Blackstone CEO Steve Schwarzman has built one of the largest investment firms in the world, which specializes in private equity, credit, and hedge fund investment strategies. In his new book, What It Takes: Lessons in the Pursuit of Excellence, Schwarzman reveals some of the biggest lessons he’s learned from his 50-year career in business.
“I wanted to lay out my years of experience of doing things right as well as doing things wrong,” he tells Fortune. “You learn the most when you make a mistake.”
Part memoir, part leadership guide, Schwarzman addresses the highlights (and low lights) of his career including quitting his high-power job to start Blackstone, raising capital as a first-time fund manager, and dealing with the fallout from the unraveling of his presidential CEO business council. (I personally enjoyed the part when he talks about meeting “Beyoncé and her husband Jay-Z.” He writes: “We talked for a few minutes, reminiscing about her Kennedy Center performance in 2005.”)
Schwarzman was 38 years old when he founded Blackstone in 1985, and he’s been at the helm ever since. Today, the firm boasts $545 billion in assets under management and 2,500 employees. Blackstone recently converted from a publicly traded partnership to a corporation, which makes it easier to own Blackstone stock and allows the firm to be included in more indexes.
I sat down with Schwarzman for a wide-ranging conversation about Blackstone’s dealings in China, the ethical challenges surrounding artificial intelligence, the rise of cryptocurrencies, and whether he sees a looming recession on the horizon.
This Q&A has been edited for clarity and length.
FORTUNE: In the book, you discuss some of the personality traits you look for in a candidate before hiring them at Blackstone. What are some of those characteristics?
SCHWARZMAN: I’m undoubtedly better at identifying people who have enormous potential, and it’s actually pretty easy. When someone’s interviewing for a job, you can tell if they’re comfortable in their own skin and whether they’re able to handle anything conversationally. I’m looking for people who can hold the table, who are intelligent, curious, courteous, and they can deal with stressful situations.
Can you give an example of how you determine those things?
You need three to five minutes to figure out if someone’s comfortable.I like to bring up something interesting that has happened in the world that day. Today, I might ask, “What do you think about what’s been going on in Hong Kong?” There’s no right or wrong answer to these things, but it’s a discussion that can show you how someone’s mind works. Once you see how somebody’s mind works, you also get a sense of whether they’re playing within their comfort zone. If you’d like to spend more time with them, then that’s probably a good person to hire.
Speaking of Hong Kong, has the current unrest affected Blackstone’s dealings in China?
Hong Kong’s a real hub for us. It’s our biggest location in Asia, and people like working there. It hasn’t interfered with our office at this point, but longer-term, you can’t have a place where you do business where no one knows if they can get in or out. Ultimately, there has to be a resolution. The business community really wants one, and if you have a core of demonstrators who say on TV that they are prepared to die, that’s not a great benchmark. Right now, it’s looking like a difficult resolution.
What are you investing in, and where do you see growth opportunities?
Growth is certainly going to technology, services, and experiences. You have things like shopping centers. When I grew up, it was like: What could go wrong with a shopping center? And now that thing is called Amazon. Just that technological innovation has changed people’s shopping patterns, changed the delivery mechanism, and it’s led to shopping centers going bankrupt. It’s disrupted a whole chain of things people took for granted. It took 10 years for an entire stable structure to be dismantled.
We saw that in 2011 when we started buying warehouses. We’ve been the largest buyer of warehouses in the world for the last eight years, and we did that because that’s where Amazon and retailers needed to stage their goods before they get delivered. So that area has exploded with growth. If you’re investing now, you have to recognize that almost everything’s about to have its business model changed.
What’s another example of a sector you think will experience Amazon-like growth?
Artificial intelligence. AI will affect the whole healthcare industry, from billing, to admissions, to diagnostics, to the development of drugs, to telemedicine, which will have enormous growth. You look at all of this, and there are a lot of different things that go into what you or I believe is just a hospital. AI is going to have a profound impact on our society.
There will also be serious ethical implications that come with that innovation.
That’s why I did this big donation at MIT and Oxford. [Note: Schwarzman donated $350 million to MIT for computing and AI research and $188 million to Oxford University for AI ethics research.] One involves technological innovation, and the other is about making sense of it in society. What are good outcomes and what are not-so-good outcomes? Who makes that determination, and how do you control for not having bad outcomes? That’s a challenge that we have to face.
Are you confident we’ll be able to solve the ethical challenges quickly enough given the pace at which technology is evolving?
Like most things in technology, it’s moving faster than your ability to control and implement things. On the other hand, everybody who’s running a company or is part of the discovery of AI watched the Internet get developed. I haven’t met a mature person yet who was involved in the development of the internet that hasn’t regretted they developed it.
They said, “We just thought this would be really cool. Everyone in the world can connect, and it’ll be a positive sum game.” They weren’t aware that [the internet] would destroy the ability to govern. Everything is so short-term, there’s so much divisiveness, and social media is very destructive. They’ve looked at what they’ve created, and they’ve all said, “If I could have it back, I’d take it back.” I was shocked. So with AI, we have to get right on it so that the technology itself doesn’t overwhelm society.
There’s enormous interest and good will to doing something important in terms of AI ethics. No matter what country you’re in, if you make a huge cut in your workforce, you’ll have social unrest of some type. We already have that in the West. You could even have that in China, although they’re investing so much in the area, they’re actually creating a whole bunch of new jobs too.
Speaking of innovation, a 2007 Fortune article called you “the master of the alternative universe” because Blackstone made its name by investing in alternative assets. What do you think about frontier assets like Bitcoin and other cryptocurrencies?
I don’t have much interest in that because it’s hard for me to understand. I was raised in a world where someone needs to control currencies. There’s a reason to want to control currencies, which is why governments all do it. There’s no one who says, “I don’t care.” Part of that is to make sure the economy is as insulated as it can be from excesses. Another part of it is to control bad behavior. So the idea that you can transact without anybody knowing anything, you could have a lot of criminal behavior — dirty money, drug money — running all over the world. It only encourages that kind of activity.
I may be a limited thinker, but that’s a problem. If they could solve that problem and also the problem of controlling the money supply, then it might be OK. That doesn’t mean that the blockchain technology applied to non-tradable currencies is not a good thing. That is clearly a good thing.
And why do you say that?
There’s all kinds of uses you can have from certain executions. [Blockchain technology] is a very good idea, and it will end up being adopted because it’s good technology. Applying it to the creation of money is sort of, for my taste, pretty odd.
So in the future, you do see Blackstone investing in companies that are using blockchain technology?
That would be good because it’s a sound, very interesting technology.
But you’re not going to own any Bitcoin?
That’s an easy one: No.
Capital has become quite abundant these days. Softbank’s Masayoshi Son tells this infamous story about how he raised $45 billion in 45 minutes for the Vision Fund. Blackstone’s assets under management crossed half a trillion for the first time — to $545 billion. You recently described your fundraising efforts as “an out of body experience.” Why?
When I started in 1985, we had no reputation, and even worse, no experience making investments. In 1986, we went out and started raising money. We got rejected by 16 out of 17 people, some of whom we knew very well. If you’ve ever had the experience of getting rejected by almost everyone you know, it’s very sobering.
We sent out somewhere around 500 offering documents, and we ended up with 32 investors. That’s 468 out of 500 people who are saying, “I don’t trust you, I don’t like you, I don’t think you’re competent, and I don’t like what you’re trying to do.” The only way you interpret that after a while is that they don’t like you and they don’t trust your abilities. It was unending. So my experience was so searingly negative that every dollar we raise from anyone now, I regard as precious and that we can’t disappoint them.
Before, I’d fly across the country to see if we could get $5 or $10 million, and now, people just give us a billion dollars. After a while, people develop confidence in you. And part of the art of running a good organization is that you don’t mess it up. It’s been such an ordeal to get here.
I had a conversation this morning where someone [at the firm] said, “If we do this type of structure for this type of activity, these people will give us $2 billion.” I know the people, and I know they’ll give us $2 billion, but I ask, “Do we want to do what they’re interested in or not?” Whenever one of these conversations happens, I think back to spending two days of my life flying around to raise $5 million, and here’s just a casual conversation [about $2 billion]. I take nothing for granted, and I want people at the firm to think like that too. It’s harder when you get bigger, but it still is an out-of-body experience for me.
In the book, you give your rules on identifying market tops and bottoms. Where in the cycle do you think we are today?
We’re getting pretty toppy. The prices of things have gotten high in large part because interest rates have gone down so much but that props up the value of a dollar of earnings, or cash-flow. It’s a bigger yield. That’s driven prices up. There’s quite good liquidity in terms of credit. It’s led to markets that have gone up almost continually for about 10 years. So that doesn’t mean it can’t go on for a while longer, but you’re closer to the top than the middle or the bottom.
Do you see a recession on the horizon?
I don’t. Over 70% of the economy is consumer [spending], and consumers tend to be employees or workers. Their compensation is going up 3 to 4% a year now, significantly outpacing inflation. What we’re doing is we’re loading up consumers because as employees, they didn’t have a good enough experience with financial sufficiency and they were angry because they didn’t have enough money. So society’s going to give them that money, I believe, in the form of higher wages. That’s good for the system because people will have to work to get more money, but they’ll take that money and they’ll spend it. If they’re spending it — and that’s the vast bulk of the American economy — then that’ll be the part that keeps the economy moving forward.
Unless there’s a major geo-political issue that takes away confidence from everyone, I think we’ll continue growing for the next year or two but at a lower rate than we were because manufacturing’s off, global trade is off, and we’re facing some lack of confidence around issues like Brexit, European growth, and China’s real growth rate. All these issues contribute to less optimism, but I don’t see us falling off some kind of cliff.
You don’t think it’ll be comparable to the last recession?
Oh gosh no. No, that takes virtual complete abdication by regulators as well as imprudent behavior by parts of the business community. We haven’t forgotten lessons that quickly. The system has been significantly reformed, so I don’t see anything of the type of global financial crisis of 2008. Of all the things to worry about, that’s not one of them.
What’s next for you? Do you see yourself stepping away from Blackstone?
In a year or two, I’ll probably still be sitting at this conference table. I love what I do, but there’s always an evolution. Jon Gray is president of the firm, he’s 49 — I’m not. [Gray is Schwarzman’s likely successor.]
My plan for my life is to stay involved with Blackstone, but I also like doing big impactful things that involve the creation of something new. I don’t know what the next one will be because it has to be something I see in society where I can help provide a unique solution. Both MIT and Oxford involve building new facilities, creating new organizations, and developing knowledge in a way that can be applied for the good of society.
I wish I could tell you exactly what the next chapter is, but one of the things that makes life fun is experiencing new things with developed skills from your past. I’ve loved doing that within Blackstone, I’ve loved doing it in the not-for-profit area, and I’d love to do in the political area if I can help.
Oh, you have political ambitions?
No, no. None.