Hi, guys. What do you want to ask each other? What are the types of questions you might want to ask him? All right, let's do it. I'll do this one. Okay. This is a good one. Okay. I'm ready for it. Oh, this is fun. 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 to do was to go into 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, you know, 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, you know, 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.
And every time we look at an investment, I look at it exactly the same way. You always remember the losses so much more than the wins. You agonize over them, you look at them. How could we have made that mistake? How could I have been so dumb? That's the feeling you have as an investor, if you really care. But what's interesting, regrettably, you learn the most from the losses. Because you study them. And you don't get angry about the losses except you get angry about yourself because you missed something. You don't get angry about anyone else. And so, you know, the reason we've done well over so many years is whenever something doesn't go as well, you have to be forced to look at it objectively and say, okay, it didn't turn out. What did we miss? How did we miss it? How does that never happen again?
So we had a pretty eclectic group of people working at the firm in 1992 when you joined. And you're a very well-balanced, you know, normal type of person. What was it like working with these people? And what did you say when you went home to Mindy after a day or two of this?
Well, we didn't go home that much, as you recall, because we didn't have the devices, right? We didn't have computers that were away from our desks. We didn't have mobile phones. We had to be here. So you ended up spending insane amounts of time. I guess, yes, a number of these people were interesting, quirky. But they were also super smart because you always brought in all these highly intelligent people. And as a young person what was fascinating is there would be a partner, maybe a mid-level principal and then you. And here you are fresh out of school and you're working with this highly intelligent person and they're writing up spreadsheets by hand and you are running after them and you're getting to go to meetings with them and so you're on this accelerated learning that you rarely get this kind of experience. And so for me, it was scary, because these were demanding people. They didn't accept errors or tardiness or anything like that. On the other hand, it also was inspiring because you were getting to be in the room. We were working on M&A assignments for PepsiCo, or we were working portfolio companies, hospitality franchise systems, and you were in the rooms as a kid, carrying the bags, learning. And so part of me was a little overwhelmed, but part of was super excited.
What I'd say about Steve is he's had an extraordinary influence on my life. Not just, obviously, financial and professional success. He's empowered me in a way I never could have imagined. He's so expansive in his thinking. And he pushes you so much that you begin to say to yourself, hey, why don't I do this? Why don't I start a new business here? Why don't I expand the real estate business? Or why don't I expand our credit business? Or move into wealth? Or all these things we push to do have come because of Steve's basic inspiration, his idea: we can do more, we can do better, you can do more, you can do better. And that, for me, obviously professionally, but also personally, has really transformed my life. So I have enormous appreciation to him.
When I think about you, Steve, the defining thing to me always is this relentless entrepreneurial spirit, this idea that most of us see I can go from one to two, and you see I can go from one to 100. I can do something bigger. I can do it in a different industry, in a different country. You have this expansive vision and this relentless push. Where did this entrepreneurial thing come from? And how have you always kept it over time?
Well that's a good question, you know, maybe we should call in a consulting therapist and find out. But I've always been like that. You know, when I was elected president of my high school, I said, I want to do stuff that nobody's ever done. I just want to hit it out of the park. And I said okay, I wanna get a top-ten hit rock and roll group to come to my high school. Like, what kind of kid would think that? We didn't have any money to pay them, and I somehow found a way to do that. And what I do business-wise is I look at a situation, how big could we make this idea? What's achievable, and what kind of resources would we need to get to that vision? I've always believed in almost everything I do. I call them worthy fantasies. They're the hardest things to come up with. But once you have one, how do we get there? How big can we make it? There's only so much effort you can coax out of a human being, only so many hours in the day, only so many things you can actually focus on and do well. So I like to skip all the things that aren't sort of really consequential. And just because something can work, you shouldn't necessarily do it because you're then diverted and you can't focus on the thing that's gonna be astonishing. So you sort of hold back, and as soon as you see one of those, you never hesitate and you marshal every resource you can. You get the best people. You have to tell them: here's the vision, here's the scale that we can operate in. Here's why I want you to do that. And then you just go out and crush it. And I enjoy that. I don't know why. It's like a natural thing.
And as you know, from sort of being here for over 30 years, the key is just being aware of what you can create and never compromise on the scale and the quality of the people. And then once people get used to winning like that, I personally pull back because it develops a life of its own.
I would say it's a superpower of yours. And to me, what's especially telling is you're able to pass it on to other people. Because most of us, as I said, can't see that way. But once you show people this idea to think much larger, they're like, huh, I can't believe I can do that. And then they say, oh, well, maybe I could do that over in this new industry. I could do it in secondaries, I can do it in credit. Or private equity. And when I think about the firm, people often ask, why has this happened? Why has this developed? And I so often say, Steve's got this vision, pulls the field so much larger than anyone can imagine, and it inspires everybody. And when you're at a place with that kind of energy, and then sort of you're striving for excellence, will to win, amazing things happen.
Well, you see, but the difference is now, I'm not really that important because you've learned it and a lot of people here have learned it. And so I've, in a way, done my job among other jobs, that, you know, you love doing that. It's amazing. And if you take the people running each of our major businesses, they all think that way. And that's their value system. And the exceptional performance. Because we've done such a good job for such a long time in all these different areas, if we say, hey, we're going to go here, we are going to do this in Asia, we have done it in Europe and the U.S., investors will say, Hey, we trust you. We've seen you do this before. So that's to me very empowering to work at a place where you have this sense of unlimited potential. And you put that in the DNA and you did all that heavy lifting. And you're right, today it's spread out amongst the leadership of the firm. Everybody's thinking about how can we do better, but always remembering that we've gotta deliver for the customer. Because if we don't deliver good performance, you can end things like this very quickly. So it's the combination of, yeah, we're gonna be ambitious, we're going to be entrepreneurial, but we're continue to have super rigorous process and then amazing people too.
You know, for me, it was logical to ask him to be, you know, sort of Tony James's successor as president of the firm. What was it like being sort of like a double agent, you know, for a year and a half? We hired Tony James in 2001. One day he walked in my office, I think it was like 2017 or something like that, and he said, I'm gonna be 70 soon. I said, yes. And he said, so I'm gonna retire. So we have to find somebody to take my job. I said, well, who do you think we should have? And he says, it's Jon Gray. I said well, I agree with you, that's the only answer. You know, he's got great judgment. The higher the pressure gets, the more relaxed he seems to be. And so we approached you and said, you know, we'd like you to run the firm. I don't remember the exact circumstances. I think you were pretty pleased about that. And we said, but we really need to train you to maximize the chances of success. So why don't you trail around with us to different meetings? You were just doing real estate and we have all these other business areas, and so you were sort of smuggled into meetings, more or less. What was it like?
Well, I guess I'd start by saying to me that that transition reflects so well on you and Tony because it's so different than what happens in most organizations, right? Typically in organizations, nobody says anything, there may be three candidates, there's some sort of game of thrones, you know, something happens abruptly, they're just in one division, and they don't have experience with the rest of the business, maybe there's a bake-off. And then whoever wins, wins, hasn't been integrated across the firm, and the other people leave disappointed. But I think you guys did an incredible job, even before that sort of formal couple year period of training, sort of signaling to the world like this is going to happen, having me on the management committee, the board of the firm. Tony bringing me into some of these things intensely in those last couple years. And I think, obviously, it was hugely exciting for me and an incredible honor. But it was also daunting. I mean, what did I know about hedge funds? I knew a bit about private equity, it was like real estate. I didn't know a ton about credit. How do you think about learning all these things? And so for me, it was a little bit of a crash course. And it also was an exercise in getting to know some other people because ultimately I would have to have authority in dealing with them and so forth. But it was done in such a methodical way that I was given time and space to learn.
The signaling as we got closer even externally got really good so that when the announcement happened nobody was surprised. There was no this is big news, the investors were like we expect this, the employees at the firm were fine, we just kept going along. And like anything, like you describing when you were starting the firm, I stumbled a bit like everybody does. But then I started learning and you start learning about all these different businesses and you start thinking about what can we do and... It was incredibly exciting, that part of it for me, the intellectual challenge, the global nature of what we do, the expansion opportunities. But I come back to the thoughtfulness of the transition itself. And that was really unique. And again, it speaks volumes about this firm and how we think about it and how you think about it as an enduring institution.
Steve, if somebody was telling you the Blackstone story. Obviously, the story here for 40 years has been amazing. This sort of supernova, this incredible growth, it looks all upward to the right. You know there have been stumbles and bumps and it's not been easy to get here. But when you think about your aspirations for this place over a very long period of time, what would you want that next chapter to be?
