Blackstone 1Q15 Earnings Call Notes

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Many have asked, how can you build a company like Blackstone? It’s simple of course, just beat the stock market by 1000 bps on average

“You may ask and many of you have, how have we been able to build the company like Blackstone? And is this success is sustainable? Blackstone really has a very simple business model. We delivered roughly a 1,000 basis points above the stock market on average to our Limited Partners in our funds. When we do that over time and time again for 30 year period, we create enormous excess returns for our investors. As a result, our limited partners have given us very large amounts of money over time to invest. And these amounts are accelerating. Our performance over 30 years is what sustains our success as a business.”

We would only expand to new asset class if there was a remarkable opportunity

“We designed the firm from the beginning with the idea that we would only expand it to new asset classes if there was remarkable opportunity to take advantage of. A major paradigm shift in the markets. In addition, we would only enter this new asset class if we could identify a leader for these new efforts who is a 10 on a scale of 10. The third requirement to enter a new business line is that it would increase the firm’s intellectual capital so that we could take advantage of these paradigm shifts throughout our entire organization.”

We need to continually innovate. Nothing is patentable in finance

“In finance, unfortunately nothing is patentable. I learned this early in my career. So when we started our firm, we knew we needed to be in the continuous innovation business. Not just for example in something called the advisory business or the private equity business.”

Our comparables really are the greatest companies in the world

“the company that is similar to Blackstone includes many of the great companies in the world. Among these companies are companies like Apple, Google, Ali Baba, Samsung, Disney, Amazon, Boeing, Daimler, Nike, BMW, Starbucks, Caterpillar, Hermes, Luxotica, Whole Foods, Bosch, McKinsey, Bloomberg, Chanel and numerous others we don’t have time to list here. All of these firms have built enormous brand recognition and they all share certain differentiating attributes including the best products in their class with the highest quality standards. Deep and enduring relationships with their customers”

A partnership with their constituencies

“These firms have created a bond, trust and sense of partnership with all of their constituencies. Their customers need their products and turn to them first, resulting in a huge percentage of repeat businesses. As a rule, these companies primarily have grown organically. So they can develop and nurture a consistent and unique internal culture. They also have the largest market shares in their respective sectors all like Blackstone.”

All investment decisions are decided on by a single global investment committee

“Just as Apple doesn’t franchise its products and BMW doesn’t let other manufactures put its logo on their card. At Blackstone, we don’t franchise. We have central quality control with all investment decisions being be risk and decided upon by one single global investment committee to minimize any prospect of loss and to have consistency of judgment.”

Our clients are moving to alternatives and reducing hte number of managers that they work with

“Our clients are themselves healthy and growing their assets under management. They are investing more and more into alternatives. The highest yielding asset class in the world in an environment of record low interest rates. They are also reducing the number of managers they do business with.”

We only commit capital when we see an unusual risk/reward

“In the vast number of our businesses, we only commit capital when we see an unusual risk reward opportunity unlike a long only manager which needs to be fully invested. We like a basket ball team without a 24 second clock. We only shoot when we get a truly open shot we are confident will go in to basket. ”

15000 applications for 100 analyst positions

This year for example and this is hard to believe, we have more than 15,000 applications for only 100 available analysts positions. So it is 6x harder to get a job as an analyst at Blackstone and getting into Harvard, Yale and Stanford. ”

Blackstone isn’t a business, it’s a mission

“Blackstone isn’t really a business per se. It is a mission to be the best in all we do. And to be special members of our communities as well.”

If you live on buying public companies, that’s not a good place to be

“generally speaking values are high so if you live on buying public companies there is a lot of leverage, I think that’s not a good place to be”

We don’t think we are at a real estate peak

“We don’t think we are at a real estate peak. We think we are somewhere in mid cycle and there is good values to be add on the buy side and there is reasonable market to sell on the sale side. ”

I think the regulatory apparatus will provide access to these products

I think longer term in the interest of the regulatory apparatus to provide access to retirement products are alterative asset in liquid products. Given the safety of products historically and the nature of our performance to deny people access to these products to somehow be protecting them”

China is slowing

We don’t have a lot of exposure as investors but the impact of China is that it is slowing, is just there for off and on for like two weeks and they talk about the new normal with great pride actually and what it means we are slowing down”

Their new growth may be lower than 7

“publicly that their target is seven, they are very specific. They said around seven. So the reason they probably said around seven there is a good expectation it would be lower than seven.”

The biggest impact from China is on commodities

“all is not good all is not bad. And their sectors that we think are going to do extremely well and there will be sectors that won’t and you will have gradually slowing economy. And the biggest impact is on the emerging markets because they won’t be consuming these many commodities. China buys just in the grosser sense like 50% of lot of the commodities in the world. They are the commodity market and when they cut back, boy you feel it. Whether you are in the oil business, whether you are particularly in the iron ore business which is one example and other commodities, wow, you really — they really impact the market in a very fundamental way”