Sometimes it’s good to feel a little stress at work. This is especially true when you are responsible for millions of dollars of someone else’s money.
John Gray, Blackstone’s president and chief operating officer, said all the current talk about market bubbles could actually make investors’ jobs better.
“I think one of the good things 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. That kind of vigilance in everything helps, in some ways, to keep things from getting out of hand.”
Big tech companies are pouring billions of dollars into AI, raising concerns that the huge investments may never pay off. The private credit market has seen significant growth in recent years, and several high-profile defaults, including by auto parts supplier First Brands, have raised concerns about hidden risks.
When it comes to AI, Gray doesn’t see any clear similarities between the market and the dot-com era, at least not yet. Cisco, one of the largest companies in 2000, was trading much more aggressively than Nvidia today, reflecting more optimistic assumptions about future growth. (At its peak, Cisco was trading at more than 100 times its earnings, while Nvidia currently trades at about 43 times its earnings).
“If people think this is going to continue for another five years and the trees will grow to the sky, that’s always a risk,” Gray said of the AI hype.
Mr. Gray joined Blackstone in 1992, a private markets giant that manages $1.3 trillion in assets. He entered the then-nascent real estate business and helped the company grow into one of the world’s largest real estate investors.
“If you buy everything and the price goes up, that’s not really training you to be a better investor,” he says.
In the late 1990s, he bought a building in California, unaware of how sloppy the investment was. Gray said it was the first time he had ever lost money on one of his trades, partly because he was blinded by recent success and the “enthusiasm of the crowd.”
This experience taught him not to simply double down on a strategy that works and assume it will always work.
Blackstone’s acquisition of Hilton Hotels in 2007, one of private equity’s most successful real estate deals despite suffering a writedown of more than 70% at one point during the financial crisis, changed the way Gray viewed investing. he said He learned to focus on the “neighborhood” of an investment rather than the finer points of dollar amounts. These areas may include underlying tailwinds, quality of business, and management team.
“If you can do these things right, even if the timing is very bad and you pay a hefty premium, the outcome can be successful,” he said.
