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.
This week, I'm speaking to Jon Gray, the president and chief operating officer of the private equity giant Blackstone. A so-called 'lifer', he joined the company in 1992 at just 22 years old under the mentorship of chair and chief executive Steve Schwarzman. Gray began on the real estate side of the business, helping 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 nearly tripled to over $1 trillion. So at a time of global upheaval, I was keen to catch up with Gray about how he leads through crises while maintaining trust, the challenges facing Blackstone's flagship private credit fund, how he retains talent and what that tells us about his own sense of loyalty. Jon Gray, thank you so much for joining us.
It's great to be with you, Francine.
You're known as the Hilton deal guy, right? 20 years ago, you take this massive bet on Hilton, you pay 26 billion for it at Blackstone with 20 billion debt. What were you thinking?
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.
Did you think, what have I done or did you think that there was?
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, 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 rode out 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 have 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 4 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 in 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. You know what? What is the basis? How good of a business is it? The biggest thing on the investing side is it led to this idea of what are the best neighborhoods to invest in. You know, there's a shortage of global housing or, you know, 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 and 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. So you can see how the world evolves, but you don't know whether it's five years or ten years.
Yeah, I'd say timing is very important because it can impact your returns. I think I would say it's slightly different the way I'd see the long term trends. If we had bought a different kind of business and gone through this crisis, 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. I mean, it's very easy to say, stay calm. Yeah, those moments, I mean, can you learn to stay calm or focused or is it temperament you're born with?
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 for 34 years plus. 34 years. Is that what you want from your staff as well? Loyalty.
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 its 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.
How do you think about retaining talent? Do you first of all, do you see it as a personal mission? And actually, what do people want?
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 is more than 5,000 people. We've got to make sure people are excited about coming to work every day.
Have you ever thought of leaving?
No. And there's nothing. What? I mean. What attracts you to Blackstone? You're also seen as the heir in waiting.
I've woken up every day intellectually challenged by what I do. And I love the people and I love the drive in the world to win.
How has your relationship with Steve Schwarzman changed over the years?
Oh, wow. We, you know, 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, you know, the relationship as somebody just learning the business to somebody now running 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, carrying an 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 100 billion? And when you work with and for somebody like that, it inspires you.
Jon, how do you, you know, as the firm grows, how do you make sure everybody feels like that?
Yeah. So that feedback, yeah, it's like 180 reviews, compensation. Every Monday we do what we call BTV. 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 sends a powerful signal to others.
Blackstone's flagship $82 billion private credit fund B-cred made headlines in March. Bloomberg reported that around 25 Blackstone senior employees were putting in roughly 50 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. Jon, talk to me about B-cred. How difficult was it to convince employees to put money in it?
