Blackstone in the first place. Yeah, I grew up suburban Chicago. I'd never been to the East Coast till I went to college. Never been to New York. My senior year in college, in a three-week period of time, I met a young woman in romantic poetry class—true story—and I got a job working for a very small financial firm in New York. And now almost 33 years later, I'm with the same woman, I'm working at the same firm, so I have the most boring biography of anybody you would have met. And when I got to the firm, it was a tiny place, it was 75 people, we managed $750 million, one private equity fund. I worked in M&A, we had an advisory business at the time. I worked in the private equity business mostly. My job running numbers, doing pitchbooks, and making sure the associates had dinner by 7 p.m. was the key thing. And about a year into it, the real estate world had collapsed and our visionary founders Pete Peterson, Steve Schwarzman, said, 'Hey, we should go into this.' They found a great guy in Chicago named Jon Gray—and they said, 'We need some junior people, do you want to help? It's going to be a short-term gig.' And I said sure. And I spent the next 25 years helping to build what became the largest real estate business in the world. And about seven years ago I got this job to be president and COO. And so all I know is Blackstone, and it has been an amazing run.
It's an incredible story. Let's talk about Blackstone, also an incredible story. So Blackstone today, trillion-plus-dollar alternative asset manager, but go back to your remembrances of the beginnings because you were there pretty early, and talk about the evolution and talk about some of the key elements of how Blackstone has become the Blackstone we know today.
It was a very small place obviously when we started, and alternative assets really were a very niche business because large pools of capital only invested in liquid assets. And interestingly, that didn't really change till 10 or 15 years ago in some sense. Private equity developed, which was our first business, then real estate private equity. We moved into credit when we bought GSO, but that was really opportunistic distressed credit. We had a hedge fund business, but mostly you gave us and our competitors money to do a small number of things—very high return strategies. And we had a small number of customers. We had several hundred customers: pension funds, sovereign wealth funds, some endowments. And I'd say the tipping point for us really was after the financial crisis, rates came down significantly and investors became open to trading away some liquidity for higher return in other asset classes—safer, more yield-oriented: core-plus real estate, infrastructure, performing credit, both investment grade and non-investment grade. And the number of investors began to expand pretty dramatically. So we moved to more institutions, to individual investors, to insurance companies. And I would say it's been a pretty amazing change the last 10 years or so. And even though we've grown to be larger today, my optimism about the potential of the business is much higher. And what I would say is the most important thing that took us on this journey—I'd say two really key things. One is we always focus on delivering returns. You know, it's a bit like you're in a pizza shop, right? The taste of your pizza is what really matters. In our business, it's the returns we generate for the customers. It's a very competitive business. And the second thing is we've always had this very entrepreneurial spirit to sort of push and do things. And Steve Schwarzman deserves the credit—he put that in the DNA of the firm. How can we serve the customers in different ways? How can we do this in Europe and in Asia? How can we do it up and down the risk-return spectrum? And the larger we've gotten, there have been a lot of advantages—like a Goldman Sachs, in terms of scale and insights and relationships. So you know, it in some ways feels very different, but the basic business—raising capital, delivering good returns, running a high-integrity firm, trying to have a great culture—the basic building blocks have stayed absolutely the same.
Yeah. So I want to talk about a transaction. I wouldn't ordinarily ask you about a transaction, but you and I both know a company called Hilton Hotels reasonably well—you better than I do. It was a transaction Goldman Sachs was involved in, Blackstone led, right at the precipice of the financial crisis. To me, it just speaks about that time in the market and a lot about how you guys have grown beyond that, as you just pointed out. Probably the best single private equity deal of all time from a nominal profit standpoint. Didn't start out that way. In the early days of the financial crisis, maybe just tell the story of Hilton, just as a way to kind of bridge from that point to where we are today.
It was a terribly timed transaction. We bought Hilton Hotels. We committed in July of 2007, just about the time of our IPO, just about the peak of the market—just about the absolute, you can put a pin on it when we committed to this. We closed in October, and we bought the company for $26 billion. We put $6 billion of equity in, it was a different era. We put $22 billion of leverage on it. Goldman Sachs was a minority partner, but we put a ton of capital from our real estate funds and our private equity fund, and we went all in at absolutely the wrong moment. And fairly soon thereafter, the financial markets, as we all know, got into big trouble, the real economy got into big trouble, and we found ourselves highly levered with EBITDA cash flow down 40%. So let's just say it was not a good setup. And we wrote the investment down by almost three-quarters on an unrealized basis. So you can imagine the investor meetings I was having at that point. Fortunately, we had an amazing management team—our mutual friend Chris Nassetta did a great job through the crisis and since then. We had some great assets in the company and a really powerful business—the Hilton brand, Hilton Garden Inn, Embassy Suites, Hampton, and all these amazing brands. A global world that wanted these brands. And we had a strong instinct that this was cyclical, it wasn't secular in nature—that people ultimately would travel again. And we had seen that in a smaller way after 9/11. So despite all the negativity out there, we stuck with it as a firm. We ended up putting in another $800 million. We worked with Goldman and the other banks really in a consensual way to get to a good outcome for the company to help delever.
How controversial was it inside Blackstone at that point to write that $800 million dollar check?
I mean, there were obviously doubters, there were concerns. But the good news is we set parameters that we had to get enough time on the debt, you know, we had to make sure we had cash flow coverage. And I think some of those concerns made us ultimately make a better deal. But I think generally there was a consensus that this was a really good business. And fortunately, just after that, we committed at the end of '09 to do that, put the money in in early '10, things started turning around and the cyclical recovery happened. The business kept growing, the management team did a phenomenal job, and we ended up taking the business public—I think you guys were the lead on the IPO. We broke it into three companies and it's been phenomenally successful. My big mistake was I should have just held those shares. But I will tell you, you know, what are the key takeaways to me? There were two. One pretty obvious, which is maintain your equanimity in very difficult periods of time, because you could have gotten quite discouraged and not kept working it, and you would have had a very different outcome. The second one, which I think really has been fundamental to shape me as an investor and some of the things we do at the firm, is you know, you look back and say, how could we have paid a huge price at the absolute worst time and ended up making $4 billion for our investors? Well, we obviously had a really great management team that helped, but we invested in a great neighborhood—global travel—and a great business model. This sort of franchise management capital-light business. And so it made me think, how can I find other things like that? Single-family housing after the financial crisis, global logistics with the movement of e-commerce today, things like data centers and power, certain areas geographically around the world—India. All these things. And you start to say, the model matters and the 60-page memo matters, but maybe that first paragraph—what is the sector I'm deploying capital in and the underlying business—maybe I should focus a lot more on that. Now it doesn't mean you can pay any price, we saw that in 2021 for a good business. But there is no question that investing in better neighborhoods, your chance of success goes way up. And so when you see Blackstone and you see these sort of high-conviction thematic areas, I think a lot of it comes back to that somewhat searing experience that happened in Hilton.
Yep, that's a good message. I'm going to come back to some of that thematic point that you just made, but let's just go to the macro for a second because you think a lot about the macro environment. You know, as you think about how to steer the firm forward, and you've got a unique vantage point—you see companies, assets all over the world, similar to us. That's one of the great privileges of being at these two firms. You have an enormous purview to watch a lot of micro data points. What is your current take today on the macro—whether it's your bottoms-up analysis, your top-down view?
Well, I would say what I've learned the most is looking at the data, to your point, John, is the most helpful thing. Because reading the paper and other things—for us, the 230 comp companies, the 13,000 pieces of real estate, all the infrastructure, everything—gives you a lot of real-time data. And what it's been saying the last couple years and even now is the U.S. economy and the global economy have been more resilient than we would have expected, despite very tight central bank policy. And we see that in revenue growth in our companies, we see that in the low level of defaults to our non-investment grade borrowers. What we are seeing though is some slowing. Sequential revenue has been coming down in terms of growth, hiring is definitely more muted. And in the consumer segment, where you look at our theme parks or some of our consumer goods businesses, we see some of that slowing. The good news is that much of the slowdown obviously has been caused by the central banks, and it's only slowed so much. And the Fed has been quite successful, and other central banks, in killing off inflation. And when we look at our portfolio companies, our manufacturing companies have very little increase in input costs. Rental housing costs are running well behind the government's lag data. And the labor market—we survey our portfolio companies every quarter and we ask them, what do you think wages will be a year from now? They're saying a year from now they think it'll be low threes. And so I think the Fed has real air cover. There's a lot of debate saying the economy hasn't slowed enough, why is the Fed cutting rates? Their mandate is price stability and full employment, and they've had real success now with price stability. And so they're looking at employment. Their mandate isn't to slow the U.S. or global economy. So our take here is I still think there is some downward pressure slowing things down, but there's definitely—and we've seen it in recent numbers, not just in the U.S., around the globe—slowing inflation. And central banks here and around the world will be accommodative now. And for all of us who are engaged in asset values and transaction activities, this is a very good thing. May not be a good thing for your personal life next year in terms of how busy you're all going to be working, but rates coming down is very positive.
Yeah. Okay, we agree. So let's shift to transactional activity. As a big customer of capital markets activity, funding, lending, you know, wanting to take companies public, sell businesses—what's your read currently on activity, capital markets availability? To your prior point, how do you think about the next 12, 24 months?
