What Endures When Markets Shift

Hello, I'm Chris Hughes, the chief editor of Abu Dhabi Finance Week, and thank you for joining us all here today at Asset Abu Dhabi. We're about to meet Steven Schwarzman, the chairman and CEO of Blackstone, a global investment powerhouse with over $1 trillion of assets. A legend of both Wall Street and all of world finance. He is one of the wealthiest people on earth. He's a trusted adviser to some of the most senior leaders of both business and government worldwide.

He's a notable philanthropist and he's the author of a fabulous book called What It Takes. Steve is recognized as one of the most savvy, intelligent investors in modern history, having leveraged data, intuition, powerful macro forces to ride [music] multiple market waves with precision, skill, and persistence. To unpack today's question, what endures when markets shift? Let's meet the man, the myth, the legend, Mr. Steven Schwarzman.

What are the three most important changes in the global economy today and what does that mean for investors?

Well, you know, the three biggest changes u in the world is that u first of all the US is going to be on an interest rate lowering cycle. Uh and that has a a variety of uh impacts economically. it's a support uh for equities uh in in particular um uh in terms of um second biggest um uh impact uh is the AI revolution uh and this is hard to uh overestimate um if you're living in the United States the way uh I do uh it's it's permeating ing almost every part of economic activity already just started. Massive capital expenditures, massive demands uh on electricity grid. Uh we're going to have to theoretically double the size of our electricity grid to deal [music] with this.

Uh

that's a big thing.

It's it's a it's a huge thing. uh and you know to create electricity you have to have a lot of other things happen in society. Uh so so that's a second trend. um sort of a third trend uh is um uh you know sort of the uh difficulty that Europe is having uh in this time of enormous uh innovation uh and the u attitude of you know sort of let's regulate it if it's moving uh is discouraging uh for certain types of uh new businesses, economic growth And I think there's going to have to be some modification of that. I think the Europeans are sensitive that that's gone too far.

So, so it's going to be interesting to see how Europe adapts to the need for change. Yeah, I think investors are [music] watching that one carefully, particularly the one in Europe. There's a new regulatory agency every day it seems over there. But if we um if we move on um to the next question, you um have been investing for a long time. You've seen right from you know decades ago, cycle after cycle.

What have you learned from investing through the cycles?

Well, I guess one of them is is that trees actually that do not grow to the sky. uh and you know people get so self-confident and overconfident you know sort of developed stage of a of a bull market of economic activity uh that they uh make plans that retrospectively you you say to yourself what were they thinking so that's one of the things secondly in investors don't really want to make money uh They want to have psychological comfort. So, so they don't buy at the bottom as a rule. Um, they get scared at the bottom.

Yeah. Kind of scared.

Uh, and they like to just see something going up and the more it goes up, the more confidence they have.

Yes.

So, you can't convince anybody to do IPOs at bottoms of markets or if they bought those securities, they'd make a fortune. Yeah, they just wait till markets are really, really hot and they think that anything they buy will go up and you can sell enormous amounts of securities that are actually pretty unattractive.

Uh and um that results in bad outcomes.

Yes. [music] On the other hand, uh what all of these indicators do is they tell you where you are in the cycle. Uh and um you know one one lesson I've learned uh is when things get bad you you you don't buy you wait till they get worse because uh what happens when things are collapsing you you can buy something that you think will be successful say you'll make a 20% [music] return. In fact, that's true. But what happens is it usually keeps getting worse.

And then you become underwater with losses on the things you bought. And you keep hoping things will get better, but of course they continue to get worse. I've learned you can't pick bottoms. But what you can do is observe when they actually start going up. Don't try and be a genius.

Wait till they start going up. You could miss the first 10% from a market move, no problem. Then you load the boat and you will make an enormous amount of money. So, there are these simple lessons that I've seen over the years. Most people violate them.

Uh, I've been around so long, I don't violate them anymore.

Well, you call them simple lessons, but I'm sure people would respectfully disagree with you. It's taken a long uh career to to learn what seems simple to you, which may not seem, you know, obvious to to other people, but um you you know, at the beginning of the interview, you talked about trends, you talked about, you know, AI, you talked about um you know, the the events in Europe. I I want to ask you popular perception or opinion that's very prevalent in today's market that that you would disagree with that you would challenge and and lie. One one uh example of that is a a current concern uh over a private credit uh and how risky [music] it is. Uh and there were several bankruptcies um uh that were popularized uh uh in um uh October before this conference uh and uh they were blamed on private credit.

In fact, all three uh deals were due diligence by banks uh underwritten by banks and syndicated by banks and and private credit was sort of not in the room.

Uh and [music] um uh for some reason uh people are concerned uh about uh private credit simply for they don't understand it. Uh and you know there are different types of private credit uh on bank loan on loans priv private uh loans to companies. We have a opportunity to do a lot of due diligence. Uh and when we buy uh that loan, we don't syndicate it to anyone. So it's cheaper to the borrower.

They don't have to pay syndication costs. They also know what their cost of money [music] is. Whereas banks have some flex in terms of how they can price it. Uh and we are financed not by depositors who can take money out and have to sell the assets but we tend to match fund the maturity. Uh and whereas banks are leveraged for at least 10 to one private credit uh is maybe point4 of leverage.

So 1.4 four times instead of 10. So, so the matching of maturities is more conservative than than bank loans. Uh and the leverage is much much less than bank loans. And so private credit is actually much more conservative to the system.

Uh and that's something that for some reason uh media has gotten wrong. Uh and and so that's one of the biggest uh sort of scratch your head moments of what are they thinking?

Well, that's why we're here to try and try and change the narrative around these things. Um you know, Blackstone, an icon of white of Wall Street. We um you know, all know the name. We have a huge amount of respect for the company. Huge in alternatives.

you know, how are Blackstone adopting staying ahead [music] in in that space?

Well, we started nowhere as you mentioned.

Oh, we had 400,000 uh dollars of uh capital. We never put any more in

really. Uh and our market cap at the top of this cycle was around $250 billion. So, one might say that was a good run. Uh you know, it didn't come instantaneously. Um, we're 40 years old now.

We're having our 40th anniversary. So, so you asked the question of how do we stay ahead? Well, we're always running hard. And the way you stay ahead in our type of business is you have to see um market [music] trends before other people do. And then you design new products for customers that are going to be terrific.

uh and you know I I called that uh first part you know it's pattern [music] recognition we're very fortunate and that we set the firm up I have enormous amount of feeds you know I wasn't the smartest person in school [music] but if you gave me a lot of facts I can figure out what they meant uh and um so so we constructed uh Blackstone in a way that to help me uh figure out where the world was going without reading other people's economics reports and just listening to them. So, I I loved raw information. They now call it data. They got a fancy name [music] for it, just information. Uh, and we now have 250 companies that we own, way more, including minority interests.

We have 13,000 uh pieces of real estate. Uh we're the biggest commercial real estate owner in the world. Uh we're the largest private equity firm uh in the world. Uh we're the largest direct extender of credit uh for third parties in the private uh area. uh and and this complex um is is really very powerful in terms of generating data and the way we mine it is every Monday myself and and our senior people at the firm meet with every one of our business lines and we listen to what's going on.

We have new deals that we approve or not, which is sort of like a master class, you know, for our younger people because we had everyone in every group attend either in person uh or or virtually. Uh and one of the benefits of that is we all can see things that haven't been publicly reported uh to the rest of the world and we do it globally so that we learn what's going on in almost every country. We can see changes that are happening before other people. We're not smarter. We just have a system that allows us to see that.

And and when we find something that's at variance that we think is going to take the world in a different direction or the market in a different direction, we design a new product uh to take advantage and with the older products we change [music] the asset allocation to make sure we always do well. So, so that is the core along with fantastic people. You can't be good in finance with people who are eights, sevens, sixes, fives, so forth. You need tens and nines.

Yeah. And when you have people with with that uh a talent and a will to win. So which means do the right thing. Not win at any cost but understanding that there's an opportunity and how do you get that and and believe in meritocracy uh and excellence in everything we do. and we try and be the best in the world at whatever we [music] were attempting to do.

So if that's your culture and that's your information flow and that's your human resource talent, I expect we'll continue to be doing really well in the future. What would you say? Not a bad run. Not a bad run so far, but that's behind us. All that matters is where we're going.

Yes.

And how we get there.

Yeah. And the future's bright. Steve Schwarzman, it's been a pleasure. Welcome to Abu Dhabi Finance Week and thank you for joining us.

Thank you.