It’s a question private equity journalists love asking industry participants: what keeps you up at night?
The answers tend to either be trite – rising valuations, increasing competition, an impending downturn – or attempts at humour – kids, significant others, the cat.
For Blackstone and its president and chief operating officer, Jonathan Gray, it’s disruption.
Speaking on the private equity giant’s fourth-quarter earnings call on Thursday, Gray said: “The one thing today that worries us the most – and obviously there are political issues, interest rates, all sorts of things – the big thing is the disruption that’s happening in almost every industry; how it’s impacting those businesses as technology changes. Infrastructure deal, credit deal, private equity, it doesn’t matter – that is the number one focus when we look at the risk and downside of new investments.”
Asked how Blackstone approaches approving investments from a management and quality standpoint, given the firm’s rapid growth, Gray said the key was running a centralised investment process.
“What we’ve done is made Mondays a lot busier at Blackstone, in terms of the number of global investment committees,” he said. Although the firm’s reach is global, it still allocates capital centrally. This means the number of memos some of the firm’s executives have to read at weekends are “quite substantial”.
Gray said that decisions on investments – even for new strategies such as life sciences and growth equity – all go through the same process of being vetted via a heads-up committee, a pre-investment committee, a review committee and the investment committee, with the aim of reducing the number of defects.
“It doesn’t mean there will never be mistakes, but it greatly reduces the number,” he added. “It’s something that [co-founder] Steve [Schwarzman] has preached since the beginning, and we’re sticking with this formula.”
Blackstone’s deployment jumped 41 percent to $62.9 billion last year – a record for the firm – and has more than doubled over the last five years. It raised $134 billion across all strategies last year – the third year in a row in which the firm has collected more than $100 billion of inflows, driven by increases in perpetual capital raises.