Tony James: 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.

David: People know Blackstone today, a trillion dollars in AUM. It did not look anything like that when you joined.

Tony James: 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.

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

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

David: Everybody that I spoke with literally attribute the success that 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? Um

David: Tony, thank you so much for being here.

Tony James: You're very welcome, David.

David: You joined uh DJ 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.

Tony James: Well, if id known what I was doing, I probably wouldn't have joined DJ. It was it was nothing honestly. It was a it was a sub major firm or a sub sub major firm as they used to say in those days. So, there were at least a 100 firms bigger than it was. We had investment banking team of five.

David: Wow.

Tony James: We hadn't done a financing or a merger in two years. So, we hadn't done any business in two years. Oh wow.

Tony James: But you know, I like the people. I like the unstructured nature of it. I decided that um I' I'd give it a shot.

David: And I mean, you ultimately stayed for, you know, 25 years, I believe, uh which was a pretty long tenure generally, but uh certainly for for Wall Street at the time, I guess. What were some of the kind of you know key inflection points in that journey maybe that led to your success or kind of the evolution of the business you know which grew obviously massively during your

Tony James: Well the I mean the good part of getting in on the ground floor is if if it starts to work you get pulled up with the growth of the organization and you get responsibilities earlier than you deserve them and that kind of feeds on itself. Your learning accelerates, everything accelerates, 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, well, that's that's was part for the course. But so you you got a you got a very positive feedback loop. And you know, we ran DJ ultimately was renowned for its culture. people just loved working there

David: and that created a really nice environment and you spent so much of your career or your life in your office that was fantastic

Tony James: and um, you know, we grew DJ 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 um and and it was and I and I and and I love that and every few years the business changed changed and my opportunity set changed radically.

Tony James: The big turning point I would say was 1980 when KKR did a LBO for Hudai Industries,

Tony James: the first big public company that went actually was taken private. And I thought, wow, you can buy these huge companies with almost all debt. Mhm.

Tony James: And it struck me that DJ at the time was competing with dozens of other firms that had more of everything than we did.

Tony James: More bankers, more clients, more of a track record, more capital, more distribution. There was nothing we had that should win.

Tony James: So that struck me as a way to kind of end run. They weren't really doing it themselves. It was a it was a new sector. we could buy clients we couldn't actually win competitively and then do all their investment banking business

Tony James: and that really fed on itself out of the we built a we built a private equity business I think our first fund had a 90% irra those days it was easier because prices were lower companies were more undermanaged

Tony James: and essentially you could get you could borrow a 100% of the purchase price

Tony James: um so just by rolling your fees you could kind of own the And then that drove then we had to could and had to build a high yield business and and other debt businesses. We we a lot of those were our biggest IPOs. One thing led to another. So we built the whole investment banking business.

Tony James: Cheek by jou was the principal business. So it was in essence it was a true merchant bank.

David: There was no reason really that a KKR or a forceman little that were the big players back then should ever existed. Your old firm Goldman should have beaten them. Yep.

Tony James: But the big firms were ambivalent about this business. They were ambivalent because wasn't quite an agency business.

David: Yep.

Tony James: They were all there were old line bankers that 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,

David: right?

Tony James: And so so that institutional ambivalence gave us a huge runway that we just plowed through and um and it you know it became a magic synergy between the investment banking and the merchant banking and ultimately we built funds of funds and real estate businesses, venture capital. We had a business back then called Sprout which was one of the big three back back in the back in the 70s gone now. Yeah.

David: And and I want to dig into the merchant baking business in a bit. You know, one of the folks that uh you know I spoke to kind of in in preparing for this conversation was was Bennett Goodman. You've had a long you know history with and he he told me a funny story of you

David: recruiting him when he was I think at Drexel at the time, right?

David: And you know you know Mike Milin was sort of a top of the p top of the power chain you know in terms of like the you know the junk bond ecosystem and kind of the growth of the private equity world. and he said he asked you, you know, what what makes you think you can compete with with Drexel and uh and you gave an amazing answer or at least his recollection. I I'm curious if you remember that conversation and what you said.

Tony James: I I don't. What did he say? He basically said because he said you had the whole theory for why Draxel's business model was flawed was basically that like you know all they had to do was sort of um say that they had high confidence that they could raise the capital and you had a very different point of view that you were going to actually have dedicated pools of capital. you were going to start effectively a bridge fund.

David: Bridge fund, right?

David: And Bennett, I think, had said, "Okay, well, so these are like, you know, $250 million, $500 million financing." Like, how big's your balance sheet? And you're like, "I don't know, 300 million bucks." And he's like, "Okay, how does that work?" You're like, "Well, we were owned by Equitable, you know, which I think was or controlled by Equitable, which was the one of the biggest life insurance companies." And it was just, this is something I've heard from a lot of people, but like the confidence that you had go and and the confidence that you instilled in others to go compete against people who are far better capitalized, had much bigger businesses, you know, he would argue drove a lot of the firm success. I'm just curious if you could talk through kind of that dynamic, you know, in the 80s.

Tony James: Yeah. Well, 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 the time.

David: Okay. because of our because of our principal business.

David: Yep.

Tony James: Dre Drexel had the high yield the high the highly confident letter. If we said we were highly confident, people would say, "Well, so what?" Sure.

David: You don't matter, right?

Tony James: So, we created this bridge fund and we we turned it we turned it heavily. We we bet the we bet the fund and we bet the firm on every bridge loan and ultimately that lack of capital became an Achilles heel. But um we had a remarkable stretch of making the right credit assessments and the right market assessments. So every time we got it would win the business and we would have the distribution because we were often controlling the issuer. We could put a little extra vig in the interest rate.

Tony James: So we became known as as the distributor of high yield that people should buy on the issue because we'd price it to trade up.

Tony James: With debt, it doesn't have to trade up much. which is not like equities.

David: Sure.

Tony James: It doesn't have to trade up much to be juicy. So we used that and we developed quite a following. And then when Drexel went under um the bigger firms were also ambivalent about high yield. It had a taint especially when Drexel went under

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

David: You were able to recruit like real talent from from Drexel.

Tony James: We were we were Ken Mullis was a a big one and and Bennett was a was huge and although Ben was only an associate at the time, but

Tony James: but I always believe in young talent, great young talent and and unleash them. So that's always served me well uh throughout my career to

David: totally and that that has definitely shined through in a a lot of my conversations. Um yeah I mean maybe just kind of talk through the inception of the of the merchant banking you know kind of false platform and you know how that grew ultimately I think it became one of the largest or the largest in the world at the time.

Tony James: Right. Well again KKR does that Huda 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. Y

Tony James: and so I went to the firm and I said we should do this as I was running M&A at the time which in and of itself was some kind of distortion of reality because I was like 30 maybe not 30 29

Tony James: um and they said they said go back go back to work with you we have a principal business called Sprout the venture capital okay and they you know they are they know how to buy things and you know how to advise so go back to advising

Tony James: y And I sent them a few deals over the next year or so and they said, "No, that doesn't work." And 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." Um, so ultimately they gave me the responsibility and we started off with a landmark deal. I think it was the third biggest LBO ever called. We bought the retailing subseries from Household International. We ended up with Vans and Ben Franklin, um, TGI

Tony James: and, uh, Coast to Coast Hardware Stores.

Tony James: And we sliced and diced and sold them all. And we closed. We closed and we put up a couple hundred million equity. And the day after closing, we pulled out $400 million or some 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 Vans for free.

David: Yep. I grew up going to Vans, San Southern California. And around that we did massive amounts of high yield and one thing and another and that put us on the map. So and and led to us raising a fund and it was a very high return fund. So that then we got a lot of followons but we were we were pretty aggressive about starting new businesses. We we started a secondaries business, a fund of funds business, real estate as I mentioned all these things and they all pretty much all worked. the the private markets in those days was not as competitive

Tony James: and um and prices prices were lower as a multiple of IBIDA and whatnot and and companies were asset heavy so there there was a lot to work with there.

David: Yep.

Tony James: And that and we built that business when we when we sold DJ to to to credit Swiss it was about a 29 billion AUM business. Um Blackstone at the time was high teens. So just to put that in context

Tony James: and um so that that that was a key asset once it got put into a Swiss bank they had all of the institutional issues

David: right

Tony James: and the lack of commitment to the principal business that all the other big firms had. So it kind of started to waste away but

David: and what and what was the kind of core motivation to sell uh DJ to credit suites? Was there some like a macro reason or just good timing? I'm just curious. I think there were macro and micro reasons. Um, DJ had had a hell of a run as I mentioned. Um, and this was 2000 and honestly I looked around and said, "Wow, the market's at some kind of peak." Um, and at the same time the industry was changing. Uh, Glasssteagall was coming down. So, the banks were coming in with very deep capital pockets.

Tony James: uh regulations were changing about how closely research which was DJ strength could work with investment banking. Yes, sir.

Tony James: Um markets were changing. We'd gone from uh we'd gone from negot we'd gone from negotiated rates to very low commission rates and so the big firms were essentially doing the cash business on break even B basis to make money on the derivatives. We didn't have a derivatives business and we didn't have the technology to build one.

David: Interesting. Um, and then the our success in in in high yield and and and private equity meant we running out of balance sheet. Our bridge fund was $1 billion and all of a sudden you were doing $1 billion bridge loans. So you can do one deal at a time and if one mistake and you're out of business because a hundred million of that was ours at the bottom by the way,

David: which was 40% of our equity or something. So So it just seemed to me like everything looked great right then. Y

Tony James: but was unsustainable.

David: Y

Tony James: so uh and and I tried to push the management uh I was number two but I tried to push the CEO to kind of like invest in the future a little bit but it's he didn't really want to honestly and and it would have meant meant some tough years for earnings. So, um, we decided to sell the company. And I I'd say I think in retrospect, a lot of people blame me for that decision, for pulling the rug out for them because because working at DOJ had a little bit of a of a of um, you know, kumbaya feel to it that people still talk about. They still get together twice a year.

David: That's amazing.

Tony James: And and and pine over those days. Um,

Tony James: not so much Swiss bank. We sold it for 14 billion of cash and two or three years later Morgan Stanley sold for eight.

David: Oh wow.

Tony James: So I would say our timing was if you're going to exit because you don't have a winning hand. Y the timing was really good.

David: Totally.

Tony James: Uh now that it happened to be it it happened to be a essentially a merger of equals but it was

David: that's that's never pretty.

David: Yep.

David: Especially when you have two firms of such different cultures.

David: Totally.

David: One of my favorite fun facts uh about your time at DLJ and you know we're sitting in a venture capital office was that you you led the series A into Costco

David: in the 1980s. Uh

David: I have to hear more about that story. You know

Tony James: Starbucks too by the way.

David: Is that right?

Tony James: Yeah.

David: Oh wow.

Tony James: I mean a few others. They weren't all that successful.

David: That's amazing. You might be the best uh retail venture capitalist of all time. Um, I guess how did you meet, you know, Jim Sagal and Jeff Broman and then ultimately like what did you see in them at at that time?

Tony James: Well, they walked in they walked in unknown to me and said, "Gee, we have we have what we think is a really interesting opportunity. Uh there was one unit like that called Price Club. It had opened in San Diego.

David: That's right. Yep. where where Jeff had been the number two or sorry, Jim had been the number two uh there and Jeff recruited him to come start Costco and open the same thing in the Pacific Northwest.

David: Yep.

Tony James: Um there was a research report from a Goldman named Joe Ellis that sort of laid out the business model and it was very very powerful and elegant. Um and so and it was proven in one case and and the the Pacific Northwest was a very good market, very affluent and very good market.

Tony James: Jim was one of the best executives I've ever met. May maybe the best. He's not he's driven.

Tony James: He he can he can he's excellent on the smallest details of execution but also the biggest principles. He knows exactly he, you know, 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 can go.

David: Totally.

Tony James: Just relentless about that and incredible standards of excellence and focus, focus, focus. Um, and you know, the guy the guy traveled 225 days a year. you know, as a CEO

David: totally

Tony James: and was at every opening, knew the price of every item in the store. And 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 Broman, who's a clever lawyer, real estate lawyer, and also owns some retailers up in Seattle. He really knew that market

Tony James: and the the the economic model of of the store was so powerful that it was compelling. I thought

David: totally

Tony James: and and you're not like betting on a new technology. Is the market going to embrace it or is it going to work because there was

Tony James: it was pretty prosaic and you're someone like even me I could understand it but also there was a working model.

David: Yep. So, we did that and then and it it was one of the all-time great investments. I have to say one thing I learned is a lot of people I think hold things too long. I probably sell too early.

David: Well, we we'll get into I mean again the other amazing fact about your, you know, time with Costco is that you've 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. Um, why like what has Costco meant to you, you know, and why have you stayed on the board or in affiliated for for so long?

Tony James: Well, I mean I mean David, you when you find an a couple of executives and back them before there's a company, before there's a dollar of revenue, before there's an order, um, you feel as much as they do that you're a founder.

David: Totally.

Tony James: And so it it becomes like like like and I'm, you know, I've been a director now. I'm on my third CEO.

David: Yep.

Tony James: So, it feels like like I identify with the company as if it's mine. I I don't want to take any credit away from the great management we've had. We have had great management, but I I emotionally I feel that kind of connection and that sense of ownership.

Tony James: Um, also it's it's just such a great company that I'm I I'm constantly learning from them, the things they do and the way they think about it. and they're they're not they're you know they're they're very down to earth and very focused but they come to such good decisions all the time

Tony James: and then as you're if you're an investor as I was for many years at Blackstone the window on the world that you get from the second 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 what are tariffs doing to our income you know our in cost what how are we handling how are we handling uh shipping and all that stuff. It's a it's a huge source of value added information.

David: So for a lot of I mean I I I'm feel like a real sense of identity there. I guess what have you what have you learned from watching Costco grow in terms of you know business building or you know they're so famous for for culture right and how they treat their employees and ultimately the value they deliver back to the end customer by by keeping prices low and really making money through the membership more than they do on margin on the products but I I'm curious if I mean the business has grown obviously so much I mean from nothing you know to what it is today

David: you know

Tony James: yeah 250 billion yeah um

Tony James: I I think there's there's some similarities between DJ, Costco and and Blackstone actually, but but focusing on Costco um we we built that it was first of all all about taking care of the customer. If you if you take really take great care of the customer

Tony James: um then um you know a lot follows from that. You have a you have a robust business model with a fantastic following franchise and you get a lot of growth and your shareholders do fine. So take care of your customer. Build quality long term. 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 other thing. It's so easy to get um enticed into short-term expediency. Similarly, people have been coming to us for years of you should buy this or you should buy that and and um we really we've always had so much growth in doing just what we do if we do it really well. We just have 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 your customer. Never let that be static.

Tony James: So the more value we give to So whatever if if Costco can go find a new source for batteries and save a nickel, a 100% of that nickel gets lower prices. None of it goes into higher margin.

Tony James: And so they're always driving down prices. So their customer value proposition keeps growing.

David: Totally.

Tony James: Most companies

Tony James: either nibble away at it because they're tempted to have a little more earnings or they let it be static. Mhm.

Tony James: And Costco's always driving to increase the customer value proposition. So I think those are all good lessons for any business.

David: Totally. I know. I know we originally met I think in the in the context of the Costco uh you know board meeting and

David: um you know I he wasn't there in person but you know when I when I met with the board Charlie Mer was still on the board and I think you guys served together for we did 30 years.

Tony James: 30 years. Yeah.

David: Um you know he's such a legend. I guess you know what did you learn from Charlie Munger over you know those few decades?

Tony James: Well first of all Charlie never compromises intellectually. Um if he doesn't like something there you're in never in any doubt what he thinks about things.

David: Y

Tony James: and um and he isn't either by the way which which I love. It doesn't mean he was always right, but he was right as high hugely high percentage of the time.

David: I believe that

Tony James: um Charlie believed in the company. So even when we would have doubts u and you know the the management and the board, gee, 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? And before Amazon, it was Walmart. He believed in the company. No, you're the best. Just go right at them. open that unit in Bentonville, you'll beat the heck out of Walmart.

David: And it happened.

Tony James: Yeah.

Tony James: And no, don't worry about Whole Foods. You'll crush them. It happened.

David: Y

Tony James: and so, you know, he he he was really a believer uh with good reason. It's not he wasn't blind. But sometimes that sense of confidence and I tried to put that in the businesses that I've run too, that sense of confidence. You're you are good. You're really really good. Believe in yourself. You can do anything. Yep.

David: And people lose that that um um Charlie could distill everything into a sound bite.

Tony James: You know, I we were we I was, you know, they owned a newspaper and I think Wall Street Journal was up for sale and I said, "Char, what do you think about newspapers?" He said, he says, "This the newspaper business." This is not a business, Tony. It's an oil well. It's depleting to zero. I said, "Well, what about the Wall Street Journal?" "Well, that's not a newspaper. That's a trade journal." I mean everything gets right. He distills it into such an accessible, understandable

Tony James: um

Tony James: way of thinking about things. Charlie was my uh my rock. I I talked to him every two weeks whether we were in the board or not. We talked about the world. There are many times when I'd say, "Charlie, I'm I'm starting to worry about this other thing." And he he was an absolute rock.

Tony James: So, I mean, I love the guy. Honestly, I have a bust bust of him in my conference room, my office.

Tony James: uh real mentor uh so loyal, so supportive and um and very very high principles. There was there was no no cutting corners on anything.

David: Totally. And he was still coming to board meetings at like 98 years old, you know. I mean, it's pretty pretty

Tony James: well to all the way to his death. Yeah.

David: I mean, that is remarkable. So, I want to transition to Blackstone, which I think, you know, most people know you for because you had such a huge impact on the growth of that business. um you know talk through kind of when you first met Steve Schwarzman. I know it was kind of before you you joined the firm. Sure. And what was sort of the conversation like you know for him getting you to join and

Tony James: Yeah. Okay.

Tony James: Yeah. I I think our first serious engagement dates to back to 1989 I think it is when we we were working on a deal together to buy a railroad company called CN CNW. And it was a hairy time because the markets were falling apart. We were sort of pregnant with this public bid for this 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 and on part of our business model. Put a little equity in, get all the investment banking business. And we had a we had um a big high yield deal which had a reset note

Tony James: and Steve was bcking at the concept of a reset note. I think we're pricing at 15% and it could reset up to 18. Think of those rates today.

David: Totally.

Tony James: But Steve said, "No, I don't I'm not going to do the reset because I know you guys will reset it to the max." That's just, you know, and this is Well, Steve has a great inst.

Tony James: Um Yeah. And how to avoid it, but what might happen.

David: Yep.

Tony James: And we couldn't sell it without the reset. And of course what that tells you is the market all thought it would be reset.

David: Interesting,

Tony James: right? Or at least you want to take the risk. So we kind of went round and round and round that we had done a we had done a bridge loan. So we were we needed to get this financing done. And and you know the story is Steve said, "Well, are you willing to put your money on on your own personal money on the line?" And I said, "Yes." Um, and so we said, "Okay, if it resets to the max, you you'll you'll pay me a certain amount of money." And I said, "Okay." Frankly, the amount I would pay Steve was dwarfed by the amount the firm would lose if we didn't get the deal done.

Tony James: And I Steve might have knuckled under anyway, but to me, this was a a very good example of losing a battle to win the war. And I felt like if I could give Steve a, you know, a pound of flesh,

Tony James: then I could get the whole thing done.

Tony James: And and and and the idea of someone putting a money up and actually if Steve had to pay more interest rate, which wasn't Steve really, it was the LPS had to pay a higher, I would lose some money. All that appealed to him.

Tony James: So that that did the trick and and he agreed. we got the deal done and um you know we both look back on that slightly differently

Tony James: but I think we each accomplished something in our own heads which is sometimes what it takes to make a deal.

Tony James: So then 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 with Chemical Bank and Jimmy Lee and other banks but but we would we would have a casual like a once a once a year lunch or something like that. Um, and then after DJ was sold, I had to had to agree as part of the condition of merger agreement to stick it out for two years. Uh, no other employee did, by the way. But I'd stuck my two years out and then decided that it wasn't fun.

David: Yep.

Tony James: And that I wanted to do something else anyway. My DJ that I felt that same sense of proprietary ownership for that I felt for Costco was gone.

David: Yep.

Tony James: Steve called out of the blue and said, "Can we have lunch?" And one thing led to another. and he said he'd been looking to hire someone for a couple years and

Tony James: would I consider coming in and and helping run the firm?

Tony James: And my first reaction was, geez, Steve, you're a tough boss and I really haven't had a boss in like 15 years.

David: Totally.

Tony James: And I I don't really, you know, DJ went public and went private a few times, so I didn't really need to work. And I said, "Steve, I don't know that I want to be told what to do or what not to do. I haven't had that in a long time." He said, "No, no, no. Um, uh, you come in, you run the firm dayto day. We'll talk all the time. I'll back you. Um, if you know, if we don't agree, uh, by the way, we agreed 98% of the time.

Tony James: I'll back you. Um, but if performance is not good, I reserve the right to get rid of you." Yeah.

Tony James: I said, "That's fair."

David: Yep.

Tony James: Um, so we cut a deal where he could get rid of me at a drop of a hat. I got I was vested up to the minute and whatever I had.

David: Sure.

Tony James: And we agreed to try it

David: like like so many entrepreneurs I we've all seen this right where they say they'll or they they want to bring someone in and and there were issues with around Blackstone at the time and all the businesses

David: but then once once those issues are kind of fade then the then this entrepreneur wants to kind of reassert control.

David: Totally.

Tony James: I have to say Steve was an absolute prince. I mean, he he he he always respected my role and and and and um running the day-to-day firm when a lot of the I made a lot of changes and when I made those changes, a lot of people didn't like him. He backed me 100%. Even when he wasn't necessarily sure they were right,

Tony James: um they turned out to be right,

Tony James: but but he was he was a great he was a great boss really, I have to say. And and that's hard. is his baby,

David: right?

Tony James: To give that element of control, that level of control to someone else. I'm not one in a hundred would have done that. So, credit to Steve.

David: Totally. Well, and I guess like, you know, you could have obviously started your own firm. You know, most of the people I've, you know, spoken to, whether it was Joe Parata or Michael Chay or, you know, um, David Blitzer, like any of these folks talk about kind of Blackstone before Tony James and Blackstone after Tony James. I mean cuz you joined I think what 17 years after the firm's founding

Tony James: uh thereabouts

Tony James: I think um

David: you know how did you think about joining a firm versus potentially starting your own and then you know we'll talk about kind of the trajectory of the business because it grew

Tony James: I did think about starting my own firm I had a lot of people encouraging me to do that both LPs and also professionals

Tony James: but you know I I kind of what I like doing if you think about the development of a successful company there's kind of an S-curve it starts off small and entrepreneurial. It's kind of if it's not a tech company, it's kind of flat for a while. It bumps along and then

Tony James: are sort of like that too.

Tony James: Then then there's this kind of escalation curve where you create a lot of value and a lot of size and then you get if you're lucky enough you could be very successful and it's kind of protect the bastion. My 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. And then once it's very successful, it's not that much fun to to protect the castle anymore in when the girls grow by

Tony James: and and so I felt I I looked when when I looked at Blackstone, they were in every business Blackstone in was in DJ had been in and had reported to me and there was no one else in the world that had had that mix of businesses under their authority. So, I thought I'm I'm uniquely knowledgeable about every business and I'd seen and Blackstone had growing pains at the time, but DJ had had those same growing pains a few years before. So, I knew

Tony James: how to work through them and I thought, gee, if I could get my hands on Blackstone, I could be dangerous.

Tony James: The other thing is if you start, you know, when you're used to running a big firm after the merger of Group DJ and Cres, it was the largest by headcount investment bank in the world.

Tony James: didn't stay that way because of all the blood let letting and the but once you've been on I wanted to paint on a somewhat bigger campus a canvas and starting my own firm with two guys in a corner

Tony James: and so uh I'm that was the choice I made and Steve as I say I was originally not going to do it but Steve was very convincing and he lived up to everything and it was a great partnership I have to say I mean we worked really well together for 18 years.

David: Totally. Um, you know, people know Blackstone today. You know, a trillion dollars in AUM. It did not look anything like that when you joined in 2002.

Tony James: I think the firm was maybe $14 billion in total assets,

Tony James: something like that,

David: which is, you know, shockingly like, I don't know, a sixth of our size, which is, you know, kind of insane. Um again maybe maybe just give folks kind of a reminder what what was the shape of the business then what businesses existed and

David: you know we'll talk through kind of the the 50-fold increase I guess you know during your tenure.

Tony James: Yeah I mean Blackstone Blackstone was was in in private equity and real estate in hedge fund fund of funds and a tiny credit business and then an M&A business and a restructuring advisory business.

Tony James: All those businesses were kind of subscale a little bit. The private equity business, they'd raised a fund and had made a couple of disastrous investors. So that that were within a year white writeoffs with about a third of the fund. The

Tony James: the advisory business, the M&A business was down 50 or 75% from its peak and

Tony James: not going up. The the fund of funds business was tiny tiny and not very profitable. And the real estate business was a was again a small business. Um so um all those it

Tony James: um there were there were things to do to grow all those businesses. And what I'm what I'm prouder of honestly than moving the the AUM from 16 billion to nearly a trillion is the market cap of the company because you know it's aum is just aum

Tony James: and AIG had just put a hund00 million into Blackstone for 10% of the company and the rights to invest in our funds. So at best it was worth a billion dollars and when I left it was worth 170.

Tony James: So that's 170fold value increase.

Tony James: And while we're growing the business, increasing the value,

Tony James: our IRRa and all our funds went up.

Tony James: So we weren't we weren't driving down sometimes an asset manager can drive

David: 100%

Tony James: down in return for for commod more commodity um returns. We weren't doing that.

David: Yep.

Tony James: And so that that was um it was a great run I have to say. But it it it was we got very lucky. Um and but you know I I started focusing right away on culture. Again coming from DJ where I had and and my experience with Costco culture is so important

Tony James: and that required that required making some changes in people and talent. Um I think virtually every the leader of every business almost was changed

Tony James: because a lot of culture comes from leadership. We moved from being a a collection of real of talented people but difficult people that didn't work together to a team orientation.

Tony James: We put in place processes that people initially said why any process is 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 frees people up.

Tony James: So, and I'm I'm very much against bureaucracy and hierarchy. So we we we we did a lot. We we added there were some businesses I felt we should be in. We added those. And there were some businesses we shouldn't be in, like the advisor business. We spun those out. Mhm. So it was a long journey but it it was um a fantastic journey.

David: I mean people again one one of the other kind of common threads that I mean literally everybody I spoke to um highlights was that you were both an incredible investor and probably one of the best managers of like high high potential talent and firm builders you know that they've seen. It's a rare combination to have both. You know, people talk about um you know, being in an IC meeting with you and you finding the uh you know, the detail on page 16 that conflicts with the the thesis on page 36 from six weeks ago and being able to hold kind of people accountable to that while also kind of seeing the bigger picture of the fund and the firm.

Tony James: Yeah.

Tony James: Well, I I think I'm 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. uh or Costco or or a huge Swiss bank for that matter. Um and and I think my style is there's certain principles that I have around which which those kind of smaller elite investment organizations react well to.

David: Totally.

Tony James: Um I mean one one of them is robust debate. I there's you know lack of hierarchy, lack of status hierarchy, not just organizational hierarchy. So that if we're talking about a business, I want you to argue with me.

Tony James: I want you to challenge me. But you've got to be able to and I want to be able to challenge you, but I got to do that so that you don't get insecure or hurt feelings.

Tony James: And creating a culture where you can have robust debate because you're all in it together in a search for truth

Tony James: and people don't take it personally. It um is not so easy. And and you really want to be very direct about this because the more indirect and you you are it's so inefficient. You're not really saying what you're thinking, you got take takes weeks to get around to it.

Tony James: So robust debate's a big one. Lack of hierarchy is a big one.

Tony James: I feel so strongly that you have to model the behavior that you want your people to have, which means you got to work as hard as they do.

Tony James: Um and it it extends into personal values and things as well. Um um I I think it's I I running an investment organization like Blackstone, I think you almost have to be a really good investor.

Tony James: Um I know there'll be exceptions to that, but our firm where you earn your chops, your respect is being able to talk to some of the best investors in the world on an equal footing

Tony James: and you're not losing a step with them. Mhm.

Tony James: And and similarly um when I go over those investment committees, I mean, if I'm not going to go over them carefully, then the sloppiness and the will will go up a lot. You know, the the same amount of care. So, I want people coming in there

Tony James: working really hard to to to have great investment and great thought processes. And part of those catches, those little things is sending a message.

Tony James: Someone's watching.

Tony James: You're paying attention.

Tony James: You got to be flawless. And also for a firm like Blackstone, it's investment committees that are the cultural crucible of what what defines the firm.

David: Say more about that. Yeah.

Tony James: Well, how we think, how we talk to each other, how we think, the our analytical rigor, the the frankly the lessons we learn from our failures and our successes.

David: Yep.

Tony James: All that is transmitted from senior management, me and the partners. let's just say to the junior people through investment committees

Tony James: and and so so if you're not able to hold your own in those if you're just presiding over them or you or you're not engaged or you haven't done the work you lose a lot in my opinion.

Tony James: So and I could go on and on. There are lots of um lots of principles that for me work well in an elite investment organization, but they might not work in another organization.

David: Sure. Correct me if I'm wrong, but like I think Blackstone by and large was more kind of consensus oriented uh or at least the stories that I heard was that if if there was a you know a tie, you would always back the deal team. And I David Blitzer told this story um yeah

David: uh you know I think uh he was in London you know you were maybe three months into the job and he gets a call saying you have a new boss uh and you know and you know I think he's like 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 for H Hotton Mifflin was like a spin out or carve out of a vendi at the time and I think the the investment committee initially

David: um you know didn't didn't sort denied the deal, but basically created like too narrow of bounding from like a price perspective.

David: And he was describing how he was bummed. He was like, you know, having a drink in a pub and

David: and and basically I think you met with him and was like, you know, how strongly convicted you are. Are are you in this deal, do a bunch of work over the weekend. Let's go back on a Monday.

David: And and you really like he believes like put your weight behind him, which gave him the confidence to sort of like, you know, champion the deal.

Tony James: Um well that's true in that instance but there are times when there are times when you're you're not on that side of it of course

David: y

Tony James: but I would say in general when a deal committee comes in I don't want them coming into when a deal team comes in to the committee with a recommendation they better want to do it otherwise what are we doing there for right

Tony James: so so if they're coming in with a 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

Tony James: or or whatn not. And so people often accuse me of no matter what they say arguing the other side. There's some truth to that, but it's but there's a reason for it,

David: right?

Tony James: There are times when I feel like there's something and in investing there's something that's not on the page. You've got to have a feel. So you got to, you know, you know, we kind of talk about seeing seeing around corners a little bit. And partly that's the partner and and his conviction. Partly it's my own gut even though it's not provable.

Tony James: Partly it's the process becomes a little unfair sometimes because someone gets on something if there's a mistake or there's 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.

Tony James: Um

Tony James: um and I'm sure there were plenty of times when it went the other way.

David: Yep.

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

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

David: Sure.

Tony James: And I just I just think groups make especially in investing rates better decisions than any one individual. And 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.

Tony James: One CIO that was a very smart guy but a bottleneck

Tony James: and it wasn't a scalable model. This is like a distinction that I've I've written about I think a lot about here in the context of Andrea Norwitz which is this notion of firm versus fund. You know the the the sort of contrast that I try to draw is um you know most people run funds very few people in my definition build firms and and the objective function of a fund is how do I generate the most carry with the fewest people in the shortest amount of time possible. you know, often that's run by a single CIO. There's a handful of people. There's like ultimately one decision maker

Tony James: and a firm I think by by contrast maybe is has to deliver exceptional returns because that's a prerequisite.

Tony James: But the other I think variable is like building sources of compounding competitive advantage like what are your moes you know if you think about Blackstone as a company not just a collection of individual funds like you know it's a much more entrepreneurial question because every entrepreneur wakes up every day asking about their competitive advantage. Um I'm curious, you know, if you agree with that distinction, how you sort of think about that in the context of of Blackstone or DJ.

Tony James: I do and I do. One of one of the tricks of running a firm is making people in a fund care more than just about their f fund, right? So that's a that's a sensitive balance and you want them to care enough but not too much. And then within funds or within sub businesses maybe private, how do you get the guys in India to care enough about the guy deals in New York?

Tony James: And for me, I I I I have my way of thinking about that and my how to balance the rewards on both sides really from trial and error and what's worked over the years. Not there's no theoretical model that makes it right. But the the first thing is to make you do want everyone even people in the fund to care a little bit about the firm for lots of reasons. Yep.

Tony James: Um

Tony James: the the the issue as Blackstone became successful, the issue was we weren't in we weren't a monoline boutique investor anymore, which is what uh which is what all the LPs wanted.

Tony James: No, no, no. I want I want, you know, I want Andreason Horus. They do one thing and there's a genius who sits in the corner and he he divines the right answer.

Tony James: We we were becoming right or wrong not only a supermarket but a big supermarket with lots of different Mhm.

Tony James: And and and that was not where LP's heads were.

Tony James: Today's different back then. So

Tony James: So my my my challenge is a firm manager was to figure out how do we take our disadvantages and make them advantages.

Tony James: Um because because we we don't want to stop growing and we don't want to descend into mediocrity.

Tony James: I mean, 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 do their own thing. I mean, I always wanted to have the most talented people in the world and train them so they were better than they would have been any other place.

David: Yep.

Tony James: But those people have tons of opportunities. So So I I had to create new opportunities, not just a war of attrition with more senior people.

David: Yep.

Tony James: So growth was important.

Tony James: and and and so how do you how do you mitigate the the negatives that come with that? And so we spent a lot of time thinking about that. We we tried to add businesses that were made the other businesses around them better.

Tony James: They brought insights, access, relationships, capital, something that made each of the other businesses better.

Tony James: I also it was this is why we were lean so early in our stealth effort to build retail distribution.

David: Yep. again just distribution power. I mean it was a hedge against the time when maybe all the funds aren't high top quartile returns and so how do we still you know drive business and customers and aum and so on so forth. Yep. And so yeah we we we're constantly thinking about ways to take our disadvantages and make them advantages. Yep.

Tony James: To drive growth.

David: Yeah. One of the things I I I've read certainly in a lot of like Blackstone materials over time is just um you know they'll identify kind of a big secular trend and find ways to express conviction in that thesis across different asset classes. And one of my kind of core beliefs both it's kind of an investment philosophy. I think it's a bit of a metaphor for for my career maybe today which is that opportunities live between fields of expertise. And it seems like very well expressed at least like you know you know we're believers in e-commerce so we'll bet in the e-commerce brand but we're also going to buy warehouses. We're also going to invest in the cloud infrastructure and

Tony James: and that and that's that's an area where these different

Tony James: you you take a mosaic tile from each different business you put it together and you have a clearer view of

Tony James: Y. So yeah, so we um we could see what was happening in e-commerce, but we could also see what was happening in warehouses and we could see and and and so

Tony James: that ability to develop to see themes because because the early sign if you're going to catch the signals early, they're never obvious,

David: right?

Tony James: Because by the time they're obvious, it's priced in, right? So you got to catch them early, especially if you're Blackstone and you want to move a lot of money into it, right?

Tony James: So how do you see things early? You get you get you get reinforcement from independent. No one signal is dominant. This is so clear, of course, but you get reinforcement from multiple different businesses and insights and so on so forth.

David: Totally.

Tony James: And and and that that became a that was one of our competitive advantages that we we tried to maximize.

David: Totally. you you talked about kind of retail distribution. You know, everybody I I've I've spoken to has said you were like incredibly early kind of in that wave both just covering the warehouses by the way treating LPS as true partners, but that was something that was, you know, kind of core. You you talked about driving IRS, not just sort of scaling aum for the sake of it. Um I think you also helped catalyze kind of the creation of Blackstone's insurance,

David: you know, insurance solutions business. Um I imagine both of those became kind of sources of like perpetual or permanent capital to some degree you know for the business as well.

Tony James: Yes definitely I mean the insurance um like both both are big untapped asset classes. So the institutions have generally 25% of their assets in in alternatives let's say the more sophisticated ones like endowments are 50 retail was at 2%. Y

Tony James: so it kind of screamed and insurance was very low too. Now insurance has regulatory restrictions to keep it lower.

David: Yep.

Tony James: Although they're increasingly structural ways to kind of nudge that boundary, but those seemed like um there was just as much insurance assets as there was pension assets in and just as much 401k as or retail assets. So how do we tap are we're living with onethird of the market. How do we open up those other thirds? And again, it's all about how do 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.

Tony James: And we started off not just by hiring salesmen,

Tony James: you know, we started off because because the wirehouses, they need training. So we ran Blackstone University and people would come through and every broker of every wild the only place they're going to come and learn about alternatives is Blackstone University. There was no other alternatives university. And then we had a master class where you go back and get the equivalent of a masters in this.

Tony James: And then we we built our own proprietary um data uh

Tony James: CRM system and data system. So we knew more about every Maril Lynch client and whatever question they've ever asked us than Maril Lynch knew about that client.

Tony James: And we did that across the board. And and we did that for not just Maril Lynch and UBS and the Birros, but thousands of RAS.

David: Yep. And that that that I think is the now the one the the dominant strategic asset that Blackstone has

Tony James: that no one else can really replicate because no one else has the breadth of product.

Tony James: Um so that you're always in the market. You always have something that a customer wants or a broker wants to sell it. The number of products that were always open that were you could put money in any time.

David: Yep.

Tony James: uh no one else has the revenue scale to justify the overhead

David: totally

Tony James: and it and it and it becomes reinforcing of the brand and the the value so that I I I felt like you know

Tony James: 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 or die by the sword I didn't want to die by the sword

Tony James: die period

Tony James: so I 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 a an unassalable business when we didn't have the the best returns.

David: Totally. I want to talk about the IPO because it was, you know, uh obviously a huge deal in the kind of history of the firm. Also, I imagine very complicated both kind of tactically but even culturally I imagine you talk about kind of firm dynamics and how do you kind of create incentives for people in a given fund to care about other funds. I imagine going public, you know, part of that is you're creating a new currency in some ways by which to compensate people. You have kind of, you know, LPs, you have employees, you have um, you know, the public shareholders. Um,

David: well, this maybe just talk through the IPO and all those dynamics.

Tony James: We 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.

Tony James: all with different percentage ownerships. Every fund had a different percentage ownership than every other fund. All that somehow had to be rolled together into one entity.

David: Yep.

Tony James: And everyone had to have the right number of shares in that entity. Just just just number one. Yeah.

Tony James: Number two,

Tony James: at that time there was no nothing like Blackstone. We had three different ways for account to count for carry. We could account the way we did it and now the industry does it now which is kind of um

Tony James: you get carry when it's realized. You could do it on a marktomarket basis. So an acred carry

Tony James: you could you could use option models to to compute the option value of the carry and then how do they vary over time. We had lots of choices just on something as basic as the accounting for carry. Totally. So there was not even an accounting standard

Tony James: that

Tony James: you know the tax structure and all that you know should it be a publicly traded private partnership. We thought that was more value added because that's what all the insiders wanted because they pay like don't like paying taxes.

David: Sure.

Tony James: Turns out the market

Tony James: didn't like

Tony James: actually didn't really like it. So you know we converted but I don't think that was a compelling never but we were making it up as we we went along. And then then

Tony James: you know the reason we could get public is Blackstone had to have a hell of a run. We didn't want to ruin that. Um so how do how do you protect your day-to-day working partners that go into work every day and try to make good investments from being distracted or influenced by the public. So So first of all we built an elaborate corporate overhead so that we didn't involve that any of them in any of it. M

Tony James: not only the going public but once we were once we were public

Tony James: added $75 million a year at the time to our operating cost

Tony James: which is not nothing a lot more today. Um we also were making people wildly rich. So in those days if you were work for one of these firms if you got paid a million dollars this year that was great but the next year you maybe you get paid a million or 750 or a million a quarter whatever it was

Tony James: but it was yeartoear we were coming in saying for that you know we're going to give you

Tony James: hundreds

Tony James: hundreds of millions in many cases or tens of millions

Tony James: and you're going to give up a little you're going to give up a million of your annual income but we're going to give you essentially 30 in of a stock that's forever and grows over time in exchange. So, how do we how do we not demotivate

Tony James: our mo not only how we not distract them by by looking at the stock every day, but how do we not demotivate them from just well, I'm I'm worth $100 million today. I'm I'm just going to put my feet up and come to work three days a week.

Tony James: So, all of that.

David: How did you do that?

Tony James: We we did that. We did that first of all by basically telling people they can't sell any stock for eight years.

David: Okay.

Tony James: And then we had unusual vesting whereas it what was unvested we could take away. So most companies if you have five-year vesting if you let someone go um that triggers acceleration of their investing,

David: right?

Tony James: We didn't do that. We we we we could let them go and the last three years of their investing or if they were demotivated and weren't working, we could say, "I'm sorry, you're not working hard anymore. We're going to take away your unvested stock." Yep.

Tony James: So, so what's vested is yours.

Tony James: Uh but the unvested stuff and in eight years, we had eight run at it.

David: Yep.

Tony James: And and we didn't lose anyone that we didn't want to lose for eight years. And people were totally motivated for the whole time. So, that part of it worked. But all these things are just little small pieces of the whole that you have to think about.

David: Totally.

Tony James: And as I say, I could go on and on, but um it was it was incredibly complex. And the other thing I would just say and file on this, Steve and I and Pete Peterson, who was still around then wanted to take a hard look at this and see what it be and do all of the plumbing to make sure we had the option, but we weren't sure we wanted to do it. So, how do we go through this and not have it loom over everyone in the firm and everyone's trying to come into and so essentially this was something um that Steve delegated to me and I did um really with with with no one else in the firm actually helping

Tony James: for nine months and did it at night

Tony James: and worked out all this with bankers outside bankers and lawyers but not internal people

Tony James: and I would report back to Steve, of course, and and and to Pete Peterson, but Steve was much more front and center on this,

Tony James: but it was kind of a secret project because otherwise people would have been Tony, I'm I should be the number two person, you know, you know how it is.

David: Totally. No, I remember we had lunch once and you you said, "Yeah, literally like went into a room and was deciding who was going to become a billionaire, you know, on the other side of the IPO." I kind of blows my mind. Um, the the other thing that I I imagine being a public company then gave you was currency that you could then use to acquire other businesses. And again, one of the folks I spoke to was was Bennett Goodman that, you know, the the G and GSO, right?

David: Um, I know he had worked for you obviously at DJ.

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

Tony James: Well, we we had a we had a very small credit business. Blackstone had about a billion and a quarter in it. But and and the the people running that business then were solid insurance company debt investors, but they were perfectly happy with the business of the scale that it was and really didn't see a lot of ways to to drive it. At Blackstone, we we wanted to have a few large businesses. We didn't want some other firms have gone to a million little businesses little popcorn stands there. We wanted to have few big dominant businesses

Tony James: and so as when I mentioned before that a lot of the leadership of the groups needed to be changed this was one of them.

Tony James: You could you know sometimes an acquisition especially if you have a lot of the purchase price contingent on future earnings and this and that. It's almost like a you know a team hiring. You see this all the time in tech right? you have all kinds of big tech companies buying smaller companies to get the team.

Tony James: So, it's a little hard to say was it an acquisition or was it a group hire,

Tony James: but either way, I knew these were talented guys and I and I knew they were very ambitious and most the purchase price was contingent on future success. So, I knew that we could, you know, I think thought we could build a big business around them and and we did. We built a hundred billion dollar credit business around them. But GSO was the first, but it was only one of about a dozen acquisitions.

David: Oh, interesting.

Tony James: Uh, we did a lot of acquisitions. I mean, the maybe the best acquisition we ever did was strategic partners, our secondary business.

Tony James: We paid $119 million from that business.

David: Was this the secondary fund from credit from DJ credit?

Tony James: From credit, right? Because again, they're ambivalent about the business. So, we bought it for 119 million. It's $120 billion business today. It's worth tens of billions.

David: That's amazing,

Tony James: right? And we made about a dozen of those acquisitions. Every single and and the the book on financial services firms buying other financial services firms is not very positive, right? They almost never work. Every one of our acquisitions worked. Um there were two that didn't really move the needle strategically, but we made a very good return on the investment. We probably made three or four times our money.

David: Was there anything non-obvious about what make made those acquisitions work? Like, you know, kind of the industrial logic or the culture? You know, I'm I'm just curious.

Tony James: Yeah. Cult culture is key. Having people that fit in uh is key. Number one. Number two, people that want to really grow something and appreciate what Blackstone brings to the party.

Tony James: The um you you have to have balance between what the house takes from a entrepreneurial management team running a fund and what what the house gives them. when that gets out of bounds, if if you go buy a hedge fund and the and and you're not doing anything for him and three years into the deal, he's fully vested, you're going to have to buy the company all over again essentially. So,

Tony James: so we we wanted people that would were happy fitting in a bigger corporate organization if that helped them scale their business a lot. That's a cultural thing. Other people would just I'd rather have a small business and not have to talk to anyone. Yep. Right. So, so the right culture, the right people, the right balance between what the house brought and what the firm, what the what the acquired company bought, they had we had to feel like we could be a leader in it. I didn't want to buy a company and be not a leader. So, we wanted to lead in a few big businesses.

Tony James: We also had to feel we could be a top quartile investor consistently

Tony James: with this team. I didn't want to be an average investor in any business. Um, we wanted people that and we wanted to buy small where we could scale them. We could we never wanted to buy a fully built out franchise where you're you're paying someone else for all the growth. We wanted to we wanted to deliver the growth the value of the growth to our shareholders.

Tony James: So those are, you know, we we had a seven or eight kind of criteria that we looked hard at and made made sure fit. What one of the things Bennett said which um resonated a lot was he's like I I never felt like an employee like it never felt bureaucratic you know and and I again I think about that a lot here. One of the things that surprised me about Andre you know it says Andre Horitz on the door is actually there's not a ton of top down direction. I think Mark and Ben have done a very thoughtful job of trying to make the firm feel like a platform for smart entrepreneurial people to build on top of. And I think it was really wise if you want to attract and retain, you know, some of the folks here who've been very very successful entrepreneurs in the past. Like if they needed to be micro, they would never work here if they were micromanagers.

Tony James: 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.

David: Totally.

Tony James: I I completely agree with that. And we I always bent over backwards to minimize bureaucracy and process and hierarchy.

David: Yep. And so I had at one point I think 56 direct reports.

Tony James: Oh wow.

David: Trying to Jensen before Jensen. You know

David: trying to minimize hierarchy.

Tony James: Wow.

Tony James: Because with hierarchy comes comes bureaucracy. And and we and I'd learned from DJ that v in contrast to credit sues that putting more controls in doesn't necessarily doesn't necessarily protect you. that a lot of it if if you have good people and you trust them and you hold them to very high ethical standards and that becomes the behavioral norm that's much better than having lots of watchers and watchers of watchers trying to check every little thing that you do

David: totally

Tony James: and so credit had all kinds of ethical lapses DJ had none but they had immense controllers and process and whatnot and DJ was skeletal

David: totally

Tony James: so I kind of brought that attitude to Blackstone

David: one of the things that I think is 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, right?

David: Um

David: that's not normal. Most people try to sort of hang on, you know, especially at that level. Um how did you think about that decision?

Tony James: Well, I'm I'm glad I did because I if I if I hadn't committed myself, I probably would have been harder to let go. First of all, remember Blackstone was my like in since my third run, I had DLJ, I had Costco, which started the same year as Blackstone, but became even more successful

Tony James: and then Blackstone. And I felt like I'm kind of a parapotetic kind of person and I I have a lot of interests and I felt like there's something else out there. I I don't I don't want to do this for the rest of my life. I want to do it. I want to do it well. I want to build something I'm proud of, but I've got more potential.

Tony James: And so, so that was that was one thing. And I just felt by then. And I, you know, Steve's only four years older than I am. So, so and I'm fine with that. I didn't I didn't aspire to anything but what I had there. Then too, I have to say, um, leadership transition is the Achilles heel of an alter of any asset manager in my opinion.

David: Yep. it's really not so easy and you don't even see the problems right away necessarily but you might see them three, four, five years in.

Tony James: So for me it one of my top priority if I did a good job managing Blackstones all the statistics we talked about of the growth of aum and market value and all that that that was fine but succession planning was one of them. I had to nail that.

David: Yep. And that's a process. Well, at least for me, it was a process. It meant picking the successor. It meant grooming him and making sure that that there was no breakage around his movement either in lawsuit, his business, or pe people being disappointed. It meant picking the right successor, making sure he was 100% ready, on and on and on.

David: Yep.

Tony James: So, you start down that process and it comes to an end. I mean, if you do that well,

David: totally.

Tony James: You know, three or four years in, he's ready.

David: Totally. And you know, credit to John, he said, 'What do you think, Tony? And and I said a couple times, "Give me another year."

Tony James: But I felt that obligation and I felt he was ready. And so,

Tony James: but it's never easy to let go of that seat. Y

Tony James: it's such a great seat. It's such a profitable seat.

David: Totally.

Tony James: It's such an ego-goratifying seat.

Tony James: So, I I would say most people as a result hang on too long.

David: Yep. And I I believe you've got to move out of that seat while the company's still while you have plenty of gas and you're still at the peak of your performance and the company's still on the arise. If you wait till it tops out, you're going to lose momentum for a while before y maybe the new guy can correct it.

Tony James: And there was no reason to lose that momentum.

Tony James: And I'm gonna love my I love my years at Blackstone, but I I've loved my every day since. So, you know, it seems like you obviously did an amazing job, I guess. You know, um, what did you see in in John Gray early on? Like, why why was he the logical kind of successor?

Tony James: Um,

Tony James: well, we had a we had a lot of great talent, some of whom you've talked to and and you know, they're all they're remarkable people, I would say. Well, first of all, John ran our biggest business, so let's start with that. But 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 about that.

Tony James: Um, John has a knack for seeing in in a very complex cluttered environment. He has a knack knack for seeing the simple path and right path through it.

Tony James: He works incredibly hard. Um, um, and so I I think John was a was a great choice and he and he's he's very decisive and he's got very good investment instincts. So, I mean, how lucky was I to have John

Tony James: that I that I could hand the reigns to? Because if it would have been a failure if I hadn't handed the reigns to someone who could who could take Blackstone for on up.

Tony James: Maybe we'll spend a minute just kind of looking ahead into kind of the alternatives ecosystem. You know, we're sitting here amidst, I don't know, fear-mongering and private credit, the SAS apocalypse, right? I don't know where where is this all going like how how do you sort of view the maybe private markets land or maybe markets generally but private market landscape and

Tony James: yeah this ecosystem

Tony James: well I you know I try to look at private markets not as a series of individual business but kind of a whole and 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 of stocks and bonds they could trade tomorrow.

David: Yep.

Tony James: Not only don't they need that liquidity, it has a real opportunity cost um but they also entices them to often do the wrong thing at the wrong time. So a hidden cost. So I'm a big believer that over time you can outperform in public in private markets but markets evolve. I mean it was clear to us that p that private credit capital it was good for a while you know yields were 12% capital flooded into that and

Tony James: and yields kept coming down into the sort of mid to high single digits for the same risk but there was so much capital there was more competition for deals so you also lost covenants and things like that and the kind of capital that was started to be raised uh with retail money where it comes in one month and it's got to be invested right away or you have the you have the negative drag

Tony James: means that you kind of have to buy the market what's out there you can't

Tony James: one of the great things about draw down funds is always there's nothing good to do I don't have to do anything right

Tony James: you kind of lost that with this with this structure

Tony James: I you know so I think there'll be some correction in private markets but it's not going to be 2008 where you were destabilizing the system because it's not owned by banks at 30 to1 leverage or these days the leverage is lower but it was plenty were yep 20 to 30 to1 So, okay, there'll be a correction. There'll still be an opportunity when that shakes out to to buy private get debt and get higher returns than publicly traded high yield debt. Yep. Okay. You know, the AI revolution

Tony James: I I would say you get these things periodically where a new technology makes you question the old business models and and that's an adjustment, but it's just an adjustment.

David: Mhm. Um, I think uh I think one of the great opportunities right now is there's there's there's about 30,000 portfolio companies of mid-market private equity firms that can't be sold,

David: can't go public. There's no strategic

David: Mhm. you know, 20 trillion or something worth of value.

Tony James: Um, all those companies need to be willette and eventually need to be sold. So for for p for for capital pools there's going to be an immensely attractive being able to pick company by company

Tony James: whether it's co-investments or continuation vehicles.

Tony James: Um you're getting a seasoned investment at an attractive price with much lower fees

Tony James: and you're able to with a sponsor that's doubling down his commitment and you're able to really analyze it. I think it's one of the great times to put money to work. I believe

Tony James: um similarly look 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.

David: Yep. You know, a big venture fund used to be a billion dollars and you know, and and there weren't they there weren't firms like Andre Norowitz that had lots of different different funds

Tony James: and companies are staying private longer and and I think there's an opportunity to to ride those companies longer and I love that if you're if you're good enough about picking them. Um, what I don't like about draw down funds, the traditional private equity fund, is you, you know, 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, and then a few years later, if it's a successful deal, they sell it for two two times their money.

Tony James: You know, you've you've paid a couple of couple of turns, a couple of ten of turns in management fees. they take off 20% of the of the gain in carry and you've got 1.4 times your money and you've tied up your money for five years, go buy a New York municipal bond, right?

Tony James: After taxes, you're getting almost as much.

David: Totally.

Tony James: So, I I I think the opportunity to hold assets longer in a private context and really let them grow

Tony James: is very attractive

Tony James: and I think the industry models need to reflect that. LPS

Tony James: and and certainly private capital and family office capital is much more towards the long hold.

David: Totally.

Tony James: LPs are getting there, but they need to evolve that way.

David: Yep.

Tony James: So, I I I think they'll be, you know, and and life sciences. I mean, it's another explosive

Tony James: upside,

Tony James: longer holes, harder than harder than the rest of venture. Totally.

Tony James: Just because you're in the body and the regulatory and so on so forth. But man, there's going to be some huge fortunes made in that. So, I'm I'm optimistic about private cap, but it evolves.

David: Totally. You mentioned you had, you know, lots of interests outside of, you know, Blackstone, Costco, and DJ. I know, um, you know, one of the things that you, uh, you know, have been passionate about is, uh, spending time with historically black colleges. Maybe talk about that nonprofit and and kind of the impact that you've had.

Tony James: Yeah.

Tony James: Well, in 2018, a friend of mine who had worked for Obama and uh in their department of education came in and said, and he he had been a an M&A banker at DOJ and then I think Bank America and then he went into the government and he ran the student loan program for the government and he came in and said, you know, um I'm out here. the one thing that we didn't clean up in the financial crisis was student loans and maybe we should come up with something and we started thinking about that

Tony James: but and we started working with some historically black colleges and universities around income share agreements so that that a graduate would get his college education for free and then would agree in a return to give a certain percentage of his or her income over a minimum wage uh to repay the college and then the college would take all those receivables this is the Blackstone opportunity and securitize them

Tony James: and you know we we'd make a lot of money while doing good for society.

David: Yep.

Tony James: And we started down that path but while we were doing that um a number of HB.CU came to us and said geez we really need help with this or help with that. And so we kind of morphed the idea to much like and I don't know about Andre Horowitz but much like a private equity portfolio management capability. We have IT people, we have lean people, we have pricing people, we have on and on and on and on. Marketing people

Tony James: and if we could set up a capability like that and put and then donate them to H.B.CU, we could do we could help them a lot and H.B.CU CUS do remarkable things for uh educationally. So 8% of African-Americans that go to college go to H.B.CU,

Tony James: but 16% of black graduates graduate from H.B.CU. So twice the graduation rate.

Tony James: And then those graduates earn on average 50% higher lifetime income than black graduates or non-H.B.CU. So they get they get more kids through college for a better life and they start with the highest percentage PEL grant and first generation college. So they're doing a great things with the toughest kids with onethird the money

Tony James: but they are skeletal in their ability to manage themselves, track students, get students jobs, offer students loans, prepare their own financial statements. So we thought this would be a wonderful thing to empower the H.B.CU use to to be stronger and better and we now have 11 offices around the country and it's and we work with about 70% of the students in America that go to H.B.CU.

David: Wow.

Tony James: So, it's been a spectacular success.

David: That's awesome.

David: I know you're also a passionate fly fisher.

Tony James: Yeah.

David: Uh I don't know what has fly fishing taught you about life or

David: Well, what do you love about it?

Tony James: Yeah, I what I love about it is is like so many things like investing, it's lifelong learning. You never know everything.

Tony James: Mh.

Tony James: And there's a randomness to it and a connectivity to it that defies analysis but but rewards that sort of almost six sense that instinct which which I think great investors have.

Tony James: So that all appeals to me a lot. uh the connectivity you when you are engaging with nature in a really t tactile way, you connect it and you see it much much more much more in much more detail and you appreciate its nuances much more. That's that connectivity to nature has been an antidote to the rest of my my existence which has always been so so driven and analytical when I don't know if you ski or anything but but if you're going down you know going down through bumps whatever concerns are in your head you're not thinking about that you're just thinking turn turn so and fly fishing is the same way you can't worry about anything else while you're out there doing that

Tony James: but it's not stressful intellectually

Tony James: but It unplugs you from intellectual stresses.

Tony James: So, I think I think those elements have always really appealed to me.

David: That's awesome. You know, we have a lot of uh you know, young people that that watch our content. Um

David: you know, if you were a young person, if a young person came to you today with, you know, a lot of the same kind of raw materials that you had in in 1975, um you know, somebody obviously super sharp and very ambitious, what would you tell them about building a career?

Tony James: Well, first of all, there's a lot of luck in that. Um, and I never really planned, but I reacted.

Tony James: But I would say some of the attributes you're looking for, or some of the effort that I looked for, maybe is a better way to put it. First of all, I wanted an unstructured opportunity where someone didn't tell me how to do something then expect me to do it, where I could figure out what and how to do and do it my way. And um so I so that was non- hierarchal non-structured organizations.

Tony James: Uh I wanted something where um where I could change the paradigm because that's how I felt frankly intellectually engaged. But it's also where the upside comes from.

Tony James: I I think an opportunity that really provides a lot of economic firm personal and professional growth. Growth is very important. What what 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.

Tony James: Make sure you've got lifelong learning.

Tony James: Make sure you're empowered to do stuff and take risks. Make sure if you take smart risks,

Tony James: your firm's got your back.

Tony James: Um

Tony James: and then, you know, roll the dice and be lucky.

David: It's awesome. You know, again, I just want to say like I guess on the record that one of the things that was most remarkable to me about kind of preparing for this conversation was just, you know, everybody that I spoke with, these are some of the, you know, most successful people on Wall Street at Blackstone and elsewhere. All of them were instantly willing to jump on the phone and just waxed poetic

David: about the impact that you I mean, they all literally attribute the success that they've had in their careers to you. Um, so just I I really admire kind of the impact that you your career, but but also the impact you've had on other people.

Tony James: Well, and that's mutual. I mean, 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?

Tony James: And and if if if they play their hearts out and do really well, I benefit. And so, so I I'm and I I think they always knew at the end of the day, no matter what,

Tony James: I was out for the firm first, never for myself.

Tony James: And and that created a sense from them of loyalty and trust because because none of them if you're out for the firm for they don't really want undue rewards. They just want fair rewards.

David: Sure. And then if you can if you can captain a winning team and it carries everyone along it it it's a virtuous circle. It's awesome.

David: Tony James, thank you so much for your time.

David: This is awesome.

Tony James: Thank you.