‘We go big’: Jon Gray on how Blackstone places its AI bets

What differentiates Blackstone from other investors is that “when we identify something, we go big,” Jon Gray says. The firm Steve Schwarzman co-founded and still leads had just $750 million of capital when Gray joined it at the age of 22. Now, as its president and chief operating officer, he has more than $1.3 trillion to put behind its strongest convictions.

Few have placed bigger bets than Blackstone on the AI revolution, which demands massive funding for large language models and the data centers and energy infrastructure that power them. But uncertainty persists about the future cash flows from investments in such fast-moving technologies.

Gray’s challenge in such circumstances is to ensure that Blackstone’s pro-AI convictions don’t harden into a consensus his firm will regret if conditions change. Blackstone’s bets on AI have been lucrative to date, though they have also been tested: Like several of its rivals, it limited withdrawals from a flagship credit fund earlier this year as investors grew worried about its exposure to indebted technology companies.

On this week’s edition of The CEO Signal show, Gray set out why he takes a more sanguine view of risks in AI and private credit than some market watchers. But he also laid out the principles that guide his investment calls.

How not to fall in love with a ‘good neighborhood’

Blackstone likes to buy in “good neighborhoods”: environments where “thematic tailwinds” promise sustained growth and give it valuable insights into adjacent opportunities.

“Can you buy a bad business in a good neighborhood? Yes. But my chance of success … is much higher if I’m in a place where the wind’s in my back,” Gray explains. That approach has led him to bet on sectors from defense to life sciences, and trends like the growth of India’s middle class.

AI is the biggest gamble of Gray’s career, and he is using the same approach of expanding out from one investment to find neighboring opportunities. The acquisition of one data center company, for example, gave the firm early insight into hyperscalers’ ravenous demand for computing power, which led it to make investments in an ecosystem of AI-related companies, from contractors to cooling equipment manufacturers.

Often these “derivatives” are less expensive ways to get exposure to the trend you like, he notes. Even so, he adds, you need to keep testing your thesis at every step, “to confirm that you haven’t just sort of fallen in love.”

Blackstone is investing in AI “through the lens that this may change,” looking for ways to limit its risk should token costs collapse or regulatory environments tighten. By owning hard infrastructure and the “picks and shovels” of this gold rush, Blackstone will always have assets it can sell, Gray says.

His firm also fosters a skeptical culture, he adds, where doubters can ask in investment meetings: “I know the last five times you’ve done this have been great, but are you sure?”

Fostering open debate in a ‘high-conflict’ business

The scale of the disruption AI may bring to entire industries is making Blackstone’s investment committee discussions much tougher, Gray admits.

“Today, the hardest part of investing is to know what a professional service is going to be worth. What is a billable hour? What’s going to happen in information services? What’s going to happen in the media business? What’s going to happen in the software business?” Some of these businesses will thrive, he says, “but others will get knocked out.”

Decision-making at Blackstone is more centralized than outsiders would expect, given its scale, Gray says. “We still run it like a small business in a lot of ways, because if the pizza doesn’t taste good — and the pizza, for us, [is] the net returns we produce for the customers — nothing else matters.”

Gray is central to the investment calls Blackstone makes, and spends his weekends reading memos on potential deals in preparation for his weekly investment committee meetings. He has little patience for colleagues who arrive less prepared: “If you haven’t read the materials, then you’re not even a player. You don’t have an ante at the table, you can’t play.”

He has had to train himself not to speak first in those meetings, he says, and now tries to hear from all the players in Blackstone’s “orchestra.” Their debates can get heated, but Gray, who describes himself as a conflict-averse person in a high-conflict business, says the criticism should never be personal.

Leaders can be “hard on issues, soft on people” if they keep a spirit of openness and respect, he says. “It’s not about you personally. It’s about getting to the right answer” through open discussions.

Why private credit may avoid a ‘crisis-apocalypse’

Blackstone’s scale attracts outsized scrutiny, and investors’ attempts to pull money from its private credit funds earlier this year made headline news.

Gray thinks he has seen it all before, such as when the firm’s BREIT real estate fund was hit by redemption requests in 2022. But Blackstone got through that moment, and investors who stayed in the fund came out ahead, he says, predicting that the same will happen in private credit.

“I actually think these sort of shocks to the system are helpful, in the sense that they give investors and advisers the opportunity to sort of battle test these” products, Gray says. Longer-term, he expects private credit’s performance to be “far better than the crisis-apocalypse” scenario envisaged by market bears.

There will be “disruption,” he concedes, but Blackstone is a senior lender, so equity investors would absorb most of the pain before it does.

“Saying somehow [that private credit] was creating risk to the financial system, that these things are going to collapse, that was not very logical,” he says. “It’s sort of odd that it became a credit story.”

The business case behind Gray’s ‘dorky dad’ videos

Gray has been renowned in financial circles for decades, first for the dealmaking prowess that turned Blackstone into one of the world’s leading real estate investors, and then for his 2007 takeover of Hilton. His hotel purchase looked dangerously ill-timed when the financial crisis hit, but he stuck with it, turning it into one of the most profitable deals in private equity history.

More recently, Gray has gained a new kind of fame from his social media feed. The LinkedIn videos he films while out running on business trips around the world have been watched by millions of people.

But what he calls their “dorky dad vibes” mask a serious purpose. The firm’s growing ambitions mean that it now increasingly depends on funding from legions of individual investors and the approval of their financial advisers.

Sharing his on-the-run insights allows him “to communicate with people at scale in an authentic way,” Gray says. “There’s also, I think, an element of you just being sort of a human … And if you think about the investment business, it’s really a trust business at the end of the day.”