For Blackstone, two heads are better than one

Sharing roles can sometimes be a temporary arrangement, but the New York-based firm has good reasons for wanting to continue the dual leadership structure within its real estate business.

Blackstone’s senior leadership changes, announced this week, certainly will be one of private equity real estate’s biggest stories of the year, with arguably the most interesting aspect of the transition being the firm’s return to two global real estate co-heads.

With former global real estate head Jon Gray promoted to president and chief operating officer of Blackstone, the New York-based alternative asset manager now has two executives sharing the property business’s top spot: senior managing directors Ken Caplan and Kathleen McCarthy, who also will remain in their existing roles of global chief investment officer and global chief operating officer, respectively.

Gray told PERE this week that having two global co-heads was necessary given how large and complex the real estate business has become, with $115 billion in assets under management across multiple strategies globally as of December 31.

But if that was the reasoning behind two heads today, what was the reasoning before, as the firm’s real estate business was growing? After all, John Kukral and Tom Saylak was the platform’s initial duo in charge during its early years in the 1990s, and the two ran the business together for nine years before the latter left in 2002. Gray and Chad Pike then became the new real estate global co-heads after Kukral departed Blackstone in 2005. The latter pair jointly oversaw the business until 2011, when Pike moved to the firm’s tactical opportunities business and Gray became the sole head of real estate.

Blackstone also has had co-heads in other parts of its real estate business. For example, Tyler Henritze and Nadeem Meghji were co-heads of US real estate acquisitions from 2015-17, when Henritze became the sole head of US acquisitions and Meghji became head of real estate Americas.

One might sense a pattern here, as one Blackstone investor commented to PERE this week: “Blackstone has had co-heads for some portions of their real estate business and often that is a temporary situation.”

Generally speaking, co-heads do not always remain as such, as differences over direction and power struggles, among other factors, can lead to the dual leadership structure to fall apart.

It is true that in multiple instances where there were initially co-heads in Blackstone’s real estate business, ultimately a sole head prevailed. Rather than infighting, however, PERE suspects that talent retention and the desire for options were at the center of these leadership shifts.

In 2016, Gray told PERE that finding ways to keep top talent at Blackstone was paramount, at a time when he was observing attrition at rival firms. One could assume, then, that having rising stars share roles or giving them other interesting opportunities within the real estate business or elsewhere in the firm – as in the case of Meghji and Pike – could be two potential retention strategies. It is also worth noting that although people who are no longer co-heads typically leave their companies, Blackstone has managed to retain some of those former co-heads.

Moreover, the dual leadership structure could also be a proving ground to determine which of the two executives is ultimately better suited for the role. Not only does such an arrangement encourage healthy competition – eliciting the best performance from promising staff, but it also provides the firm with multiple choices for its leadership positions.

Of course, staffing considerations are often gray areas. When it came to Gray himself, though, it had become increasingly clear in recent years that he would rise to the top job at Blackstone. Private equity’s worst kept secret was more black and white.

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