By Joshua Franklin
NEW YORK (Reuters) - Blackstone Group LP (N:BX) on Tuesday elevated Jonathan Gray, who turned the buyout firm into the world's biggest real estate investor, to president and chief operating officer, setting him up as successor to Chief Executive Stephen Schwarzman.
Gray, 48, is taking over from Tony James, 67, who will stay with the firm as executive vice-chairman. The appointment represents the biggest shakeup at the storied private equity firm since Schwarzman hired James as his top lieutenant in 2002.
Gray, who heads Blackstone's global real estate business, was already widely recognised internally as Schwarzman's heir apparent. He grew the firm's real estate business from $5 billion in assets under management in 2005 to $115 billion currently.
Both Gray and James will report to Schwarzman, 70, who co-founded Blackstone in 1985. Blackstone said it would promote Ken Caplan and Kathleen McCarthy to global co-heads of real estate, succeeding Gray. The changes are effective March 1.
"What this does is it provides a next generation of leadership which is really important," Schwarzman said in video on Blackstone's YouTube channel. "I think I can go on forever. Probably not true, but that's, you know, my delusion."
Even if Schwarzman is not at the forefront of every investment decision at Blackstone, he remains a prominent figure in fundraising, promoting the firm as a diversified asset manager and seeking to attract capital across its investment platforms. Blackstone's brand is inextricably tied to his name.
While Schwarzman is still very much involved in running and expanding Blackstone, he had delegated the day-to-day running of the firm to James. Blackstone said Gray would assume similar duties, giving James more time to focus on investing and cultivating clients.
"This is not a surprise at all," said Steven Kaplan, a University of Chicago finance professor who carries out research on private equity. "Gray has been a star on the real estate side. He was a natural successor."
The announcement makes Blackstone the latest private equity firm to announce such a move. Rivals such as Carlyle Group LP (O:CG), KKR & Co LP (N:KKR) and Ares Management LP (N:ARES) announced succession plans last year.
Before joining Blackstone, James ran investment and merchant banking at Donaldson Lufkin & Jenrette, which was taken over by Credit Suisse (SIX:CSGN) First Boston in 2000. In recent years, James has considered taking a role outside of Blackstone, and in 2012 was offered the job of commerce secretary under U.S. President Barack Obama, Reuters reported at the time.
Blackstone shares closed up 0.8 percent at $33.55.
REAL ESTATE
Blackstone's portfolio of companies have more than 490,000 people on the payroll around the world and manage money belonging to tens of millions of pensioners as well as sovereign wealth funds, according to Blackstone data.
Gray's appointment underscores the growing importance to Blackstone of its real estate business, which has emerged as a bigger contributor to earnings than its private equity business in recent years. Blackstone also has large credit investment and hedge fund-of-funds businesses.
Gray joined Blackstone out of college in 1992 and went on to spearhead some of Blackstone's biggest deals - including the acquisition of Hilton Worldwide Holdings for $26 billion in 2007. He then successfully navigated the fallout from the 2008 financial crisis on real estate, leaving Blackstone as one of the few major investment firms thriving in the sector.
This helped him stand out from his peers - including Blackstone's private equity head Joseph Baratta and Bennett Goodman, the co-founder of the firm's credit investment arm - to take over from Schwarzman.
Last month, Blackstone agreed to buy a majority stake in the Financial and Risk business of Thomson Reuters Corp (N:TRI) (TO:TRI), the parent of Reuters News, in a $20 billion deal. Reuters News will remain part of Thomson Reuters.