Blackstone’s Gray: firm puts ‘premium on succession’

Blackstone has joined its peers in setting up its next generation of leaders, with a particular focus on its real estate team.

On Tuesday, the New York-based alternative investment giant elevated real estate head Jon Gray to president and chief operating officer, replacing Tony James, who will become executive vice chairman. Gray, who joined the firm out of college and has led the real estate business since 2005, will report to chief executive and co-founder Steve Schwarzman.

Ken Caplan, the firm’s real estate chief investment officer, and Kathleen McCarthy, the real estate COO, will become co-heads of real estate, in addition to their existing roles. Gray will continue to chair the real estate investment committee.

“This change is totally consistent with what we’ve been doing in recent years.”

– Jon Gray

Caplan joined Blackstone in 1997 and was previously the firm’s head of Europe real estate, becoming real estate CIO in 2015. McCarthy, now the firm’s most senior female executive, started at the firm in 2010, with a promotion to real estate COO in 2014. She has worked on day-to-day operations, specifically focusing on the firm’s investors, capital raising and business development efforts across new investment products.

“The way we’ve operated has been with Ken and Kathleen as my chief partners in running this business,” Gray told PERE, highlighting the duo’s leadership in jointly running weekly partner and global investment committee meetings as one example of the partnership. “This change is totally consistent with what we’ve been doing in recent years.”

He said the firm needed two heads of real estate as its business has grown larger and more complex. Gray himself was a co-head with Chad Pike from 2005-2011, and prior to that, John Kukral and Tom Saylak had served as co-heads of the business. In those cases, the business was divided geographically between the executives, but now, Caplan and McCarthy will divide responsibilities in line with their previous roles.

“We’ll continue to have our primary areas of focus – me with investors, Ken on the investment side,” McCarthy told sister publication PERE. “What will happen more and more, and it’s happened already over the last couple of years, is that I’ll lean more into the investment side and Ken will lean more into business side.”

Caplan echoed those comments, noting there were no other immediate business or personnel changes for real estate.

“This transition in essence has been going on for some time, as we’ve been taking on more and more responsibility. It’s not like there’s one moment where all of the sudden things change drastically,” he said. “We already work extremely closely together.”

Firm-wide succession planning

Gray, who was elected to the firm’s board of directors in 2012 and sits on the firm’s management committee, has long been a rumored successor to James or Schwarzman at Blackstone. PERE sister publication Private Equity International pointed to him as a top contender to take over from current leadership in its December issue. In November 2016, Gray turned down the opportunity to become US Treasury Secretary, saying in a statement that he still had “much work to do at Blackstone.”

“Steve and Tony put such a premium on succession, not just at the most senior level running the firm, but at the platform level,” Gray told PERE. “Everyone at a key leadership position has to have one or two successors lined up.”

He said his promotion has been in the works for “several years,” as he has devoted less time to real estate and more to learning firm-wide lessons from James.

“The appointment of Jon as president and COO lays the foundation for the next generation of senior management and positions the firm well for future leadership,” Schwarzman said in Tuesday’s statement.

James joined Blackstone in 2002 as vice chairman and COO, replacing co-founder Peter Peterson as president in 2006 upon his retirement. In James’ new executive vice chairman role, he will continue to sit on the firm’s investment committees, management committee and board of directors. James will also help develop new businesses, serve as a firm spokesman and manage strategic external relationships.

Industry wave of succession planning

Other major private equity firms tackled succession planning last year, with Blackstone hinting at plans along the way.

Washington, DC-based Carlyle said in October that its co-founders David Rubenstein and Bill Conway would step aside from their roles of co-chief executives and be replaced by president and chief operating officer Glenn Youngkin and corporate private equity deputy chief investment officer Kewsong Lee, effective January 1.

In July, KKR named Joe Bae and Scott Nuttall co-presidents and co-chief operating officers. Co-founders Henry Kravis and George Roberts would continue their roles as co-chairmen and co-chief executive officers. Bae and Nuttall took over the day-to-day reins of the firm’s activities, dividing various strategies based on their previous duties, with Bae focusing on private equity and real assets and Nuttall focusing on real estate debt, among other platforms.

In Blackstone’s second-quarter earnings call, a reporter asked about succession planning on the heels of KKR’s news. James said he did not see value in pre-announcing a succession plan, as KKR did.

“We have really well thought out, carefully planned succession plans in all of our businesses, from the very top of the firm right on down,” James said on the July media call. “I do believe that the Achilles’ heel of any asset management firm is succession, and in sort of the alternatives business, there have been a number of companies that have foundered over that, or a number of companies that have put it off indefinitely.

Last month, Blackstone made other changes to its real estate teams in the US and Europe, naming three partners and a new head of Europe real estate, PERE previously reported.

Blackstone managed $115.3 billion in real estate as of December 31 and $434 billion overall, according to its fourth-quarter earnings.