00:00John Gray, thank you so much for speaking to Bloomberg.
00:02Great to be with you.
00:03It feels like extraordinary times because of everything that's happening in the world,
00:07AI market mayhem in the Middle East.
00:10What does it mean for Blackstone?
00:13Well, first off, our thoughts are with everybody in the Middle East.
00:17We have a lot of friends and colleagues there,
00:19and hopefully this gets resolved quickly for everybody.
00:23I think for us, we tend to take a longer-term view.
00:28I mean, obviously in the near term, if you're trying to get an IPO done or transactions,
00:33things are paused while this volatility plays through.
00:36But what we've learned over time, and you saw this last year with Liberation Day,
00:41you saw this with COVID in the past, that you don't want to be too quick
00:47because these things can settle.
00:49And I think in this case, the war will settle.
00:52And then what comes back is the focus on the main thing.
00:56And, of course, the main thing today is what's happening in AI,
01:00this enormous investment that's going on there, the productivity gains,
01:05some of the issues around disruption.
01:07So near term, I think it slows things.
01:10But then I think we revert back to sort of underlying fundamentals,
01:14also a healthy economy and inflation falling,
01:17which should allow transaction activity to pick up.
01:20Near term, a little foggier,
01:22but I think the outlook after this is probably pretty good.
01:25But could you see deals at more or less a standstill for the next six months
01:29as we try and figure out what happens to the price of oil?
01:32No, I don't think so.
01:33I mean, you look at the price of oil in a given day,
01:36I guess yesterday moved $30.
01:39I think, again, once the conflict settles, I think oil prices move back down.
01:45And what will matter more then is, hey, companies' earnings are growing strongly.
01:52Inflation is heading down.
01:54The Fed is likely to cut rates.
01:56And we should see a pickup in transaction activity.
01:59Now, I think the area that will be tougher is those areas perceived
02:03as being more vulnerable to disruption.
02:06That will be more challenging.
02:07But we have a couple businesses we took public at the end of last year,
02:11Medline and Hospital Supplies, Legions and Energy Management.
02:16These stocks are up, you know, 50%, 80% because they continue to grow.
02:21And the market's looking for sort of terra firma,
02:23companies they feel good about longer term.
02:26And I think that desire for those kind of businesses
02:29and those businesses that benefit from AI will continue.
02:33So I view this more as a pause as opposed to something that's longer in nature.
02:38How do you think about AI?
02:40I mean, this is another layer of disruption.
02:42Yeah.
02:42And it's unclear where it ends.
02:44I think of AI as completely transformative.
02:47In almost every aspect of our lives, in business,
02:51the idea that we have super intelligence at massive scale will just be so powerful.
03:00And so the key as investors is how can I invest against that?
03:04We've been the biggest investors in the world in digital infrastructure data centers.
03:09We're probably the leading investor in power, electricity,
03:13giving capital to utilities, electrical equipment.
03:16I mean, that foundation needs to be put in place first.
03:20But then you've got to apply it at your companies.
03:23How do you do something?
03:25You know, work-based, rules-based processing, accounting, legal.
03:30So much is going to change.
03:32And on the really positive front, and I know there's a lot of worries
03:35which are rightful about what it means for society,
03:38but what it's going to do for health care and precision medicine,
03:41I think some of those benefits will be truly extraordinary.
03:44And I would just say at Blackstone, pretty much every investment
03:47is looked through a lens of AI.
03:50So 20 years of operating history becomes less important as to
03:54what is the world going to look like?
03:56How will this business be impacted?
03:59We have enough humility to know we don't know the answer.
04:02But if we focus on it, it allows us, I think, to be better investors.
04:06And again, that's sort of the way to look at the world going forward.
04:10What does it mean for Europe?
04:11So Steve Schwarzman told me last year, actually in June,
04:15that you had $500 billion of capital being put to work in Europe.
04:20Have you found deals?
04:21We continue to find deals in Europe.
04:24I would say, you know, Europe remains this very large economy, lots of people.
04:29For us, competitively, relative to the U.S., there are fewer players on the ground.
04:34And there's a lot of talent here.
04:38The biggest challenge, of course, has been the regulatory environment,
04:42which slows down creation of businesses, slows down building physical infrastructure, housing.
04:48I think the good news is the governments now, policymakers, are beginning to recognize.
04:54Are they really?
04:54I think there's some recognition.
04:56The Draghi report crystallized this.
04:58When you meet with policymakers, they know it's a problem.
05:01It's creating affordability issues.
05:03But it's also challenging their ability back on AI.
05:07Because building data centers in Europe is very hard.
05:11You know, as I said, we're the biggest investor in the space.
05:14We just signed up a big lease in the Netherlands.
05:17We're looking to do more here.
05:19But it takes a lot of time to get the approvals and then to get the energy.
05:23And there is a recognition from policymakers.
05:26I'd also say there are some businesses in Europe that I think will do quite well.
05:30Defense, obviously, is going to grow a lot.
05:34Energy, digital infrastructure, travel.
05:37Europe will continue to be the leader.
05:39But we also have to acknowledge that Europe is going to grow more slowly.
05:42And I think that will result in interest rates coming down also.
05:45Is the U.K. any better?
05:46There's, again, so much anxiousness, actually, about, you know, if this government lasts, what comes afterwards.
05:52The U.K., again, has a lot of great assets, right?
05:55The talent, this amazing city in London, the rule of law, property rights, a lot of dynamism.
06:02I do worry a little bit that in an effort to solve some of the fiscal challenges, some of the
06:09policies are leading to some of the job creators leaving the country.
06:14And that's probably the thing that we're most concerned about now.
06:18But I understand they've got other fiscal challenges.
06:20But I think this country, long-term, because of the talent and education, should do well.
06:27But near-term, the headwinds have been significant.
06:29I think as the inflation comes down and the central bank's able to cut rates, and obviously with oil prices,
06:36the data won't be perfect in the near term.
06:39But I think the trend will be down.
06:41That should help this economy.
06:42And I do think they do need to look at the regulatory state here because they need to see more
06:48creation of businesses, more housing built, more energy infrastructure.
06:53That's really important for Europe, and I do think that holds things back.
06:57John, the market's worried about AI.
06:59They worry about geopolitics.
07:01They also worry about private markets.
07:03Do you see anything that could harken back to the global financial crisis or something systemic?
07:08Yeah.
07:09You know, we hear a lot about that these days, that this is similar to 2008, what you're seeing in
07:14private credit.
07:15And it's hard to reconcile that kind of commentary with the actual facts we see on the ground.
07:23So if you went back to 07, banks were 30 to 40 times levered.
07:29When we do private credit, we either do it unlevered for our institutional clients or less than one time levered
07:37in our non-traded BDCs and so forth.
07:40When we look at the liabilities, remember the banks, between deposits and commercial paper and repo, most of their liabilities
07:48came due every day.
07:50These vehicles don't have anything like that.
07:52And on creditworthiness, back then, remember, subprime had north of 20% defaults.
07:59Today, in private credit, it's low single digits.
08:02Now, will it go higher?
08:03Yes.
08:03But I think this is all very much overstated.
08:06But are you expecting some kind of shakeout, like the Apollo chief executive said?
08:11I guess what I would say is I would expect some increase in defaults just because they're at a very
08:16low level.
08:17I do think the disruption will have an impact.
08:21So I think you have to remember that in non-investment grade credit, historically, there are 3% defaults.
08:27So if the private non-investment grade world is $1,8 trillion, that means $50 billion of credits default.
08:34So that's part of the world that exists.
08:36But I don't see, for instance, something larger, systemic.
08:42And when we look at the creditworthiness of our companies, and as I said, there will be individual defaults.
08:48But last year, in our BDC, EBITDA growth, cash flow growth was 10%.
08:53Debt service coverage went up 25%.
08:56You know, those are not the signs of something that's, you know, nearly as problematic as you read about.
09:03John Gray, thank you so much.
09:04Francine, thank you.
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