Blackstone's Jon Gray on Big Bets, AI, & Staying Skeptical | The CEO Signal

It is great to be with you. Thanks for joining us.

Well, it's funny. Um, I think what it's really about, and it happened very organically, is it enables me to communicate with people at scale in an authentic way. If you watch them, they're basically sort of dorky dad vibes. Um hopefully a little bit of optimism, a little bit of insights into the world. And it there there's also, I think, an element of you just being sort of a human, right? A norm, right? You're a person. And if you think about the investment business, it's really a trust business at the end of the day. And you're showing people like, hey, we're good people. We care about the right things. You can trust us. So, I think there are multiple levels and it's sort of fun, funny, and you know, at some point people will be like enough with these running videos. But for now, we keep going.

I think it's a bit of everything. I mean, it is funny that when we're interviewing people these days, they will often say like, 'Oh, I hadn't thought about your firm or something, but I like your running videos.' We do a silly holiday video at the end of the year. We obviously have now hundreds of thousands of individual investors and financial advisors and you're connecting with them. And so as your business goes from small scale to large scale, this is a way to reach a much bigger audience.

Well, I've worked for Steve now for 34 plus years and it's been an amazing experience for me and I think we've created a really special partnership. In reality, what does it mean? He is, you know, the visionary founder of the business. He's got brilliant insights. He's got tons of knowledge and judgment. And my job is to run the business on a day-to-day basis and continue to push us forward. And then Steve and I talk regularly about the challenges we're facing and it's a big job, it's a big world. And I think people would say, 'Oh, is this a problem?' I think of it as a complimentary thing where somebody with that much experience and judgment to be able to talk to them on a regular basis about the challenges we're facing and what are the right decisions. That's been a real blessing for me.

Yeah, it's interesting. You would think that it is disseminated, dispersed that decision-making authority, but the reality is as an investment organization, the quality of the decisions you make determine your future outcome. And so we have a system of investment committees that involve the people in those individual business units as well as a small number of us who sit overseeing the firm and we still do them on a centralized basis. Now smaller decisions, some of the lower risk decisions may get allocated at the group level, but we still run it like a small business in a lot of ways because if the pizza doesn't taste good and the pizza for us or the net returns we produce for the customers, if that doesn't, nothing else matters. So, I'd say the way we do it is you send folks off within business units. They have their strategy about what they're looking for. The decision-making process is more centralized, but is consensus by nature. We had a very interesting dialogue about a business today where one of the investment committee members identified something we saw as a flaw in the business. The team I think recognizes it and as a result this will probably be harder for us to make the investment but it is a little bit more like an orchestra or something. It's not just one person playing, it's not a soloist. It's a process that we've been working on now for four decades to make sure we can produce the best outcomes. It doesn't mean we always get it right. There's generally a process, heads up committee, pre-investment committee, investment committee, series of questions, and you're just trying to make the best judgments possible.

We have a Whopper supercomputer. We push a button that says good neighborhood and it shoots it out.

Yeah. Yeah. Exactly.

Exactly. Look, it again, it's a little bit organic. I think the key thing sticking with organic is you've got to create the right environment where you're encouraging people to look for these thematic tailwinds and you're encouraging people to share these ideas because if you think about investing as pattern recognition. If you can connect those dots before other people then you have a chance to produce an outsized return. So, you know, you mentioned logistics. We started buying after the financial crisis. Warehouses and we bought them because they were inexpensive and so forth, but then we owned a bunch and we were noticing these e-commerce tenants were showing up and particularly the ones that were closer to population centers. We were seeing this incremental demand we would not have expected. And you watch that for a while and you say, 'Huh, okay. I'm going to buy more of those and get closer to population centers.' And then you're like, 'Wow, this is working in the US. What about Canada? What about Europe? What about Australia? What about Japan?' And so you see this and then what's interesting in these often times it can be the derivatives that are off of it. So you know the data centers which have become our biggest theme today came about we bought a data center business we privatized it in 2021 at the time we did it because we thought it was inexpensive we thought cloud migration was happening and yet we noticed the big hyperscalers were starting to come for very large orders. This was the early days of training and we were like, 'Huh?' And we're like, 'Well, what if we went out and bought some land and ordered some steel and got ahead of this? And what if we started doing it in other geographies in Europe?' Same sort of thing. And then you say to yourself, interesting. Well, what's inside the data center? And what about if we bought some cooling? And what if we bought electrical equipment? And what if we bought contractors? And huh. And by the way, maybe the large language models that are doing all this, maybe we should invest in those, too. And you begin to sort of fan out against this neighborhood because you say there's a bunch of things in here. And sometimes the things that are one or two derivatives off may be less expensive. Had you invested in memory chip companies 12, 18 months ago would have been one of the greatest investments of all time. So I think what we're trying to establish is what are these really interesting areas and they change over time and then how can we get at it. But to your point, no set formula, more just an organization who recognizes this is something we've got to seek and find.

I think the distinctive Blackstone thing would be when we identify something we go big. That would be the distinctive thing that if you find a theme that you're like, 'Wow, I really see it.' Rather than doing onesy twosy, let's really go for it.

Well, I mean when I started, what's crazy is we had $750 million versus over 1.3 trillion. So that's sort of hard to fathom. I would say where we raise capital has broadened a lot. It used to just be basically US pension funds, endowments, and that's become global. It's become sovereign wealth funds. It's moved into it used to be just the highest return strategies, private equity, real estate, private equity, opportunistic credit. It's become now things like investment grade credit for insurance companies, but doing that privately. We've got a bunch of insurers. We talked about it, but we have individual investors now and perpetual vehicles. Our business was built on draw down funds. You raise the money, you invest in something, buy it, fix it, then sell it, return the capital. Now the money stays and is compounding. And so in some ways, some of these like our infrastructure, our open-ended real estate funds are more like families where you're owning things for hopefully decades. But I would say, you know, the scale of this has changed and therefore our capabilities, what you need to do has obviously changed because yes, you can raise money, but you've got to be able to deploy it effectively.

I think what the business has evolved to is you're really a full-service private market capital solution provider which is a mouthful but it's basically this idea that we sit down, we often say, 'Don't go to clients and sell products.' Listen, what you're trying to do is provide solutions to them. In the old days when we showed up, you know, we all here, what we got? I got vanilla ice cream and chocolate ice cream. Which one do you want? Now, when you're operating at a much bigger scale. Now, you're saying how can I help solve what your issues are? So the capturing the intellectual property of that or capturing here's what my customer the capital provider wants. Also capturing here's the good neighborhood and then matching those things has got to be a huge effort.

Yeah. Well, I think you keep pressing against what you're doing to confirm that you haven't just sort of fallen in love and it's just like trees grow to the sky. So, if we use data centers as the example, I think the key there is that 90-95% of the money goes in the ground after you have a long-term lease with one of the biggest technology companies in the world. So if you contrast that to say building condos in Miami, somebody sells a condo at a very high price, 20 other people go out and build. Guess what? The price falls down because there's a ton of new supply. Here I'm building this 5-10 billion data center because one of these massive tech companies signs a 15-year lease with me. So my risk is much more mitigated. It's very similar with some of the energy things you're doing. You're building a power plant or a pipeline or an LNG facility, you're getting contracted. Now, as you move further on the risk spectrum, you get to large language models or deployment. We're creating a TPU company with Google in the Neocloud space. There's more risk in that versus long-term data center leases. We're creating a service company with Anthropic to deploy the technology. Now, I can explain to you why I think all these are going to be really great things, but I would say we're a place by its nature that is sort of skeptical and the people who come to the room are saying, 'Yeah, I know the last five times you've done this has been great, but are you sure?' And I think what we're trying to do is find appropriate downside protection, own infrastructure, own picks and shovels that support this AI transformation. Invest in some of these very innovative areas, but do it all through the lens that this may change. Token costs may come down dramatically. People may not want to use frontier models to do very basic things. We could see regulatory environment change dramatically depending on elections. I think you just have to wake up, then obviously you can sell some of your stabilized assets to derisk yourself. So, I agree with you. If you sort of blindly fall in love and just say this is going to keep going, you could go too far. But I don't think that's the nature of who we are.

Well, it's hard. You know, it's funny. I always think about myself as a bit conflict averse and I'm in this high conflict business, right? But I think there's a way you can be, you know, hard on issues, soft on people. John Schreiber, who you know, who helped co-found the real estate business at Blackstone, had that way about him. And it's, look, you're talking about the intellectual discussion. Should we buy the company that makes this glass of water? You know, what are the pros and cons? It's not about you personally. It's about getting to the right answer. And I think if done in the right way, then people don't take it personally. It can sometimes get a bit heated, right? People care passionately. There's a lot at stake. But if everybody knows it's being done with intellectual rigor, with the true north, we've got to produce high returns. We've got to do things that make sense risk adjusted wise. And if you're intellectually open because even myself, I might come into the room with a very negative view on something but others can convince me. So if you come at it with a spirit of openness and you're respectful of other people, I think you can have real debate. But it is hard.