This is Masters in Business with Very Red Holds on Bloomberg Radio. This week on the podcast, I have an extra special guest. Joe Barada is the global head of Private Equity at PE Giant Blackstone, where he has worked since nineteen ninety eight. I found this to be a fascinating conversation because Joe's career has very much paralleled the growth of private equity. When he began, PE was a little bit of a niche boutique sort of investment, and over the ensuing twenty five years it has grown to be really a major asset class with giant opportunities that have been expressed by then small now very large companies, of which Blackstone is one of the largest. He is very familiar with everything from M and A to credit, to real estate, on and on, and has had experiences both in the US and overseas, really a global perspective on what took place in private equity in the past and what the future looks like. I thought the conversation was quite fascinating, and I think you will as well with no further ado, my discussion of private equity with Blackstones. Joe Barratta. Joe Barratta, Welcome to Bloomberg. Thank you, happy to be here, Happy to have you. Let's start out with just a little background on your career. You began more or less in the M and A space at Morgan Stanley, Is that right? Yeah? Right after I graduated college, I went to Georgetown in nineteen ninety three, I got an analyst job at Morgan Stanley in the M and A group and that's a kind of two year training program. And I did that and I was painful. You can imagine. It sounds like a good background for someone who eventually ends up buying companies. Yeah, I'm I knew nothing about finance. I grew up in Sacramento, California. My dad was a bodybuilder and owned three gems in Sacramento. Really yeah, and so I didn't know, you know, what finance was all about. I had never been to New York City until I was I think twenty years old, and I had some roommates who grew up in New York City who had gone to Dalton High School here, so completely different world. Yeah. When I came to the city, I was like, Wow, this place is amazing. And you know, I needed to earn some money and I was adept in finance. I'd studied finance, it was my major at Georgetown, and I was hoping to get a job somewhere, and I got a job at Morgan Stanley, which way exceeded my dreams at that point. Huh. So, eventually you leave Morgan Stanley, you end up at Tentacom Incorporated and McCallen Dulu and Company. I'm assuming these are both related, m M and A type firms or probate. Yeah, the first job from Morgan Stanley was McCallen delou and So in the early nineties, analysts at these big investment banks Morgan Stanley, Goldman Sachs had sort of two or three options. You could stay there and become an investment banker and do that for a career. You could go into the emerging fields of investing in private equity or in hedge funds, or you go to business school or maybe go to business school later. I really wanted to learn how to invest money, not just be an advisor. And I thought private equity was cool because you weren't at the whim of the market. You know, in the market's like if you start at the wrong time, if you're wrong for a few quarters like boom, like the career is abbreviated. And I thought private equity was interesting because you could live with those investments for a longer period of time. You had a longer period of time to figure out if you were right or not. And I think fundamentals mattered more in private equity than they did in public market investing. So I wanted to get a job at a private equity firm. I wanted to do fundamentals matter more? Or is it really just a question of how far away from fundamentals can public equities get, either to the upside or the downside where it creates some form of opportunity, which kind of raises the question how closely do private market fundamentals track what's going on in the public markets. Yeah, in the long run they do. In the short run, there can be distortions in public market valuations as we saw in two thousand and one, and we saw prior to that in two thousand and seven, and prior to that in two thousand and ninety nine. So yes, you're right, Like, in the long run, fundamentals drive determine share prices in private equity. You know, we're owning things for five, six, ten, years, and we're not subject to like the vicissitudes of the market in the short run. We never have to sell, only only when we want to because we control We control the companies, and to me, that was a more comfortable form of investing in it and where I wanted to bet my career. So you end up at Blackstone in nineteen ninety eight at a time when public equity prices became a little unmoored and were on the way up to a real bubble. What was it like on the private side at the end of the nineties. Yeah, I started at Blackstone in July of ninety eight, and I guess what was going on that year? You had um, you had like a Southeast Asian currency crisis. He had stuff going on in Latin America, had the Russia crisis. He had Lehman almost go bust. I think around that time for maybe at the first or second time, and so yeah, there was a lot of volatility. Private equity was still, i'd say, in the in the first phase of its ofs of its existence, and Blackstone was one of them. That's why I joined Blackstone. It was one of the leading firms in that moment. It had a lot of momentum. I think they were. They were operating at the really top of the industry, really smart people, good track record, and I wanted to attach myself at that point in my career, I was twenty I think twenty seven years old. I wanted to attach myself to affirm that I thought really had a lot of growth potential where I could learn from the best people in the industry. That certainly was what I found there. And today private equity has become immense compared to twenty twenty five years ago. We'll talk a little bit about your time in London later, but I love the announcement when you were promoted to a global head of pe from Blackstone. They said, the seventy three investments and pending deals you're involved in combined for one hundred and seventeen billion dollars in revenue, the equivalent of the thirteenth largest company by revenue on the Fortune five hundred lists, Meaning your team, your group would be a Fortune top twenty company. Yeah, tell us what that growth has been like over the past five years. It seems a house of fire. Yeah. When I started at Blackstone, we were I think we just started investing our third private equity fund, it was about three billion dollars in total size. We had our second real estate fund, which was I think about a billion two or three size. I think we just raised a small credit fund which is nine hundred million, and then we had an m and a advisory business, and the whole firm was maybe maybe two hundred total employees, not just investment people, total staff. And today we're knocking on the door of five thousand. I think we're forty five hundred something like that. And the size of our private equity business is you know, we're now on our ninth fund. We have associated funds in Asia, and an energy transition and a long dated vehicle that allows us to hold things for fifteen plus years. And I think if you add it all up, we have about forty billion dollars of funds that we're currently investing in their period. And the total aum of our private equity business a UM assets under management is roughly eighty ninety billion. So I mean, we're materially bigger than we were twenty five years ago. Even when you read that announcement from two that was twenty twelve, we're probably three times this size is we were in twenty twelve, both in terms of the aggregate revenue of our companies, size of our portfolio. We're probably now something like one hundred and fifty total investments, many hundreds of billions of revenue, hundreds of thousands of employees if you add up all of the companies in which we're invested. So it's been really significant growth. And you know why is that? I think because the private equity investing model has been really good for our clients, which our state pension plan, sovereign wealth funds, you know, ensuring the retirement safety of many tens of millions of people. So you're you're anticipating one of the questions I'm going to ask you, which might as well bring it up now over that twenty five year period or even the past decade where you've tripled in size, it's more than just quantitative. It seems like private equity is qualitatively different than it was back in the early days. Is this simply becoming institutionalized or has the asset class been validated and now people are treating it differently than they did in the nineties where it was kind of a small niche backwater. I'm exaggerating that at all, whereas no, No, it was more of a cottage industry. There were a few firms, a couple of big leaders like KKR. Blackstone was what was right on their heels back then. But it's nothing like it is today. It is that it is an institutionalized asset class. There's definitely been proof of concept for large scale institutional investors and even retail investors that we can produce sustainable, predictable above public market returns. And we've become better at what we do in buying control of companies, engaging with them, making them better, helping them grow, and so and so. Yeah, and we've had limited partners in our funds who've been with us since the early nineties now and keep reupping because we deliver a good return for their beneficiaries. So let's talk about some of those different types of funds. You mentioned private credit, you mentioned real estate, private equity, M and A what is energy transition? That sounds quite fascinating. Yeah. Energy has been a major investment theme across many of our businesses and credit and in corporate private equity, and we have for the last six or seven years. The way we've been expressing investing in energy is an energy transition, So in companies that are helping accelerate the transition from burning hydrocarbons to produce electricity and energy to renewable sources, and so in private renewable meaning wind solar, nuclear or whatever, wind solar, electrifying the economy, getting off of oil and gas, and it's all kinds of companies engage. It's not just power generation from those sources, but it's companies that are involved in in consulting and utility services, in companies that make components that are helping electrify the economy, and electric vehicles or in HVAC systems. So it's a whole broad spectrum of investing in the energy complex focused on the transition from hydrocarbons to renewable. So we take for granted totally that you're out in a car, you could pull over anywhere and tank up with gas. It feels like we're very early stages of transitioning to being able to pull up somewhere and spend ten minutes charging the car to get you another hundred miles or so. Is that the sort of infrastructure we're talking about, in addition to all the obvious ones we've yeah, that's part of it. I mean we're not specifically investing in charging stations, we actually have assets where those are going in, or we're investing in components that are part of manufacturing those those facilities. But yes, that's the kind of thing we're talking about that is part of the energy transition. And you had mentioned private credit before. That seems to have been a giant growth area, especially when rates were at zero, when people weren't seeing a whole lot of returns from fixed income. Well, yeah, the private credit market I think is really attractive and it's actually been around a long time. I mean there have been leverage loans and high yield bonds since the nineteen eighties, and as an asset class, they've performed extremely well with low incidents of loss, good returns. You get paid for the incremental risk that you're taking in a more leveraged capital structure. So it's been a great asset class. It's attracted a lot of capital, and the way buyouts are being financed is evolving away from syndicated, big syndicated capital structures to buy banks to now the people who are actually going to hold the risk, firms like Ours and Apollo and areas and others who are actually lending money directly to the people who are borrowing instead of going through the banking intermediaries. So how much of this is a function of trend we sort of began in the nineteen nineties. As companies got larger and larger, it seemed like banks went upscale with them and left sort of a gaping void in the middle where, you know, mid market companies didn't have a merchant bank that that could facilitate UM loans, credit, anything along those lines. I think private credit has filled the hole for these smaller businesses. But but really, um, not on the full banking suite. There's plenty of great smaller banks, uh whose whose business strategy it is to serve smaller and medium sized businesses. But in financing acquisitions and capital needs of these middle market companies, a private credit market has played an important role in that. Yeah, really quite interesting. Let's talk a little bit about your career at Blackstone. You've been there for twenty five years. That's a pretty good run. What attracted you to them in nineteen ninety eight when they were still kind of a modest, small firm. Yeah, I mean I was in my mid twenties and you know, looking to build a career in private equity. I liked it. I thought I could, I could build a successful career. It was I recognize that it was still pretty early in the development and there should be a lot of growth in these firms. And I wanted to work at a place that was operating at the highest level with the smartest people, where I could learn the most and see if I could hang, you know, so to speak with keep up with the big dogs. Yeah, and I think I had very modest expectations, like, jeezus, I can last two or three years. At least I will have done it. I will learn something and I'll have something else to do on the other side of it. So you lasted two or three years and then you get tapped to go to London in two thousand and one. That had to be a giant challenge, especially given what was taking place that dot COM's had just imploded. It wasn't very long after the handover of Hong Kong China, like a lot of things were changing in both the UK and Europe. What was that like going over to the EU in England during that period, Yeah, I mean it was it certainly not expected. I'd never lived abroad. I think i'd been to London. I'm not even sure i'd been to London. I'd been to like Paris and Venice or something. And the guy who was going over truly lead at David Blitzer, who was was was a good friend in colleague, and he sort of said, geez, why don't you come and do this with me? He was a senior, the senior guy at the time, and I was like, geez, okay, well you're like late twenties at this. Yeah, I'm I'm twenty nine when I'm asked, I'm thirty when I move, you know. And yeah, because it was two thousand and one, and you know, it was just after September eleventh. I'd agreed to go before Strumber eleventh happened. I was supposed to go over, you know, in November. I ended up doing that. I remember a completely empty plane flying over to London with my with my then girlfriend. Moving to London. I had no language skills. The firm had had need language skills in England, not in England. But but you're still dealing with a lot of Europe And yeah, I'm not being sarcastic, You're still dealing with people in Brussels and people in Paris and people in Milan. It has to be useful skills. No, of course, I mean France, Germany, Italy, Spain, you know, the whole Nordic region, Sweden, to say nothing of two people separated by a common language, right exactly. Now, In that moment, Americans were sort of viewed as positively and as neutral, so you know, you could go to France. Maybe they didn't love, you know, any Germans as much, but they sort of Americans were tolerated, you know, and we were kind of oddities at the time, particularly in private equity, which was still in its infancy in November of two thousand and one. When I moved over, the industry wasn't called private equity. It was called venture capital, and it was in real technology. Venture capital was the nomenclature for everything that was basically a private investment. But you're not dealing with startups, you're dealing with correct seven more mature companies. Yes, but you know, when I moved, you didn't have the single currency in circulation until January vote two, so there was still French francs and you know, Lira and German deutsch Marks, and so that didn't happen until two thousand and two, and it took the year for all of those local currencies to literally paper and coin currencies to come out of circulation and have so Europe really a period of transition, and and you're stepping right into the thick of it, right into the thick of it, trying to figure out what are too young? My colleague David Blitzer, I think he was maybe thirty one. I was twenty nine, and there we were two young Americans, no language skills, like, what are we supposed to do now? The firm had had assets in the UK. We owned the Savoy group of hotels, which is the Connaught and Carriages and Savoy Nice saw his property nice yeah, which is a good asset, a nice calling card. We had actually two investments in Germany in telecom infrastructure that in that moment we're doing that great um and so we did, but we were kind of trying to do deals by airplane from New York and that's not functional. So Steve said, we got to have a real presence. We have some assets. We had some real estate guys there, my friend and former Morgan san Lano's colleague Chad Pike ran our our European real estate stuff, and David and I moved over to do the private act. And when you say Steve, for those people who may tell us, tell us about Blackstone's boss, Steve, Steve Schwarzman our our co founder and CEO and chairman, and you know, amazing mentor and great by the way, we were supposed to have on the show, and a little thing called COVID came along and interrupted us or like literally that end of March, beginning of April when his book came out. Yeah, and well you have to get him back. He's way more interesting than me. Well, so far you're pretty interesting. So you're you're raising the bar. So so you moved to the UK, Yeah, you're you're an hour or two hop from all the key places in Europe. How did the build out go for a couple of young Americans saying, Hey, we want to play with this private equity thing in the EU. Yea, So our our strategy was and it sort of David had conceptualized like we're going to be the neutral Americans who can work with the locally European firms to help him get deals done. So we kind of went on, did some missionary work, meeting the local private equity firms in France and of course in the UK and Germany, up in the Nordic region in Italy, and we just met all the other players. It was this small industry. There weren't that many people. There weren't that many firms, and we were like, look, we'd we'd be great partners as you're looking at ass The first deal we looked at was in France. We were looking at taking remember Vivendi at the time, the media conglomerate. They had bought a bunch of educational publishing assets, including US textbook company Hote and Mifflin. Back when there were actually textbooks in schools and there's still textbooks in school You could just access everything online as well if you want fewer of them. Yeah, but and so we partnered with a few local firms and actually one of our US competitors to look at this big asset because it was quite big, and in the end we ended up just buying the US textbook business, Hote and Mifflin. That was our first deal in Europe, which was actually a US deal, but we probably wouldn't have done it had we not been there looking at the divestiture from Vivendi, and so you know, that was kind of the the strategy day one, and then it evolved. You know, I sort of looked at, well, the industry in Europe is a good decade or two behind the US. So I said, well, what kind of deals were worked in the US in the early nineties in my experience, And you know what I sort of decided as well, fragmented industries where you could drive consolidation that had happened already in the US, things like um, you know, in the UK pubs there was a big consolidation and lots of divestitures of pubs that were owned by brewers in the time, and there were rules came down that brewers can't own distributors similar to US any trust rules exactly diversify and or I'm sorry, they made them divest those vertically integrated holdings exactly. So the second deal we did was we worked with another firm, a local UK firm called CVC and also TPG to buy Scottish and Newcastle's pub divestiture. Scottish and Newcastle was a big brewer up up in Scotland at the time, and so we bought the pub business, we combined it with another one, we bought some more and that was a pretty successful investment. Then we did other similar investments, particularly with real estate intent. The pubs all own their real estate, so we were working with our real estate guys in healthcare facilities and visitor attractions and theme parks. So we did a lot of these sort of consolidation place a broad spectrum of different holdings. One of the things that I have to follow up with is how important was it partnering with local other investors and other vcs or ps. I don't know what they called themselves back then, and vcs at the time, but they were private equity. How important was it finding a local partner to you know, hook up with and be able to participate in deals with. I think early on it was important until we established ourselves, and then we did less of that. We started doing deals on our own. Probably somewhere around two thousand and four or five, we started doing things by ourselves. We were much more networked, you know, people knew who we were. Blackstone as a brand name was becoming more known just everywhere, but in particular in Europe. Because we weren't particularly well known at that time, and so yeah, it was helped kind of helped us get off the ground, so to speak. And so you guys are expanding in the two thousands in Europe. When did Blackstone start to look at Asia? When did that? Beckon? I think it was two thousand and five when we started to look at in China and in India in particular, and also Japan. And it really most of our expansion started with our real estate business, because that's a it's a little bit easier to expand globally in real estate because it's more asset based rather than like you know, company based, and so we sort of followed our real estate colleagues where they win, established a tohold, became successful. So really in private equity, our first adventure outside of Western Europe was in India and China, and that was somewhere around two thousand and five. Really quite interesting. I have to point out out that your life history is a series of ever worsening weather. You start out in California, you go to DC, you go to New York, you end up in London. So so warm sunshine, no interest, I don't know, no, I mean, I I go back to California all the time. I got a lot of good friends from high school, and you know, I grew up into at the foothills of the Sierra Nevada Mountains and I love to go there. But I can't explain it. You just like life gets in the way. And I had it, you know, a cool career going, and I just and I stuck with it. And you know, I've lived in great places. I've been super lucky to have these fun adventures, whether or notwithstanding. So let's talk a little bit about some of those places. Your base of operations when you're in the UK is London, but you're back and forth to multiple countries. What's it like trying to manage a rapidly growing private business with Eventually the current he's became more or less uniform, but different languages, different customs, different culture, different ways of doing business. All the places you've mentioned, like Germany is very different than the Switzerland, Switzerland, which is very different than the Nordic countries. How do how do you keep all that straight? No, it's it's hard. And what what we began to do is hire local people. So one of our first hires now that the man who runs our business in Europe. We hired this guy, Leon Alison, who's French, and we hired Germans. We for for a brief while we had an office in Hamburg. We hired an Italian silt the firm, Andrea Vlarry. Uh. And so we began to hire local people who were young in their careers. These are people who were, you know, in their late twenties, early thirties, oldest maybe mid thirties. Uh. And they and they kind of grew up with the firm and they were able to be the translator, so to speak, both both physically and culturally. Uh. In these some of these other countries, any memorable snaffoos either culturally or language wise when you're up, you know, when you're bouncing from you know, you go to Frankfort to Denmark, two totally different worlds. Now, the funniest story I can remember is in these early days when we were out trying to introduce ourselves to the local private equity firms. UM I went to Paris and went to Lazard Frere, which was you know that is the bastion of like French establishment business. And they had like bottles of Bordeaux on the conference room table. I mean that's you know, this is this is probably two thousand and two. And they introduced me to and I won't I won't name names. He's a wonderful guy, but in the moment it was less wonderful. They introduced me to the head of a of a significant private equity firm in Europe, and I was doing my pitch. So here I am thirty years old, he's probably forty two or three. I'm doing my pitch on Black Center. We're good friends, and we don't have an ego, and you know, we could help facilitate transactions whatever US perspective and global perspective. And the guy looks at me like I had, you know, two horns coming out of my like who's this young American? Why am I? Why am I talking to him? I mean his family dates back to like Louis Katurs. I mean, this is this is the ultimate French establishment. And here's this like schmuck from Sacramento, like, you know, thirty years old, like pitching him on why he should why we'd be a good partner for him, and he was in that moment completely dismissive. About ten or fifteen years later, we actually did work together and he acknowledged that moment and said, God, I just thought you guys were just such jokes, but it had ended up being you know, that was like an example of like I just think we were discounted, but it was. It was really early in the development of private equity, so even like undergone us could be could be successful. And I was waiting for you to say. And it was ten am and they broke open the bottles aboard. They definitely did that, and everybody started drinking and we looked at each other. Can we have a drink that morning? That is very Yeah. And you couldn't wear brown shoes. You can only wear black shoes. You weren't taken seriously is that true? You know, the whole dressing custom what you know, we're both sitting here in blazers without ties. Yeah, who cares about brown shoes? What is that was? It's a real thing. And you're I mean, at least it was back then. Yes, brown shoes are for like, you know, shooting or something. Oh really, yeah, I never would have guessed that really quite quite interesting. Yeah, by the way, there are a lot of different names for Blackstone. It's I've heard people say Blackstone, Blackstone Group, black Stone Partners. I know there are lots of different funds. I'm assuming that all these different names will come from different work products, different strategies, different funds, or is just everybody getting this wrong? Yeah? No, no, that's right. I mean the firm's called Blackstone period Um, and within black Zone in our private equity funds are called Blackstone Capital Partners. Uh. In our real estate it's black Zone real Estate Partners. And then there are variants on that theme. But you're not wrong. I mean there's different names within the individual businesses, but we all work at Blackstone. It's one firm. Makes a lot of sense. So let's talk a little bit about the state of pe investing today. We're coming off a period of low inflation, low rates, and suddenly we have higher inflation and rising rates. What sort of a challenge does that present for private markets? Yeah? Well, if you do this, if you've been doing this long enough, which fortunately I have since really nineteen ninety five, you know, you see different cycles, and you see what happens when capital becomes cheap and money becomes easy, and interest rates or lower or not really a factor, valuations go up. And you saw it, of course in the late nineties and the tech sector. You saw it into financial services sector in two thousand six seven eight ual crisis. And so as we were watching the fed's reaction to the financial crisis, pushing rates down and keeping them down, we were like, geez, this probably is not gonna last for ever, and that that doesn't seem to be the natural state of affairs. A growing economy, zero cost to capital, markets compounding at fifteen sixteen secs like that probably isn't going to happen forever. And so, you know, my base case was that it wouldn't and you'd have I called it wonkily like mean reversion and global cost to capital, which means rates would go up, market risk premiums would go up, you know, pe multiples would calm down, credit spreads would probably gap out. Not to say like we executed on that vision perfectly, I mean, we will have made some mistakes, but we definitely became much more cautious when the bull market really ramped up, in particular post COVID, when not only did you have the low rates which the FED double down on, you had this huge transfer payment from the federal government into people's pocketbooks, which which massively accelerated the economy and rates sayed low. And then we started seeing significant signs in inflation, particularly in our real estate business, with rents going up significantly, wages going up, across our private equity portfolio, beginning to see pricing power for many of our companies that they hadn't had in a long time. And we're like, whoa, this is the sign, Like this is the canary in the coal mine. There's real inflation. The FED was saying, no, it's transitory or whatever adjective they used, and we did. We became more cautious, and so I'm proud of how we navigated that cycle. And I think we're in a more normal world. To me, this world is normal, not abnormal, with you know, real positive real interest rates. I mean, inflation is higher than than normal, but that's going to come down. But I don't think we're going to go back to the days of twenty nineteen to twenty twenty one. So here's the really interesting observation that that you're making Blackstone has boots on the ground and all these different sectors. You see these things before they start to show up in the economic data. You see it in real time across real estate, across labor, across all these different inputs. How do you use all of this data that's generated by all of your portfolio companies to navigate the world at large. Well, one thing that that John and Steve have done is to make sure the firm is really joined up across our investment businesses. So we share themes, and we share these economic signals and so. And at the top of the firm, Steve, John, a few others of us who are on the management committee are really able to push down into the organization like what we're seeing to change investment behaviors. And so that's what we were able to do to a large degree, is to is to become more conservative, to to become more cautious on valuations, you know, as we started seeing evidence of inflation and thinking that rates were probably going to go up at some point. Again, we're not perfect. I'm not saying we're clairvoyant and we handled everything perfectly, but in general we became much more risk averse risk off in that you know, mid twenty twenty one period. So it's it's not like the public markets where you could say sell here by there because you have such an obvious prints in prices, but you're looking at valuations and what sort of multiples you want to pay. Yes, you're looking at the cost of capital and how much margin or leverage you want to assume. So when you're adjusting your investment posture, you're basically saying we're going to take more risk or less risk based on what's going on. So clearly that was a great time to pull back in mid twenty twenty and we sold what we could right as much as we could, you know, to your point, like it's hard to turn on a diamond, say it's all the whole portfolio. We can't do that, but we can things that are mature, things where we've realized value. Sometimes we've taken companies public and we can sell stock. We we leaned in to exiting what we could in that in that period. So so here we are, end of the first quarter twenty twenty three. What's the environment look like relative to mid twenty twenty one. Obviously rates are higher, but prices seem to have come down a bit. How are you looking at the investment environment today? I think starting with the fundamentals, the you know, the economies quite sound. We're seeing in our businesses real stability across most sectors. So let me interrupt you right there. I've been hearing recession chatter. It seems like for six months at least, sounds like you guys aren't aggressively in the wearing a recession or about to have a recession. Six months. It's been almost a year. People were declaring last summer we're already in a recession. I'm assuming you guys, we're not seeing evidence of it in the portfolio. I mean there's some degree of like heightened caution concern because when you do take rates up and really tighten financial conditions, there are consequences in the economy at some point, but we're not seeing it. We're seeing maybe wage increases beginning to decline, so the rate of increases is declining. We're seeing some companies have less pricing power maybe than they had a year ago. But we're seeing solid demand. We're seeing full employment. We still continue in many of our companies to struggle to fill open rolls. So overall, the picture we see is of a of a reasonable economy with some risks to the future. But I don't whatever recession we may have, I don't think it is going to be you know, really significant. And you guys, your your bread and butter is not forecasting the econom I don't want to I don't want to suggest that that's what we hear. But it is looking at what's more attractive and what's less attractive. So let's talk about geographies, and let's talk about sectors, what's appealing. Well, we're spending all in our private equity business, We're spending all of our time looking at things that touch the public markets, because that is where the valuation correction, you know, it's really happened, where where you can transact at prices lower today than they were two years ago. And so corporate carve outs public to privates. You know, the last few deals we've done a bit a large corporate carve out from a from a large important American corporate, Emerson. We bought their climate technologies business called Copeland. We recently announced to take private of a of a of a technology company called c Event, which is publicly traded. And so as in terms of where our teams are spending time, it's in and around sort of public markets. That's very interesting because we typically think of private equity as looking at these mature, non public companies I guess you kind of forget hey, when stock prices come down enough at a certain point that valuation becomes really attractive if the assets themselves are productive enough. Yeah, I think a big chuck of what we do over our history has been taking companies private and doing corporate carve outs from public companies, so non core assets that are large company's, divesting family owned businesses. Sometimes we buy things from our competitors, particularly if we think we can make them a lot bigger through acquisition or other things. But that's not uncommon to see private equity firms taking companies private and transacting with public companies. In terms of sectors, I think the real value dislocations have happened the technology industry. So certain elements of technology, particularly in software, we think are much more attractive than they were a couple of years ago. Not to say they look overwhelmingly cheap, but certainly more attractive than they were. I think that also there's a bunch of businesses that are manufacturing things that must exist in the physical world, you know, to to cool or heat the environment, food, the distribution of essential medical products, you know, the whole energy transition. These are these are physical assets and we want to invest not just in digital virtual assets, but also in physical assets. So I think that's and the market hasn't loved owning manufacturing, industrial type businesses. Those do seem to be valued relatively more attractively. Well the past decade, the intangibles have been super attractive. Anything with the patents of copyright an algorithm underneath it, because you don't have the obviously, and I'm not going to teach you about the private equity business, but for listeners, you know, you don't have the same capital cost you don't have the same labor costs. There's a scalability there that you don't get in the real world, which probably is why a lot of real world assets eventually become attractively priced. Does that a fair fair way? And businesses that just have to exist? What about geographies? Where are you looking around the world? What's an attractive place that people probably overlook? I think people are very negative on the UK and post brexit. Is that the driver not only post Brexit, but but now you know in the in this kind of world of inflation and in dislocation, and you know, conflict near the continent, like all of that is conspiring. I think to make markets look relatively attractive, in particular in the UK, where we own a lot of assets and will continue to buy businesses. India is very attractive. It is a rapidly growing economy with a highly educated workforce that with supply chain chain dynamics now moving toward Southeast Asia and India. We've had a big business there for a long time. And let see, let me ask you, let me ask you about India, because it feels like, at least in the public markets, India is always on like a year or two away from being the next big thing, and it just hasn't seemed to happen. What are the challenges of investing in a place like India. What we've found is that control is important in India. You know, you want to be able to control the exit. You want to be able to ensure that you're bringing in best in class management that's really perfectly aligned with you, you know, economically, that's a big thing. In sin of alignment in India has been a harder thing, and I think largely you want to avoid highly regulated industries where you're relying on the government to do something. There's a little more friction in the types of industries, and so we've pursued in the last decade of control strategy and largely where we are an outsourcing partner providing a critical component or service to Western companies. So taking advantage of the currency declining a lower cost base in India, but revenues denominated in dollars or euros really interesting. The war in Ukraine surprisingly hasn't had a negative impact or at least not as much as I expected in the public markets. How are you looking at a geopolitical event like that affecting you know, what's taking place on the continent. Yeah, we don't spend too much time thinking about like the when that might end in the ramifications of it, we do think at some level it does affect the cost structures. You know, energy prices are higher, inflation is significant, uh, and you know cost structures are are a little less efficient there maybe than in the US now. So we're very much open for business in Europe in the UK, you know this. The conflict has definitely been a drag to some degree in the economy and introduces some uncertainty. But if we can find a great business at a reasonable price in Europe, you know we're going to buy it, huh, really interesting. We talked earlier about inflation and rising rates. Private credit deals tend to be so for plus. So when I look at the world of higher rates, is it have a big impact on how you structure deals or is it just a factor that's going to move up and down and everybody just changes their spreadsheets and the numbers will just move higher. I mean, there's no question that financing costs are higher, both debt and equity, which is a healthy thing because I think the cost of global cost capital was too low, induced by super low rates and capital allocation to riskier assets, institutional investor's chasing return. You see that on the private market. It's obvious in the public markets things get frothy people, you know, when there is no alternative, people just pile into equity, and for a while it looked like the lower quality the stock was, the better it did. Do you have the same phenomenon in the private market. I think private market valuations are driven to a large degree by what's going on in the public markets. So if your alternative as a company is to go public at a given price, you're probably not going to sell it to a private equity firm at a much lower price. So yes, private equity valuations are influenced very significantly by what's going on in the public markets. That's why as an investor I'm much happier today because we're able to buy things more cheaply. And the fact that financing costs are higher kind of isn't either here nor there, because our returns are not predicated really on the cost of financing. They're predicated on buying a good business, doing something to make it grow more quickly, and having an attractive exit when we come to sell it, which means it has to be a good business, it has to be growing, and the financing, the cost of financing in the quantum isn't the biggest driver of our returns. Really interesting, So, given the change in size of private equity over the past twenty five years, is there a sweet spot? I mean, some of your holdings like Hilton obviously, Giant, I know the Savoy is in the UK and in Europe. You guys seem to play across a lot of different sizes. Where is the most fertile ground for growth size wise? Well, I think if you look at the evolution of the size of private equity transactions over the last decade, they're actually they haven't grown very much, notwithstanding the fact that the equity capital market caps like three or four times bigger than it was in two thousand and seven. You know, we bought Hilton in June of two thousand and seven, and I don't know the size. It was thirty two three four five billion dollars, like the last thirty billion dollars deal we did. I mean that we bought Medline in you know, in two thousand twenty one, in twenty twenty one. So I actually think at the large end the private equity market, we're undercapitalized. It's very hard for us to assemble much more than a five billion dollar equity check. And there are thousands of companies in the US that are ten to fifteen billion dollars plus enterprise value company. So we have to work with our investors, our limited partners, other private equity firms to assemble a deal that gets much more than ten billion of enterprise value. And there are many more ten billion dollar companies today than there was fifteen, twelve or fifteen years ago. So I think the large end of the market, we think is the most attractive. It's where we play it's where we have competitive differentiation, and it's where you find better quality businesses. At what point does size become the enemy? It sounds like you can scale up by partnering with lots of other PE firms. Is there a ceiling or at what point do you look at something and say, hey, that's just too big to try and take a boy? I mean, I think the biggest deal that's been done in the last you know, ten years is around thirty billion dollars and that you know, Yeah, to get that done, we had to work with um two of our competitors, which is fine, but we'd prefer to buy things on our own, just Black Sun, with our with our limited partners. You want the control and be able to to set how you're going to exit or how the farm's going to be run. Well, it's not necessarily a problem to do that with some of our friendly competitors, but like, really our preference is to do it just on our just by ourselves. Um so, uh, you know the answers, We can't really get deals much bigger than you know, ten to fifteen billion dollars done on our own, and I think that's right now a little bit. Plus the financing markets are less liquid and there's less quantum available. So I think that's kind of the realm we're in. And like I said, those companies aren't too big to make good returns with. I mean, you have a bunch of companies that have trillion dollars plus market caps, That's right, So what is ten billion dollars? If Apple decides it wants to buy something for you know, ten, twenty, thirty, forty, it doesn't blink in. There are a lot of companies like that. Huh, really really quite fascinating. So you do some really interesting work at Blackstone, including serving on a lot of portfolio companies boards first EGIL Investment Management. You mentioned Menline earlier, Ancestry dot com is probably things people are are familiar with. Tell us about those experiences. What is it like being on these boards and what sort of input do you give to management? Though? Well, what brings me energy and joy in my job is investing capital and working with companies. So the way I do you know this job in addition to you know, managing a bunch of our people and you know, engaging and other stuff at the firm, is I want to keep a hand in Uh, the investing and and and engaging with our companies. So yeah, there's a few companies where where I'm closely involved and I sit on the board and I help their management teams, um, you know, plot strategy and deal with you know, important strategic issues. Our model is not to run the companies. We find great management teams, we back them with capital and support, and we let them run the run the businesses. So we operate from a board level and really focused on key strategic and risk management variables. Really quite interesting, what what sort of new markets are you guys considering? What are you looking at that might not have been on the table a decade ago. Um, you know, the whole notion of energy transition is a market that you know, a decade ago, energy investors were investing in upstream oil and gas or in midstream companies, and today the clear direction to travel is toward weaning ourselves at these big economies off of hydrocarbon's for power. So that is that is one sector that that we're investing in that a decade ago we wouldn't. And also, um, there's new business models, new media models. You know, we we spent a lot of time looking at traditional media businesses that UM linear TV, satellite broadcast, regional sports networks, all those thingsagies that that the direction of travels, those aren't really investable. The streaming services direct a consumer. Uh, And so instead of investing in those, we decided to back Kevin Mayer and Tom Staggs to x Disney, guys really well regarded guys in the business, guys in the entertainment industry, to build an independent content creation business, which we've done both in children's content with Moonbug and in live action entertainment with Hello Sunshine, which was the business at Reese Withers been started. So that's the type of thing that a decade ago we wouldn't have invested in. You know, big bigger technology company software businesses that have proven they've got really durable, sticky revenue models. Maybe they're not run that efficiently you can take margins up. That's another in market that we're investing in today that maybe a decade ago we wouldn't have been. Huh. That's really interesting. How often does a new business model come along that's really notably different from what proceeded it? Is this just part of the life cycle of business? Or do you go through these periodic spasms where everything changes. Well, I would say in my twenty five year history of Blackstone, there were certain industries that were growth industries that we were investing in in the mid nineties and late nineties and early two thousands that now are no longer investable. So as an investor, you have to be nimble. You have to have like an open mind and realize that things are changing. Industry structures are changing, business models are changing, and now the rate of change is much more quick. Um with with with the advent of technology, ubiquitous broadband, which really enabled the internet, changed the way we watch media, changed the way we shopped, changed the way we we we found information. Um uh, it changed the way we communicated with each other. Um and and now I think, you know, AI could be it probably is one of those other major c changes where business models turning on human beings doing wrote tasks you know, probably is not the future. And and a lot of businesses are going to be dislocated. So a big part of what we do is trying to figure out where we don't want to invest and what's going to be dislocated by ubiquitous broadband. Back in two thousand and five, six seven, and now AI with the rate of sophistication of that technology, so we see a lot of hype business come along. Clearly, there was a ton of hype in crypto, and then the metaverse you know, kind of came, almost came and went already a lot of hype there. My sense is that AI and cha chat bots and the recent you know, multibillion dollar acquisitions that have been done by firms like Microsoft and Google, this doesn't seem to be that sort of ephemeral hype story. This seems to really be a potential sea change. I agree with you. I mean, like I said, there's a few fundamental enabling technologies that happen. Ubiquitous broadband internet to your house, to your mobile device, which really enabled a change in retail and media models, in communication models, and now this, you know, the blockchain. When it came, people like Hm, I always went like, what's the use case? Right, It's a solution of a problem exactly, and it's cool, and you know, bitcoin or whatever. They're probably a real store of value, but that's not really investable for us. It is AI investable because it looks like a couple of big companies, UH push their way in there are a couple of transactions, or is this gonna, you know, be the fertilizer that launches a thousand blooms or whatever the express it may be invested. It's it's certainly investable for venture investors and smaller guys who are willing to sort of dig holes in the ground and hope something comes out. I mean for us in corporate private equity. No, but what it what it is is we have to figure out what businesses are going to be disrupted and avoid those and figure out what what mature businesses will be enabled by this and invest Like look at Disney. You know, Disney, in large part was was hugely enabled by streaming services because of the amazing content it owned, So it was a bit ficiary of the technology change. But cable television models or satellite TV like those, those those suffered. And so we're trying to find the businesses that are going to be enabled and benefited by AI and avoid the things that are going to be dislocated. That's quite quite interesting. So I read a quote of yours that cracked me up. I have to ask you about you said, if you weren't working in private equity, the next best job would be general manager of the Dallas Cowboys. I mean, with all respect to the Joneses who run that team, you know, and have to particularly this off season, They've done a nice job. I've been a Dallas Cowboys fan since I'm seven years old. And you say we'll get a kid from Sacramento, a Dallas Cowboys fan and an America's team. I was watching the ten am game back talk about linear TV. There were two games, one at ten, one at one, and the Cowboys playing in the NFC East were always on the ten am game and it was America's team. So I'm watching the Cowboys like every Sunday. And then when the Niners got good, I became a cherry and said, no, I'm a root for the Cowboys really, even though they lost so similar Jerry Rice didn't no bid, no bid really that Rogers sawback, Tony Dorset, Tony Hill those and then of course and now look they're fun to watch. I love football. I don't miss a game. And yes, if Jerry needs some help, you know, he knows you knows, you know, he reach out to Steve. Steve will put you in touch. And then we talked about the companies that you're on the boards of, but you're also a trustee of the Tate Foundation, which I assume is related to the giant Tape Museum in London. Tell us a little bit about the work you do with them. That sounds like a fascinating organization. Yeah, the Tate is is such a significant cultural institution in the UK. It's it's funded largely by the by the state um. The Tate Foundation is the private philanthropic arm of the Tate that helps fund special projects, whether it's exhibitions or building buildings. You know, the big Tate Modern Gallery was in large part funded by private donations. And you know, philanthropy in the UK is at a different scale than in the US. So for not a lot of money, you know, I could like get engaged in the arts in a really important cultural institution, where in the UK it's less sort of focused on the elite and more focused on like the democratization of art and culture for the people of the UK. And I really identified with that. I didn't realize philanthropy was that different overseas than is here. Yeah, first of all, how did you first get involved with them? By the way, my wife loves the Tate Modern one of our favorite. It's a great building and a beautiful collection. Yeah, how did you first get get involved with them? You know? I just I had I had young kids. From two thousand and four until two thousand and ten, we were having babies and one of the places we'd always go is either Tape Written or Tape Modern. You could consume saturdays with kids running around, and like I said, they're very accessible, there's nothing intimidating about those institutions. And then I knew some people who are involved, and I met the director one day and um, you know, they asked me to, you know, get involved. And so for the last maybe I don't know, twelve or so years, I've been involved with the Tape Foundation. It's a great, great group of people, great organization. So yeah, that's been a fun. Sound it sounds like a lot of fun. So so before we let you go, we're going to jump to our favorite questions that we ask all of our guests. Starting with you mentioned streaming. Tell us what you've been watching. What keeps the family entertained? I just got done with Daisy Jones in the six I'm halfway through it, really loving it. Which where the music is amazing. The whole aesthetic of it is amazing, the acting is amazing, the music is great. And it also happens to be a production of one of our portfolio companies, Hello Sunshine, and it is the perfect example of what we thought Hello Sunshine could do. Then leaning power to as symbol that amazing ensemble, cast amazing music creators and create something that that UM is really is really important to to. In this case, Amazon Prime to be an important counterparty of the streamer. So I'm really proud of what they did there. And it's a great show. Yeah, supposed to be sort of loosely fashioned after the Fleetwood Mac story with all the christ and I think they nailed it. I really think. The other one I love is White Lotus, which is fantastic, not a not a Black sunrelated thing, also awesome. So I really like the first season. I haven't gotten into the second season yet, um and people said it's even better. It's wilder and crazier, yeah than the first one. So so let's talk about your mentors, who who helped shape your career. I've I've been really fortunate in my life where I've had, you know, along the way in the journey, Morgan Stanley at mccundeloo, at Tinnacum, which is the Ruttenberg family, where in each of those places I've had somebody who really helped me in my career and with whom I'm very close even today. And then at Blackstone, you know, Steve Schwarzman changed my life and Tony James who started when I was about four years into Blackstone and really helped transform the firm and make it what it is today. Those two men really were extremely important in my professional development, my personal development. Great amazing mentors. Let's talk about books. What are some of your favorites? What are you reading right now? You know the book I most recently finished by Arthur Brooks, a book on happiness. Yeah, I've been following that series in the Atlantic. It's really quite fascinating. Yeah, he's He's amazing And in fact I invited him to come talk to our partner group. We had a global partner off site in Private Equity in London in September. I had him come to talk about like what it means to be where from where you should be deriving your happiness. It's not just like the next the next deal, the next promotion, the name in the paper or whatever, you got to get it elsewhere. And I think it's really important for people who are workaholics, who are high achievers to put, you know, everything that we're doing every day into context and to find happiness kind of outside that box. So that's been a really important book I've read recently, and I think he's great, really interesting. We're down to our last two questions. What sort of advice would you give to a recent college grad who was interested in a career in private equity Patience. I think the one thing I've seen in this generation of people like me and you is we all were impatient. We all wanted to get there fast. But I think it's entered a new level because people start so early. You have to do so much to get in college. We're hiring summer interns now who are nineteen and twenty years old. You know that did not happen when we were kids. Uh, And they and they sort of by the time they're thirty. They want to have had like declare vic jury on the career that doesn't happen, and enjoy the journey that it takes a long time to figure out, like how you how you get good at something and in the particular way you want to do it, and you have to enjoy that process and enjoy like the time it takes. And then by the time you're in your forties you can actually be good at this job. And by the time you're in your fifties, with some wisdom, you can be really good at the job. But it doesn't just happen like that, And I think people just need to relax, take a deep breath in the early days, do what's asked of them, do it as well as they can, and move on to the next step. Really really interesting answer our final question, what do you know about the world of investing today you wish you knew back in the nineties when you were first getting started. I think that it changes so much and fundamentally that you can't hold on to like, um, you know, absolutes. There's really no absolutes. There's some like risk management things that you that you always need to be mindful of. But I could have evolved more quickly as an investor, you know, overtime, and I continue to learn that lesson really intriguing. Thank you Joe for being so generous with your time. We have been speaking with Joe Barratta. He is Global head of Private Equity at Blackstone. If you enjoy this conversation, well he sure and check out any of the previous five hundred or so we've done over the past eight years. You can find those at YouTube, iTunes, Spotify, wherever you find your favorite podcasts. Feel free to sign up for my daily reading list at Ridholtz dot com. Follow me on Twitter at Ridholtz. Follow all of the fine family of Bloomberg Podcasts on Twitter at podcast I would be remiss if I did not thank the fine team who helped put this conversation together each week. Sebastian Escobar is my audio engineer. Ris Wold is my producer. Fatica Valbron is our project manager. Sean Russo is my researcher. I'm Barry Ridholds. You've been listening to Master's Business on Bloomberg Radio.