or 10 years.
- [07:32]
John Gray
Yeah, I'd say timing is very important because it can impact your returns. I think I would say it's slightly different. I'd say the long term trends. If we had bought a different kind of business and gone through this crisis, we, we may have lost it. In this case, the underlying business and industry were so good that we were able to ride through it. And that was the key, learning.
- [07:54]
Francine Lacqua
I mean, it's very easy to say stay calm, but in those moments, I mean, can you learn to stay calm or focused? Or is it. So is it a temperament you're born with?
- [08:03]
John Gray
I don't know. I think you can learn. I think the more I feel like in my day job every day I get pieces of bad news. Right. Because it invariably comes up. And so you have to, you begin to absorb that in a better way, when you're accustomed to it. And so part of it may be your nature, your fundamental optimism, but part of it is having experience and understanding that these crises, there is another side, and you have to make decisions. Keeping that in mind, you're a lifer at Blackstone. Lifer. 34 years plus 34 years.
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Francine Lacqua
Is that what you want from your staff as well? Loyalty?
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John Gray
Well, if they love what they're doing and the people they're doing it with, then yes. I think the culture that Steve Schwarzman has really created a place where people are striving for excellence, trying very hard to deliver for our underlying clients, where people treat each other well. And ultimately, if you do a great job, you get rewarded. Your hope is that you can attract the best and the brightest and that they're going to want to stay and grow. And I'm very blessed to work with people who've been at the firm for decades. At the same time, I think what's important at a firm is that it grows, because one of the problems with some of the smaller firms is there's not a space, you know, that smaller tree can't get sunlight. And so what's great about this firm is this push to grow gives young people a chance to say, even though I'm joining a bigger firm today, I still have a lot of opportunity.
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Francine Lacqua
How do you think about retaining talent? First of all, do you see it as a personal mission? And actually, what do people want?
- [09:46]
John Gray
I think it's a personal mission, for sure. I think what people want is the opportunity to grow, to learn, to have responsibility, to be at a place they're valued, obviously, to have professional advancement and also financial rewards. And I do think they care about where they work and what the culture is like. Yes, money matters. But if you genuinely like the people you work with, if you feel a sense of mission, you're proud of the place you work. And I would say if there's an entrepreneurial flair to the place, then I think you're going to stay engaged. As we've grown from the firm I joined with 75 people to a firm that now has more than 5,000 people, we've got to make sure people seem excited or are excited about coming to work every day.
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Francine Lacqua
Have you ever thought of leaving? No, never.
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John Gray
No.
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Francine Lacqua
And there's nothing. I mean, what attracts you to Blackstone? You're also seen as the errand waiting.
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John Gray
I've woken up every day intellectually challenged by what I do. And I love the people, and I love the drive and the Will to win.
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Francine Lacqua
How has your relationship with Steve Schwarzman changed over the years?
- [10:57]
John Gray
Oh, wow. When I joined, I was a kid, right? I was 22 years old. It was a tiny little firm. And obviously, as I've grown up over time, the relationship as somebody just learning the business to somebody help run the firm is different. But I would say there's remarkable continuity. Steve's just always pushing for the best. And even at a young age, one of the great things about Steve and the firm is this openness to listen at the table. So even when I was very young, once I sort of got my sea legs and I said, oh, I don't like this transaction. For whatever reason, you were heard. And so I think Steve just appreciates drive, caring, and entrepreneurial spirit. And for me, it's one of the great gifts of really not only my career, my life. To have been able to work so closely with him, to be able to learn so much from somebody who's so wise, who always has equanimity in whatever the situation, that's been really helpful. And he's also pushed me. I never would have been somebody who would have thought as big. You know, that's his thing. He extends the playing field and makes you think about, can we build this business to a billion? Why don't we build it to ten or a hundred billion dollars? And when you work with and for somebody like that, it inspires you.
- [12:14]
Francine Lacqua
John, how do you, you know, as. As the firm grows, how do you make sure everybody feels like that?
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John Gray
Yeah.
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Francine Lacqua
So is it feedback? Is it like 180s reviews, compensation?
- [12:24]
John Gray
Every Monday, we do what we call BXTV. It's not Bloomberg TV. It's our internal zoom call. But we're communicating messages about, you know, what people are doing, investing, raising money, providing legal. We're constantly calling out people who find interesting and new ways to do things, and then we're rewarding and promoting those people because it's interesting. People often think, you know, how do I get an organization to head in a certain direction? And it's not by putting plaques up on the wall with mottos. Who you hire, who you fire, who you promote. If you have people who share your values, who share the drive, and they're the ones who are succeeding, then the younger people are going to look around and say, oh, that person who took a risk, they moved to a new place, they found this new way to invest capital. Oh, I want to follow them. And I think that in many ways is the best way to model things. And also just the way you act, you know, the way you conduct yourself, it sends a powerful signal to others.
- [13:31]
Francine Lacqua
After the break, John Gray talks to me about what it takes to ask colleagues to open their wallets and personally back the business in a moment of stress. And just a reminder, be sure to follow and subscribe to the show now, so you never miss an episode. Blackstone's flagship $82 billion private credit fund, BCRED, made headlines in March. Back then, we reported that around 25 Blackstone senior employees putting in roughly $150 million of their own money to offset record customer withdrawal requests. The management move has been described as old fashioned door knocking. And I wanted to know from Gray what it was like to go out and ask colleagues to open their wallets. John, talk to me about bcredit. How difficult was it to convince employees to put money in it?
- [14:23]
John Gray
So in the case of B cred, which lends senior loans to basically private equity companies, we built this to be an $80 billion plus vehicle. It's done a terrific job. 10 plus percent annual return since inception six years ago. There's been obviously a lot of noise around private credit. And one of the things that's really important to us is that our investors recognize that we're aligned with them. So what we did recently was put up some capital from the individuals of the firm because we wanted to show that alignment. And the key is you're in the investing business, it's a trust business. And when there's a lot of noise and people are saying this is that there's nothing more powerful than sort of putting some money in and say, hey, look, I'm aligned with you, this is my money. I believe in what I'm saying. And in the fullness of time, again, investors will look back and say, hey, they did a good job. And I think again and again for us, focusing on that North Star, which is performance and, and building trust with our clients, that's what really matters.
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Francine Lacqua
But was it difficult for, you know, to convince other employees to join in or is it, again, just part of the culture?
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John Gray
It's part of the culture. I mean, obviously when you're asking people to make personal contributions, that's something. But I do think it's part of who we are. And I do think people recognize that being seen as caring deeply about your clients and being aligned matters.
- [15:54]
Francine Lacqua
I mean, what was the. You've, you've had difficult times. Yes, most difficult.
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John Gray
Oh, well, definitely the most difficult would have been last summer. We had this horrible shooting at the firm. We lost an amazing woman, Wesley Lapatner. Who was somebody I had worked closely with, a long time senior executive in our real estate business. Incredibly talented rising star. But beyond business, great mother, daughter, wife, gave back philanthropically and was probably the best mentor I knew, particularly to other young women. And I would send so many her way, saying, look, can you help this young woman? She wants to have a career investing. She wants to have a family. And I'd always be like, call Wesley. And to be in the office one day and to have this kind of horrific mass shooting and then also the trauma of a lot of people who were in the building for hours with highest degree of uncertainty, that was a really hard thing. And there's no playbook for that sort of thing. And so I think the key learning from that was just the importance of being sort of who you are. And everybody was in pain at that point. And then having as much communication and then trying to find your footing. How do you get back to work? We have a lot of responsibility, but also something really traumatic has happened that was hard. Finding the balance, that was definitely the toughest thing. And I certainly hope I never experience anything like that again.
- [17:36]
Francine Lacqua
I remember you. It felt that you were quite close to employees. How did you do that? How did you learn how to do that? How did you know that that was the right thing?
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John Gray
You know, I think for both Steve and myself, it was just a natural thing to connect with human beings. We met everybody as we reopened the building. When we had people come back, we did a bunch of sessions. One of my colleagues here in London actually said it was the worst of times, but the best of Blackstone, because it really showed a humanity that, again, made me proud in a very, very difficult situation. Even in the worst situation, you've got to still, particularly if you're in a leadership role, you still have to maintain that calm. You have to give people a sense both, one, yes, you're in pain like they are. But two, we're going to get to the other side because they want to know that we're going to get through this. And. And we ultimately did. But as I said, it was an awful thing. And at the end of the day, we lost somebody who's really special.
- [18:40]
Francine Lacqua
When we come back, John Gray explains how his viral running videos went from a personal habit to to a powerful tool for building trust and connecting beyond the boardroom.
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John Gray
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- [21:26]
Francine Lacqua
John Gray has become well known for his distinct online videos, not in the boardroom, but on runs. I wanted to know how this casual approach came about and whether it's just a bit of fun or a helpful business tool. John I wanted to talk a little bit about your communications because a lot of people follow you on LinkedIn. Do you enjoy communicating directly? First of all, who are they for? Is it employees or investors?
- [21:52]
John Gray
So if I roll the tape back, Christine Anderson, who, you know, who runs our corporate affairs, was pushing me for a number of years. You've got to go on LinkedIn, you gotta communicate. Our business is growing, we have a lot of stakeholders. And I was resistant, but I ultimately conceded because I was like, you know what, we should do this. And I was in Australia and I often would send to my family, not post, but like, hey, I'm here in London, this is what's going on. And instead I did it for a broader audience and we put it on LinkedIn and it went viral. So I was like, oh, I can do other cities. This isn't that hard. And what I found was that people really enjoyed seeing the travel, seeing sort of the human side of this, seeing a little bit of self deprecating humor. You know, when you're doing tv, it's hard to sort of show who you are at times. And this felt like a direct way to communicate unfiltered. And yes, we've got a lot of stakeholders. There are only so many of them you can see in a given year and they can see who you are. And going back to my earlier comments, it is about trust. So if people are going to invest with us, knowing who the people leading the business are and that they seem like decent human beings, that's helpful. And I describe what I produce as sort of dorky dad vibes. And I think it gives people a sense of sort of who we are, what we care about, some of the insights we can give in the world and do it in a very informal way. And that's worked. At some point there'll been too many running videos and it'll be like, enough for now. We keep running.
- [23:40]
Francine Lacqua
But you enjoy it. Is that you? Is it your personality?
- [23:43]
John Gray
Actually it's definitely my personality, which is optimistic and yeah, a little bit self deprecating and practically British and. Yeah, exactly. Not quite as dry on the humor side. And when I show up in meetings so often people are saying, I saw that. It makes for a good conversation starter. And when we do want to get out a message on something, we can do it in a direct way with a large audience. So it has a business purpose as well.
- [24:12]
Francine Lacqua
And then you do these holiday videos, which are a lot of people's highlights for the holidays. Again, why do it?
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John Gray
The holiday videos are a little crazy. I don't know who's inside that costume, but I love what Mr. Stone is bringing to this firm. Surprised I can dunk, huh? Well, I've got to go. I've got some holiday cheer to spread and some books to sell. When I got this job eight years ago, we realized that we'd grown too large to have a Christmas party at the firm. And I was like, wow, I'm going to be like Scrooge. I will have canceled the Christmas party. So we need to do something that is more fun and make up for this. And we decided to do this video. And originally it was just internal and it sort of got out and people thought it was really funny. And so again, it was like, hey, this works. And I think again, the element of this that's helpful is it shows the humanity of the firm, that we can make fun of ourselves, that it's not just tough Wall street investors. And now it's become a thing and our clients love it.
- [25:26]
Francine Lacqua
Tell me a John Gray day. So is it, you know, what time do you start?
- [25:31]
John Gray
Get up 6ish in the morning. Try to read the newspapers. Bloomberg, of course. Always, always get a sense of what's happening in the world. Catch up. If I'm in New York, on the Asia and Europe emails that have come in overnight, probably read some stuff that if I didn't get through the night before prepping for the day ahead, get to the office and chock a block meetings, investment committees, internal meetings, client meetings, policymakers run through the day. If I'm not traveling, I like to go home for dinner. And then I do emails and calls and read documents, investment committee documents at night. And then I tend to read a lot of investment committee memos over the weekend. So it's pretty all encompassing. It's a 247 experience. But again, you know, for me, using an American metaphor, I get to play shortstop at Yankee Stadium, right? I get to be in this amazing seat. Thinking about, ultimately investing is betting on the future. And you're thinking about where are things going, what does it mean for medicine, for media, for real estate, for all sorts of things. And doing it with incredible people.
- [26:57]
Francine Lacqua
Rapid fire. Top tip for holding a highly effective meeting.
- [27:01]
John Gray
I think having action items when the meeting's over, meetings that end with just a lack of clarity of where you're going. To me, that's not good. So what you want is the meeting's over and the takeaway is we're going to go do this for this client or we're going to go do this due diligence on this company and then we're going to come back. Action is the thing that matters.
- [27:23]
Francine Lacqua
Would you rather lead on your own or by committee?
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John Gray
On my own. But I. But I still think of some things like investing. I prefer the committee, but in terms of final decisions, I think one person has to have responsibility.
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Francine Lacqua
Top tip for motivating people, I think
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John Gray
giving people a sense that there is no limit to what they can achieve, that their potential is enormous and really encouraging people to be entrepreneurial. It's not just Steve Jobs in the garage. You can be an entrepreneur as an investor, as a fundraiser, frankly as an accountant, as a lawyer, you can think about how can I do things better, how can I innovate? You want to encourage people that there's tons of opportunity wherever they are in the organization and they should think like an entrepreneur.
- [28:13]
Francine Lacqua
John Gray thank you so much for joining us.
- [28:14]
John Gray
Francine. It was great. Thank you.
- [28:23]
Francine Lacqua
Thanks for listening to this episode of Leaders with me, Francine Lacqua. If you like our show, please rate, review and subscribe. And if you want to watch the show, please Find us on YouTube. This episode was hosted by me, Francine Lacroix. It was produced by Atalandi Dixon, Samara Saadi and Moses Andam. Amy Keane is the executive producer of Talk Podcasts Sound designed by Blake Maples and Aaron Casper. Special thanks to John Gray.
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