打造 Blackstone、押注 Costco、与 Munger 共事｜Tony James 做客 The a16z Show

If you think about the development of a successful company, there’s kind of an S-curve. It starts off small and entrepreneurial. Then there’s this kind of escalation where you create a lot of value and a lot of size.

People know Blackstone today as a trillion-dollar firm in AUM. It did not look anything like that when you joined.

Running an investment organization like Blackstone, I think you almost have to be a really good investor. If you’re going to catch the signals early, they’re never obvious. By the time they’re obvious, it’s priced in.

You led the Series A into Costco. Charlie Munger was on the board, and you guys served together for 30 years. What did you learn?

Focus, focus, focus. Flawless execution of details. Build for the long term.

Everybody I spoke with literally attributes the success they’ve had in their careers to you. If a young person came to you today, what would you tell them about building a career?

Tony, thank you so much for being here.

You’re very welcome, David.

You joined DLJ as an investment banking associate in 1975, I think just after business school. Maybe give us a reminder of what the shape of that business looked like at the time.

If I’d known what I was doing, I probably wouldn’t have joined DLJ. It was nothing, honestly. It was a sub-major firm, or a sub-sub-major firm, as they used to say in those days. There were at least 100 firms bigger than it was. We had an investment banking team of 5.

Wow.

We hadn’t done a financing or a merger in 2 years, so we hadn’t done any business in 2 years. But I liked the people. I liked the unstructured nature of it. I decided I’d give it a shot.

You ultimately stayed for 25 years, I believe, which is a pretty long tenure generally, but certainly for Wall Street at the time. What were some of the key inflection points in that journey—maybe the things that led to your success, or the evolution of the business, which grew massively during your tenure?

The good part of getting in on the ground floor is that if it starts to work, you get pulled up with the growth in the organization, and you get responsibilities earlier than you deserve them. That kind of feeds on itself. Your learning accelerates, everything accelerates, and your confidence accelerates—maybe to an excess. But it feels really good, and your expectations are low, so when you start winning business, it’s always a positive surprise. If you lose, that’s par for the course, but you get a very positive feedback loop.

We ran DLJ, which ultimately was renowned for its culture. People just loved working there. That created a really nice environment, and you spend so much of your career, or your life, in your office. It was fantastic.

We grew DLJ from essentially nothing to the fifth-largest securities firm. We grew it at over 15% for 25 consecutive years. That’s kind of like one of your tech companies. I loved that.

Every few years, the business changed, and my opportunity set changed radically. The big turning point, I would say, was 1980, when KKR did an LBO for Houdaille Industries—the first big public company that was actually taken private. I said, “Wow, you can buy these huge companies with almost all debt.”

It struck me that DLJ, at the time, was competing with dozens of other firms that had more of everything than we did: more bankers, more clients, more of a track record, more capital, and more distribution. There was nothing we had that should have won. So that struck me as a way to kind of make an end run. They weren’t really doing it themselves. It was a new sector. We could buy clients we couldn’t actually win competitively and then do all their investment banking business.

That really fed on itself. Out of that, we built a private equity business. I think our first fund had a 90% IRR. In those days, it was easier because prices were lower, companies were more under-managed, and essentially you could borrow 100% of the purchase price. Just by rolling your fees, you could kind of own the company.

Then that drove us to build—and we had to build—a high-yield business and other debt businesses. A lot of those were our biggest IPOs. One thing led to another, so we built the whole investment banking business cheek by jowl with the principal business. In essence, it was a true merchant bank.

There was no reason, really, that a KKR or a Forstmann Little—which were the big players back then—should ever have existed. Your old firm, Goldman, should have beaten them. But the big firms were ambivalent about this business. They were ambivalent because it wasn’t quite an agency business. They were old-line bankers who didn’t understand it and didn’t actually want to understand it. Really, they just didn’t want their clients to complain about competing with something that the firm bought.

That institutional ambivalence gave us a huge runway that we just plowed through. It became a magic synergy between the investment banking and merchant banking businesses. Ultimately, we built funds of funds, real estate businesses, and venture capital. We had a business back then called Sprout Group, which was one of the big 3 back in the ’70s. It’s gone now.

I want to dig into the merchant banking business in a bit. One of the people I spoke with in preparing for this conversation was Bennett Goodman. He’s had a long history with you, and he told me a funny story about you recruiting him when he was at Drexel at the time.

Mike Milken was at the top of the power chain in terms of the junk-bond ecosystem and the growth of the private equity world. Bennett said he asked you, “What makes you think you can compete with Drexel?” You gave an amazing answer, or at least that was his recollection. I’m curious if you remember that conversation and what you said.

I don’t. What did he say?

He basically said that you had the whole theory for why Drexel’s business model was flawed. It was basically that all they had to do was say they had high confidence they could raise the capital. You had a very different point of view: you were going to have dedicated pools of capital. You were going to start, effectively, a bridge fund.

Bridge fund, right.

Bennett had said, “Okay, so these are $250 million or $500 million financings. How big is your balance sheet?” You said, “I don’t know, $300 million.” He said, “Okay, how does that work?” And you said, “Well, we were owned by Equitable—or controlled by Equitable—which was one of the biggest life insurance companies.”

This is something I’ve heard from a lot of people, but the confidence that you had to go and compete against people who were far better capitalized and had much bigger businesses—and the confidence that you instilled in others to do the same—I think drove a lot of the firm’s success. I’m curious if you could talk through that dynamic in the ’80s.

Of course, back then Drexel was the big gorilla, and we were second in high yield. We were more of a client than a threat to Drexel at that time because of our principal business.

Drexel had the highly confident letter. If we said we were highly confident, people would say, “So what? Sure. You don’t matter.” So we created this bridge fund, and we levered it heavily. We bet the fund and the firm on every bridge loan. Ultimately, that lack of capital became an Achilles’ heel.

We had a remarkable stretch of making the right credit assessments and the right market assessments. Every time we got a deal, we would win the business and have the distribution. Because we were often controlling the issuer, we could put a little extra vig in the interest rate.

We became known as the distributor of high-yield issues that people should buy when they were issued because we’d price them to trade up. It doesn’t have to trade up much—it’s not like equities. It doesn’t have to trade up much to be juicy.

We used that, and we developed quite a following. Then, when Drexel went under, the bigger firms were also ambivalent about high yield. It had a taint, especially when Drexel went under.

We were sitting there in second place, and we just inherited the world in that sense. It became the most profitable part of Wall Street. We accounted for 40% of Wall Street’s high-yield volume for 12 years. It was huge. Drexel’s going under was a huge boost to our banking business. It didn’t really help our principal business much, but it was a huge boost to our banking business.

You were able to recruit real talent from Drexel then?

We were. Ken Moelis was a big one, and Bennett was huge. Although Bennett was only an associate at the time, I always believed in young talent—great young talent—and unleashing it. That’s always served me well throughout my career.

That has definitely shone through in a lot of my conversations. Maybe talk through the inception of the merchant banking business, the Blackstone platform, and how that grew. Ultimately, I think it became one of the largest, or the largest, in the world at the time.

Right. Well, again, KKR did that Houdaille deal back in 1980, and I said, “Wow, this is something we can do. We don't even have to have a client. We're the client, in a way.”

And so I went to the firm and said we should do this. I was running M&A at the time, which in and of itself was some kind of distortion of reality because I was 30—maybe not 30, 29—and they said, “Go back to work. We have a principal business called Sprout, the venture-capital arm. They know how to buy things and how to advise, so go back to advising.”

I sent them a few deals over the next year or so, and they said, “No, that doesn't work.” Then someone else would do it and make a lot of money, and I kept going to the firm and saying, “This is ridiculous. These guys don't know how to get out of their way.” Ultimately, they gave me the responsibility, and we started off with a landmark deal. I think it was the 3rd-biggest LBO ever. We bought the retailing subsidiary from Household International.

We ended up with Vons, Ben Franklin, TG&Y, and Coast-to-Coast stores. We sliced and diced and sold them all, and we closed. We put up a couple hundred million dollars in equity, and the day after closing, we pulled out $400 million or some huge number because we sold the discount business to another discounter and ended up essentially owning a great grocery store in Southern California called Vons for free. I grew up going to Vons in San Diego, Southern California.

Around that, we did massive amounts of high-yield and one thing and another, and that put us on the map and led to us raising a fund. It was a very high-return fund, so then we got a lot of follow-ons. But we were pretty aggressive about starting new businesses. We started a secondaries business, a fund-of-funds business, real estate, as I mentioned—all these things—and pretty much all of them worked.

The private markets in those days were not as competitive, and prices were lower as a multiple of EBITDA and whatnot. Companies were asset-heavy, so there was a lot to work with there.

Yep.

We built that business. When we sold DLJ to Credit Suisse, it was about a $29 billion AUM business. Blackstone at the time was in the high teens, just to put that in context. So that was a key asset.

Once it got put into a Swiss bank, they had all of the institutional issues and the lack of commitment to the principal business that all the other big firms had. So it kind of started to waste away.

What was the core motivation to sell DLJ to Credit Suisse? Was there some macro reason, or was it just good timing? I'm curious.

I think there were macro and micro reasons. DLJ had had a hell of a run, as I mentioned. This was 2000, and honestly, I looked around and said, “Wow, the market is at some kind of peak.” At the same time, the industry was changing. Glass-Steagall was coming down, so the banks were coming in with very deep capital pockets. Regulations were changing about how closely research, which was DLJ's strength, could work with investment banking.

Interesting.

Markets were changing. We'd gone from negotiated rates to very low commission rates, and so the big firms were essentially doing the cash business on a break-even basis to make money on the derivatives. We didn't have a derivatives business, and we didn't have the technology to build one.

Then our success in high-yield and private equity meant we'd run out of balance sheet. Our bridge fund was $1 billion, and all of a sudden you were doing $1 billion bridge loans. So you could do 1 deal at a time, and if you made 1 mistake, you're out of business, because $100 million of that was ours at the bottom, by the way, which was 40% of our equity or something. So it just seemed to me like everything looked great right then, but was unsustainable.

Yep.

I was number 2, but I tried to push the CEO to invest in the future a little bit. He didn't really want to, honestly, and it would have meant some tough years for earnings. So we decided to sell the company.

I'd say, in retrospect, a lot of people blame me for that decision, for pulling the rug out from under them, because working at DLJ had a bit of a Kumbaya feel to it. The people still talk about it. They still get together 2 times a year and pine over those days.

Not so much at Swiss Bank.

But we sold it for $14 billion in cash, and 2 or 3 years later Morgan Stanley sold for $8 billion.

Wow, wow.

So I would say our timing was good. If you're going to exit because you don't have a winning hand, the timing was really good.

Totally. Now, it happened to be essentially a merger of equals, but that's never pretty, especially when you have 2 firms with such different cultures.

One of my favorite fun facts about your time at DLJ—and we're sitting in a venture-capital office—was that you led the Series A into Costco in the 1980s. I have to hear more about that story. You know, Starbucks, too, by the way. Is that right?

Yeah. Oh, wow. I mean, a few others. They weren't all that successful.

That's amazing. You might be the best retail venture capitalist of all time. How did you meet Jim Sinegal and Jeff Brotman, and then ultimately, what did you see in them at that time?

Well, they walked in, unknown to me, and said, “Gee, we have what we think is a really interesting opportunity.” There was 1 unit like that called Price Club that had opened in San Diego.

That's where I grew up.

Jim had been the number 2 there, and Jeff recruited him to come start Costco and open the same thing in the Pacific Northwest. There was a research report from a Goldman analyst named Joe Ellis that laid out the business model, and it was very powerful and elegant. It was proven in 1 case, and the Pacific Northwest was a very good, very affluent market.

Jim was one of the best executives I've ever met, maybe the best. He's driven. He can be excellent on the smallest details of execution but also the biggest principles.

Mhm.

He knows exactly what he wants. He never compromises. He never does something that's expedient. It's always about serving the customer and driving the competitive advantage to where no one else can go. He's just relentless about that, with incredible standards of excellence and focus, focus, focus.

The guy traveled 225 days a year as a CEO. He was at every opening and knew the price of every item in the store. So you can't meet a guy like that who's a total force of nature and not be blown away.

At the same time, he was coupled with Jeff Brotman, who was a clever real-estate lawyer and also owned some retailers up in Seattle. So he really knew that market. The economic model of the store was so powerful that it was compelling, I thought.

Totally. And you're not betting on a new technology—whether the market is going to embrace it or whether it's going to work—because it was pretty prosaic. Even someone like me could understand it. But there was also a working model.

Yep. So we did that, and it was one of the all-time great investments, I have to say.

One thing I learned is that a lot of people, I think, hold things too long. I probably sell too early. We'll get into it. The other amazing fact about your time with Costco is that you've been on the board, I think, 38 years, which is probably one of the longest tenures in American corporate governance that I can think of. Why has Costco meant so much to you, and why have you stayed on the board or affiliated for so long?

Well, David, when you find a couple of executives and back them before there's a company, before there's a dollar of revenue, before there's an order, you feel it as much as they do: you're a founder. So it becomes like—I’m on my 3rd CEO now—it feels like I identify with the company as if it's mine.

I don't want to take any credit away from the great management we've had. We have had great management. But emotionally, I feel that kind of connection and that sense of ownership.

Also, it's just such a great company. I'm constantly learning from the things they do and the way they think about it. They're very down-to-earth and very focused, but they come to such good decisions all the time.

As an investor, as I was for many years at Blackstone, the window on the world that you get from the 2nd-largest retailer in the world—what goods are working, what goods aren't working, how are consumers reacting, what's the cost of supply, what's happening, what are tariffs doing to our input costs, how are we handling shipping and all that stuff—is a huge source of value-added information. I love it, and I feel a real sense of identity there.

I guess, what have you learned from watching Costco grow in terms of business building? They're so famous for culture, right, and how they treat their employees and ultimately the value they deliver back to the end customer by keeping prices low and really making money through the membership more than they do on margin on the products. I'm curious—the business has grown obviously so much, from nothing to what it is today.

Yeah, $250 billion. I think there are some similarities between DLJ, Costco, and Blackstone, actually. But focusing on Costco, we built that—it was, first of all, all about taking care of the customer. If you really take great care of the customer, then a lot follows from that. You have a robust business model with a fantastic following and franchise, and you get a lot of growth, and your shareholders do fine.

Take care of your customer, build quality long-term, and don't ever worry about short-term expediency. “Gee, we're having a soft quarter. Let's raise prices, or let's sell some real estate. We don't have to own the real estate,” or this or the other thing. It's so easy to get enticed into short-term expediency.

Similarly, people have been coming to us for years saying, “Oh, you should buy this, or you should buy that.” We've always had so much growth in doing just what we do, if we do it really well. We've just never been distracted by that.

So focus, focus, focus; execution, flawless execution of details; build for the long term; build quality; and keep driving your prices down. Keep enhancing your value to the customer. Never let that be static. If Costco can go find a new source for batteries and save a nickel, 100% of that nickel gets passed through to lower prices. None of it goes into higher margin.

So they're always driving down prices, and their customer value proposition keeps growing. Most companies either nibble away at it because they're tempted to have a little more earnings, or they let it be static. Costco's always driving to increase the customer value proposition. I think those are all good lessons for any business.

I know we originally met, I think, in the context of the Costco board meeting. He wasn't there in person, but when I met with the board, Charlie Munger was still on the board, and I think you guys served together for—

We did. 30 years.

Thirty years, yeah. He's such a legend. What did you learn from Charlie Munger over those few decades?

Well, first of all, Charlie never compromises intellectually. If he doesn't like something, you're never in any doubt what he thinks about it, and he isn't either, by the way, which I love. It doesn't mean he was always right, but he was right a hugely high percentage of the time.

Charlie believed in the company. So even when we would have doubts—you know, the management and the board would say, “Geez, is this going to work? Is Amazon going to flatten us? Now they're buying Whole Foods. Oh my God, are they going to do this or that?”—before Amazon, it was Walmart. He believed in the company: “No, you're the best. Just go ahead, right at them. Open that unit in Bentonville. You'll beat the heck out of Walmart.”

And it happened.

And now, “Don't worry about Whole Foods. You'll crush them.” It happened.

Yep.

And so he was really a believer, with good reason. He wasn't blind. But sometimes that sense of confidence—and I tried to put that in the businesses I've run, too—that sense of confidence: You are good. You're really, really good. Believe in yourself. You can do anything.

Yep.

People lose that. Charlie could distill everything into a sound bite. We owned a newspaper, and I think The Wall Street Journal was up for sale. I said, “Charlie, what do you think about newspapers?” He said, “The newspaper business is not a business, Tony. It's an oil well that's depleting to zero.” I said, “Well, what about The Wall Street Journal?” He said, “Well, that's not a newspaper. That's a trade journal.”

I mean, everything got right to the point. He distilled it into such an accessible, understandable way of thinking about things. Charlie was my rock. I talked to him every 2 weeks, whether we were on the board or not. We talked about the world. There were many times when I'd say, “Charlie, I'm starting to worry about this or that thing,” and he was an absolute rock.

I love the guy, honestly. I have a bust of him in my conference room, in my office. He was a real mentor—so loyal, so supportive, and with very high principles. There was no cutting corners on anything.

Totally. And he was still coming to board meetings at 98 years old. I mean, it's pretty unbelievable.

All the way to his death. Yeah, that is remarkable.

I want to transition to Blackstone, which I think most people know you for, because you had such a huge impact on its growth. Talk through when you first met Steve Schwarzman. I know it was before you joined the firm. What was the conversation like when he was trying to get you to join?

Yeah, okay. I think our first serious engagement dates back to 1989, when we were working on a deal together to buy a railroad company called CNW. It was a hairy time because the markets were falling apart. We were sort of pregnant with this public bid for the railroad company.

We were an equity shareholder, but we were also providing all the high-yield debt and the M&A, and on and on and on. Part of our business model was to put a little equity in and get all the investment banking business.

We had a big high-yield deal with a reset note, and Steve was balking at the concept of a reset note. I think we were pricing it at 15%, and it could reset up to 18%. I think of those rates today—

Totally.

But Steve said, “No, I'm not going to do the reset, because I know you guys will reset it to the max. That's just—” Steve has a great nose for how to get screwed—

And how to avoid it.

—and how to avoid it, and for what might happen. We couldn't sell it without the reset. Of course, what that told you is that the market all thought it would be reset. Interesting, right? Or at least you wanted to take the risk out of it.

We went round and round and round on that. We had done a bridge loan, so we needed to get this financing done. The story is that Steve said, “Well, are you willing to put your own personal money on the line?” I said, “Yes.”

We agreed that if it reset to the max, I would pay him a certain amount of money. Frankly, the amount I would pay Steve was dwarfed by the amount the firm would lose if we didn't get the deal done. Steve might have knuckled under anyway, but to me this was a very good example of losing a battle to win the war.

I felt like if I could give Steve a pound of flesh, then I could get the whole thing done. The idea of someone putting up money—and actually, if Steve had to pay a higher interest rate, which wasn't really Steve, it was the LPs who had to pay a higher rate—I would lose some money. All that appealed to him.

So that did the trick. He agreed, we got the deal done, and we both look back on that slightly differently. But I think we each accomplished something in our own heads, which is sometimes what it takes to make a deal.

After that, I was running investment banking for a long time, and Steve was a client—not necessarily the closest client. He did a lot with Chemical Bank and Jimmy Lee and other banks. But we would have a casual lunch, maybe once a year or something like that.

Then, after DLJ was sold, I had to agree as part of the merger agreement to stick it out for 2 years. No other employee did, by the way. But I'd stuck my 2 years out and then decided it wasn't fun, and that I wanted to do something else anyway. The DLJ that I felt that same sense of proprietary ownership for, the way I felt about Costco, was gone.

Steve called out of the blue and said, “Can we have lunch?” One thing led to another, and he said he'd been looking to hire someone for a couple of years. Would I consider coming in and helping run the firm?

My first reaction was, “Geez, Steve, you're a tough boss, and I really haven't had a boss in like 15 years.”

Totally.

DLJ went public and went private a few times, so I didn't really need to work. I said, “Steve, I don't know that I want to be told what to do or what not to do. I mean, I haven't had that in a long time.”

He said, “No, no, no. You come in, you run the firm day-to-day. We'll talk all the time. I'll back you if we don't agree. By the way, we agreed 98% of the time.”

Mhm.

“I'll back you. But if performance is not good, I reserve the right to get rid of you.”

Yeah.

I said, “That's fair.”

Yep.

So we cut a deal where he could get rid of me at the drop of a hat. I got vested up to the minute in whatever I had.

Sure.

And we agreed to try it. Like so many entrepreneurs—we've all seen this, right?—they say they want to bring someone in, and there were issues around Blackstone at the time and all the businesses.

Mhm. But then once those issues kind of faded, the entrepreneur wants to reassert control.

Totally. I have to say, Steve was an absolute prince. He always respected my role in running the day-to-day firm. When I made a lot of changes and a lot of people didn't like them, he backed me 100%, even when he wasn't necessarily sure they were right. They turned out to be right, but he was a great boss, really.

I have to say, that's hard. It's his baby, right? To give that level of control to someone else.

I’m not one in a hundred who would have done that. So credit to Steve. Totally. Well, I guess you could have obviously started your own firm. Most of the people I’ve spoken to, whether it was Joe Perella, Michael Chae, or David Blitzer, talk about Blackstone before Tony James and Blackstone after Tony James. I mean, you joined, I think, 17 years after the firm’s founding.

Thereabouts. Yeah.

How did you think about joining a firm versus potentially starting your own? Then we’ll talk about the trajectory of the business, because it grew.

I did think about starting my own firm. I had a lot of people encouraging me to do that, both LPs and other professionals.

But what I like doing, if you think about the development of a successful company, is that there’s kind of an S-curve. It starts off small and entrepreneurial. If it’s not a tech company, it’s kind of flat for a while and bumps along. Some of ours are like that, too. Then there’s this kind of escalation curve where you create a lot of value and a lot of size. If you’re lucky enough, you get to be very successful, and it’s kind of, “Protect the bastion.”

What I like doing is that steep part of the S-curve. I like taking something small and growing it, making it better, and making it very successful. Once it’s very successful, it’s not that much fun to protect the castle anymore.

When I looked at Blackstone, they were in every business DLJ had been in, and those businesses had reported to me. There was no one else in the world that had that mix of businesses under their authority. I thought, “Gee, if I could get my hands on Blackstone, I could be dangerous.”

The other thing is, when you’re used to running a big firm—after the merger of DLJ and Credit Suisse, it was the largest by head count, the investment bank in the world—you want to paint on a somewhat bigger canvas than starting your own firm with 2 guys in a corner. That was the choice I made. As I say, I was originally not going to do it, but Steve was very convincing, and he lived up to everything. It was a great partnership. We worked really well together for 18 years.

Totally. People know Blackstone today: 1 trillion dollars in AUM. It did not look anything like that.

No.

When you joined in 2002, I think the firm was maybe 14 billion dollars in total assets.

Like that.

Which is shockingly, I don’t know, a sixth of our size, which is kind of insane. Again, maybe just give folks a reminder: What was the shape of the business then? What businesses existed? Then we’ll talk through the 50-fold increase, I guess, during your tenure.

Blackstone was in private equity, real estate, hedge funds, a fund-of-funds business, a tiny credit business, an M&A business, and a restructuring advisory business. All those businesses were a little bit subscale.

The private equity business had raised a fund and made a couple of disastrous investments that were, within a year, write-offs of about a third of the fund. The advisory business—the M&A business—was down 50% or 75% from its peak and wasn’t going up. The fund-of-funds business was tiny and not very profitable, and the real estate business was, again, a small business.

There were things to do to grow all those businesses. What I’m prouder of, honestly, than moving the AUM from 16 billion to nearly 1 trillion is the market cap of the company, because AUM is just AUM. AIG had just put 100 million dollars into Blackstone for 10% of the company and the rights to invest in our funds. At best, it was worth 1 billion dollars, and when I left, it was worth 170 billion dollars. So that’s a 170-fold value increase.

While we were growing the business and increasing the value, the IRR in all our funds went up. We weren’t driving returns down. Sometimes an asset manager can drive returns down in return for more commodity returns. We weren’t doing that.

It was a great run, I have to say, but we got very lucky. I started focusing right away on culture. Again, coming from DLJ and my experience with Costco, culture is so important. That required making some changes in people and talent. Virtually every leader of every business was changed, because a lot of culture comes from leadership.

We moved from being a collection of talented but difficult people who didn’t work together to a team orientation. We put in place processes that people initially said, “Why should we have any processes? By definition, bureaucracy, so I don’t want that.” But processes that encourage better decisions, sharing of information, and more efficient use of time actually free people up.

I’m very much against bureaucracy and hierarchy. We added some businesses I felt we should be in, and there were some businesses we shouldn’t be in, like the vinyl business, so we spun those out. It was a long journey, but it was a fantastic journey.

One of the other common threads that literally everybody I spoke to highlights was that you’re both an incredible investor and probably one of the best managers of high-potential talent and firm builders they’ve seen. It’s a rare combination to have both.

People talk about being in an IC meeting with you and finding the detail on page 16 that conflicts with the pieces on page 36 from 6 weeks ago, and being able to hold people accountable to that while also seeing the bigger picture of the fund and the firm.

I think I’m a good manager of small, elite teams—Navy SEAL-type teams. I don’t think I’d be a good manager of the US Army, or Costco, or a huge Swiss bank, for that matter.

I think my style is built around certain principles to which those kinds of smaller elite investment organizations react well.

Totally.

One of them is robust debate. There’s a lack of hierarchy—not just organizational hierarchy, but status hierarchy. If we’re talking about a business, I want you to argue with me. I want you to challenge me, and I want to be able to challenge you. But I’ve got to do that so that you don’t get insecure or have hurt feelings.

Creating a culture where you can have robust debate because you’re all in it together in a search for truth, and people don’t take it personally, is not so easy. You really want to be very direct about this, because the more indirect you are, the more inefficient it is. You’re not really saying what you’re thinking; you’ve got to take weeks to get around to it.

Robust debate is a big one. Lack of hierarchy is a big one. I feel so strongly that you have to model the behavior that you want your people to have, which means you’ve got to work as hard as they do. It extends into personal values and things as well.

I think, running an investment organization like Bridgewater, you almost have to be a really good investor. I know there’ll be exceptions to that, but in our firm, where you earn your chops and your respect is by being able to talk to some of the best investors in the world on an equal footing. You’re not losing a step with them.

Similarly, when I go over those investment committees, if I’m not going to go over them carefully, then the sloppiness and the errors will go up a lot. They need the same amount of care. I want people coming in there, working really hard to have great investment and great thought processes.

Part of catching those little things is sending a message: Someone’s watching.

You’re paying attention.

You’ve got to be flawless. Also, for a firm like Blackstone, investment committees are the cultural crucible of what defines the firm.

Say more about that.

How we think, how we talk to each other, our analytical rigor, and, frankly, the lessons we learn from our failures and our successes—all that is transmitted from senior management, me and the partners, let’s just say, to the junior people through investment committees.

If you’re not able to hold your own in those things, if you’re just presiding over them, or you’re not engaged, or you haven’t done the work, you lose a lot.

Mhm.

In my opinion, I could go on and on. There are lots of principles that, for me, work well in an elite investment organization, but they might not work in another organization.

Sure. Correct me if I’m wrong, but I think Blackstone, by and large, was more consensus-oriented. At least, the stories that I heard were that if there was a tie, you would always back the deal team. David Blitzer told the story—

Yeah, yeah.

I think he was in London. You were maybe 3 months into the job, and he gets a call saying, “You have a new boss.”

And I think he's a little bit apprehensive. You made him feel really comfortable, but there was a particular deal, I think, that you were working on pretty early in your tenure at the firm. I think it was Houghton Mifflin. It was a spin-out or a carve-out of Vivendi at the time. And I think the investment committee initially didn't deny the deal, but basically created too narrow a boundary from a price perspective.

He was describing how he was bummed. He was having a drink in a pub and, basically, I think you met with him and were like, “How strongly convicted are you in this deal? Do a bunch of work over the weekend. Let's go back on Monday.” And you really, he believes, put your weight behind him, which gave him the confidence to champion the deal.

Well, that's true in that instance, but there are times when you're not on that side of it, of course. But I would say, in general, when a deal team comes into the committee with a recommendation, they better want to do it. Otherwise, what are we doing there? So, if they're coming in with conviction to do it, almost by definition, I'm going to challenge them.

And I'm going to try to find the weakness or the things they haven't thought about or whatnot. People often accuse me of, no matter what they say, arguing the other side. There's some truth to that, but there's a reason for it.

Right. There are times when I feel like there's something in investing that's not on the page. You've got to have a feel. We talk about seeing around corners a little bit. Partly that's the partner and his conviction; partly it's my own gut, even though it's not provable.

Partly, the process becomes a little unfair sometimes because someone gets on something—if there's a mistake or there's a niggle or something—and they just stay on it, and the whole committee kind of loses momentum. So, definitely, there were times I put my finger on the scale to level that out, for sure. I'm sure there were plenty of times when it went the other way.

But that's kind of what you have. You're more than just a referee, but I really felt strongly that it's a collective decision.

So when I put my finger on the scale, it wasn't that I was deciding. I had to get the other people there.

Sure. I just think groups, especially in investing, make better decisions than 1 individual. Blackstone came from a lot of, as I say, independent, talented people that wouldn't challenge each other, wouldn't even do the work to look at someone else's deal. 1 CIO was a very smart guy but a bottleneck. And it wasn't a scalable model.

This is a distinction that I've written about—I think a lot about here in the context of Andreessen Horowitz—which is this notion of firm versus fund. The contrast that I try to draw is: most people run funds. Very few people, in my definition, build firms. And the objective function of a fund is, “How do I generate the most carry with the fewest people in the shortest span of time possible?” Often that's run by a single CIO. There's a handful of people; ultimately, there's 1 decision-maker.

A firm, by contrast, maybe has to deliver exceptional returns because that's a prerequisite. But the other variable, I think, is building sources of compounding competitive advantage. What are your moats? If you think about Blackstone as a company, not just a collection of individual funds, it's a much more entrepreneurial question, because every entrepreneur wakes up every day asking about their competitive advantage. I'm curious if you agree with that distinction and how you think about that in the context of Blackstone or DLJ?

I do, and I do. 1 of the tricks of running a firm is making people in a fund care about more than just their own fund, right? So that's a sensitive balance, and you want them to care enough but not too much. Then, within funds or within sub-businesses—maybe private—how do you get the guys in India to care enough about the guy that sells in New York?

For me, I have my way of thinking about that and how to balance the rewards on both sides, really from trial and error and what's worked over the years, not because of any theoretical model that makes it right. But the first thing is to make sure you want everyone, even people in the fund, to care a little bit about the firm for lots of reasons.

The issue as Blackstone became successful was we weren't a monoline boutique investor anymore, which is what all the LPs wanted. “No, no, no. I want Blackstone to do 1 thing, and there's a genius who sits in the corner and divines the right answer.” We were becoming, right or wrong, not only a supermarket, but a big supermarket with lots of different businesses, and that was not where LPs' heads were. Today is different, but back then.

So my challenge as a firm manager was to figure out how do we take our disadvantages and make them advantages, because we don't want to stop growing and we don't want to descend into mediocrity. As we've talked about before, growth in and of itself creates opportunities for new talent, so we could keep talent that would otherwise get frustrated and go to their own thing.

I always wanted to have the most talented people in the world and train them so they were better than they would have been anywhere else. But those people have tons of opportunities. So I had to create new opportunities, not just a war of attrition with the more senior people. Growth was important. And so, how do you mitigate the negatives that come with that? We spent a lot of time thinking about that.

We tried to add businesses that made the other businesses around them better. They brought insights, access, relationships, capital—something that made each of the other businesses better. This is why we were leaning so early in our stealth effort to build retail distribution. Again, just distribution power. It was a hedge against the time when maybe all the funds aren't high top-quartile returns.

And so, how do we still drive business and customers and AUM and so on and so forth? So, yeah, we're constantly thinking about ways to take our disadvantages and make them advantages to drive growth.

Yeah. 1 of the things I've read, certainly in a lot of Blackstone materials over time, is that they'll identify a big secular trend and find ways to express conviction in that thesis across different asset classes. 1 of my core beliefs, both as an investment philosophy—I think it's a bit of a metaphor for my career, maybe today—is that opportunities live between fields of expertise.

And it seems very well expressed, at least. We're believers in e-commerce, so we'll bet on the e-commerce brand, but we're also going to buy warehouses. We're also going to invest in cloud infrastructure. And that's an area where you take a mosaic tile from each different business, put them together, and have a clearer view of it.

Yep. So, we could see what was happening in e-commerce, but we could also see what was happening in warehouses. That ability to see themes is important, because if you're going to catch the signals early, they're never obvious.

Right. Because by the time they're obvious, it's priced in, right? So you've got to catch them early, especially if you're Blackstone and you want to move a lot of money into it, right? So how do you see things early? You get reinforcement from independent sources. No one signal is dominant. This is so clear, of course. But you get reinforcement from multiple different businesses and insights and so on and so forth.

Totally. And that became 1 of our competitive advantages that we tried to maximize.

Totally. You talked about retail distribution. Everybody I've spoken to has said you were incredibly early in that way. But just covering the warehouses, by the way, treating LPs as true partners—that was something that was core.

You talked about driving IRRs, not just scaling AUM for the sake of it. I think you also helped catalyze the creation of Blackstone Insurance Solutions. I imagine both of those became sources of perpetual, or permanent, capital to some degree for the business as well.

Yes, definitely. The insurance—both were big untapped asset classes. Institutions generally have 25% of their assets in alternatives, let's say. The more sophisticated ones, like endowments, are 50%. Retail was at 2%. So it kind of screamed, and insurance was very low, too.

Now insurance has regulatory restrictions that keep it lower, although there are increasingly structural ways to nudge that boundary. But there was just as much insurance assets as there was pension assets in the amount, and just as much 401(k) as there were retail assets. So how do we tap that? We're living with 1/3 of the market.

How do we open up those other thirds? Again, it’s all about how we use our scale and our size. There’s no other firm that could have afforded to build the retail distribution. We have 500 people in that.

We started off not just by hiring salesmen. The wirehouses need training, so we ran Blackstone University, and people would come through. For every broker at every wirehouse, the only place they were going to come and learn about alternatives was Blackstone University. There was no other alternatives university.

Then we had a master class where you could go back and get people who wanted to get a master’s in this. We built our own proprietary data and CRM system, so we knew more about every Merrill Lynch client and every question they’d ever asked us than Merrill Lynch knew about that client. We did that across the board—not just for Merrill Lynch, UBS, and the wirehouses, but for thousands of RIAs.

Yep. I think that is now the dominant strategic asset that Blackstone has that no one else can really replicate. No one else has the breadth of products, so you’re always in the market and you always have something that a customer wants or that a broker wants to sell. We had a number of products that were always open, where you could put money in anytime.

Yep. No one else has the revenue scale to justify the overhead.

Totally. It becomes reinforcing of the brand and the value.

In the investment business, you can be really good or you can have a cold hand, and I didn’t want to—I mean, you can live by the sword, die by the sword. I didn’t want to die by the sword.

Want to die, period.

So, I was okay to live by it while we had the hot hand in investing, but I wanted a hedge so that we would still have an unassailable business when we didn’t have the best returns.

I want to talk about the IPO because it was obviously a huge deal in the history of the firm. I imagine it was very complicated both tactically and culturally. You talk about firm dynamics and how you create incentives for people in a given fund to care about other funds. I imagine going public was part of creating a new currency by which to compensate people. You have LPs, employees, and public shareholders. Maybe just talk through the IPO and all those dynamics.

I could spend an hour on the subtleties and complexities of this, but just to give you some windows on it: Blackstone wasn’t a firm. It was 173 independent partnerships, all with different percentage ownerships. Every fund had a different percentage ownership than every other fund. All of that somehow had to be rolled together into 1 entity, and everyone had to have the right number of shares in that entity. That was number 1.

Number 2, at that time there was nothing like Blackstone. We had 3 different ways to account for carry. We could account for it the way we did—and the way the industry does now—which is that you get carry when it’s realized. You could do it on a mark-to-market basis, so it was accrued carry. You could use option models to compute the option value of the carry and how it would vary over time. We had lots of choices just on something as basic as the accounting for carry. There wasn’t even an accounting standard.

Then there was the tax structure and all that. Should it be a publicly traded limited partnership? We thought that was more value-added because that’s what all the insiders wanted, because they don’t like paying taxes. The market didn’t actually really like it, so we converted. I don’t think that was a compelling narrative, but we were making it up as we went along.

The reason we could get public was that Blackstone had to have a hell of a run. We didn’t want to ruin that. How do you protect your day-to-day working partners, who go in to work every day and try to make good investments, from being distracted or influenced by the public markets?

First of all, we built an elaborate corporate overhead so that we didn’t involve any of them in any of it—not only in going public, but once we were public. That added $75 million a year to our operating costs, which is not nothing. It’s a lot more today.

We were also making people wildly rich. In those days, if you worked for one of these firms and got paid $1 million this year, that was great. But the next year you might get paid $1 million, or $750,000, or $1.25 million—whatever it was. It was year to year.

We were coming in and saying, “We’re going to give you hundreds of millions in many cases, or tens of millions. You’re going to give up $1 million of your annual income, but we’re going to give you essentially $30 million in stock that’s forever and grows over time in exchange.” How do we not demotivate them? Not only how do we not distract them by looking at the stock value, but how do we not demotivate them from thinking, “I’m worth $100 million today. I’m just going to put my feet up and come to work 3 days a week”?

How did you do that?

We did that, first of all, by basically telling people they couldn’t sell any stock for 8 years. Then we had unusual vesting, where we could take away what was unvested. Most companies, if you have 5-year vesting and you let someone go, that triggers acceleration of their vesting.

We didn’t do that. We could let them go, and the last 3 years of their vesting would remain unvested. If they were demotivated and weren’t working, we’d say, “I’m sorry. You’re not working hard anymore. We’re going to take away your unvested stock.”

What was vested was yours, but we could take away the unvested stuff. We had an 8-year run at it, and we didn’t lose anyone that we didn’t want to lose for 8 years. People were totally motivated for the whole time. All these things are just little, small pieces of the whole that you have to think about.

Totally. I could go on and on, but it was incredibly complex.

The other thing I would just say, finally, is that Steve and I and Pete Peterson, who was still around then, wanted to take a hard look at this and see what it would be, and do all of the plumbing to make sure we had the option. But we weren’t sure we wanted to do it.

How do you go through this and not have it loom over everyone in the firm, with everyone trying to come in and say, “Tony, I should be number 2”? You know how it is.

Essentially, this was something Steve delegated to me, and I did it with no one else in the firm actually helping for 9 months. I did it at night. I worked all this out with bankers, outside bankers, and lawyers, but not internal people.

I would report back to Steve, of course, and to Pete Peterson, but Steve was much more front and center on this. It was kind of a secret project because otherwise people would have been saying, “Tony, I should be number 2.”

Totally. No, I remember we had lunch once, and you said, “I literally went into a room and was deciding who was going to become a billionaire on the other side of the IPO.” That just kind of blows my mind.

The other thing that I imagine being a public company gave you was currency that you could then use to acquire other businesses. One of the folks I spoke to was Bennett Goodman, the G in GSO.

Right.

I know he had worked for you at DLJ. He had then gone off and built GSO, which was a small credit business at the time. Maybe talk through that acquisition. Obviously, it became the basis of a much bigger credit business.

We had a very small credit business. Blackstone had about $1.25 billion in it, but the people running that business then were solid insurance-company debt investors. They were perfectly happy with the business at the scale it was and really didn’t see a lot of ways to drive it.

At Blackstone, we wanted to have a few large businesses. We didn’t want to become one of those firms that had gone to 1 million little businesses, little popcorn stands. We wanted to have a few big, dominant businesses.

As I mentioned before, a lot of the leadership of the groups needed to be changed. This was one of them. Sometimes an acquisition, especially if you have a lot of the purchase price contingent on future earnings and this and that, is almost like a team hire. You see this all the time in tech, right? You have all kinds of big tech companies buying smaller companies to get the team. It’s a little hard to say: Was it an acquisition, or was it a group hire?

But either way, I knew these were talented guys, and I knew they were very ambitious. Most of the purchase price was contingent on future success, so I thought we could build a big business around them, and we did. We built a $100 billion credit business around them. GSO was the first, but it was only 1 of about a dozen acquisitions.

Interesting.

We did a lot of acquisitions. Maybe the best acquisition we ever did was Strategic Partners, our secondary business.

We paid $119 million for that business.

Was this the secondaries fund from Credit Suisse, or from DLJ?

Credit Suisse, right? Because again, they’re ambivalent about the business. So, we bought it for $119 million. It’s a $120 billion business today. It’s worth tens of billions.

That’s amazing. Right. [laughter]

And we made about a dozen of those acquisitions. Every single one worked. The book on financial services firms buying other financial services firms is not very positive. They almost never work. Every one of our acquisitions worked. There were 2 that didn’t really move the needle strategically, but we made a very good return on the investment. We probably made 3 or 4 times our money.

Was there anything non-obvious about what made those acquisitions work? The industrial logic or the culture? I’m just curious.

Culture is key. Having people that fit in is key, number one. Number two, you need people who want to really grow something and appreciate what Blackstone brings to the party.

You have to have balance between what the house takes from an entrepreneurial management team running a fund and what the house gives them. When that gets out of balance, if you go buy a hedge fund and you’re not doing anything for them, and 3 years into the deal he’s fully vested, you’re going to have to buy the company all over again, essentially.

So, we wanted people who were happy fitting into a bigger corporate organization if that helped them scale their business a lot. That’s a cultural thing. Other people would just say, “I’d rather have a small business and not have to talk to anyone.”

The right culture, the right people, and the right balance between what the house brought and what the acquired company brought were all important. We had to feel like we could be a leader in it. I didn’t want to buy a company and not be a leader. So, we wanted to lead in a few big businesses.

We also had to feel we could be a top-quartile investor consistently with this team. I didn’t want to be an average investor in any business. We wanted to buy small, where we could scale them. We never wanted to buy a fully built-out franchise where you’re paying someone else for all the growth. We wanted to deliver the growth—the value of the growth—to our shareholders.

So, those are 7 or 8 criteria that we looked hard at and made sure fit.

One of the things Ben had said, which resonated a lot, was, “I never felt like an employee.” It never felt bureaucratic. I think about that a lot here.

One of the things that surprised me about Andreessen Horowitz—it says Andreessen Horowitz on the door—is that there’s actually not a ton of top-down direction. I think Marc and Ben had done a very thoughtful job of trying to make the firm feel like a platform for smart, entrepreneurial people to build on top of.

Yeah. I think it was really wise. If you want to attract and retain some of the folks here who’ve been very successful entrepreneurs in the past, if they needed to be micromanaged, they would never work here.

And it’s helped by the fact that you have a lot of discrete businesses and funds, right? So, everyone can feel like they’re in charge of their empire.

Totally. I completely agree with that. I always bend over backwards to minimize bureaucracy and process and hierarchy. And so, I had at one point, I think, 56 direct reports.

Oh, wow.

Trying to minimize hierarchy.

Before Jensen, you know. Well, because with hierarchy comes bureaucracy.

And I’d learned from DLJ—in contrast to Credit Suisse—that putting more controls in doesn’t necessarily protect you. A lot of it, if you have good people and you trust them and you hold them to very high ethical standards, and that becomes the behavioral norm, is much better than having lots of watchers and watchers of watchers trying to check every little thing that you do.

Totally. And so, Credit Suisse had all kinds of ethical lapses. DLJ had none, but they had immense controls and processes and whatnot. DLJ was scalable.

Totally. So, I’ve kind of brought that attitude to Blackstone.

One of the things that I think is rare to see is that my understanding is, when you first had that conversation with Steve, you basically told him you were going to retire at 70. That’s not normal. Most people try to hang on, especially at that level. How did you think about that decision?

Right. I’m glad I did, because if I hadn’t committed myself, I’d probably have found it harder to let go.

First of all, remember, Blackstone was my third run. I had DLJ. I had Costco, which started the same year as Blackstone but became even more successful. And then Blackstone.

I felt like I’m kind of a peripatetic person, and I have a lot of interests. I felt like there was something else out there. I don’t want to do this for the rest of my life. I want to do it, I want to do it well, and I want to build something I’m proud of. But I’ve got more potential.

So, that was one thing. I just felt by then—and Steve’s only 4 years older than I am—so I’m fine with that. I didn’t aspire to anything but what I had there.

Then, too, I have to say, leadership transition is the Achilles’ heel of an alternative asset manager—in fact, of any asset manager, in my opinion. It’s really not so easy, and you don’t even see the problems right away, necessarily, but you might see them 3, 4, 5 years in.

For me, one of my top priorities—if I did a good job managing Blackstone, all the statistics we talked about, the growth of AUM and market value and all that, that was fine—was succession planning. I had to nail that.

Yep. And that’s a process. At least for me, it was a process. It meant picking the successor, grooming him, and making sure that there was no breakage around his movement, either in loss to his business or people being disappointed. It meant picking the right successor, making sure he was 100% ready, and on and on and on.

Yep. So, you start down that process and it comes to an end. If you do that well, 3 or 4 years in, he’s ready.

And, credit to Jon, he said, “What do you think, Tony?” And I said a couple of times, “Give me another year.”

[laughter]

But I felt that obligation, and I felt he was ready. It’s never easy to let go of that seat. It’s such a great seat. It’s such a profitable seat. It’s such an ego-gratifying seat. So, I would say most people, as a result, hang on too long.

Yep. And I believe you’ve got to move out of that seat while you still have plenty of gas, you’re still at the peak of your performance, and the company’s still on the rise. If you wait till it tops out, you’re going to lose momentum for a while before maybe the new guy can correct it. There was no reason to lose that momentum.

I’m going to love—I love my years at Blackstone, but I’ve loved every day since.

Totally. Well, it seems like you obviously did an amazing job. What did you see in Jon Gray early on? Why was he the logical successor?

We had a lot of great talent, some of whom you’ve talked to, and they’re all remarkable people.

First of all, Jon ran our biggest business, so let’s start with that. But beyond that, he’s a great leader. He’s a very natural leader. He’s a wonderful external spokesman. He’s much better than I am at that.

Jon has a knack for seeing, in a very complex, cluttered environment, the simple path and the right path through it. He works incredibly hard, and so I think Jon was a great choice. He’s very decisive, and he’s got very good investment instincts.

How lucky was I to have Jon, who I could hand the reins to? It would have been a failure if I hadn’t handed the reins to someone who could take Blackstone on up.

Maybe we’ll spend a minute just looking ahead into the alternatives ecosystem. We’re sitting here amidst, I don’t know, fearmongering in private credit, the SaaS-pocalypse. Where is this all going? How do you view the private-markets landscape, or maybe markets generally, and this ecosystem?

I try to look at private markets not as a series of individual businesses, but as a whole. I still think private markets, over time, can significantly outperform public markets.

Before we leave public markets, so many people have the vast bulk of their assets in stocks and bonds that they could trade tomorrow. Not only don’t they need that liquidity, but it has a real opportunity cost. It also entices them to often do the wrong thing at the wrong time. So, that’s a hidden cost.

I’m a believer that, over time, you can outperform in public and private markets. But markets evolve. It was clear to us that private credit capital was good for a while. Yields were 12%, and capital flooded into that. Yields kept coming down into the sort of mid- to high-single digits for the same risk.

But there was so much capital and more competition for deals, so you also lost covenants and things like that. The kind of capital that was starting to be raised was retail money, where it comes in 1 month and has to be invested right away, or you have the negative drag.

That means you kind of have to buy the market—what’s out there. One of the great things about drawdown funds is that there’s always nothing good to do. I don’t have to do anything, right?

Sure.

You kind of lost that with this structure. So I think there’ll be some correction in private markets, but it’s not going to be 2008, where you were just destabilizing the system because it’s not owned by banks at 30-to-1 leverage. These days, leverage is lower, but plenty were 20 to 30 to 1. So, okay, there’ll be a correction. There’ll still be an opportunity when that shakes out to buy private debt and get higher returns than publicly traded high-yield debt.

Yep. Okay, you know, the AI revolution—I would say you get these things periodically where a new technology makes you question the old business models. And that’s an adjustment, but it’s just an adjustment.

Mhm. I think one of the great opportunities right now is that there are about 30,000 portfolio companies of mid-market private equity firms that can’t be sold.

Mhm.

They can’t go public, there’s no strategic buyer, and there’s $20 trillion or something worth of value. All those companies eventually need to be sold. So for capital pools, there’s going to be an immensely attractive opportunity to be able to pick companies one by one, whether it’s co-investments or continuation vehicles. You’re getting a seasoned investment at an attractive price with much lower fees, and you’re able to really analyze it with a sponsor that’s doubling down on his commitment. I think it’s one of the great times to put money to work.

Similarly, look what’s happened in your business. You know more than I do, but the scale of the business is so radically larger than it used to be. A big venture fund used to be $1 billion, and there weren’t firms like Andreessen Horowitz that had lots of different funds. Companies are staying private longer, and I think there’s an opportunity to ride those companies longer. I love that if you’re good enough at picking them.

What I don’t like about drawdown funds, traditional private equity funds, is that you commit to them, they charge you management fees for a while, they find a deal, they draw it down, so your money’s not been in the ground for a few years. Then, a few years later, if it’s a successful deal, they sell it for 2 times their money. Now you’ve paid a couple of tenths of a turn in management fees, they take off 20% of the gain in carry, and you’ve got 1.4 times your money. You’ve tied up your money for 5 years. Go buy a New York municipal bond. After taxes, you’re getting almost as much.

I love—I think the opportunity to hold assets longer in a private context and really let them grow is very attractive. I think the industry models need to reflect that. LPs, and certainly private capital and family-office capital, are much more toward the long hold. LPs are getting there, but they need to evolve that way.

Yep. So, I think there’ll be—and life sciences, I mean, it’s another explosive upside. Longer holds are harder than the rest of venture.

Totally. Because you’re in the body, and there’s the regulatory aspect and so forth. But, man, there are going to be some huge fortunes made in that. So I’m optimistic about private capital, but it evolves.

Totally. You mentioned you had a lot of interest outside of Blackstone, Costco, and D. E. Shaw. I know one of the things that you have been passionate about is spending time with historically Black colleges. Maybe talk about that nonprofit and the impact that you’ve had.

Yeah. Well, in 2018, a friend of mine who had worked for Obama in their Department of Education came in and said—and he had been an M&A banker at D. E. Shaw and then, I think, Bank of America, and then he went into the government, where he ran the student loan program for the government. He came in and said, “You know, I’m out here. The one thing that we didn’t clean up in the financial crisis was student loans. Maybe we should come up with something.”

We started thinking about that, and we started working with some historically Black colleges and universities around income-share agreements. A graduate would get his college education for free and then would agree, in return, to give a certain percentage of his or her income over a minimum wage to repay the college. Then the college would take all those receivables and securitize them. This is the Blackstone opportunity. We’d make a lot of money while doing good for society.

We started down that path, but while we were doing that, a number of HBCUs came to us and said, “Geez, we really need help with this or help with that.” So we kind of morphed the idea to, much like—and I don’t know about Andreessen Horowitz, but much like—a private equity portfolio-management capability. We have IT people, we have lean people, we have pricing people, we have marketing people, and on and on and on. If we could set up a capability like that and then donate it to HBCUs, we could help them a lot.

HBCUs do remarkable things educationally. So, 8% of African Americans who go to college go to HBCUs, but 16% of Black graduates graduate from HBCUs—twice the graduation rate. Those graduates earn, on average, 50% higher lifetime income than Black graduates of non-HBCUs. They get more kids through college for a better life, and they start with the highest percentage of Pell Grant recipients and first-generation college students. So they’re doing great things with the toughest kids with 1/3 of the money.

Mhm.

But they are skeletal in their ability to manage themselves, track students, get students jobs, offer students loans, and prepare their own financial statements. So we thought this would be a wonderful thing to empower the HBCUs to be stronger and better. We now have 11 offices around the country, and we work with about 70% of the students in America who go to HBCUs. So it’s been a spectacular success.

That’s awesome. I know you’re also a passionate fly fisher.

Yeah.

What has fly-fishing taught you about life, or what do you love about it?

Yeah. What I love about it is, like so many things, like investing, it’s lifelong learning. You never know everything. There’s a randomness to it and a connectivity to it that defies analysis but rewards that sort of almost sixth sense, that instinct, which I think great investors have.

The connectivity—when you are engaging with nature in a really tactile way, you connect to it and see it much more, in much more detail, and you appreciate its nuances much more. That connectivity to nature has been an antidote to the rest of my existence, which has always been so driven and analytical.

I don’t know if you ski or anything, but if you’re going down through bumps, whatever concerns are in your head, you’re not thinking about that. You’re just thinking of the turn, turn, turn. Fly-fishing is the same way. You can’t worry about anything else while you’re out there doing that, but it’s not stressful intellectually. It unplugs you from intellectual stresses. So I think those elements have always really appealed to me.

It’s awesome. We have a lot of young people who watch our content. If a young person came to you today with a lot of the same kind of raw materials that you had in 1975—somebody obviously super sharp and very ambitious—what would you tell them about building a career?

Well, first of all, there’s a lot of luck in that. I never really planned; I reacted. But I would say some of the attributes you’re looking for are the attributes that I looked for. That’s a better way to put it.

First of all, I wanted an unstructured opportunity where someone didn’t tell me how to do something and then expect me to do it, where I could figure out what to do and how to do it my way. So I wanted nonhierarchical, nonstructured organizations. I wanted something where I could change the paradigm, because that’s how I felt, frankly, intellectually engaged, but it’s also where the upside comes from.

An opportunity that really provides a lot of economic, firm, personal, and professional growth—growth is very important. What not to do is worry about, “I’m going to move over to the next firm because they’re going to pay me another $100,000 next year.” I wouldn’t do that at all. Make sure you’ve got lifelong learning. Make sure you’re empowered to do stuff and take risks. Make sure if you take smart risks, your firm’s got your back. Then roll the dice and be lucky.

It’s awesome. I just want to say, I guess, on the record, that one of the things that was most remarkable to me about preparing for this conversation was that everybody I spoke with—these are some of the most successful people on Wall Street at Blackstone and elsewhere—all of them were instantly willing to jump on the phone and wax poetic about the impact that you’ve had. They all literally attribute the success they’ve had in their careers to you. I really admire the impact that your career—and also the impact you’ve had on other people.

Well, and that’s mutual.

I’m so lucky to have had incredibly talented people playing their hearts out for the firm. But for me, I’m only as good as they are, right? And if they play their hearts out and do really well, I benefit. I think they always knew that, at the end of the day, no matter what, I was out for the firm first, never for myself. And that created a sense of loyalty and trust in them because none of them—if you’re out for the firm first, they don’t really want undue rewards. They just want fair rewards.

Sure. And then if you can captain a winning team and it carries everyone along, it’s a virtuous circle. It’s awesome. Tony James, thank you so much for your time. This is awesome.

Thank you.