Sometimes, a little stress at work is a good thing — especially if you’re responsible for millions of other people’s dollars.
Blackstone’s president and COO, Jon Gray, said that all of the current talk about market bubbles might actually make investors better at their jobs.
“One of the good things, I think, about the current environment, is that there’s so much negativity,” Gray said on an episode of Morgan Stanley’s “Hard Lessons” podcast. “There’s a bubble in private credit, there’s a bubble in AI, there’s a bubble in the stock market. In some ways, that sort of caution that lingers over everything is helpful to stop things from getting out of hand.”
Big Tech companies are pouring billions into AI, sparking concerns that the massive investments won’t ever pay off. The private credit market has seen enormous growth over the past few years, and some notable defaults, including those from auto parts supplier First Brands, have sparked fears of hidden risks.
When it comes to AI, Gray doesn’t think there’s a clean parallel between the markets of the dot-com era and now, at least not yet — Cisco, one of the largest companies in 2000, was trading much more aspirationally than Nvidia is today, reflecting more optimistic assumptions about future growth. (At its peak, Cisco was trading at more than 100 times its earnings, compared to Nvidia trading at around 43 times its earnings today).
“Now if this runs for five more years and people think trees grow to the skies, that’s always a risk,” Gray said of the AI hype.
Gray joined Blackstone, the private-markets giant managing $1.3 trillion in assets, in 1992. He started in what was then its nascent real estate business and helped it grow into one of the world’s largest property investors.
“When you buy everything, and it goes up, it doesn’t really train you to be a great investor,” he said.
In the late 1990s, he bought a building in California and failed to recognize the shoddiness of the investment. It was, Gray said, the first time one of his deals had lost money, partly because he was blinded by his recent success and “the mania of crowds.”
The experience taught him not to simply double down on strategies that are working and assume they’ll always work.
Blackstone’s acquisition of Hilton Hotels in 2007, which became one of private equity’s most successful real estate deals despite a write-down of more than 70% at one point during the financial crisis, changed how Gray viewed investing. He said he learned to focus on the “neighborhood” of his investment, more than the minutiae of dollar amounts. That neighborhood can encompass underlying tailwinds, the quality of the business, and the management team.
“If you can get those things right, even if you made a really poorly timed investment and paid a big premium, it can still turn out OK,” he said.
