A week with Blackstone’s CFO

Michael Chae, a deal guy who moved into management, on corporate finance and the three layers of the CFO role.

The start of Michael Chae’s week is like that of most other senior Blackstone employees: sitting around the firm’s large conference room table at 345 Park Avenue for the Monday morning meeting.

The chief financial officer gathers with his peers every week for a discussion that also brings together employees from offices in Europe and Asia via video conference. The meeting can last one to two hours per business group, often five-and-a-half hours total, going over each business line’s potential transactions and trying to understand what can go wrong.

Michael Chae

But after that, Chae’s role is varied, and no two weeks are alike. When Private Equity International met with him in the Blackstone offices at the end of September, he was buzzing with excitement over a bond offering the firm had issued earlier that week to refinance existing debt.

“On Monday we launched and executed a really cool financing for the firm,” he says. “The purpose was to refinance opportunistically a 2019 maturity. We didn’t have to do it now, but it was a good moment to do it.”

Taking advantage of low rates, Blackstone issued a $600 million investment-grade bond split evenly between 10-year and 30-year maturities for a 3.67 percent blended cost of debt.

The transaction meant Chae was able to lower the cost of financing further through a cross-currency swap of the 30-year tranche into euro yield and of the 10-year tranche into sterling yield, essentially lowering the cost of financing to 2.36 percent and hedging some of its foreign exchange exposure on the firm’s profit and loss.

Big picture

The bond transaction is reflective of Chae’s personality, and of essential qualities for a CFO of such a large investment firm – Blackstone has $387.4 billion in assets under management as of the end of the third quarter.

“Michael has a great knack for both seeing the big picture clearly but also being very detail-oriented,” says Tony James, president and chief operating officer at Blackstone. “He is strategic, but also makes sure every ‘i’ is dotted and every ‘t’ is crossed. You want your CFO to have those two skills.”

Chae may have the right skills to be Blackstone CFO, but he doesn’t have the typical background. He started his career as a private equity investor in the 1990s, first at Carlyle for about a year, and then at Blackstone in the late 1990s after attending law school.

“He’s a deal guy,” says James. “It’s kind of like the ultimate training ground for a CFO because it’s got all the aspects of CFO. Acquisitions, financing, management, public perception, financial analyst, etc…”

Some of his most significant investments include Nielsen, Michaels Stores, The Weather Channel Companies and Hilton Hotels.

It wasn’t until he was sent to Hong Kong at the end of 2010 to lead the business there that he was able to demonstrate his management skills.

“Steve [Schwarzman] and Tony asked if I would go for a few years to run and turn around our private equity business in Asia and oversee the region for the firm,” Chae says. “For me it was a really exciting challenge. It was a management and business-building opportunity. The basic mandate was to change out our private equity team and business and also help drive the growth of the firm in Asia.”

In Hong Kong, Chae was exposed to each of Blackstone’s businesses, including investment teams focused on real estate, hedge funds and tactical opportunities, as well as to corporate tax and accounting employees, broadening his skills as a general manager.

Chae was named CFO of the firm the year after his return, replacing Laurence Tosi who had left in the summer of 2015 to join Airbnb.

The Blackstone DNA

Chae explains that his job as CFO has three main layers. At the basic finance level, he focuses on measuring the changes in the valuations of Blackstone’s investments, to understand, properly account for and control the firm’s financials, which then helps understanding and planning the broader business.

At the operational level, he works on optimising the firm’s processes and operations and improves its corporate and operational infrastructure. That is where his deal experience serves him well and he admits he has always had a bit of a passion for operations.

And at the strategic level, he focuses on challenges and opportunities for the firm, and on initiatives to grow the business organically and inorganically.

When we meet at the end of September, his week had been punctuated by year-end strategic reviews where each Blackstone business and key area of the firm presents its milestones for the year. He presented his strategic plan and sat in on all the others.

The rest of his time is spent attending opportunity funds investment committees on which he sits, Tactical Opportunities and Blackstone Alternative Asset Management, working on initiatives around new businesses at the firm, and educating shareholders and analysts.

Chae does not do it all on his own. He has CFOs for each business line and overall has about a third of the firm’s employees reporting to him.

Despite the significant growth that has taken place at Blackstone since Chae joined about two decades ago, he is adamant the firm has been able to retain its culture from early days.

“I sometimes refer to our firm and culture as a big firm that still runs like a small firm,” he says. “Part of our culture is that close-knit, transparent, lightning-fast communication dynamic. We focus all the time on preserving that even as the firm is getting bigger and more global.”

The maintenance of that small-firm culture is no more evident than during the Monday morning meetings, when new, young associates from around the world can have a seat at the table.

“Even the new 28-year-old associate in Mumbai is on that video, listening to Steve talk about what he did last weekend, or Tony and Joe [Baratta] going at it over a deal,” Chae says. “That’s how you sustain what I grew up in and how I was trained. That DNA still transfers.”