Insight
Traditional private equity drawdown funds deliver net returns comparable to municipal bonds
“What I don't like about drawdown funds, the traditional private equity fund is, you know, you commit to them, they charge your 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 …”
What-if
Goldman Sachs should have prevented KKR's rise in private equity
“There was no reason, really, that a KKR or a Forsman Little that were the big players back then should ever have existed. Your old firm Goldman should have beaten them.”
Opinion
Tony James: DLJ merchant banking wasted away under Credit Suisse
“Once it got put into a Swiss bank, they had all of the institutional issues and the lack of commitment to the principal business that all the other big firms had, so it kind of started to waste away”
Insight
Charlie Munger: Newspapers are depleting oil wells; WSJ is a trade journal
“This is not a business, Tony. It's an oil well. It's depleting to zero. And I said, well, What about the Wall Street Journal? Well, that's not a newspaper. That's a trade journal.”
Assertion Supported
Blackstone wrote off one-third of a private equity fund before 2002
“The private equity business, they'd raised a fund and had made a couple of disastrous investors so that, that were within a year write-offs with about a third of the fund.”
Opinion
James: Blackstone's retail network is an irreplicable dominant strategic asset
“That I think is the, now the one, the dominant strategic asset that Blackstone has that no one else can really replicate. Because no one else has the breadth of product so that you're always in the market.”
Assertion Not checkable as stated
James: Every Blackstone acquisition succeeded, returning at least 3-4x
“Every one of our acquisitions worked. 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.”
Insight
Tony James: High ethical norms protect firms better than heavy compliance layers
“Putting more controls in doesn't necessarily protect you. That a lot of it, 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…”
Assertion Not checkable as stated
DLJ had zero ethical lapses while Credit Suisse failed despite massive compliance
“Credit Suisse had all kinds of ethical lapses. DLJ had none, but they had immense controllers and process and whatnot. DLJ was skeletal.”
Prediction Not checkable as stated
Private market correction will not trigger a 2008-style systemic crisis
“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 to one leverage or these days the leverage is lower, but plenty were 20 to 30 to…”
Assertion Not checkable as stated
30,000 mid-market private equity portfolio companies worth $20T need liquidity
“I think I think one of the great opportunities right now is there's about 30,000 portfolio companies of mid-market private equity firms that can't be sold, can't go public, there's no strategy. You know, 20 trillion or something worth of value. All those compa…”
Assertion Partly supported
James: DLJ controlled 40% of high-yield trading for 12 years
“We accounted for all, 40% of all trading volume and high yield for 12 years.”
Assertion Partly supported
DLJ extracted $400M in equity the day after the Household buyout
“I think it was the third biggest LBO ever called we bought the retailing subsidiaries from Household International. We ended up with Vons and Ben Franklin and TGI and Coast to Coast Hardware Stores, and we sliced and diced and sold them all, and we closed, and…”
Assertion Partly supported
James: DLJ timed the market peak, selling for $14B cash
“But we sold it for fourteen billion of cash, and two or three years later Morgan Stanley sold for eight.”
Insight
Tony James: Investment committees define Blackstone's culture and rigor
“And also, for a firm like Blackstone, it's investment committees that are the cultural crucible of what defines the firm.”
Disclosure
James: Blackstone employs 500 people in retail distribution unit
“There's no other firm that could have afforded to build the retail distribution. We have 500 people in that.”
Assertion Supported
Blackstone imposed an unprecedented eight-year stock lockup at its IPO
“We did that first of all, by basically telling people they can't sell any stock for eight years.”
Assertion Not checkable as stated
James: Blackstone lost no key partners for eight years post-IPO
“And we didn't lose anyone that we didn't want to lose for eight years.”
Assertion Partly supported
Blackstone turned a $119M acquisition into a $120B secondary business
“So we bought it for a hundred and nineteen million. It's a hundred and twenty billion dollar business today. It's worth tens of billions.”
Insight
James: Never buy fully built franchises where you pay for prior growth
“We'd never wanted to buy a fully built out franchise where you're paying someone else for all the growth. We wanted to deliver the growth, the value of the growth to our shareholders.”
Insight
Tony James: Early investment signals are never obvious before being priced in
“If you're going to catch the signals early, they're never obvious. By the time they're obvious, it's priced in.”
Assertion Partly supported
DLJ's first private equity fund achieved a 90% IRR
“I think our first fund had a 90% IRR.”
Assertion Supported
Tony James: DLJ had $29B AUM when sold to Credit Suisse
“And that, and we built that business when we sold DOJ to Credit Suisse, it was about a twenty-nine billion dollar AUM business. Blackstone at the time was high teens”
Disclosure
DLJ risked 40% of firm equity per bridge loan in 2000
“Our success in, in, in high yield and private equity meant we'd running out of balance sheet. Our bridge fund was one billion dollars, and all of a sudden you were doing one billion dollar bridge loans, so you can do one deal at a time, and if one mistake and …”
