Hi, guys. What do you want to ask each other?
What are the types of questions you might want to ask him?
Okay. This is a good one.
I've got good questions for you.
I'm sure it'll be exciting.
Action. I love us being interviewers of each other here.
Alright Steve, we are here in New York City at our headquarters, 345 Park Avenue on the 31st floor. Why is this floor and this spot important?
Well, it's important because when we first rented space here, we got two floors, 31 and 30. And we only filled 25% of them. It was owed to optimism. And as long as we were taking a floor, why not take two? They had two. Ultimately, we put what's now BlackRock, which was Blackstone Financial, down on 30.
Pretty amazing. I think the thing I'd want to most ask Steve about is the origin story, which is he's at Lehman Brothers. He's still a pretty young guy in his 30s. Lehman sold. And then he, with the former CEO - Steve was running M&A - but Pete Peterson, he decided to start this business from scratch. So if you go back in time and you think about 1985, you and Pete starting on this journey, what did you think Blackstone was going to become?
In terms of what we thought would happen, we had a concept of what we wanted to build. We said, OK, we're going to do three things with this business. First is have an M&A business. I was head of the M&A department at Lehman at the end. That's a way where you can talk and people give you millions of dollars, and you don't need any capital. And not that many people. We don't need many people, and that's a really good way to generate income. We wanted the income so we could go into other businesses without taking outside capital. So the second thing we said we wanted to do was go into the private equity business, which was then called the LBO business. The third thing we wanted do was to go into to other businesses. We didn't know what they would be. They'd all be in the money management area. What we thought we'd go into areas that were either depressed and we saw them starting to improve, or new areas of money management that developed that other people hadn't done. We ended up going into all these magnificent businesses and each one of those businesses absolutely flourished. At the same time, no one else was interested in that model, even after we articulated it. There's an inherent likability and accessibility that Jon has, and it's innate. What's it like to go from being an associate in private equity and being loaned to the real estate business to work on a very difficult problem where they needed a truly smart guy and we loaned him and he never came back. Sort of an odd way to make your career and become one of the most famous, most capable people in the real estate business, building the biggest business in the world. So Jon, you joined the firm in 1992. You were an English major from Penn. What in the world made you want to do that?
Well, a couple things. I was also fortunately in business school at Wharton getting a dual degree. So I had a bunch of friends and everybody wanted to go to Wall Street and I thought I did as well. And I interviewed with all the usual suspects, the banks and so forth. But there was this little firm called the Blackstone Group and it had a couple of things. One, it's had all these very prominent people, political figures, Pete Peterson, Roger Altman, David Stockman, you, who'd run the Lehman M&A business at a very young age, Shell Gordon, all these notable people. And I was a bit of a political junkie. I had read all the books, Barbarians at the Gate and everything. And the second thing is, you had an LBO business. And everybody down at school was talking about, hey, you wanna go into this. This is sort of the cool new thing. And, I also was friends with a girl who was dating a guy here at Blackstone named David Blitzer. And she was saying, you should work there. My boyfriend, he works really hard, but it's a really cool place. And so I came here, I met the people, and I was like, wow, this looks like a really interesting place. And what was fascinating was when we went to all the big banks, what we saw was always meeting with medium-level people. When I came to Blackstone, you were interviewing me. Pete was interviewing me. The other partners were interviewing me, and it was clear you were highly engaged in this business. So when I got the opportunity, I was like, this is where I want to go. And I often say luck is a core competency, and that was very lucky.
When you think about the early days of the firm, are there certain lessons for you that stick out, that you learn, that you said, 'Gosh, that was a mistake, we're gonna do things differently.' What did you learn at the beginning?
I learned some tough lessons. I'd never been an investor. It's a lot different being an M&A tactician than it is being an investor, and on our third investment, we had hired a new partner, and he had a deal, steel distribution business and finishing business, and he said it was gonna be a really excellent deal. And then a day later, another partner came to see me, and he said, 'I heard we're looking at this steel distribution deal. This is going to be a disaster.' So I thought that was somewhat of a different position than the other partner had. So I decided to resolve this by having them both come into my office and sit on chairs in front of my desk, and I would make pretend I was King Solomon. And each one laid out their point of view. And for whatever the reason, I chose the first guy. And he was completely wrong because the second guy was completely right. And we couldn't make our first interest payment. And I didn't know what else we could do. I said, we have to sell this thing. And so I viewed this as a survival moment for the firm, and we lost half of our money. And what I was totally focused on is not losing any money for the banks in the deal, because if we did, then I figured they'd never lend us money again, and then we were really out of business. So we got them their money back. The lesson here, of course, was don't rely on me to just make decisions. And I came up with a system where we had all the partners at the firm review everything. Everything had to be written. It was all about the facts, all things I should have known. And then you didn't just have one meeting, because a lot of things can happen in a meeting. You had to have at least two meetings, maybe three, and that the objective of the group of people wasn't to say whether they liked it or not. It was to go over the basic assumptions that were driving the deal. And what I learned is that everybody's right in their logic, but they're not necessarily using the right assumptions. And since we adopted that, we've had a really excellent record. To drill this into my head, I got a phone call from one of our investors, and I went up, they said they wanted to see me after that deal, and I went out to see them. It was a beautiful fall day, and all the leaves were changing. The temperature was a little cool, gentle breeze, and walked into this office and the guy asked me to sit at the solo chair in front of his desk and he started screaming at me that the stupidest thing he's ever done in his career is, trust me, give me money. And it seemed to go on forever. And I was sitting in this hard chair and my face started getting redder. And I realized I was going to start crying. And I said, I'm not allowed to cry. And just sucked it up. Took my beating and I went outside. The sun was glancing off of the water, and it was still the same beautiful day. And I said, I am never, ever going to let this happen again. And in terms of lessons learned, that one, as you can tell, has not been forgotten.
