Operator:

Good day, and welcome to the Blackstone Second Quarter 2024 Investor Call. Today's call is being recorded. At this time all participants are in a listen-only mode. [Operator Instructions]. At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Steve Schwarzman :

Good morning and thank you for joining our call. On our last several earnings calls, we spent a good deal of time talking about how we saw inflation, compared to many other market participants. We took a strong view that we were seeing different outcomes with inflation moderating more quickly, in part because of our unique position in the real-estate area and our understanding of the shelter component of the Consumer Price Index. As a result of our convictions, we decided to adopt a more aggressive approach to new investments. I'm pleased to report that in the second quarter we deployed $34 billion, the highest level in two years, and nearly $90 billion in the last three quarters since the 10-year treasury yield peaked. With inflation continuing to recede, we expect the Fed to begin cutting interest rates later this year. This should be very positive for Blackstone's asset values and provide the foundation for a significant realization cycle over time. As the largest alternatives firm in the world, with nearly $1.1 trillion of AUM, the real-time data collected across our global portfolio provides insights that help us decide in which areas to concentrate our investments. This data also alerts us to major paradigm shifts, which is essential for any top-performing asset manager. Our firm has demonstrated this foresight repeatedly since our founding, including the decision to extend our private equity business into real estate in 1991 when values collapsed following the savings and loan crisis, by significantly expanding our credit platform in 2008 in advance of the extraordinary investment opportunities that arose from the global financial crisis. Being the first investment alternatives firm, to start and develop a dedicated private wealth business in 2011 and introducing the first large-scale perpetual product for that channel in 2017 and our decision later the same year to create a perpetual infrastructure strategy for institutional investors, which now anchors an overall infrastructure platform across Blackstone of over $100 billion. This demonstrated ability to be in the right place at the right time continues on an accelerated basis today. This includes our investments and innovation in all types of private credit, where we're one of the world's largest managers; in global logistics as the largest private owner of warehouses in the world; in the energy transition field, where we own the largest private renewables developer in the United States. In India, where we believe Blackstone is the largest alternatives investor in what has become the fastest growing major economy, and of course in data centers, where we own the fastest growing platform in the world. I'd like to take a moment to discuss what Blackstone is doing today in Artificial Intelligence, specifically in data centers, which is an essential part of that breakthrough area. AI is widely acknowledged as having the potential to be one of the greatest drivers of transformation in a generation. I have personally been active in this field since 2015. I believe the consequences of AI are as profound as what occurred in 1880 when Thomas Edison patented the electric light bulb. While it took years to develop commercially viable products, the subsequent build out of the electric grid over the following decades has parallels to the creation of data centers today to power the AI revolution. Current expectations are that there will be approximately $1 trillion of capital expenditures in the United States over the next five years to build and facilitate new data centers, with another $1 trillion of capital expenditures outside the United States. The need to provide power for these data centers is a major contributor to an expected 40% increase in electricity demand in the United States over the next decade compared to minimal growth in the last decade. We believe these explosive trends will lead to unprecedented investment opportunities for our firm. Blackstone is positioning itself to be the largest financial investor in AI infrastructure in the world as a result of our platform, capital and expertise. Our portfolio today consists of $55 billion of data centers, including facilities under construction, along with over $70 billion in prospective pipeline development. Our largest data center portfolio company, QTS, has grown lease capacity 7x since we took it private in 2021. Through QTS and our other holdings, we have a robust ongoing dialogue with the world's largest data center customers. We're also providing equity and debt capital to other AI-related companies. For example, in the second quarter, we committed to provide AI-focused cloud service provider, CoreWeave, with $4.5 billion of a $7.5 billion financing package, the largest debt financing in our history, and we're now focusing on addressing the sector's power needs in many differentiated ways. With large-scale platforms in infrastructure, real-estate, private credit and renewable energy, we are extremely well positioned to be the partner of choice in this rapidly growing area. In another important area where Blackstone, once again, has been in the right place at the right time, is real-estate. During the global financial crisis, most competitors were forced out of business or delivered mediocre results. In fact, sometimes losing money for their customers, where Blackstone, for our investors, ultimately doubled their money. How did we do it? We owned the right assets in the right sectors with the right capital structures, enabling us to emerge from the crisis as the clear market leader. As a result, institutional limited partners and subsequently individual investors allocated significant capital to Blackstone real-estate in contrast to most other real estate managers. With that capital, we repositioned our portfolio over time by selling US office buildings and instead bought warehouses, rental housing, and eventually data centers. These three sectors comprised approximately 75% of our global real-estate equity portfolio today compared to 2% in 2007. This repositioning drove the outperformance and extraordinary growth of our real-estate business over the last decade and a half. Real-estate markets, of course, are cyclical, and over the past 2.5 years, the increase in interest rates and borrowing costs has created a more challenging environment. Even through this period, Blackstone real estate has delivered differentiated performance. BREIT for example, has generated a cumulative return of 10% net in its largest share class since the beginning of 2022 and 10% plus net returns annually since inception 7.5 years ago, more than double the return of the public-REIT market. Nearly 90% of BREIT's portfolio is in warehouse, rental housing, and data centers, with data centers alone contributing almost 500 basis points to returns in the last 12 months. The performance BREIT has achieved is the key reason it is 3x larger today than the next five largest non-traded REIT’s combined. Now the cost of capital has begun to decline, which would be further helped by Fed cuts later this year. We believe creating the basis for a new cycle of increasing values in real estate. At the same time, new construction for most types of real-estate is declining dramatically down 40% to 70% year-over-year, depending on the asset class. Looking forward, we are confident the outcomes experienced by our investors in this cycle will further reinforce our leadership position and will result in higher allocations to Blackstone from both institutional and private wealth channels in the future. Real-estate is one of the largest asset classes in the world, and having the largest business when the cycle is turning should be very advantageous for our shareholders. Blackstone is the reference firm in the alternatives industry, and for nearly four decades, we've been an essential partner to our investors helping them navigate a dynamic world. The Blackstone brand engenders deep trust with our clients, allowing us to innovate and build leading businesses across asset classes. We now have 75 individual investment strategies, and we are working on many more currently. Our near-term plans include launching several new products in the private wealth channel, the global expansion of our infrastructure platform, further deepening our penetration of the private credit and insurance markets, and expanding our business in Asia. Our firm is as innovative today as at any point in our history. Innovation in finance done correctly is essential to create the virtuous cycle of satisfied investors who provide more and more capital for future growth. I have great confidence that we are firmly on this path. And with that, I'd like to turn it over to Jon.

Michael Chae :

Thanks, Jon, and good morning everyone. The firm delivered steady financial results in the second quarter, with positive momentum in fundraising and deployment as you've heard today. I will first review results, and we'll then discuss investment performance and the outlook. Starting with results, the firm's expansive range of growth engines continues to power AUM to new record levels. Total AUM increased 7% year-over-year to $1.1 trillion, with inflows of $39 billion in the quarter and $151 billion over the last 12 months. Fee-earning inflows were also $151 billion for the LTM period, including $53 billion in the second quarter, the highest level in two and a half years, lifting fee-earning AUM by 11% to $809 billion. We activated the investment periods for our corporate private equity and PE energy transition flagships in the second quarter, which along with BXPE and Private Wealth, were in fee holidays as of quarter end, representing $27 billion of fee AUM in aggregate. Notwithstanding the temporary impact from these fee holidays, management fees increased 5% year-over-year to a record $1.8 billion in the second quarter. Notably, Q2 represented the 58th consecutive quarter of year-over-year growth in base management fees at the firm. Fee-related earnings, the comparison of FRE to prior periods was impacted by a decline in fee-related performance revenues in the real estate segment, including from BREIT, as its positive year-to-date appreciation came in modestly below the required hurdle. These revenues carry favorable margins, and their decline impacted the firm's FRE margin in the second quarter. These factors are partly offset by the steadily growing contribution from our direct lending business, with fee-related performance revenues in the credit and insurance segment rising 24% year-over-year to $168 million. Distributable earnings were $1.3 billion in the second quarter or $0.96 per share, up 3% year-over-year. DE was underpinned by the firm's steady baseline of fee-related earnings, with Q2 representing the 11th consecutive quarter of FRE over $1 billion. Net realizations were $308 million in the second quarter, up year-over-year, but still reflective of a backdrop that is not yet robust as it relates to scale dispositions. That said, we executed the sales of a number of public and private holdings in the second quarter, concentrated in our Asia private equity business, including a leading healthcare services company in Korea, the IPO and subsequent sale of stock of one of the largest housing finance platforms in India, and the sale of stock of an India-based technology company. Moving to investment performance, our funds generated healthy overall appreciation in the second quarter, led by strength in infrastructure, private credit and life sciences. Infrastructure reported 6.3% appreciation in the quarter, and 22% over the last 12 months, with broad gains across digital transportation and energy infrastructure. Our data center platform was again the single largest driver of appreciation in our real estate and infrastructure businesses, and for the firm overall in the second quarter. In credit, we reported another outstanding quarter against a continuing positive backdrop of private debt market fundamentals. The private credit strategies generated a gross return of 4.2% in the quarter and 18% for the LTM period. The default rate across our 2000-plus non-investment grade credits was less than 40 basis points over the last 12 months, as Jon noted, with no new defaults in private credit in the second quarter. Our multi-asset investing platform, BXMA reported a 2.1% gross return for the absolute return composite, the 17th consecutive quarter of positive performance, and 12% for the last 12 months. BXMA has done an extraordinary job delivering resilient all-weather returns over the past several years through volatile equity markets and the longest and deepest drawdown in bonds on record. Since the start of 2021, the absolute return composite, net of fees, is a cumulative 27% or nearly double the traditional 60/40 portfolio. The corporate PE funds appreciated 2% in the second quarter and 11% for the LTM period. Our operating companies overall reported stable mid-single digit year-over-year revenue growth, along with continued margin strength. In real estate, values were stable overall in the quarter, supported by strength in data centers and global logistics. This was offset by declines in our office portfolio, including Life Sciences Office and certain other factors. One final highlight on investment performance. Our dedicated Life Sciences business delivered a standout second quarter. The funds appreciated 11.9% and a remarkable 33% for the LTM period after achieving positive milestones for multiple treatments under development, including for stroke prevention, cardiovascular disease and rare forms of epilepsy in children. The growth and performance of this business is yet another example of the firm's ability over many years to innovate and translate megatrends into large-scale businesses for the benefit of our investors. Turning to the outlook, we're putting in place the foundation for a favorable step-up in earnings power over time. First, in terms of net realizations. We expect a near-term lag between improving markets and a pickup in these revenues as we stated previously. In the meantime, the firm's underlying performance revenue potential has continued to build, with performance revenue eligible AUM in the ground reaching a record $531 billion at quarter-end. Meanwhile, net accrued performance revenue on the balance sheet, the firm's store value, grew sequentially to $6.2 billion or $5.08 per share. As markets heal and liquidity improves, we are well positioned for a significant acceleration in net realizations over time. In terms of FRE, we anticipate a material step up in FRE in the fourth quarter, with multiple drivers of note. First, with respect to management fee holidays, the corporate PE and energy transition flagships will exit their respective fee holidays in the coming months and will generate full management fees in Q4. BXPE exited its fee holiday this month. Second, in terms of fee-related performance revenues, Q4 includes a scheduled crystallization for the commingled BIP infrastructure strategy with respect to three years of significant accrued gains, as well as BXP's first crystallization event with respect to full year 2024 gains. Looking forward to 2025, we will see the full year benefit of the flagship vehicles that were activated in 2024. We also expect to raise multiple other flagships throughout the course of 2025, including Life Sciences, private equity secondaries, private equity Asia, and other major strategies. In addition, we expect the continued expansion of our platform of perpetual strategies, which has grown by 2.5x in the past three years. And importantly, our credit insurance business is on a strong positive trajectory, with segment FRE increasing nearly 30% year-over-year in the second quarter. The dual engines of performance and innovation at Blackstone continue to drive the firm forward. In closing, the firm is exceptionally well positioned against today's evolving backdrop, with powerful structural tailwinds and multiple engines of growth. Our long-term capital provides the flexibility and firepower to invest, and the patience to sell assets when the time is right. We are very optimistic about the future of Blackstone. With that, we thank you for joining the call. I would like to open it up now for questions.

Craig Siegenthaler:

Good morning, everyone. So, my question is on investing. It was nice to see the sharp pick up in both deployments and commitments in the quarter. And with the credit piece more steady, we wanted to get your perspective on the two equity businesses, real estate and private equity. So, do you think we'll likely see further progress in the second half, or is a $24 billion deployment and $19 billion commitment run rates driven by upticks in P [ph] in real estate, really a good run rate going forward, just given the stronger activity levels that you already achieved this quarter?

Craig Siegenthaler:

Thank you, Jon.

Jon Gray:

Good morning, Mike. Mike, are you with us?

Jon Gray:

Let's move on in the queue.

Alex Blostein:

Hey, good morning, everybody. Hey Jon, so maybe just building on your point around deployment activity picking up, I was hoping we could go in on what that could mean for real estate fundraising. Obviously, it's been an area of somewhat of a challenge, but as deployment ramps, and you guys are making nice progress on BREP X, I believe, and other areas as well. So what areas do you think will be the soonest to come back when it comes to real estate fundraising and your broader outlook there over the next 12 to 18 months?

Michael Chae:

And I'd just add, Alex. This is Michael. In terms of the breadth drawdown area, obviously, I think our timing was fortuitous in terms of being able to raise those funds over the last two or three years and now being in a really amazing position with $60 billion of dry powder. And so we're in a good position where subject to finishing the Europe drawdown fundraise where we have a lot of dry powder to invest from those opportunistic vehicles.

Operator:

Thank you. We'll go next to Glenn Schorr with Evercore ISI.

Jon Gray:

Morning.

Jon Gray:

Well, I think it is a big area of opportunity, because I think you can offer clients higher returns in investment-grade private credit, particularly in the asset-backed sector, because you are able to take out a lot of the distribution costs in an ABS transaction and so we've seen a tremendous amount of interest in this area. In fact, we talk about 15 SMAs with insurance companies away from the big four strategic partnerships and virtually all of those have some piece of asset-backed finance. It could be fund finance, it could be transportation, digital; it could be green energy, it could be residential. We're just seeing a tremendous amount of interest in this area. We've been building up the number of platforms. We have partnerships, flow agreements with banks. We've been making some smaller strategic investments from our partners as you know. We have a balance sheet light approach to this. But I think that market is something like a $5 trillion market, and the penetration remains very low and we have seen a big pickup in terms of our volumes in this area and I would expect you'll see more. I would also point out that the build-out of the AI infrastructure which Steve’s dwelled on, and I think is really important, much of that will be in asset-backed finance. And so if you think about financing data centers and financing the power that's going to support that, it will be ABF. And the fact that we have an enormous equity business that invests in scale in both of these areas and have a lot of expertise, makes credit investors and insurance companies particularly want to allocate more capital. So it feels to us like a very big market, early days in terms of penetration, and because these are long-duration assets, I think the holders really appreciate additional spread, and the dialogue in this area is as good as anywhere at the firm today.

Operator:

Thank you. We'll go next to Crispin Love with Piper Stanler.

Jon Gray:

You know, I think on the pre-election side, I think investors, frankly, are more focused on what's happening with the economy and in particular with inflation. I know there will be a lot of press coverage of course, rightfully on how the Democrats, Republicans are doing, how things look. But I think if we get good prints on inflation that gives the Fed more air cover to cut rates, that will be more determinative of how markets perform. So I think that is really the key thing to keep your eye on, even though there will be a lot of press focus on the election itself. I think post-election, you could see some very different policies. I would just back up and say look, we've operated in blue environments and red and purple environments, and the constant for us is delivering great returns for our customers and that's what we focus on. And we focus on a lot of these long-term trends that we've talked about, what's happening in digitalization, what's happening in power, in life sciences, the growth of the alternatives business, private credit. We think those are the long-term determinants of value. That being said, what happens here, there will be differences. There'll be differences in the regulatory front. Certainly if you had a Republican administration in areas like antitrust, you would see a different posture I would believe. On energy, you could see, obviously, a different approach on hydrocarbons versus renewables, and you have to factor that into investing. And you could see a very different policy in terms of tariffs broadening out and maybe being certainly higher, and you have to think about that in terms of manufacturing businesses. So the good news is, I think we have a pretty good sense of what that may look like, and we're really focused on the long-term in some of these big sectors where we think there are huge opportunities. And regardless of which side wins, I think those things will be really the critical item in terms of driving higher returns.

Operator:

Thank you. We'll go next to Brian Bedell with Deutsche Bank.

Michael Chae :

Sure. Hey Brian. Look, I think the underlying sort of trajectory and the baseline for margins, certainly ex-FRE per, is one of stability in the near term, and we think operating leverage over the long term. I think you note correctly the two sort of key variables in the near term, fee holidays and that level of sensitivity to fee-related performance revenues on fee holidays, corporate private equity energy transition, both activated in this quarter, as I mentioned. We'll have some other funds that'll be in holiday proportions in the second half. So we'll come through that in the latter part of the year and into next year. Then second, that level of sensitivity to fee-related performance revenues. So core plus fee-related performance revenues do carry higher incremental margins generally as do direct lending incentive fees. On the other side for infrastructure, Q4 represents its first large crystallization. As we've been building and scaling out that business, it carries with it a modestly lower effective margin at this stage of its development. But of course, it's been performing extraordinarily well, and that's very positive for FRE on an absolute dollar basis. So overall, in the near term, we'd expect full year margins to be sort of in a reasonable range relative to last year, where it falls within that function of the factors I mentioned that you cited. Then longer term, that sort of picture of stability and over time of operating leverage. So, I think you framed the picture right. I think you alluded to the right couple of variables, and both the near term and into 2025. Obviously, on a long-term basis we're very comfortable and optimistic about it.

Operator:

Thank you. We'll go next to Ken Worthington with JPMorgan.

Jon Gray:

So a couple of things on the secondaries business. One, I would say is that if you just look at what's happening in alternatives, the growth in alternatives, which has been a double-digit grower now for a long period of time, what we've seen is the need for liquidity as an asset class grows. So that's why secondaries business continues to grow, and our business, which we started with 10 years ago at $10 billion has grown eightfold. So there's a need for liquidity. Even today, if you look at the volume of secondaries that trade, it's 1% to 2% of the underlying NAV in funds, which is very low for most asset classes in terms of liquidity. So there is, as alternatives grow, the fact that this sector, there's not enough liquidity today in the sector, and the sector is growing. It creates a secular opportunity. Also, as you know, in the institutional market what we've seen is a bunch of clients are over their targets, and that's creating a deployment opportunity. So I think we as the largest player in the space feel very good. When you comment on returns, if you look at those overall, they've been remarkably strong. Yes, in recent quarters not as strong, but since inception, mid-teens or higher returns, latest funds, high-teens net returns. So when we think about going back out to raise our next flagship fund, our confidence level is extremely high. Our last vintage, I think, was $22 billion for our private equity secondaries business. The team there, Verdun Perry has done an incredible job. Our expectation is we would raise something larger. So it feels like a segment that is well-positioned, that there is a bit of structural inefficiency that's allowed you to generate attractive returns. Clients are beginning to really recognize that the risk return is favorable, and we think it can continue to be a real growth driver here at Blackstone.

Ken Worthington:

Great. Thank you.

Operator:

We'll go next to Dan Fannon with Jefferies.

Jon Gray :

So what we said on real-estate, and you guys know, because we've been certainly talking about it for some time, is there are a couple of, I'd say very positive signs that are emerging in the overall real-estate picture. Office, as we've said, is more challenged. Vacancy rates in office today are sort of mid-20s, and it's going to take a while to work through that. In the other sectors, the fundamentals are better. If you think about apartments and logistics in the U.S. 5%, 6% vacancy. Demand has softened a bit, but pretty steady I'd say in both of those areas. Very positively supply has come down 50%-ish in multifamily starts, 75% from the peaks in warehouse starts, so that's very good long term. But the near-term thing that has really impacted price and transaction volume has been cost and availability of capital. So, if you went back to the fall, the tenor was 80 basis points higher than it is today. Spreads were probably 100 or more basis points wider, and the CMBS market was basically closed. That's changed pretty significantly, and the result of that is, in those sectors where we have our greatest exposure, which would be logistics and rental housing, we see 2x, 3x more bidders showing up to buy assets. So I think that is clearly a positive. We have said we don't see some sort of rocket ship V-shaped recovery here. But we definitely have seen, if you look at the Green Street Property Report, six quarters, as I noted, where things have been flat and rising, and the sentiment's improving. So you've got a better cost of capital environment. You've got decent fundamentals, in that sense, the groundwork. And if you went back to the financial crisis of course, we started deploying in the summer of ‘09. There were still plenty of negative headlines from troubled deals for the next couple of years, and it was a great deployment period for us. There's some similarities we're seeing today. The sentiment, we think, will stay negative because there still will be some troubled assets to work through the system. But on the ground prices have cleared, and some of these headwinds have gone away, and that creates a favorable environment, and what we're doing now is seed planting for the future. So these huge public to privates we've done in the U.S., the big push in European logistics, we think this will pay real dividends for our investors over time.

Operator:

We'll go next to Benjamin Budish with Barclays.

Jon Gray:

Yeah. In our Core+ institutional business, we've seen a little bit of a pickup. It's still single digit in terms of the redemption queue across our BPP product line. I think, as you know in this, different than what we have in our individual investor vehicle, that it's based on new capital coming in, in terms of providing liquidity over time, and the institutional investors have a recognition that it takes time in a period of like this to get liquidity. As I said earlier on fundraising, my expectation would be open-ended funds will take some time before investors feel a little more confident. We're starting to see some interest, particularly folks thinking about could they buy in at a little bit of a discount and so forth. But I think it's a question of working our way through the cycle. Again here, I think we've done a very nice job on how we've set these portfolios up for success over time in terms of the portfolio positioning. But I would say my expectations on inflows here would be a little bit muted over the near term. But as fundamentals, certainly as real-estate starts to deliver more positive performance, we can see the shift and that's exactly what happened. If you went back to the post-financial crisis period, interestingly what you see in that case is people want to get deployed and then they pull their redemptions from the queue. So in many cases, they get in the queue thinking about, well maybe I want liquidity. Then when the world turns, they pull that back. So, I think that could happen over time as well, and it is obviously a tie here to what happens in the cycle.

Operator:

Thank you. We'll go next to Brennan Hawken with UBS.

Jon Gray:

As you noted, there was a short-term impact in May in BREIT specifically as investors got nervous. We were able to assure investors that we managed the liquidity in a very differentiated way, and then we saw in June redemption specifically in BREIT come down pretty sharply 50% from May levels. As I noted in my remarks, month-to-date so far, they've come down additionally. We have not seen a dramatic change or frankly much of a change in terms of sentiment or what's happening in the private wealth channel. I think in real estate specifically, investors are still waiting and seeing here a bit, although we pointed out in the quarter, we had our best inflows in BREIT in a year. BCRED had its best quarter in two years in fundraising and BXPE has continued to raise significant money, and that has been a very successful launch in the first six months. Ultimately, this is about performance. That's what matters. That's what drives things. It's the same story as our institutional business. We are relentless in focusing on where we invest capital, how we manage the assets and how we deliver returns. If you look at BREIT since inception, remarkable double-digit net returns over 7.5 years, more than double the public REIT index. You look at the double-digit net returns in BCRED, the strong start for BXPE, this is what ultimately matters to our underlying clients, and this is what we've got to do. I think, frankly, getting through this downturn period and people seeing the semi-liquid structure work, I think will give additional confidence. So, as long as we continue to execute, I think that's the key in this private wealth channel. I feel good about our ability to do that. So our confidence in the channel remains extremely high.

Operator:

Thank you. We'll go next to Bill Katz with TD Cowen.

Jon Gray:

Thanks, Bill. It's definitely an area of large-scale opportunity, and everybody in the industry is recognizing this now. I think credit to our firm to get into this well before other people, to focus on financial advisors and their underlying clients, to build out now a 300-plus person global team led by Joan Solotar that's focused on serving individual investors and also innovating, creating these perpetual products that brought costs down very significantly from what had existed historically in non-traded REITs, non-traded BDCs, and really innovating to create things that would work from a cost structure, tax standpoint, liquidity standpoint. So I think we will see more competitors move into the space. The advantage we have is our brand. I touched on it at the end of my remarks, but I think that is perhaps the most powerful asset of our firm along with our people. Investors know us, trust us, because we've done such a great job investing capital for four decades. The relationship and reservoir of goodwill we have with individual investors in in the products, in the results we've delivered in BREIT and BCRED, and in the drawdown funds that we have sold into the channel have built up a lot of positive feelings. So I think others will show, but we're continuing to innovate here. We talked about in the remarks, new products in infrastructure and multi-asset credit. I think the one advantage I'd say in this market versus the institutional market, there you can have thousands and thousands of individual private equity firms or real-estate firms, credit firms. I think when you get to private wealth, the brands are going to matter, the scale, the ability to service. I think it'll be a smaller number of players in that segment. It'll grow over time, but it requires something different. We have a pretty meaningful first mover advantage, $240 billion of total assets. We are absolutely committed to delivering great performance and great service to the underlying customer. So, we recognize it's going to be more competitive. Others will try to do things in the marketplace. We respect them, but we really like our first mover position in this very large and growing market.

Operator:

Thank you. We'll go ahead to Patrick Davitt with Autonomous Research.

Michael Chae:

Yeah, I think Patrick, there has been over time a bit more of that dynamic that involves to some degree the open-ended funds and the nature of how those work. There have been some shifts in terms of allocation of capital between businesses that cross segments. Also, we had in the second quarter that the move from a reporting standpoint, a couple of businesses between credit and BXMA. So that's been – the nature of the business involves more of that, but it’s not – I think it's not going to be dramatically different over time.

Operator:

Thank you. We'll take our last question from the line of Arnaud Giblat with BNP.

Jon Gray:

So we love Europe. I'll be there next week, but it is harder on the regulatory front. If you look at the European Union, you have a completely different set of rules for private wealth products, almost by country, and some of the rules, I do believe, need to be updated. The definitions of who can invest, the term professional investor, which is technical. There are a lot of limitations by country, and the structures you can use are very different. So you have to attack Italy different than Switzerland and Spain or Germany. We built up a lot of capabilities. We're having some success today with our European direct lending platform, although it's still small. I think European investors ultimately will want the same thing as U.S. investors. They tend to be a little more risk averse as you know, but I think their desire for strong returns in a product that's designed and works for them will be high. We're a persistent bunch. We're going to stick at it in Europe. We do want to work with the regulators to try to make this a little bit more of a user-friendly environment. The distributors, the big financial institutions recognize this as well. So I think it's a long-term process. I think it can change. We've seen some changes in places like Japan that were conducive to selling some of these private wealth products. I think we will over time hopefully see changes in Europe, because I think the products make a lot of sense for customers. So, we'll stick at it, and it's probably going to take some time.

Weston Tucker :

Thank you everyone for joining us today, and look forward to following up after the call. Have a great day.

Operator:

Good day. And welcome to the Blackstone First Quarter 2024 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode [Operator Instructions]. At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Steve Schwarzman:

Good morning, and thank you for joining our call. Blackstone reported strong results for the first quarter of 2024, including healthy distributable earnings of $1.3 billion as Weston mentioned, underpinned by the highest fee related earnings in six quarters. On our January earnings call, following a volatile multi-year period for global markets, we noted an improving external environment and shared our view that 2023 would be the cyclical bottom for our firm. While changing market conditions take time to translate to financial results, including realizations and performance revenues, we are seeing positive momentum across many key forward indicators at our firm. Inflows were $34 billion in the first quarter and $87 billion over the past two quarters. We invested $25 billion in quarter one and $56 billion in the past two quarters with a strengthening pipeline of new commitments. We’re planting the seeds of future value and what we believe is a favorable time for deployment. At the same time, our fundraising in the Private Wealth channel meaningfully accelerated in the first quarter. Sales for our perpetual life vehicles increased more than 80% from the fourth quarter to $6.6 billion. We've stated before that short term movements in stock and bond markets impact capital flows in this channel. But ultimately, flows follow performance as well as innovation as we're seeing now. We've delivered 10.5% net returns annually for BREIT's largest share class over more than seven years and 10% for BCRED over three plus years. And we continue to successfully launch new strategies, including our private equity vehicle, BXPE, in the first quarter. With $241 billion of AUM in Private Wealth at Blackstone, we have the leading platform in our industry by far. We've established a significant first mover advantage with the number one market share for each of our major season products, along with a high percentage of repeat business across strategies. Blackstone is built on long term investment performance. We've achieved 15% net returns annually in corporate private equity and infrastructure since inception, 14% in opportunistic real estate and secondaries, 12% in tactical opportunities and 10% in credit. In the first quarter, our funds reported steady appreciation overall, highlighted by strength in infrastructure, credit and our multi-asset investing platform, BXMA. Our portfolio is in excellent shape, and our limited partners continue to benefit and we've positioned their capital, emphasizing new neighborhoods, such as digital infrastructure, logistics and energy transition. The firm's thematic approach to deployment is informed by the real time data and insights we gather from our global portfolio, which helps us to identify trends early and build conviction around our ideas. Blackstone is the largest and most diversified firm in the alternatives area with over $1 trillion of assets under management and we believe our knowledge advantage consequently is a unique asset in our industry. For example, digital infrastructure, one of the firm's highest conviction investment themes today, is a powerful example of this knowledge advantage at work. Just as we recognized the rise of e-commerce nearly 15 years ago and started buying warehouses, we anticipated a paradigm shift around demand for data centers, driven by growth in content creation, cloud adoption and most importantly now, the revolution underway in artificial intelligence. Others now know that AI requires exponentially more computing power and capacity than was previously imagined. On a personal basis, in less than two weeks, I am participating in the dedication ceremony for the Schwarzman College of Computing at MIT, which will be heavily focused on this area. What has Blackstone done with our conviction? We identified QTS, the fifth largest US data center REIT as a well positioned but poorly trading public company with tremendous long term potential. Our BREIT, BIP Infrastructure and BPP perpetual strategies acquired the company for $10 billion in 2021, and its lease capacity has already grown sixfold in less than three years. Today, QTS is the largest data center company in North America. We are building a variety of other center platforms around the world as well. In total, Blackstone vehicles now own $50 billion of data centers globally, including facilities under construction. And there is an additional $50 billion in prospective future development pipeline. Blackstone is highly differentiated in our ability to conceptualize the new business area and transform it into a $100 billion potential opportunity. We are also actively investing in other companies in AI related areas. We're buying as well as financing several firms that design, build and service data centers. We recently financed a cloud infrastructure business supporting AI development. And now we've transitioned to addressing the sector's growing power needs, leveraging our sizable energy infrastructure platform, which includes the largest private renewables developer in North America. There are several other powerful megatrends that we expect to drive the firm forward, both in terms of where we invest and where we raise capital. The most compelling of these today include the secular rise of private credit, where we have one of the world's largest platforms; infrastructure, energy transition, life sciences and the expansion of alternatives globally and particularly in Asia. In each of these areas, we've established leading platforms with tremendous momentum. Looking forward in 2024, the market environment will remain complex. The economy is stronger than expected but is starting to slow a bit. In terms of inflation, despite the recent US CPI readings, we are seeing a decelerating wage growth and minimal input cost increases across many of our companies. In real estate, we see shelter costs moderating, contrary to government data. We believe inflation will trend lower this year, although, the pace of decline has slowed recently. Geopolitical turbulence, including wars in the Middle East and Ukraine, adds further uncertainty to the business environment. And 2024 is a major election year as we all know with nearly half of the world's population going to the polls, which injects unpredictability around the future of important policies that impact the global economy. Blackstone is well positioned against this evolving backdrop. Our portfolio is concentrated in compelling sectors and we have the industry's largest dry powder balance of nearly $200 billion to take advantage of opportunities. Our long term capital provides the flexibility and firepower to invest while affording us the patience to sell assets when the time is right. The firm itself could not be in a stronger position with minimal net debt and no insurance liabilities, allowing us to distribute $4.7 billion to shareholders over the past 12 months through dividends and share repurchases. And we are in the early days of penetrating markets of enormous size and potential. With that, I'll turn it over to John.

Michael Chae:

Thanks, Jon, and good morning, everyone. Firm delivered strong results in the first quarter, highlighted by the reacceleration of fee related earnings. I'll first review financial results and will then discuss investment performance and the forward outlook. Starting with results. Fee related earnings increased 12% year-over-year to $1.2 billion or $0.95 per share, the highest level in six quarters and the third best quarter in firm history, powered by double digit growth in fee revenues, coupled with the firm's robust margin position. With respect to revenues, the firm's expansive breadth of strategies lifted management fees to a record $1.7 billion. Notably, Q1 reflected the 57th consecutive quarter of year-over-year growth of base management fees at Blackstone. Fee related performance revenues doubled year-over-year to $296 million generated by multiple perpetual capital vehicles in credit and real estate, including a steadily growing contribution from our direct lending business, scheduled crystallization in our European BPP logistics strategy and BREIT. The setup for these high quality revenues is favorable in 2024 and beyond, which I'll discuss further in a moment. With respect to margins, FRE margin was 57.9% in the first quarter, in line with full year 2023. Distributable earnings were $1.3 billion in the first quarter or $0.98 per common share, stable year-over-year and underpinned by the growth in FRE. Net realizations remain muted at $293 million. And going forward, we expect a lag between improving markets and a step-up in net realizations. In the meantime, the firm's strong underlying FRE generation has supported a consistent and attractive baseline of earnings with Q1 representing the 10th consecutive quarter of FRE over $1 billion. We did execute a number of sales in the quarter, including a stake in one of the largest cell tower platforms, public stock of the London Stock Exchange Group and the sales of certain other public and private holdings. We also closed or announced several dispositions in our real estate and infrastructure perpetual vehicles, which as a reminder, do not earn performance revenues based on individual asset sales but on NAV appreciation. These included a trophy retail asset in Milan for EUR1.3 billion, representing the largest real estate single asset sale ever in Italy, portfolio of warehouses in Southern California and a prime office building in Seoul. Each of these sales generated a substantial profit individually and in aggregate, a gross multiple of invested capital of approximately 2 times. These dispositions exemplify the significant quality and embedded value within the firm's investment portfolio. Turning to investment performance. Our funds generated healthy overall appreciation in the first quarter, as Steve noted. Infrastructure led the way with 4.8% appreciation in the quarter and 19% over the last 12 months with broad gains across digital, transportation and energy infrastructure. The QTS data center business was the single largest driver of appreciation for BIP, BREIT and BPP US and for the firm overall in Q1. The comingled BIP vehicle has generated 15% net returns annually since inception, powering continued robust growth with platform AUM increasing 22% year-over-year to $44 billion. The corporate PE funds appreciated 3.4% in the quarter and 13% for the LTM period. Our operating companies overall reported healthy, albeit decelerating, revenue growth along with margin strength. In credit, we reported another outstanding quarter in the context of strong fundamentals and debt marks generally and tightening spreads with a gross return for the private credit strategies of 4.1% and 17% for the LTM period. The default rate across our nearly 2,000 noninvestment grade credits is less than 40 basis points over the last 12 months with zero new defaults in our private credit business in Q1. Our multi-asset investing platform, BXMA, reported a 4.6% gross return for the absolute return of composite and 12% for the last 12 months, the best quarterly performance in over three years and the 16th quarter in a row of positive returns. Since the start of 2021, the composite has delivered nearly double the return of the 60-40 portfolio net of fees, a remarkable result in liquid markets. Finally, in real estate, the Core+ funds appreciated 1.2% in the first quarter, while the BREP opportunistic funds appreciated 0.3%. These returns include the negative impact of currency translation for our non-US holdings related to the stronger US dollar, equating to 20 and 60 basis points impact on each strategy respectively. As Jon noted, we see a recovery under way in commercial real estate, and in our portfolio cash flows are growing or stable in most areas. Overall, strong returns lifted net accrued performance revenue on the balance sheet, affirmed store value sequentially to $6.1 billion or $5 per share. Meanwhile, performance revenue eligible AUM in the ground increased to a record $515 billion. The resiliency and strength of the firm's investment performance over many years and across cycles powers the Blackstone innovation machine and provides the foundation of future growth. Moving to the outlook, where several embedded drivers support a favorable multiyear picture of growth. First, the firm has raised approximately $80 billion that is not yet earning management fees and new drawdown fund vintages that haven't yet turned on along with certain other funds. These will commence when investment periods are activated or capital is deployed depending on the strategy. We plan to activate our corporate private equity flagship this quarter, which has raised over $19 billion to date, followed by an effective four month of fee holiday. We expect to activate several other drawdown funds over the balance of the year followed by respective fee holidays. Second, our platform perpetual strategies has continued to expand, now comprising 45% of the firm's fee earning AUM. As a reminder, our private wealth perpetual vehicles, including BREIT and BCRED, generate fee related performance revenues quarterly as will BXPE starting in Q4 of this year. Our institutional strategies, BPP and real estate and BIP and infrastructure, generate these revenues on multiyear schedules with a sizable crystallization for the comingled BIP vehicle scheduled to occur in Q4 of this year with respect to three years of accrued gains. Third, our investment grade focused credit business is on a strong positive trajectory, as Jon highlighted, and we expect $25 billion to $30 billion of inflows again this year from our four major insurance clients [alone]. In closing, the firm is moving forward in a position of significant strength. Our momentum is accelerating in key growth channels and our underlying earnings power emerging from this period of hibernation continues to build. We have great confidence in the outlook for the firm. With that, we thank you for joining the call. I would like to open it up now for questions.

Michael Cyprys:

I wanted to dig in on infrastructure, the platform continues to build, I heard $44 billion AUM, strong returns, 15% net. Maybe you could just update us on the platform build-out, the initiatives here that can help accelerate growth. It seems like there's a tremendous market opportunity out there. Just curious what you see as the gating item on seeing this business multiples of the size, maybe talk about some of the steps you're taking around expanding your origination funnel and infrastructure and as well as expanding the vehicles for capital raising across the return spectrum and customer sets globally?

Michael Chae:

And Jon, I'd just add on, and I think you might agree that, I think if you step back, Mike, you could analogize it’s sort of the multi decade growth path of real estate, that business overall with respect to another area of relapse that's infrastructure, and that is geographic/regional expansion, expansion up and down the risk return spectrum, cross asset classes between equity and debt and also serving different customer channels, whether it's retail insurance or institutional. So that's another way to dimension it.

Craig Siegenthaler:

My question is on real estate. So with deployments picking up with both the Tricon and Apartment Income take privates, and John, I heard your comments earlier this morning, but it sounds like the Blackstone house view is that the work from home and interest rate hit are now baked into cap rates. So given all this, can you comment on where we are in the investing cycle, be it dry powder at BREP, BPP and BREIT? And I also wanted your perspective on returns now that BREIT is back above its [prep] putting 2Q in a better position for [FRPR]?

Operator:

We'll go next to Alex Blostein with Goldman Sachs.

Jon Gray:

Well, I think it's a great question, Alex. One of the things we did when we designed BXPE was to make the platform as broad as possible so that we could scale the product and we could be flexible on behalf of investors in terms of where we deployed it. So control large scale private equity is part of it; US, Europe, Asia is part of it; Tactical Opportunities, more hybrid equity, part of it; life sciences growth, part of it; secondaries, infrastructure, some opportunistic credit. It's a very broad platform and it enables us to deploy a lot. One of the advantages of Blackstone is just our scale and the amount of deal flow we see across all these different areas. And particularly our connectivity with many other sponsors in the private equity space through our secondaries, our credit business, our GP stakes business, we can be great partners to those folks. Obviously, we can manufacture a lot of transactions ourselves. So we think the potential scale here is quite large. You pointed out BREIT scale, we're over $30 billion of equity, nearly $60 billion of assets in BCRED. We think this can grow a lot. The key is we have to deliver strong performance to the underlying customers. We have to be disciplined in how we deploy capital and thoughtful. I think we've been doing that. I think we'll continue to do that. And that's what gives us a lot of confidence, which is investors want exposure to private equity, individual investors want a little bit of a different structure, and that's why I think BXPE is so attractive. So I think as we come out of this period over the last two years where there's been a lot of caution and negativity, as market sentiment improves, as we show the strong performance from our other individual investor products, I think there's a potential here of pretty good size. Again, we've got to do a good job deploying capital but I've got a lot of confidence, particularly given the breadth of the platform. So the short answer is I think this can grow to be much larger than it is today.

Dan Fannon:

Michael, last quarter, the message for this year on margins was stability. The first quarter was flat with last year. As you think about the momentum in the business that you highlighted and the prospects for growth and growth in AUM, how are you thinking about margins as you think about the rest of the year?

Operator:

We'll go next to Glenn Schorr with Evercore ISI.

Jon Gray:

SRTs are an area we're very active. I think we're the market leader today in terms of working with our bank partners. For them, these are capital relief transactions, as you know, where you're sharing in or taking first loss positions. We've been doing this with a variety of banks who are highly creditworthy institutions. One of the advantages we have is the strength we have across asset ownership and also corporate and real estate credit. So if we do these with bank partners, we can go through them in detail. The most active area has been subscription lines to date, which as you probably know, subscription lines to private equity firms have had virtually no defaults over the last 30, 40 years. So we like that area. When we work in investment grade or noninvestment grade, much of it's been around revolvers, which historically have had much lower loss ratios. And we were able to go through these portfolios and look at the credits we're taking. We do this, of course, not as Blackstone but on behalf of our investors in various vehicles and funds. The returns -- we've been doing this, by the way, for a number of years. And I just think our ability to look at the underlying credit as opposed to just make a macro call is our competitive advantage and our ability to do this and scale with the bank. So I see this as a win-win. It helps banks with some of the Basel pressure, balance sheet pressures they have and we're able to generate favorable returns. So I think this is a very good thing for the system overall. I think we're doing it in a quite responsible way. Our team is very experienced in how they execute these transactions.

Crispin Love:

So in recent weeks, there's definitely been a shift in the rate outlook as we're likely in a higher for longer scenario, which is very different than just three months ago. So can you just talk a little bit about how that might impact your outlook for investment activity and putting dry power to work going forward and then just how it might shift the areas where you're most excited about deploying capital?

Operator:

We'll go next to Brian Bedell with Deutsche Bank.

Jon Gray:

Brian, it's hard to put numbers on things, so I'll talk about it directionally. I do think when rates go up, the market tends -- the public markets tend to move much more than what we see in the private market. So for real estate, I do think that creates more opportunity for scalable deployment as some of those stocks move on, particularly if the debt market hangs in there. And so that disconnect can create opportunity. We've seen a pickup in Europe in real estate as well, some of that relating to distress, and there's very negative sentiment, even though the fundamentals on the ground are actually pretty good in our chosen sectors. And we're seeing overall in Europe, I think there, we'll see rates come down more quickly than the US, which is helpful. So short answer, yes, it should help real estate deployment. On private credit, we've got a lot of momentum, particularly in the investment grade and asset based -- asset backed area, that's where we're probably most active right now. The need for capital around digital and energy infrastructure, enormous. The needs for power tied to digital infrastructure but also electrification of vehicles, reshoring, very significant. And there's going to be a huge need for capital. So we see that almost regardless of the interest rate environment. I do think on the direct lending side, we've seen some spread tightening. Rates coming down will be helpful to see deal activity and I think at that point, we'll see a pickup. But regardless, our pipeline and credit both on the investment grade and noninvestment grade size has accelerated. So it's hard to say exactly how this happens but we feel good about the momentum and deployment. And I use my very scientific briefcase indicator, how many investment memos I'm taking home over a weekend, and it’s definitely been trending up. So I think that bodes well. It's hard to predict exactly how it manifests itself. But it feels like, certainly, this will be a more active year than last year for deployment.

Ken Worthington:

Looking into BPP, net accrued performance revenue, $73 million. I assume, down on this quarter's crystallizations. But IRRs are down to 6%, which I think is below the hurdle rate there. I know BPP is a collection of front end investments, like BioMed and Mileway. What needs to happen here for returns to recover and accrued performance fees to build into what I think are big crystallizations anticipated for next year?

Operator:

We'll go next to Ben Budish with Barclays.

Michael Chae:

I think on the margins on the fee related performance revenues, there is variability over time. But I think it's important to point out, as a practical matter, we think about sort of fee revenues and comp holistically on a business by business basis. And so -- and that gives us the ability, I think, to manage that, I think, thoughtfully over time. So you'll see variability over the long run for BREP margins where some are aligned with the firm margin overall. But in the near term, you will see that move around based on the fact that we manage things holistically, I think, for the benefit of the firm and shareholders. On equity based comp, I think when you step back, there is seasonality in the first quarter around that line item. And sort of movements between, say, Q4 of last year and Q1 are affected by that as well as other puts and takes. But if you sort of step back and look at the kind of growth trajectory. In Q1, it grew about 19% year-over-year. That's lower than the 2023 overall growth rate, which was 23%. That, in turn, was about half the growth rate of 2022 overall. And so we do expect -- you are seeing this move lower over time given sort of stable grant levels and we think that's positive.

Steve Chubak:

So it was encouraging to hear the positive commentary on private credit deployment despite the reopening of public or syndicated markets. But given the increased competition for deals, you know that credit spreads are tightening, high levels of credit dry powder. Curious if you're seeing any tangible signs or evidence of credit underwriting standards potentially growing more lax and how that could dampen the pace of deployment across the credit platform?

Operator:

Please standby as we reconnect our speakers.

Michael Chae:

Jon, I'll just chime in on that. Two things, one, to put a fine point on Jon's point about 44% loan to values, what that obviously means is, because these are mostly sponsored transactions with new equity being invested, that 56% of the capital structure on a new deal is being put up with cash equity junior to this debt from high quality sponsors. So that is sort of another dimension too that we think the risk reward here. And then on default rates, as I mentioned in my remarks, less than 40 basis points for our business in the first quarter. There is -- we are demonstrating -- because I think a couple of years ago, there were some concern in the marketplace about what would happen with the default rates for folks like us. There is differentiation, there is outperformance depending on the borrower selection and the individual private credit player. And so we're operating at a fraction, I think, of the overall market default rate, which is normalizing. So I think we feel really -- and that's while being a leader in deploying capital in private credit.

Brennan Hawken:

Just two on real estate, one housekeeping and one sort of more forward looking. Could you touch on the impact of the rate hedge in BREIT in the first quarter and April to date? And then more on the forward looking side, appreciate the comments on supply and real estate. But given that rates have actually started to back up and sure long rates are a little off the peak but not by much. What drives the confidence in real estate bottoming, wouldn't we need the cap rates to move up as much as base rates or close to as much as base rates have moved up in order to draw that demand into the market?

Jon Gray:

And then on cost of capital, certainly a rising 10 year, not helpful, but I think it's important to put it into context. As you noted, it's lower than it was in October but also debt capital being so important. So if you went back to October, it was extremely difficult to borrow money. Spreads were much wider and banks were very reluctant to lend in the space. In the first quarter, as I noted, we've seen a fivefold increase in CMBS issuance. So the fact that debt capital is more available and the cost is meaningfully lower because of the spread not as much the base rates, that's a helpful sign. So it is more positive than it was six months ago. Backing up 10 year treasury, as I noted, not helpful. But the fact that overall, it does feel to us at some point here the Fed is going to bring rates down, there will be some downward pressure, that should be helpful. But the cost of capital overall coming down is helpful. And that's why we're seeing, even today, despite the backup in rates more folks showing up to buy assets than certainly we saw six months ago.

Bill Katz:

Just coming back to the opportunity in global wealth management. I was wondering if you could talk a little bit about where you're seeing the volume coming from, to the extent you get that kind of granularity from the distributors? And then secondly, just given the tremendous focus on many of your peers into the space, also wondering how you sort of see the competitive environment unfolding as we look ahead?

Operator:

We'll go next to Brian McKenna with Citizens JMP.

Jon Gray:

So AI is obviously hugely important for our business, for the global economy. I would just frame this by saying, we set up our data science business back in 2015. We've got more than 50 people on that team today. We have focused historically on predictive AI, which is basically numbers in, numbers out. So you could look at a company and you could look at their pricing history and you could do much more sophisticated revenue management than human beings could do, similarly in terms of staffing. And we've been using that as a tool for investing for quite some time now and we'll continue to do this. And we've been pushing it out to some of our portfolio companies. I would point out also that Steve personally with his investments at MIT and Oxford has been a leader thinking about AI. And that has, I think, pushed the firm to try to do more in this space because we had more recognition something profound was happening here. I would say on the generative AI front, it's still very early days in terms of applications. The ability to take language and put that into the machine, produce language or videos, I think it will have a powerful impact, but that's going to take a bit of time. And what I think it will do most is impact customer engagement for many of our companies. I think it will also, on the content side, help in software development and media development. And we're working by hiring data scientists working with our teams, we hired a senior executive recently. But I'd still say on the generative side, it's early days. Now on the investing overall, what we've tried to do is focus on the infrastructure around AI and that is primarily data centers. And by going out there and investing in $50 billion of data centers that we own or have under construction and another $50 billion in development pipeline globally, which Steve talked about that really is the infrastructure. We're also spending a lot of time on power, which is a key necessity to build these data centers. And then we've made a number of investments around cloud companies, contractors building these, the whole ecosystem. So as a firm, we're trying to spend a lot of time. It's early days for us. The biggest impact has been around the infrastructure. But we're working hard to find ways to help our companies be more competitive, and we're certainly trying to make our investment process better. So an area definitely worth focusing on.

Patrick Davitt:

So there's been increasing regulatory focus on the more illiquid stuff, the ABS that you and others are originating for insurance balance sheets and to what extent those should have a higher risk weighting. I know insurance regulators work very slow. But what are you hearing from your 18 big insurance clients on that issue and are you seeing this concern factor into new business conversations with that channel at all?

Operator:

With no additional question in the queue, I'd like to turn the call back over to Mr. Tucker for any additional or closing comments.

Operator:

Good day and welcome to the Blackstone Fourth Quarter and Full Year 2023 Investor Call. Today's conference is being recorded. At this time, all participants are in listen-only mode. [Operator Instructions]. At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Stephen Schwarzman:

Good morning and thank you for joining our call. Blackstone reported strong results for the fourth quarter of 2023, including our highest distributable earnings in six quarters, which capped a volatile year for global markets. Most major equity indices rebounded from significant declines in 2022, but with wide intra-year swings, driven by historic movements in Treasury yields, economic uncertainty and geopolitical instability. Against this backdrop, Blackstone generated steady fee-related earnings of $4.3 billion for the year, underpinning healthy distributable earnings of $5.1 billion. Performance revenues were down as expected in the context of limited realizations as we choose to sell less in unfavorable markets. We've designed the firm to provide resiliency in times of stress and capture the upside as markets recover. In the fourth quarter, as bond yields declined and markets rallied, we executed several realizations, driving strong sequential growth in DE to $1.4 billion. 2023 was also a year of important milestones for Blackstone. We were the first alternative manager to surpass $1 trillion of assets under management. We were also the first in our sector to be added to the S&P 500 index, positioning our stock be even more widely owned. We were pleased that BX shares ranked in the top 20 best performing out of the 500 stocks in the S&P 500 index last year. Blackstone is now the 55th largest US public company by market cap, exceeding the market value of all other asset managers. In December, we released our sixth annual holiday video, which has received over 8 million views, which may not say something about our limited acting skills, but it certainly says something about the Blackstone brand. Our funds appreciated overall in 2023, highlighted by strength in credit, infrastructure, corporate private equity and life sciences, even as we weathered the difficult environment for real estate. Stepping back, over the last two years, the campaign by central banks to control inflation has resulted in muted returns for most traditional asset classes. The S&P 500 returned only 3% over two years, while the median US stock actually declined 9% and the REIT index was down 14%. Their traditional 60/40 portfolio lost value, down 3%. In contrast, Blackstone's flagship strategies generated positive appreciation over this period and meaningfully outperformed the relevant public indices. For example, our corporate private equity funds appreciated 12% over the past two years compared to the S&P up 3%, outperformance of 9%. Our real estate equity strategies appreciated 1% to 6% compared to negative 14% for public REITs. That's a dramatic outperformance. In credit, our private credit strategies appreciated 25% growth while the high yield index was up only 2%. BAAM generated a 13% gross return to the BPS composite over the past two years, a remarkable achievement in liquid markets and well ahead of the hedge fund index, which actually was down 1%, and that's an outperformance of 12%. And finally, our infrastructure business appreciated 33% over the past two years compared to only a 7% return for the S&P infrastructure index. That's an outperformance of 26%. This outstanding performance is one of the reasons we've been able to build this platform from zero six years ago to over $40 billion today. Overall, the ability to outperform market indices over long periods of time is why the alternatives asset class and Blackstone, in particular, continue to have significant momentum. Our limited partners have benefited from the exceptional balance of the firm and the careful way we've positioned their capital in a volatile world. One of the key advantages that comes from our leading scale is having more, better and richer private data, which informs how we invest. And Jon referred to this on television today. Our portfolio consists of over 230 companies, more than 12,000 real estate assets and one of the largest credit businesses in the world. We marshal real time data across these holdings to develop macro insights that we then share across all of our businesses, allowing the firm to adapt quickly to changing conditions. We believe our access to information exceeds that of our competitors, and it positions the firm's very well as we move towards a world driven by artificial intelligence, an area on which we are already very focused. This process of aggregating data and information helps us identify trends early and often, leads us to differentiated views on what's happening around the world. In early 2021, for example, it led us to the conclusion that inflation would be higher and more pervasive than the consensus expectation, and we positioned the firm accordingly. We then started speaking publicly that inflation was moderating as early as October 2022 and with increasing frequency in 2023. Data from our portfolio companies showed that input cost inflation was rapidly declining. We persisted in this view, even when the 10 year Treasury yield spiked to a 16-year high of 5% in October. As we all know, the 10 year subsequently declined over 100 basis points into year-end, the opposite of what many market participants believed would happen. Our access to information is an enduring competitive advantage here at Blackstone. And this advantage grows as we grow larger. As we move into 2024, we know that the rise in investor confidence around the shift from a restrictive monetary policy to one that is more accommodating. We now believe CPI is running below the Fed's 2% target after adjusting the reported numbers for shelter costs, which lag what we've observed on the ground as one of the largest investors in this area. At the same time, US economy has remained quite strong. Unemployment is nearly unchanged since the start of the Fed's tightening cycle. Most consumer segments are healthy, corporate balance sheets are strong, and credit fundamental has remained solid. In our own portfolio, our companies are showing strong top line performance overall as well as earnings growth as cost pressures have eased. We see a resilient economy, albeit one that is decelerating. What we're seeing is consistent with a soft landing. Overall, with the cost of capital moving lower, market confidence returning, we believe we're entering a supportive environment for our business. While changing market conditions take time to fully translate to our financial results, the fourth quarter reflected an acceleration in key forward indicators, including both fundraising and deployment We're planting seeds and expanding invested capital in the ground. And with nearly $200 billion of dry powder, our purchasing power for investments exceeds almost any other company in the world. I believe that we will look back at 2023 as the cyclical bottom for our firm. Looking forward, Blackstone is exceptionally well positioned to navigate the road ahead. Our investors can count on the dedication of our people and the enduring nature of our culture, characterized by excellence, achievement, teamwork, hard work, and the highest standards of ethics and integrity. Our employees embody these values, and they approach their work every day with a passion for what they do and an unwavering commitment to serving our clients. We created an environment in the firm that is defined by meritocracy and equality of opportunity. We do not discriminate against anyone based on race, ethnic background, religious beliefs, gender, or sexual orientation. We are proud of these values. Our people want to create and build their careers at Blackstone, and there was a huge demand to work at the firm. We had 62,000 unique applicants or 169 physicians in the latest analyst class, reflecting an acceptance rate of 0.271%, a dramatic change from when we started the firm 38 years ago, when, frankly, hardly anyone wanted to join us. This provides the foundation for the next generation of remarkable talent and will drive our growth for the foreseeable future. Blackstone is an extraordinary place and our prospects are very strong. I'm highly enthusiastic about what we will accomplish for our shareholders in 2024. And with that, I'll throw the ball over to Jon.

Michael Chae :

Thanks, Jon. And good morning, everyone. The firm delivered resilient performance in 2023. And as we move forward, beyond what we believe was a cyclical trough for key business lines, we are well positioned. I'll first review financial results and then we'll discuss the key elements of the forward outlook. Starting with results. Total AUM increased 7% year-over-year to new record levels, led by robust strength in credit and insurance. Total inflows reached nearly $150 billion for the full year, the third best in our history, despite the challenging fundraising environment, highlighting the firm's expansive breadth of strategies. Fee earning AUM increased 6% year-over-year, while base management fees rose 7% to a record $6.5 billion. Q4 represented the 56th consecutive quarter of year-over-year growth in base management fees at the firm. Fee-related earnings for $4.3 billion for the year or $3.58 per share, stable with the prior year, underpinned by the growth in management fees along with continued margin expansion, notwithstanding a decline in fee-related performance revenues. FRE margin expanded to 75 basis points to 57.8% for the full year, the highest level ever. Fee-related performance revenues were $859 million for the year, with the lower contribution of real estate, partly offset by a 51% year-over-year increase in these revenues from our direct lending business as it continues to grow and scale and impact to the firm's financials. Distributable earnings were $5.1 billion in 2023 or $3.95 per common share. While FRE was a ballast to earnings throughout the year, the shape of the year was driven by our sales activity. Net realizations were muted in the first three quarters as we remained highly selective amid the volatile backdrop for broader markets and asset values. In the fourth quarter, we took advantage of more favorable conditions to execute the sales of public stock across multiple holdings, along with a number of other realizations. In addition, BAAM crystallized its incentive fees for most of its open ended strategies annually in Q4, and the segment's performance revenues increased 43% year-over-year, commensurate with its strong overall 2023 investment performance. In total, net realizations for the firm were $425 million in the fourth quarter, up 16% year-over-year and up 64% sequentially from Q3. The growth in net realizations lifted total distributable earnings to $1.4 billion in the fourth quarter, the highest level in six quarters, as Steve highlighted, or $1.11 per common share. Moving to the outlook, the firm is moving forward with a strong underlying momentum across multiple drivers of growth. First, in our drawdown fund business, we've raised over 80% of our $150 billion target for the most recent vintage or flagships, but less than half was earning management fees as of year-end. We expect this to increase to the substantial majority earning management fees by the latter part of 2024. We recently launched the investment period for our European real estate vehicle. And over the coming quarters, we expect to activate our flagships in corporate private equity, PE energy transition, growth equity, infrastructure secondaries, and by early next year, GP stakes in life sciences. These funds will earn fees following the respective fee holidays. We expect to activate our corporate private equity flagship in the near term, which has raised $18 billion to date toward a target of at least $20 billion, followed by a four-month fee holiday. At the same time, we're moving toward the next vintage of fundraising for multiple strategies, including the near term launch of fundraising for our fifth private credit opportunistic strategy targeting $10 billion. Second, our perpetual capital platform has continued to expand, today comprising 44% of the firm's fee earnings AUM. Key drivers of recent growth include BCRED and our infrastructure platform, which grew fee earning AUM by 26% and 21% in 2023, respectively. The commingled BIP infrastructure vehicle has achieved 15% net returns annually since inception, and its next scheduled crystallization of fee related performance revenues will occur in the fourth quarter of this year, with respect to three years of gains. Third, in the insurance channel, AUM has reached $192 billion, up 20% year-over-year, as Jon noted, driven principally by our four major clients, and we anticipate substantial inflows from them going forward, underpinning strong growth in fee revenues and FRE in this channel. Finally, with respect to realizations, we are positioned for an eventual acceleration in realizations in the context of more supportive markets, although it will take time to build the pipeline. Performance revenue eligible AUM in the ground is $505 billion, up 12% over the past two years despite volatile markets and up over 70% in three years. We hold a large scale high quality portfolio, which is well diversified across asset classes, regions and vintages, and net accrued performance revenue on the balance sheet stands at $5.8 billion. The firm's embedded performance-related earnings power is significant. As always, our long term capital affords us the patience to optimize our exits over time as markets heal in order to maximize value for our investors. In closing, history has shown that Blackstone has always emerged from cycles even stronger. Our business has been built on this throughout nearly four decades. We are now in the process of emerging from a significant cycle. And we are confident that history will repeat itself again because of the power of our brand, our platform, our people and our culture. With that, we thank you for joining the call and would like to open it up now for questions.

Craig Siegenthaler:

My question is on investing. Steve, I think I first heard your bullish commentary at Davos last week. But Jon really supported it today in the prepared comments with the CMBS market reopening, cost of capital falling, spreads are tighter. So the backdrop does seem to be a lot better than when you last hosted a call with us in October. And also, your deployment to new commitments were up nicely too. So what does your outlook for deployments broadly entail for 2024 versus the $74 billion last year? It sounds like it could be a double.

Operator:

We'll take our next question from Crispin Love with Piper Sandler.

Stephen Schwarzman:

A couple of things here. There's a transaction we announced last week included an apartment component, but that was mostly in Canadian apartments. The vast majority of the company focused on single family for rent. That space because of the shortage of single family homes has been much stronger. In the multifamily space, as we've noted here, what we've seen is a surge of new supply that was put in place during the low rate period when values had moved up a lot. And that's going to take probably 12 months, maybe a little longer to work through. Right now, rents have moved down to a level where they're pretty flat. In some cases, modestly negative. And as I said, that'll take some time. The good news is multifamily construction is now down about a third. And so, once you sort of work through this, we should be in a much better place. And the overall backdrop is one of a housing shortage in the United States. So, single family, stronger near term. Multifamily, definitely a little bit weaker. But in overall constructive housing environment in terms of our investment activity, it's possible you could see us invest into the weakness and multifamily because we've got a long term constructive view, even if there are some near term headwinds.

Michael Cyprys:

I wanted to ask about the commercial real estate lending platform that you have from BXMT, the BREDS and the institutional SMAs. I was hoping you could talk a bit about how you're broadening out the platform and the capabilities and how big of an opportunity set do you see given certain end market pressures as well as certain constraints facing US banks and other existing CRE investors?

Crispin Love:

We'll go next to Finian O'Shea with Wells Fargo Securities.

Michael Chae:

As we outlined, this year, as opposed to last year where I think in the second half of the year, there was more of a sort of an absence of significant flagships lighting, Europe being an exception late in the year. But there will be a series of activity we anticipate throughout the year. I mentioned sort of the multiple funds that fit in that category. Almost all of them, as you alluded to, have a three or four month fee holiday. So we'll be sort of seeing that unfold in the course of the next few quarters. And you will see, all else equal, because of the fee holiday, some marginal pressure on that. But I think when we look at the overall growth rate and how that will layer in, we see an embedded upward ramp on management fees, although it will accelerate later in the year as opposed to earlier.

Alex Blostein:

Another one on real estate and maybe zoning in on core real estate for a second. And obviously, lower interest rates should be really helpful to maybe reigniting some of the investor demand for that part of the market. But how are you thinking about both institutional and retail appetite for core real estate from here, whether it's BPP or BREIT? And what is sort of the level of interest rates we need to see where those products become compelling, again, from an investor allocation perspective?

Operator:

We'll go next to Brian Bedell with Deutsche Bank.

Michael Chae:

Two parts that question. On the first one, on the sort of trajectory of management fee growth for 2024 and 2025, and the short answer is we feel good about it. We don't have a crystal ball necessarily in terms of like quarter to quarter. But, structurally, we have that embedded ramp. As I mentioned, it will accelerate throughout the year, given the series of funds that will light and we see good strength in the latter half of the year and also in 2025, as you point out. We're focused on drawdown funds. That's an important engine of the business. Obviously, among other key positive factors is insurance where we sort of had a lot of visibility and articulated it since we really started scaling couple of years ago about built in, in many cases, contractual inflows from our four large partners and other insurance clients, which – and we are pursuing the sort of industry overall, I think, with a lot of optimism in the credit insurance area. So there are, I think, multiple engines, not just the new drawdowns firing there, although, again, I think it'll accelerate through the course of the year into 2025. On margins. Obviously, we're in a sort of more challenging macroenvironment. We feel good about our execution on margins in 2023. And what I would say about the outlook is that it's early in the year. And as always, we'd encourage you to look on a full year basis, not sort of measure it on a quarter to quarter. But with that said, at the outset of the year, again, I would reinforce the message of margin stability as a general guidepost.

Brennan Hawken:

You sort of touched on this a little bit with the margin stability point. But one thing I'm just curious about mechanically. So, full year 2023 FRE revenue down almost 3%, yet comp ratio up over 200 basis points, FRE comp ratio. So how's it possible to generate positive comp ratio leverage when revenues are down? Does that just suggest that FRE margin might compress when revenues grow? Or just we should think about our FRE margin stable, just maybe help me understand those mechanics?

Operator:

We'll go next to Ken Worthington with J.P. Morgan.

Jonathan Gray:

It's always hard to have a crystal ball where things are going to develop. But, clearly, when you're going through a cycle like this, as we've talked about, it takes a bit of time. And even the sales process in real estate, where you don't have a lot of liquid public securities you take off the shelf and sell, that lends itself to time. So, yes, I wouldn't expect a big surge in realizations in real estate in the first half of the year. We would expect as we look out over time, it will pick up. It's possible you could do larger transactions with some public companies to get things done. Certainly, our confidence as you get to the back half of the year and into 2025, you feel better about that. I guess what I would say is, this is a transitional year in terms of realizations in real estate. I would generally keep expectations on the lower side. I would feel a lot better as I look out over time. And the macroenvironment for that is a lower rate environment where we're back to modest growth, or we're at modest growth and we have limited new supply. And people are investing again in this asset class because it's delivering favorable results. So I do think on real estate realizations, you need a little bit of patience. I say that, of course, and then something will happen, but that would be our base case assumption. The good news is we feel terrific about where we've deployed the capital. The huge exposure we have in some of the very best sectors, the majority of our real estate portfolio on the equity side is in logistics, student housing and data centers, all sectors where we're seeing high single digit rates of growth, even in this environment. So when the environment gets better, we think we'll have the kinds of things the market wants. And we'll do it when we think values are appropriate. We want to maximize returns for our customers because, as you know, performance is the most important thing. And we think as we come out of this cycle, just like we did out of the last real estate cycle, we're going to emerge stronger. Other competitors, we don't believe will have the same kind of returns, and will help us even further grow our market share. So we want to do this in the right way. And it may take a bit of time, but we feel very confident about the ultimate outcome.

Patrick Davitt:

Despite the recovery in markets and confidence, there are still a lot of observers out there, including senior executives at some of your competitors, that seem pretty cautious on the view that this is going to be a much better private equity realizations year. Some even saying the PE mark still need a negative reset. You hinted that in the prepared remarks, but could you expand on where you stand on that debate? And do you have any broader thoughts on why there appears to be such a wide disparity in the PE outlook amongst your peers?

Operator:

We'll go next to Dan Fannon with Jefferies.

Stephen Schwarzman:

Well, I'd start with the backdrop on individual investors. We've talked about it on these calls in the past, but there's about $80 trillion of wealth globally, folks who have more than a million dollars of investable assets. We estimate that that's about 1% allocated to alternatives. We'll just call it 29%, 30% with our institutional clients. We think that has a lot of room to grow. We've shown success, obviously, in strong performance with our private real estate vehicle, our private credit vehicle, and we think the natural evolution here is a private equity vehicle. The strategy is broad based, as we talked about on the call, not just traditional corporate private equity, but tactical opportunities, secondaries, growth, life sciences, really plays to our strengths of this broad platform that we have. And so, as we look forward here, we think individual investors will respond. And of course, it's a function of how we deliver over time. Initially, we had a very strong start with that $1.3 billion first close, which reflects the relationships we've built up over time. I think an interesting fact that was pointed out yesterday is 85% of the financial advisors who allocated to BXPE in that first close had already allocated to BREIT and even a higher percentage had allocated to BCRED, showing cumulatively between BREIT and BCRED, showing that our customers feel tremendous loyalty to us. So, the fact that we have these deep long relationships, we've developed confidence, we've delivered performance. I think that makes us uniquely positioned in the retail space. And we think creating access to private equity in a semi liquid format will be more attractive. There will still be investors in the individual investor space who will invest with us in drawdown funds. But of course, you don't get all that capital back for 12 plus years, and it's got a little bit of a different structure. It lends itself to a smaller investor universe. We think there's going to be a lot of receptivity to this product. We're going to have to do like we did with BREIT and BCRED, which is deliver for the customers. As we do that, we think this product can grow to scale where today it's $60 billion of equity in BREIT, roughly $30 billion in BCRED, $60 billion of gross assets. And we think this product has the opportunity to grow as well. But we've got to deliver for the customers, get out there, engage and do it over time.

Ben Budish:

I wanted to ask on the insurance inflows. I guess, first, for the quarter, your inflows really picked up quite a bit versus Q3, and I think came in nicely ahead of where you had initially at least kind of indicated last quarter. You were looking for the year. So, was there any sort of pull forward? Has that sort of changed the outlook for 2024? And then just thinking tactically, you indicated you'd get to the $250 billion over the next several years? Can you be any more specific? What does several mean? How should we thinking this $15 billion, $20 billion over the next, like, three, four years? How should we be thinking about that, just as we're kind of fine tuning our models?

Stephen Schwarzman:

I would just add, given our model, which is an open architecture, the opportunity to do SMAs with other individual insurance clients, not necessarily these four, large strategics, we think that opportunity is significant. And of course, we're out there looking for other strategic partners. And our plan, as you know, is to run a capital light insurance business, managing money, and doing it for a wide variety of clients. Given the performance, what we've been able to deliver in terms of credit quality and yield premium, we think will attract more insurance companies. So this is an area we believe of real momentum. And we think we have multiple engines of growth, and we're going to be at it and having these four anchor clients is very helpful.

Michael Brown:

I wanted to just ask on the fee rates in the real estate and the credit business. We noticed that they declined in the fourth quarter, and understanding that's an output and can be noisy quarter over quarter. Do you view this as maybe the right jumping off point into 2024? And can you just help us think about maybe the blending of the fee rates on a go forward basis as we think about the push and pull of kind of the lower fee rate insurance AUM contrasted with the higher fee high net worth AUM inflows?

Operator:

We'll go next to Steven Chubak with Wolfe Research.

Jonathan Gray:

Well, I think there'll be obviously intense focus on the election, but I think it will not deter transaction activity, particularly if inflation keeps coming down and the Fed starts cutting interest rates. I think that will be more just positive. There are sectors which may be more or less affected, depending on which party wins here, although it's very possible that one party wins in terms of the presidency, another party might win in terms of the House and so forth, and so you end up with divided government and policy changes overall are more moderate. I think the most important thing to remember from our firm standpoint is we take a long term approach when we're investing capital. And we try not to get caught up in just the news of the day. And if you look at our firm, over the nearly 40 years since Steve founded it here, we've been in governments where we've had blue, red, purple, and we've delivered for our customers in those environments. And since 2007, delivered for our shareholders. We don't expect that to be any different. But I'd say transaction activity is going to be more tied to the Fed's activities than the election. And for us, it's taking this long term approach, but also keeping an eye on are there areas that are more sensitive politically. But, overall, if we think it's a good time to deploy capital, we're not going to let the election prospects dissuade us.

William Katz:

Maybe circling back to the credit platform for a while. So I appreciate that you have a multi vectored opportunity set there, but there's been some building debate in the market around the outlook for direct lending, in light of the fact that perhaps the issues around the banking system are starting to stabilize as a result of that. So a pickup in the syndicated loan market. How do you think it plays through in terms of direct lending opportunity in terms of both unit growth as well as spreads, appreciate you have a very big fund in the market, but just your broader thought process on how it plays out from a competitive and return perspective.

Operator:

Our final question will come from the line of Arnaud Giblat with BNP.

Stephen Schwarzman:

Well, I would say this, I go back to the big picture here, which we talked about, which is we do think we're seeing a bottoming in values, but we don't think this is some sort of -shaped recovery. And so, for us, we've said we think it's a very good time for deployment. Putting your finger on exactly what values will move to, it's hard to do. But certainly rates coming down, new supply coming down are helpful for the sector. I would say this, I would expect this year will certainly be better, would be my expectation from a valuation standpoint relative to 2023. But making predictions on exactly where it lands, I think that's tough to do this early in the year, but there are some good fundamental things happening on the ground.

Weston Tucker :

Great. Thank you, everyone, for joining us today and look forward to following up after the call.

Operator:

Good day and welcome to the Blackstone Third Quarter 2023 Investor Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time, I would like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Stephen Schwarzman:

Good morning and thank you for joining our call. Before we begin, I wanted to take a moment to acknowledge the recent events in Israel. We were shocked by the horrific terrorist attacks that occurred which are an affront to our shared human values. We are deeply saddened by the violence and tragic loss of life unfolding in the region. Our thoughts are with the people of Israel, our colleagues there and all of those enduring pain and hardship throughout the region. Turning to our results. The third quarter of 2023 was a volatile period for global markets including a dramatic increase in bond yields. Most major equity indices have declined and the median U.S. stock is negative on a year-to-year basis. Higher interest rates along with the confluence of other factors with the economic uncertainty, geopolitical turbulence, high fiscal deficits, political dysfunction, and labor unrest have adversely impacted investor sentiment. Today's environment is an extremely challenging one for investors to navigate. Against this backdrop, Blackstone generated distributable earnings of $1.2 billion in the third quarter, which were stable with the second quarter. The environment today is less favorable for realizations, so we've chosen to sell less. But the firm's underlying earnings power continues to build. We remain focused on executing the operating plans for our companies and driving the long-term value of our holdings. Our limited partners continue to benefit from the favorable positioning of our portfolio with resilient fundamentals in the sectors where we focused, which Jon will discuss further. Result is that nearly all of our flagship strategies outperformed market indices in the third quarter as they have for nearly 40 years. The firm's global scale gives us deep insights into what's happening in the real economy, which inform how we position the firm and construct our portfolios amid changing conditions. We've been saying consistently that we believe the Fed will keep rates higher for longer and we didn't share the previous consensus view that they would cut rates by the end of this year. What we are seeing in the data, an economy that's strong today, but decelerating. We also see that significant progress is being made on inflation, perhaps more so than other market participants based on the movement in bond yields recently. In our portfolio, we estimate input costs were largely flat year-over-year. Wage growth is moderating and job openings are declining or it will take time. We believe the collective weight Central Bank actions will bring about the intended effect of cooling the economy leading to the conditions for a more accommodative Fed stance and eventual easing of the cost of capital. Meanwhile, Blackstone's unique diversity and breadth with over 70 distinct investment strategies position us extremely well to navigate any environment. The balance of our firm allows us to pivot to where we see the greatest opportunities at a given point in the cycle. For example, our credit businesses are thriving today in the context of very favorable operating environment, even higher base rates along with challenges to traditional lenders. Investment performance has been outstanding, including 14.4% appreciation over the last 12 months in our private credit strategies and 4.6% just in the third quarter. Unsurprisingly, client demand in this area is accelerating across all channels; institutional, insurance and individuals. Keeping pace with this evolving opportunity, we recently announced the integration of our corporate credit, asset backed finance and insurance groups into a single new unit BXCI. We expect this integration will create a more seamless experience for clients and borrowers, allowing us to offer a one stop solution across corporate and asset based private credit including both investment grade and noninvestment grade. We believe these changes will further accelerate growth and the BXCI real estate credit collectively could grow AUM from approximately $370 billion today to $1 trillion within the next 10 years, given the powerful secular tailwinds and strength of our platform. In addition to credit and insurance, we are seeing compelling near-term dynamics in several other areas where Blackstone has established leading businesses, such as infrastructure, notably including digital infrastructure, energy transition and life sciences. The private wealth channel also remains a tremendous long-term opportunity for the firm. Jon will discuss the positive developments in these areas in more detail. Overall, limited partners continue to move away from the traditional 60/40 liquid portfolio and despite market headwinds they are allocating more capital to the best alternative managers across more asset classes. Blackstone is extremely well positioned to capture future opportunities for growth in the alternatives area, which remains early in its long-term development. We are the reference institution among global LPs, a position that has been continually reinforced across market cycles of nearly 40 years. We have led the industry's evolution and I expect we will continue to lead it in the future. Last month, we were gratified that S&P Dow Jones chose Blackstone as the first major alternative manager to be included in the S&P 500, the largest benchmark index and the last one, the Blackstone was not yet a part of following our conversion to a corporation in 2019. This milestone is a further reflection of the firm's leadership position in our industry and the broader market, as well as our progression as a valuable and widely owned public company. Most importantly, we've continued to generate exceptional long-term results for both our fund investors and our shareholders. This is our mission. It's what drives us forward as a firm. While the market environment will undoubtedly present challenges, will also provide opportunities we are well positioned to capitalize upon with over $200 billion of dry powder. These are the times that best highlight the distinctiveness of our firm and the enduring nature of our culture. Everyone at Blackstone is completely focused on delivering for all of our stakeholders. And with that, I'll turn it over to Jon.

BGREEN:

Outside of credit, other major fund Closings in the third quarter included our European real estate flagship, which has raised over €4 billion to date. Over half of our investment activity in real estate this year has been in Europe, given greater dislocation and pressure on sellers in the region. We also raised $1.2 billion in tactical opportunities, $1.1 billion for secondaries vehicles and an additional $500 million for our corporate private equity flagship. We previously highlighted several other growth avenues with favorable momentum. We've been innovating and planting seeds in these areas, which have now blossomed into major businesses at Blackstone. Our infrastructure platform has grown to $40 billion in only five years, including 28% growth in the last 12 months. Performance has been extraordinary with 17% net returns annually since inception for our BIP vehicle. Given the immense funding needs for infrastructure projects globally and our performance, we believe this could be a $100 billion business over time. Key areas of focus include digital infrastructure, such as QTS, along with the energy transition. BIP's largest investment in Q3 was a wind and solar portfolio from AEP, which is part of a broader renewable asset strategy. Other signs significant investments by the firm recently in energy transition include additional capital in the nation's largest private renewables developer and a stake in a major U.S. utility to support its transition to green energy. And in credit, we committed $600 million in Q3 through a platform we're building to provide preferred equity financing to leading renewable companies. With BIP and our dedicated credit and private equity energy transition vehicles, we are extremely well positioned to benefit from the massive tailwinds in this rapidly growing sector. In Life Sciences our BXLS business had a terrific quarter and is experiencing strong momentum. Our funds appreciated 11.7% with notable positive developments for several lifesaving medications and technologies including an anticoagulant drug to help prevent strokes, a treatment for hypertension and a next generation implantable defibrillator. We're also being actively deploying capital, most recently to help fund a leading biotech firm focused on treatments for rare diseases. We plan to start raising our next life sciences flagship vehicle early next year. Finally, in private wealth, we raised $3.3 billion in our perpetual vehicles in the third quarter, led by BCRED. For BREIT while sales remain muted due to the environment at $724 million, we repurchase requests have declined materially, down nearly 30% from Q2 and nearly 60% from the January peak. BREIT's larger share classes delivered 12% net returns since inception approximately seven years ago, nearly four times the public REIT index. Meanwhile, all investors have been submitting repurchase requests during the proration period have been substantially redeemed in six months or less. BREIT's semi liquid vehicle has worked exactly as intended by providing liquidity for investors in a deliberate and thoughtful way, while protecting performance. Blackstone has established the largest private wealth alternative platform in the world. Now in addition to our perpetual strategies in real estate and credit, we're extending our leading franchise to include private equity with the launch of a new perpetual vehicle BXPE. This diversified vehicle will leverage the firm's unique breadth of investment capabilities across the PE spectrum, including buyout, secondaries, tactical opportunities, life sciences and other opportunistic strategies. We are working with several distributors and expect inflows to start early next year. We're excited to add this new vehicle to our product lineup and remain optimistic about our long-term growth trajectory in this vast and under penetrated channel. In closing, despite the markets near-term challenges, we remain focused on delivering for our investors over the long-term. We are executing our asset light brand heavy strategy with minimal net debt and no insurance liabilities and we have powerful momentum across a multitude of growth channels of enormous size. With that, I will turn things over to Michael.

Michael Chae:

Thanks, Jon and good morning, everyone. The headline for the firm's financial performance in the third quarter is stability amid a challenging external operating environment. Despite executing fewer sales in less favorable markets, we are generating a consistent and attractive baseline of earnings and dividends for shareholders. Meanwhile, we continue to expand the foundation of the firm's earnings power across multiple drivers of growth. Starting with results. As Steve and Jon highlighted, the firm's extraordinary breadth has supported continued growth in AUM despite the broader market declines. Total AUM increased 6% year-over-year, moving beyond the $1 trillion milestone, led by 10% growth in the credit and insurance sector. The earning AUM rose 4% to a record $735 billion, driving base management fees up 6% to $1.6 billion, reflecting the 55th consecutive quarter of year-over-year base management fee growth at Blackstone. Fee related earnings were $1.1 billion in the third quarter or $0.92 per share, largely stable with Q2 underpinned by steady top line performance along with the firm's strong margin position. A year-over-year comparison was affected by decline in transaction fees, which are activity based, as well as lower fee related performance revenues. Notwithstanding these headwinds, the firm generated $275 million of fee related performance revenues in the third quarter across multiple perpetual vehicles in real estate credit, notably reflecting the growing contribution from BCRED along with the material year-over-year increase from the BPP platform. Distributable earnings were $1.2 billion in the third quarter or $0.94 per share, again stable with Q2. On a year-over-year basis, net realizations declined given the market backdrop. However, we did execute the sales of public stock in the London Stock Exchange Group and our stake in India based software company along with certain other holdings in private equity. Realizations also included a significant sale in BREIT, which as a reminder does not earn performance revenues based on individual asset sales, but on NAV subject to a hurdle. The sale was of a self-storage company for $2.2 billion, one of the largest ever transactions in the sector, which generated a profit of over $600 million and a gross multiple of invested capital of 1.8 times in less than three years. BREIT's asset sales since the beginning of last year when interest rates began moving materially higher have occurred at an average premium to their prior carrying value of 4%. Overall, we've been highly selective in terms of realizations and activity is likely to remain muted in the near-term given the environment. But the firm's FRE continues to provide real ballast to earnings and Q3 represented the 8th consecutive quarter of FRE over $1 billion. Meanwhile, our long-term fund structures let us focus on building value in the portfolio while we wait for market conditions to improve. Performance revenue eligible AUM in the ground increased in the third quarter to a record $505 billion and has nearly doubled in the past three years. Net accrued performance revenue on the balance sheet, the firm's store value stands at $6.4 billion or $5.29 per share. We hold an expansive portfolio of exceptional quality and embedded value including $16 billion of public stock in our private equity and real estate drawdown funds. When markets ultimately become more receptive, we are well positioned for an acceleration in realization activity as well. Moving to the outlook, we remain highly confident in the multiyear expansion of the firm's earning power and FRE with several embedded growth drivers. First, in our drawdown fund business, we've raised nearly 80% of our $150 billion target, but less than half was earning management fees at quarter end. We launched the investment period for the new European real estate flagship in September, which will earn management fees after an effective four months fee holiday for first closures. Over the next several quarters subject to deployment, we expect to activate the new flagships; corporate private equity, private equity energy transition, growth equity and infrastructure secondaries followed by their respective fee holidays. Second, our platform of perpetual strategies has continued to expand including BCRED, which generates B related performance revenues quarterly based on investment income and our BIP infrastructure vehicle with its next crystallization scheduled to occur in the fourth quarter of 2024 with respect to three years of gains. Third, in the insurance area, AUM has reached $178 billion, as John noted, up 18% year-over-year, driven by robust inflows from our major clients from who we anticipate substantial largely contractual inflows in the years ahead. In closing the firm's all weather business model provides resiliency and staying power in difficult markets. Meanwhile, our underlying earnings power continues to build and we have greater investment firepower than ever before. With multiple growth engines driving us forward, we are well positioned for the future. With that, we thank you for joining the call. I would like to open it up now for questions.

Glenn Schorr:

Hi, good morning. I'll try to simplify this because you just went through some of the building blocks for 2024 and beyond, but it feels like there has to be a little bit of reset down just because in this environment performance fees can only be so much. So maybe my key question is, if you've had good strong double digit FRE growth in the past, can we see double digit FRE growth in 2024 given the building blocks that you just ran through? And maybe a sidebar to that is, is can real estate and private equity work in a higher for longer rate backdrop, which we seem to be in? Thanks.

Jonathan Gray:

I'll just add Glenn to your question on, can the firm operate in real estate and private equity maybe more broadly and a higher rate environment. And I would just point to over decades this firm has delivered for customers in higher rate environments and lower rate environments. And the reason is, what we do at our core is what creates the incremental return. So if you buy a business or asset, you improve the management, you allocate capital in the right way. You can generate higher returns even if borrowing costs are higher. And so we have a lot of confidence that we can do that. The other thing I would point out is, when you get to an environment of higher rates as we're seeing on the screen, asset prices can come down. So your entry point in at a higher rate environment allows you to set up transactions better over time as rates come back down, maybe we then see some more multiple expansions. So there's more opportunities for deployment and I would also add that at a moment like this, dislocation comes about. And so when you're sitting on $201 billion of dry powder, there can be situations where people need to raise capital in a hurry, need to sell something quickly. And again, that's advantageous for our model because if you think about what we do, we're not for sellers of assets on the one side and yet we have the ability to move very quickly when there is dislocation to take advantage of an opportunity. And then more broadly, a bunch of our capital solutions business is related to private credit certainly, tactical opportunities which I think will be super helpful and people deleveraging their portfolios are secondaries business which provides liquidity as well, they're well positioned in this environment, so the environment changes. We move from low rates to high rates, but it doesn't mean the basic business of delivering better returns has gone away and the clients' desire for this continues to be extremely high.

Operator:

We'll go next to Michael Cyprys with Morgan Stanley with Morgan Stanley.

Jonathan Gray:

Okay, Mike, there's a lot embedded there. Let me go. On transaction activity, it's not a surprise when you see in the third quarter and now in the fourth quarter long rates moving as rapidly as they are that market participants pause, and you see a suppressing of transaction volume. And we've seen this in the past in moments of market volatility and instability. And so until you get some settling out of that, I think it will mute the transaction activity on all sides. I think the positives here are the Fed, I believe, is pretty close to done. We believe that based on the progress they're making against inflation also the long end, I think, will start to do a fair amount of work for them as it drives up mortgage rates, as it drives up consumer loans like auto loans. And so I think getting stability in the rate environment, starting with the Fed on the short end and some settling here on the long end will be important. What's important to remember, of course, is there is cyclicality to the transaction environment, but there's ultimately underlying demand for people to buy and sell businesses, could be a company that needs to sell a division, could be a family, could be somebody who needs to refinance because of a maturity. And you look back over the long history of the firm again over four decades, there are periods, certainly after the financial crisis where things were slow, very slow for a few weeks, of course, during COVID, you could go back to other periods of time. But eventually it comes back, because people need to transact. So it's hard to put a date on this, but I would say as a predicate for transaction activity to pick up, you want to see a little bit of settling of rates. If we get that, I do think you will, our pipelines and our various businesses actually are reasonable today. We've got some transactions we're doing. It's certainly not an elevated level, but I do think we need a little settling in the environment. And so, I would say, we have extremely high long-term confidence that there'll be plenty of opportunities to deploy the capital we've raised. It's very hard to put your finger on exactly when that's going to happen. You also asked about, I guess the financial system and so forth. Whenever you have sharp movements, that does create some additional risk. So far we haven't seen anything out there, but there are incremental risks given the sharp movement we've seen in rates. I think the Fed and the fiscal authorities did a good job in March, handling that banking issue. It's hard to predict where the next spot may be. The good news is the underlying U.S. economy has shown remarkable resilience that's provided some ballast. And then I would say the financial system overall is so much less leveraged than what we experienced in the 2006, 2007 period. Consumers don't have nearly the same kind of leverage they did in housing businesses are so much less leveraged. So there's always a risk that something, there could be some bump out there, but the system just is healthier as we go into this more dislocated time in the markets.

Operator:

Thank you. We'll take our next question from Alex Blostein with Goldman Sachs.

tenure:

It's hard to predict where things are going to sit a couple of months from now, what's going to happen over time. Higher rates do have an impact across valuations, but obviously there's an interplay with cash flow. So, I certainly don't want to get in the business of predicting what it's going to be, but this is a headwind out there in markets and you're seeing it on the screen right now.

Operator:

We'll go next to Craig Siegenthaler with Bank of America.

Stephen Schwarzman:

Well, I think it's reasonable to assume if you have elevated levels of rates and you have the economy slowdown that that puts more pressure and I think most market forecasters are anticipating higher default rates in various sectors. I would say that we're starting off a very low default rates today. I mean, in our private credit portfolio, less than half of 1% in our BCRED vehicle, I think we have just one asset that's on non-accrual. So we certainly are starting off in a very good spot. Overall if you talk to the banks, you guys are closer to that. I think default rates are fairly low. They're starting to pick up a little bit in subprime. But I think it is reasonable to assume there's going to be more pressure in real estate certainly. In some of the most challenged asset classes, I think we'll see higher default rates, the cost of capital and less availability will have an impact and having this large pool of capital that huge amounts of dry powder, really in almost every part of the firm should help us a lot. And one of my partners, Kathleen McCarthy, said this is when we do our best work. And I think that's a good description that when there's high uncertainty, people need capital in a hurry, and you're willing to take a longer term view on asset values and normalization, you can step in these times and make attractive investments. So, yes, when we think about what makes us enthusiastic, having this large pool of capital with some more pressure out there, that should create opportunities. But overall, we would go into this environment with the financial system and default rates pretty healthy at this point.

Craig Siegenthaler:

Thank you, Michael.

Finian O'Shea:

Hi, everyone. Good morning. A question on retail. Can you talk about the potential for BXPE, given it is formatted as a private offering, can it be distributed as broadly as, say, BREIT and BCRED? Or is it meant for different market channels? Thank you.

Weston Tucker:

Thanks, Fin.

Ken Worthington:

Hi, good morning. Thanks for taking the question. We'd love an update on the secondary business. Returns here over the last 12 months have trailed just about all other asset classes at Blackstone, with the exception of real estate. So maybe first, what's weighing on returns there? And as we think about the deployment opportunities, is it still really LP driven or are we starting to see, I'm sorry, still GP driven, are we starting to see more LP activity picking up as well?

Ken Worthington:

Great, thank you very much.

Brian Bedell:

Great, thanks. Good morning, folks. Thanks for taking my question. Maybe just similar to the deployment outlook question, maybe flipping that around that you answered earlier, flipping that around to fundraising in terms of this environment where sounds like obviously activity across the board is freezing up a little bit as people watch rates. But how do you see that impacting the fundraising outlook? And if you maybe can contrast a few different segments where it might be slower near-term versus areas where it could be stronger, and I guess certainly in terms of LPs decision making versus retail would play into that?

Brian Bedell:

And so the growth in that effort, you think, can sort of cut into any kind of reticence on the retail side in the sort of near to intermediate term and continue to propel that channel forward in the sort of intermediate term?

Brian Bedell:

Yes, that's great perspective. Thank you.

Steven Chubak:

Hi. Good morning. So I wanted to start off with a question, wanted to start with a question on the fundraising outlook for BCRED. I mean, as you noted, Jonathan, the flow trends have remained robust, but the non-traded BDC market has grown increasingly crowded. It's going to get even more saturated given a growing number of funds in registration. So while you have a head start on a lot of your peers in this space, was hoping to get your thoughts on the growth outlook for BCRED as well as any potential sources of pressure, such as fees, as the markets become increasingly saturated here.

Steven Chubak:

Very helpful color Jonathan. Thanks for taking my question.

Patrick Davitt:

Hey, good morning, everyone. I have another question on wealth. There's always been a lot of reporting on your efforts to more successfully penetrate the European Wealth Channel and within that theme, chatter of a lot of new products coming to market. So could you update us on what is currently in the market, how traction is evolving on those and then what the pipeline looks like for things coming online in the coming quarters. Thank you.

Operator:

Thank you. We'll go next to Brennan Hawken with UBS.

Michael Chae:

Well, I think transaction volume has been slow for the reason we've talked about. Obviously the move in cost of capital has certainly slowed things down. I don't know, given the size of the real estate market, that if any individual transactions are enough to move the market. In fact, I don't know the specifics of Goldman, but I think that's a bunch of different companies and portfolios. So it's not one large trade. I think the market will ultimately clear based on where buyers and sellers are willing to transact. And you'll see that now, I'm sure, over the coming months as things start to settle in. And if we stay here at this higher rate environment, I think it's very hard to predict exactly what happens. But ultimately, there will be real estate to buy and real estate to sell. And with our 66 billion of dry powder, I think we're going to be in a really unique position. I mean, we raised this $30 plus billion global fund. I think we've invested less than 5% of that fund today. We have the vast majority of our Asia fund uninvested, and our Europe fund we're just raising. So by definition is uninvested. So we think we're well positioned in this environment, particularly if banks pull back and there are liquidity shortfalls. We're also raising capital for our real estate debt business. So we think it'll be a favorable environment. And like everybody, we'll be watching what happens on the transaction side.

Operator:

We'll go next to Ben Budish with Barclays.

Jonathan Gray:

So what I would say on BREIT is you really hit on it in September, the tailwinds in the business were twofold, as you've heard from us. I think we did a very good job hedging out the balance sheet for long duration. That's proven to be very beneficial to the shareholders. BREIT, the second thing is we have a quite sizable position. I think it's now 8% of the portfolio in data centers. Again, that turned out to be a really, really great decision for our shareholders and has benefited us. And there was very significant appreciation, which we talked about in the remarks. On the headwind side, yes we of course, raised cap rate assumptions in the portfolio in light of the higher movement in the 10-year treasury yield and so those were the forces that you saw reflected in the valuations in the month and the quarter.

Operator:

We'll go next to Mike Brown with KBW.

Jonathan Gray:

So, for clarity, I think we had 5 billion from the big four counts in insurance, $7 billion overall because we have some SMAs with other major insurers, but not for nearly as large pieces of their portfolio. I'm not sure I'm going to go into any of the individual clients where the money is coming from and so forth. But obviously some of the clients are issuing fixed annuities, which is a fast growing area that would be namely there, I guess I'd point out, Corebridge and Fidelity Guarantee. And we're helping them with that by deploying capital on their behalf and generating attractive yields. I think Resolution as a platform has a lot of opportunity around legacy books, closed books, buying those from insurers who are trying to reallocate their portfolios. And as part of the recapitalization we did with them, we put a significant amount of capital from our LP community into the company. That gives them some firepower to grow. And then I would just add, we're having other discussions. Investors are seeing what we're doing, taking up credit quality. I think if you look at the numbers in the quarter, on average, our clients had BBB portfolios. This year we've originated on average, A credit quality, fixed income. And the spreads have been 140 basis points higher over comparable liquid BBB's, so higher credit quality and still higher spreads. And so this is something that our existing clients are happy about, our SMA clients are happy about, and it's leading to more discussions. I still think we're in early days, it's hard to predict the timing of these, but this is becoming something that I think is increasingly important for major insurers to have more of these private credit origination capabilities. And they're excited about being partners with us, particularly because we're not an insurance company. We're not directly competing with them.

Operator:

Thank you. We'll take our final question from Arnold Gabla [ph] with BNP.

Michael Chae:

[Indiscernible] Michael on the first part about warehousing, we have, as we often do when we help support the launch of a product like this, we have, I'd say, relatively modest amount in the grand scheme of our balance sheet in warehouse for the support of the launch of this in the coming months, we expect that will grow somewhat as we approach that point. And then once we're up and running. The needs from warehousing standpoint will be much more modest. Jonathan, if you want to comment on sort of asset allocation.

Unidentified Analyst:

Great, thank you very much.

Weston Tucker:

Great. Thanks everyone for joining us today and look forward to following up after the call if you have any questions. Thanks very much.

Operator:

Good day and welcome to the Blackstone Second Quarter 2023 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Steve Schwarzman:

Thank you, Weston, and good morning. Thank you all for joining the call. Blackstone reached a remarkable milestone in the second quarter. We surpassed $1 trillion of assets under management. The first alternative manager to do so of more than three years ahead of the aspirational roadmap we presented at our Investor Day in 2018. This achievement is significant in many ways, including for me personally. I founded Blackstone with my partner, Pete Peterson, in 1985 with $400,000 of startup capital. We sent out 450 personal announcements of our new venture and published a full-page newspaper ad with the expectation that the phone would start ringing off the hook. It was a humbling experience when no one called other than a few people wishing us luck. When we started raising our first private equity fund in 1986 with a $1 billion target, we discovered that giving a $5 million or $10 million commitment was a substantial accomplishment. Fortunately, we hung in there, and we were ultimately successful. Looking at Blackstone today, I feel an immense sense of pride. We've established an unparalleled global platform of leading business lines, offering over 70 distinct investment strategies. We believe our clients view us as the gold standard in alternative asset management. And this milestone reflects the extraordinary level of trust we've built with them over nearly four decades. We've delivered for them in good times and bad, generating $300 billion of aggregate gains with minimal losses. In fact, virtually all of our drawdown funds we've launched in our history, have been profitable for our investors. Our performance has helped secure retirees' pensions, fund students educations, pay health care benefits and protect and grow the savings of individual investors. We are tremendously proud of the role we've played in driving these outcomes. Our ability to create excess returns over long periods of time in support of these critically important objectives is what distinguishes us as a firm that powers our growth. This milestone is also reflective of Blackstone's distinctive positioning as the leading innovator in our industry. At our founding, we determined that building a great company required us to be in a continuous innovation mode, which we have institutionalized as a core competency of the firm. Our original strategic plan, which was to start in corporate advisory and then quickly move into private equity, followed by a succession of other asset management businesses over time. We only entered a new area, and we saw the opportunity to generate great risk-adjusted returns for our customers. We identified a remarkable leader and the new area created intellectual capital that benefited the rest of the firm. For example, we entered the hedge fund to funds business in 1990. Real estate in 1991 when values had collapsed following the savings and loan crisis. And credit in 1998, which we expanded substantially in 2008 ahead of the generational investment opportunities that arose from the global financial crisis. In 2011, we launched a dedicated private wealth business. The following year, we created tactical opportunities. And the year after that, we entered the nascent secondaries market for drawdown funds. In 2017, we launched our infrastructure strategy. In 2018, we started both our insurance solutions management and life sciences businesses. And in 2020, we launched our first growth equity fund. Today, nearly all of these major lines of business are market leaders in their respective asset classes with exceptional long-term performance. There are many advantages that come from our unique scale. With our portfolio of over 230 companies, 12,000 real estate assets and one of the largest lending businesses in the world, we believe that we have more information than just about anyone competing with us. We specialize in the production and analysis of enormous amounts of data, which we review every week in our Monday morning meetings with each of our major product lines. This process done over 35 years, helps us identify trends before others and adjust where we invest our clients' capital. This also allows us to maintain a hands-on management style, keeps our professionals fully connected and supports centralized decision-making. Our focus on data aggregation and analysis also led us to establish our own data science group early as 2015. We started building a team of exceptional data scientists, which today numbers over 50 people, and we are rapidly and significantly expanding our capabilities in artificial intelligence. We've been using AI to help improve operations and our portfolio companies as well as with Blackstone itself. We believe that the new generation of AI has the potential to transform companies and industries. And the timeliness and effectiveness of its implementation will be determinative of who the winners and losers will be. Blackstone fortunately, is in an enviable position in the alternative asset world with an 8-year head start in this field, and we are committed to further expanding our leadership position there as quickly as possible. Our growth along with our commitment to meritocracy have also allowed us to attract and retain great talent, many of the best people in the world want to work here at Blackstone. This year, we had 62,000 unique applicants for 169 1st year analyst positions, equating to a selection rate of less than 0.3 of 1%. Getting an entry-level job at Blackstone is 12x harder than getting into Harvard. I doubt I'd be able to be hired today. I'm not sure that's a great thing. Our scale has also made the firm even safer. We're an A+ rated manager of third-party capital distributed across hundreds of segregated investment vehicles. We don't depend on deposits for our funding. And the vast majority of our capital is under long-term contracts or perpetual, which we carefully aligned with the duration of our investments. We don't operate with a cross-collateralized balance sheet like depository institutions. We have virtually no net leverage at the parent company compared to U.S. banks with an average of 12x leverage, and we have no insurance liabilities. We've always believed in extreme conservatism in managing our capital structure and the structure of our funds. As the largest manager today, Blackstone has led the adoption of alternatives which have revolutionized the field of investment management. When we started in 1985, alternatives were basically limited to private equity, and there were only a few public pension funds and insurance companies who invested in the asset class. Endowments, sovereign wealth funds and retail investors, for example, have virtually no participation. Over the subsequent four decades, alternatives have grown to $12 trillion of assets. But this is still small compared to the $225 trillion of liquid stocks and bonds. With a minimal share of total investable assets today, we expect alternatives to expand substantially in the future. I believe that Blackstone, given our unique brand and global reach is the best-positioned firm in the world to capture future opportunities for growth in the alternatives area. The most compelling of these today include private credit and insurance, infrastructure globally, energy transition, large sciences the development of the alternatives business in Asia and the private wealth channel, where the democratization of alternatives in its early stages. Jon will discuss these areas in more detail. Our mission since 1985 is to be the best in the world at what we choose to do. Even this we've grown, we've never strayed from this mission or from the core values that have defined us, including excellence, integrity, aristocracy, teamwork and dedication to serving our customers. Work at our firm, you must believe in our mission and embody these values. Blackstone is an extraordinary place. Our prospects are accelerating. We never rest on our achievements, and we're always looking ahead, striving to lift the firm to new heights. I strongly believe the best is ahead for Blackstone, investors in our funds and our shareholders. And with that, turn the ball over to Jon.

Michael Chae:

Thanks, Jon, and good morning, everyone. In the second quarter, which began amid the bank crisis and related market volatility, the firm delivered steady financial results and resilient fund performance. Starting with results. Our expansive breadth of growth engines lifted AUM to new record levels, as you've heard this morning. Total AUM increased 6% year-over-year to $1 trillion. The earning AUM rose 7% year-over-year to $731 billion driving management fees up 9% to a record $1.7 billion. Notably, the second quarter marked the 54th consecutive quarter of year-over-year growth in base management fees at Blackstone. Fee-related earnings increased 12% year-over-year to $1.1 billion or $0.94 per share, powered by the growth in management fees, coupled with the firm's robust margin position. FRE rose 10% sequentially from Q1 as fee-related performance revenues nearly doubled quarter-over-quarter to $267 million, even without contribution from BREIT, driven by multiple other perpetual capital vehicles in real estate and credit. As noted previously, we expect these revenues to further accelerate in the second half of this year concentrated in Q4 with a number of scheduled crystallization events in the BPP platform. Distributable earnings were $1.2 billion in the second quarter or $0.93 per share, which was largely stable with Q1. The year-over-year comparison was affected by a material decline in net realizations from last year's record quarter. As expected, sales activity has remained muted against a slow transaction backdrop generally. However, we did execute the sales of public stock in certain of our private equity holdings, along with the portfolio of U.S. warehouses to Pro Lodges for $3.1 billion at an attractive cap rate of 4%, a positive indication of Vale for the $175 billion of warehouses we continue to own which are the firm's largest exposure. Realizations in the quarter also included BREIT sale of a resort hotel for $800 million, reflecting a 22% premium to its December carrying value and a multiple of invested capital of 2.2 times. These sales illustrate the exceptional quality and embedded value of our portfolio. Stepping back, our model focused on long-term committed capital keeps us from being forced sellers when markets are less favorable. During these periods, as we've seen in past cycles, a portion of our earnings related to realizations is interrupted, but ultimately reemerges as markets heal. In the meantime, a firm's underlying earnings power continues to build. Harman's revenue eligible AUM in the ground increased in the second quarter to a record $504 billion, and has more than doubled in the past three years. Net accrued performance revenue on the balance sheet firm store value grew sequentially to $6.5 billion or $5.31 per share. In the context of more supportive markets, we are well positioned for an acceleration realizations over time. Turning to investment performance. Nearly all of our flagship strategies reported positive appreciation in the second quarter. The corporate private equity funds appreciated 3.5%, with our operating companies reporting robust revenue growth of 12% year-over-year, along with expanding margins overall. These trends reflect our favorable sector positioning and focus on high-quality businesses with pricing power, coupled with cost deceleration. In real estate, the core+ funds appreciated 1.7% in the quarter, while the Brent opportunistic funds were stable. We are seeing sustained strength in our key sectors in terms of cash flow growth. Half of our owned real estate is in logistics, student housing and data centers, which have experienced double-digit year-over-year growth in market rents. In our U.S. rental housing holdings overall, fundamentals are stable with cash flow is increasing at a high single-digit rate. For BREIT, over 80% of the portfolio is concentrated in these sectors leading to strong same-store NOI growth of approximately 7.5% in the first half of the year. Looking forward, in the environment of lower inflation and lower interest rates should be very favorable for our real estate portfolio overall. In credit, the private and liquid credit strategies appreciated 3.3% and 2.8%, respectively, in the second quarter, reflective of a healthy portfolio generating strong current income. Despite a moderate uptick in broader market default rates, which we do expect to rise further in our noninvestment-grade portfolio, defaults remain low at less than 1%. Finally, in BAAM, the BPS gross composite return was 1.9% in Q2, representing the 13th consecutive quarter of positive performance. Over the past several years, BAAM has done an outstanding job protecting investor capital in an environment of significant volatility in liquid markets. Since the start of 2021, the BPS composite net return is up over 14% compared to 1% for the traditional 60-40 portfolio. Overall, the resiliency and strength of the firm's returns over many years is the foundation of the extraordinary growth we've achieved. In closing, the firm continues on a path of an expanding asset base, reaching $1 trillion today, and we believe ultimately well beyond. From the beginning, we've taken a very long-term view towards building an enduring business at Blackstone. Today, as the reference institution in our industry, we have the distinctive assets of our brand and reputation, our scale and our culture, a culture defined by decades of performance and innovation. This is what has powered our success to date and what we believe will propel our future. With that, we thank you for joining the call. I would like to open it up now for questions.

Craig Siegenthaler:

Good morning Steve, Jon. Thank you for taking my question. And congrats on hitting $1 trillion. It feels like just a few years ago, you were around $70 billion at the IPO. My question is on the expanding opportunity inside the US banking industry. So first, forming partnerships. I heard in the prepared remarks, you have about five now to building that out, two buying and originating assets, and three, may be supplying capital at some point. So now that we're four months outside of the Silicon Valley Bank failure, can you provide us an update across these three verticals?

Steve Schwarzman:

One thing I'd add is it's just not a U.S. phenomenon. This is very much U.S. and European where everybody is feeling the pinch from regulatory pressure. They like to keep their customer. They like to keep producing assets, but they just don't have the balance sheet to hold all of them. So that's a particularly interesting area for us.

Michael Cyprys:

So a big picture question for you guys on the credit cycle. If we look across the financial system, credit losses coming in better than feared, whether it's C&I loans at the banks or in credit and private credit. So some of this perhaps relates to limited debt maturities perhaps but also it seems like the impact of rate hikes is maybe less potent than feared. So just curious your views and outlook here. And if we look at the private credit markets, maybe you can just remind us how much of the rate risk is hedged and for how long? And how do you see this all playing out?

Michael Chae:

Jon, let me just add it on that. Mike, it's Michael. Just focusing on our outperformance versus the overall market with respect to default rates, and it has been pronounced. It's important, I think, to highlight sort of our relative position and focus. And our team would call it the three Ss, scale, sector selection and seniority. On scale, we're obviously a large player. We are focused on larger issuers. And we believe, overall, it's already been shown in a high inflation world. Larger companies are more resilient with respect to performance through the cycles. And again, that's been shown, I think, in terms of more options to respond to a rising cost inflation environment recently. Second on sector selection. If you look at our portfolio versus sort of the industry average, our focus in recent years away from cyclicals, some consumer discretionary companies, certain industrial companies, has I think really paid off. And then with respect to seniority, which Jon touched on in additional loan to value, 98% basically of our direct lending portfolio in BCRED is senior secured. And actually, even our peers in the direct lending area are substantially lower than that in some cases, 70%, 75%. And so that is the top of the capital stack, and that is very protected. So I think Jon talked about the overall sort of default rates in the path, and we do expect them to rise for the market overall and for us. But our sort of experience and outperformance on default rates, which has been both historical and current, I think, has some underlying drivers that are important to highlight.

Glenn Schorr:

Maybe big picture on real estate in general. I'm curious if where -- the 10-year has been kind of in the same range for a while now even as we get in the last of the short-end rate hikes. So I think cap rates have levelled off as well. Maybe you could take a snapshot on where you think we're at leverage-wise debt service coverage wise, and what the sales pitch for real estate in general is going to be if that's an environment that we're in over the next handful of years?

Operator:

We'll go next to Brian Bedell with Deutsche Bank.

Jon Gray:

So I would say on the energy transition side, we're in early days. we just are finishing off raising the $7 billion energy transition credit fund. We're in the market with our energy equity fund, which we expect will be probably $4 billion plus. And then energy transition, energy is a meaningful chunk of our $37 billion infrastructure business. It's probably one third of that capital but probably the fastest growing. If you went -- and by the way, we also have embedded in our private equity business a bunch of energy transition investments there and in our core private equity business. So you would have to go through it. I don't have the numbers handy is where this would be. But you've got a number of areas we're deploying capital in energy transition. If you looked in the quarter, as I said, the two biggest investments we made were an investment in Northern Indiana utility business a couple of billion dollars we invested to help them facilitate the energy transition. And then we also had another $1 billion we put into Invenergy, our large-scale renewables developer. So I would say because the size of the market is growing so quickly and investor desire for exposure to this is growing as well, we think this can be a lot bigger. I don't know if we have a number. We said publicly a couple of years ago that we expect to invest $100 billion over the decade, we said that two years ago. So I would say when you look at Blackstone over time, this will be an area of a lot of capital needs. And the good news is the investors want it. It can be very large, very scalable, and so we expect that this will accelerate. The IRA in the US has made a big difference. There was $250 billion of large-scale renewable projects announced in the last years, and there was an equal amount announced in the last year basically since the IRA passing. So we would say very large scale opportunity and should result in a new area for us to grow and generate incremental fees and returns for investors.

Brian Bedell:

Yes. That's great. And then just on the direct lending side, I know you said $100 billion, and you've got the -- obviously, the bank partnerships and the strong pipeline. Any capacity constraints that would sort of limit the growth potential of that franchise just in the context, obviously, of the good trends versus the -- with banks going back?

Operator:

We'll go next to Alex Blostein with Goldman Sachs.

Jon Gray:

Yes. Alex, you're right. It's all interconnected, right? Because if you think about our clients and their numerator and denominator, it's obviously very tied to what's happening in the market. So their denominator is -- and today, there are challenges, in many cases, they're over their allocations. Let's say, they have a 13% allocation to private equity in there at 15% or 16%. . As equity markets rally, then that frees up capital for them to potentially allocate to private again. At the same time, as equity market rally, IPO and M&A activity picks up, and so private equity sponsors, real estate sponsors could sell assets, again, reducing the exposure in the numerator. So these things are tied. We've been through these cycles many times. Our expectation is you will see a pickup in activity. The reason why is inflation uncertainty makes it hard to do M&A and IPOs. We had a lot of uncertainty around the banking issues, we got uncertainty around inflation and uncertainty on how far the Fed would go. And the contours of that looks a little more certain. And I think that's 1 of the reasons why markets are getting more enthused. Now is it possible we see an economic slowdown, the markets pulled back a bit. We -- it's too early to sort of put out an all-clear sign here, but I think we are beginning to see this pickup in activity. And as markets rally, that tends to lead people to have more confidence to transact, which plays its way through ultimately to our customers. Right now, we're still -- there's a bit of a lag as you think about it in terms of fundraising activity, but a sustained good period for markets is very helpful for our ability to raise capital, particularly from institutional investors, also from individual investors.

Adam Beatty:

I want to ask about the retail wealth management channel. Seems like even though redemptions are still elevated on the BCRED side, it looks like subscriptions are relatively healthy and accelerating. So it seems that the channel as such is definitely improving. On the BREIT side, gross subscriptions maybe not quite so much. So I just wanted to get your thoughts on you're hearing and seeing from the channel and maybe the outlook for the back half?

Operator:

We'll go next to Patrick Davitt with Autonomous Research.

Jon Gray:

We believe that what the FTC announced was really just a codification of the way they've been operating the last three years. They have had this more assertive approach towards mergers. And we've been operating in that environment already. For us, we haven't seen it as large of an impact as one might expect because oftentimes, we're not present in a given market. So buying things is not as big of an issue. We have had some strategies where we have done additional acquisitions roll up. That hasn't been a huge portion of our activity in corporate private equity. And remember so many of the things we do, secondaries real estate, private credit are not related here. But in corporate private equity on the acquisition side, it hasn't been a major issue. I would say where it's more impactful is when we're looking to exit some of our businesses, and we're talking to strategics. And there, there's a real consideration now about what is the likelihood of something getting through. And so that has had an impact on our thinking on what relative attractiveness of nonstrategic players relative to strategic players. So I would say that this has been a reality of the marketplace for some time. We've been navigating through it, and we feel confident we'll continue to navigate through it in the -- the key area of focus is really when we're looking at dispositions potentially to strategic players.

Ben Budish:

Sorry about that, still on mute. I wanted to ask about your fee-related performance revenues, they kind of surprised in the quarter and it sounds like you're still expecting an acceleration in the back half. Is there any way you could sort of size up a little bit kind of the magnitude, that acceleration. And then just sort of thinking about next year, I know there's often like a 3-year crystallization schedule outside of what we expect from BREIT. So any thoughts on what we should expect from '23 to '24 based on what you're seeing right now?

Operator:

We'll go next to Brian McKenna with JMP Securities.

Jon Gray:

So the real story for us in Asia has been India. Our team there has really delivered, particularly in private equity at Dixon and the team have delivered amongst our highest returns globally in India. And it's represented, frankly, in real estate and private equity, about half of our Asia activities. And we had different weightings, I think, than others in the region, and that's kind of turned out to be a very good decision. We've been a control-oriented investor in India, which we think is the right strategy. We're also seeing very good opportunities in Japan today. That market is opening up to corporate selling off nonstrategic divisions we think we'll see more volume there. And frankly, across the region, there is more opportunity. China is a little more challenging, as you know, because of the economic headwinds and some of the geopolitical issues. But in general, Asia can grow to be much larger. We don't really think we have the need to do an acquisition. We have 8-plus, I guess, offices across the region. I was there this quarter. Our momentum in places like Australia, Korea, really strong, and we think it's a market that is underpenetrated as it relates to alternatives. And ultimately, we hope to have virtually all of our strategies in Asia at scale. So we have a sizable Asia private equity fund, sizable Asia real estate fund, we've got a core plus real estate fund in Asia, and we're doing more on the credit side in that part of the world. Hopefully, we'll add growth. There are a lot of opportunities there given the scale of the place. Certainly, India, which has been our largest market, I think will continue to be a mainstay for us just given the incredible tailwinds that country has today.

Mike Brown:

So you're 75% of the way through the $150 billion drawn on raising target, can you just touch on the key funds that will allow you to substantially achieve it by early 2024. And then outside of the drawdown fund, like in the wealth channel, how do you think about the growth opportunity in this channel over the coming years? And are you anticipating launching some new products into that channel, either later this year or next year?

Jon Gray:

And then the question was around individual investor, well, new products, yes. We are I don't know if we're prepared to talk about the latest funds, but we do think there's more opportunity. Doing what we do today at greater scale in a different range of products, I think later this year, we'll launch something new. And one of the areas we've already started small in Europe with some other products. There's a lot of opportunity. Investors are just discovering individual investors just discovering the benefits of alternatives. The semi-liquid structures are new to many investors. And we think this is a long process. Our major competitive advantage is we started this much earlier than other people. We have a very large private wealth organization. Joan Solotar and her team have done a terrific job many people around the world. We've built up relationships with financial advisers. And then I think the thing that is hard to capture our numbers is the power of the Blackstone brand we were able to start products. It's no different than us doing insurance on a capital-light basis. Our ability to create new products and for financial advisers and their customers to allocate more to us because of the confidence in the brand is really important. And so the real consideration for us is when we launch a new product, we have to make sure the structure is right and that the returns we generate are sufficient because ultimately, this is a very long-term partnership with the financial advisers and their underlying clients. So what we do has to work, and that's why we're so focused, and we're deliberate in terms of the way we launch new products, but we definitely see more opportunity over time.

Rufus Hone:

Maybe if you could spend a minute on the FRE margin. You've done so 58% through the first half of 2023. How do you think about that through the back half of the year? And if you could give some color around the expense side. You've shown some discipline on the fee-related comp ratio I guess, can you help us think about core expense growth through the rest of the year? Any detail there would be really helpful.

Operator:

We'll go next to Arnaud Giblat with BNP.

Jonathan Gray:

So it's obviously tied to transaction volume. And as I said, we have begun to see a pickup, which should lead to an acceleration of deployment and credit. These things are tied together. And yes, when people get enthused about credit, the leveraged loan market could and should see more flows. But I do think there is a -- on the direct lending side, a structural advantage of private credit because if you don't need to distribute that, if you're in the storage business, you can deliver to the borrower, the private equity sponsor price certainty. And that's very hard for a financial institution who is selling it down and obviously wants to manage their risk. I think where it becomes more competitive, is on existing loans where somebody starts to look to refinance and when spreads tighten at some point, that's where the leveraged loan market becomes more competitive or the high-yield market, if people believe that long rates have come down and spreads have come down. But in the new origination business, that's an area where I think direct lenders have a real sustainable advantage. It, I think, becomes more competitive for existing loans when at such time that the existing market tightens a fair amount. That hasn't happened yet. But that could in a better market. But overall, transaction activity, to your point, is obviously tied to originations. And when both those things pick up, we think that's a positive thing.

Weston Tucker:

Great. Thank you, everyone, for joining us today and look forward to following up after the call.

Operator:

Good day and welcome to the Blackstone First Quarter 2023 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Steve Schwarzman:

Thanks, Weston, and good morning and thank you for joining our call. First quarter of 2023 represented a turbulent period for markets, tightening financial conditions and growing concerns of a recession. While the S&P 500 posted gains that were concentrated in just a handful of large tech companies. Meanwhile, the median stock in the US was flat for the quarter was down 35% from recent peak levels. Capital markets activity remains muted. The IPOs and M&A activity down 50% to 60% year-over-year. Combat inflation, the Fed has increased the Fed funds rate by 475 basis points just in one year, representing the largest increase since 1980. While there is not widespread distress in the real economy, this tightening campaign has led to significant challenges for investors, along with unintended consequences which we saw with UK pensions last summer. More recently in the US and European banking systems. These challenges once again highlighted the exceptional strength and stability of Blackstone. Our clients and counterparties have learned there is an inherent safety in dealing with us. We don't operate with the risk profile of financial firms that have fallen into trouble almost always due to the combination of a highly leveraged balance sheet and a mismatch of assets and liabilities. At Blackstone, we have neither. We're an asset light manager of third-party capital distributed across hundreds of segregated investment vehicles. Our firm has minimal net debt and no insurance liabilities. We don't take deposits. I'll say that one again. We don't take deposits. The vast majority of AUM is under long-term contracts or in perpetual strategies. In our funds, we seek to align the time horizon of our investments with the duration of the capital which positions us to not be forced sellers in difficult markets. This is true of our semi-liquid vehicles as well, such as BREIT, which invests in longer term assets. We designed this vehicle at its formation in 2017 with predetermined limits for potential repurchases in order to be prepared for adverse market conditions, creating a level of safety so that it can continue to deliver strong outperformance over the long-term as it has done historically. The safety of Blackstone's approach extends to the way we invest. One of our core values is to avoid losing our customers money. Of course, we also seek to significantly outperform benchmarks over time. As everyone knows we have. We've launched nearly 90 drawdown funds in our history, comprising approximately $500 billion of aggregate commitments, which almost all 98% of them generated gains for investors despite adverse investment environments during the lives at some point most of these funds. We have an extremely rigorous process for evaluating risk with an investment committee framework designed to minimize the prospect of losses and ensure consistency of judgment. And our global scale and reach give us deep insights into what's happening in the real economy, which inform how we position the firm and our portfolio ahead of changing conditions. To paraphrase a quote often attributed to the hockey great Wayne Gretzky, you have to skate to where the puck is going, not to where it is. At Blackstone, we follow the same approach. In real estate, an area of heightened external focus by the media and investors recently. Our equity business has experienced realized losses in only 1% over 30 years, a truly remarkable result. This includes during the global financial crisis, a period which saw most of our competitors collapse or exit the market. In contrast, we bought the right assets and put in place the right capital structures. More than doubling investor capital in that vintage of funds. We emerged from the crisis stronger and believe that this cycle will have a similar outcome. Today, investor sentiment toward real estate has been quite negative, again, largely due to the pressures, as Jon explained on TV today in the US office market. Vacancies in offices have reached all-time high levels, and owners of many of these assets may be unable to extend financing in a more constrained capital environment. At Blackstone, we have minimal exposure to traditional US office. Having reduced our holdings from over 60% of the real estate equity portfolio at the time of our IPO in 2007. Less than 2% today. We instead emphasize sectors that are doing very well, including logistics, which now comprises 40% of the portfolio, up from zero in 2007. A real estate team has done a remarkable job of portfolio construction. In fact, I would call it some of Blackstone's finest work. Our positioning is the reason that BREIT, for example, continues to generate strong growth in cash flows, up an estimated 9% year-over-year in the first quarter, despite market headwinds. We expect our investors to have a highly differentiated experience as a result as they have throughout our history. In credit, higher interest rates and much higher available yields have led to significantly more investor capital being allocated to this area. Jon will expand on this opportunity for Blackstone. Simultaneously, there is an increased focus on the potential for higher market defaults in an economic turndown. Blackstone's credit business, as with real estate, we've delivered excess returns over long periods of time while protecting the downside. For example, we have the largest manager of leveraged loans in the world. And our historic annual default rate in the US is less than 1%. This record and our standard of care should provide comfort to investors who are new to this asset class. Private credit disperses risk outside the government backstop banking sector with capital typically raised in discreet long-term funds rather than a funding model that is reliant on deposits which demand instant liquidity. This approach to credit extension makes the system safer and also supports the economy in challenging times. Our limited partners recognized Blackstone, a safe institution, which to allocate their capital even as the world becomes more complex. In fact especially so. We've learned that the best time to put money to work is in a risk off world. When sentiment becomes negative. Recent stress in the banking system has led to heightened levels of negativity, along with diminished availability of credit, which should provide additional opportunity for us. Given the firm's scale, available capital in both credit and equity areas. Overall, our LPs have entrusted us with an unprecedented $194 billion of dry powder ahead of what we believe could be a historic opportunity for deployment. One final note for me. Earlier this week, S&P Dow Jones updated the eligibility rules for their flagship indices to once again include companies with multiple share classes. This important development follows a consultation period in which they engaged a broad universe of market constituents. Blackstone is by far the largest company by market cap, not included in the S&P 500 today. We are hopeful that this development paves the way for our inclusion, which would be very positive for our shareholders. And with that, I'll turn it over to Jon.

Michael Chae:

Thanks, Jon, and good morning, everyone. Firm's first quarter results reflected steady performance against a challenging external operating environment. Our funds protected capital in volatile markets and we continue to expand the foundation of the firm's earnings power across multiple drivers of growth. I'll discuss each of these areas in more detail. Starting with results. The unique breadth of our platform and the power of our brand have led to continued strong momentum across inflows, AUM and management fees. Total AUM rose 8% year-over-year to $991 billion, with $217 billion of inflows over the last 12 months. This is through a period in which the S&P 500 declined 8% and the public REIT index was down nearly 20%. The earning AUM also increased 8%, driving base management fees up 13% year-over-year to a record $1.6 billion in Q1, marking the 53rd consecutive quarter of year-over-year growth. Fee related earnings were $1 billion in the quarter or $0.86 per share stable with Q4 supported by the growth in management fees and the firm's strong margin position. The year-over-year FRE comparison was affected by a decline in fee related performance revenues. We highlighted previously, we expect these revenues to accelerate in the second half of this year. With respect to margins, FRE margin for the trailing 12 months expanded 80 basis points from the prior year comparable period to 57.4% collective of the firm's disciplined focus on managing expenses in a difficult environment. Distributable earnings were $1.2 billion in the first quarter or $0.97 per share, again, largely stable with Q4. Net realizations declined year-over-year as last year's market turbulence had the effect of reducing the realization pipeline entering 2023. Notwithstanding these headwinds, the firm's ability to generate approximately $1 per share of DEs again in Q1, a level met or exceeded now for seven straight quarters, illustrates the elevation in earnings power that has been underway at Blackstone. Terms of realizations during the quarter, we took advantage of a favourable window of market liquidity before the SVB related turbulence to sell $3 billion of public stock across a number of portfolio companies in private equity at an aggregate multiple of investor capital approximately three times. The sales included the full exit of our stake in Sona Comstar, company we transformed from a traditional auto parts supplier to India's largest electric vehicle components provider. Including prior sales, we generated $1.4 billion of gains on this investment and 11 times our LPs money. While the environment for realization is likely to remain challenged in the near term, our long-term fund structures allow us to benefit of patients. We can focus on building value while we wait for market conditions to improve. In the meantime, the firm's performance revenue potential continues to grow. Performance revenue eligible AUM in the ground is nearly $500 billion at quarter-end. Net accrued performance revenue on the balance sheet, the firm's store of value stands at $6.4 billion or $5.27 per share well down from a record level in Q1 of last year, primarily due to realizations. The receivable is still up 22% in two years and has nearly tripled in three years. We hold $16 billion of public stock in our private equity and real estate drawdown funds. When markets ultimately stabilize, we are well positioned for an acceleration in realizations. Turning to investment performance. First quarter corporate private equity funds appreciated 2.8%. And overall our portfolio companies reporting strong revenue growth and resilient margins. In real estate, the BREP opportunistic funds were largely stable in the quarter, while the coreplus funds depreciated 1.6%. We are seeing sustained strength in our key sectors in terms of cash flow growth offset in Q1 by sharp write-downs in our remaining traditional office portfolio, which we had already significantly reduced over a period of multiple quarters. Within coreplus, BREIT's Class I shares reported a modest negative net return of 0.5%. However, BREIT's return was a positive 0.6%, excluding the effect of its interest rate hedge, which was impacted by the dramatic decline in the ten-year Treasury yield. The hedge overall has generated substantial gains for investors locking in low cost fixed rate debt ahead of last year's rise in interest rates. Since inception, BREIT has delivered net returns of approximately 12% per year, or nearly three times the public REIT index. In credit, the private and liquid credit strategies appreciated 3.4% and 3% respectively in the first quarter, reflective of a healthy portfolio generating attractive current income. And in BAAM, the BPS gross composite return was 0.9% in Q1. The 12th quarter in a row of positive performance. Moving to the outlook, we remain highly confident in the multiyear expansion of the firm's earnings power and FRE with several embedded growth drivers. First, in our drawdown fund business, we continue to advance toward our $150 billion target across 18 months. Second, perpetual capital platform continues to expand with AUM up 13% year-over-year to $381 billion, including more than 30% growth in our BIP infrastructure and BCRED strategies. Third, in the insurance area, AUM for our dedicated platform has reached nearly $170 billion, up $9 billion sequentially from Q4, driven by robust inflows from our major clients. 2023 in total, we expect inflows of $25 billion to $30 billion from these clients. We anticipate substantial, largely contractual growth for our insurance platform in the years ahead. To summarize, the firm has significant momentum of multiple engines driving us forward. In closing, we are very optimistic about the future of Blackstone. Our business model is designed to protect us in difficult times and we have greater investment firepower than ever before. We remain totally focused on delivering for our investors. With that, we thank you for joining the call and would like to open up now for questions.

Glenn Schorr:

Hi. Thanks very much. So I'm curious, you mentioned the 20% AUM, thereabouts, that you're sitting on, almost 200 billion. And in the comments you both said ahead of what we believe will be an attractive environment for deployment. Are there any leading indicators that would give us any confidence that it's coming in the near term? I know it's a lot. I know it's eventually going to happen. But what are you looking at to see closing of bid ask spreads or is it a funding environment thing? Just curious to get more color on that? Thanks.

Glenn Schorr:

Okay. Thanks.

Craig Siegenthaler:

Thank you. Good morning, Steve, Jon, Hope you're both doing well.

Craig Siegenthaler:

So if you add the 5 billion of real estate debt SMAs plus the contribution on credit, it looks like the insurance channel probably drove about 10 billion in net flows or about a quarter of the total this quarter. So I'm wondering, did I get that right? And then extending this thought from here, we wanted your perspective on the insurance channel's ability to generate outsized flows over the next year before we see markets recover and then flows in the retail and institutional channels reaccelerate?

Operator:

We'll take our next question from Adam Beatty with UBS.

Jon Gray:

So the syndicated lending market, its challenges are that there's a lot of volatility in the system. So if you're a bank today and you're generally in the moving business, right, you commit to a non-investment grade corporate credit, a private equity deal, you're trying to sell that down. But given the volatility, you're going to say to the borrower, hey, look, I need a lot of flex in the pricing. I need to be able to gap out the pricing 200 basis point, 300 basis points. And when there's this kind of volatility that makes it hard and as a borrower putting on our private equity cap, we'd prefer to do things on a direct basis where we know we have certainty. At some point, of course, volatility will come down and the syndicated market will become more competitive. But I do think structurally over time, direct lenders have a competitive advantage because they're in the storage business and I think they will continue to gain more share on newly originated deals where you've got to make a commitment for a public to private that lasts a long period of time. I think once a borrower is in the marketplace is established, there's not an intermediary who has to take a bunch of near-term credit risk. The syndicated market has a lot of competitive advantages. So I think they both coexist. But I think in the new origination market, more and more of that will move to direct lenders.

Jon Gray:

Yeah. And I would just point out, we're big players in both. We're the leading investor in CLOs and we're the leading direct lender as well. Sorry, go ahead.

Operator:

We'll go next to Mike Cyprys with Morgan Stanley.

Jon Gray:

So I would say for the last 30 plus years we've been at this now, we've continued to have durable advantages over public markets in our investing. And I think it comes down to our sector selection, the advantages of scale, and often inefficiencies and marketplaces, our ability to intervene in companies, which is really important with our portfolio operations team and then our capital allocation decisions for these companies. And that formula has continued to work extremely well in very good environments and very challenging environments, and I don't see any reason why that goes away. In fact, we think as we get larger, we get better at this. We get better at scale because of the competitive advantage of size and the private markets. But we also have more inputs. If you think about investing as pattern recognition, connecting dots, I don't think there's any firm in the world who gets to see more dots than we do. And so we can see something that's happening in the United States and how it's relevant in other parts of the world. You can see that in our global logistics investing. I think there are real powerful advantages from our scale and our model. So we think these return premiums will persist over time. In terms of technology, Steve can comment, but I would just say we've made a huge investment here on data scientists. We've got more than 40 of them. Every time we do a deal in private equity, in real estate infrastructure, we've got a data scientist on the deal team. We're embedding them in our portfolio companies. We realize the world's changing quickly and we want to invest in that and be ahead of it.

Operator:

Thank you. We'll go next to Ken Worthington with JPMorgan.

Jon Gray:

Well, I think our real estate debt business has a really great spot today. Banks are quite focused on CRE exposure shareholders, regulators, and that is leading to a pullback. So if you have fresh capital to deploy in that area, I think, it's quite positive. It can be on the new origination side in our latest BREDS fund, which we're in the process of raising. It can also be in liquid real estate securities, debt securities where people are just cautious and trying to reduce exposure. We talked here at the beginning of the call about the massive differentiation across real estate. And now at times you see people just pulling back regardless of the sector they're exposed to. So I think the opportunity in real estate debt will come first. And I think it's a very favourable time to be a lender in that space. Obviously the office sector in the US is the one cautionary area where there's more exposure, although debt loan to value levels were much lower than they were in the last downturn. I think overall the opportunity exists here with insurance clients and with regular way institutional clients. We're going to continue to pursue it broadly. It's one of the great things about Blackstone is we have so many different engines out there. In real estate, we not only have this equity business, we have a very big real estate debt business, which alone is $60 billion in most firms, that would be quite sizable. But inside our nearly trillion dollars, it doesn't get a lot of attention. But I do think it's an area of growth for us. I think we're obviously raising the next drawdown. And for the insurance clients and institutional clients in more liquid areas, I think there's a lot of opportunity.

Operator:

We'll go next to Brian Bedell with Deutsche Bank.

Jon Gray:

Well, ultimately, Brian, it's performance that matters. And I think what's remarkable, there's a lot of attention, as you know, on the redemptions. What's quite remarkable is that in the first quarter, we saw 9% estimated same-store cash flow growth against this very large $100 billion plus portfolio of commercial real estate. And it speaks to the positioning of the fund, our exposure in rental housing, not just traditional rental housing, but also in single family rentals, in student housing where there's real strength. It's the logistics where you have this big mark-to-market. We have some hotel exposure and one area we haven't talked a lot about, BREIT has a data center business that is doing extraordinarily well. And we believe that the positioning of BREIT in those sectors and its focus on the Sunbelt, again, the fact that we chose to invest most of this in the Sunbelt in places like Texas and Florida is a real difference maker. And we think as you look over time, that's what really matters here. Now, as you look forward, what's going to impact the redemptions? I think it's a combination. I think it will be multiple months of positive performance. We'll show people and give them confidence as well as volatility in the marketplace coming down. Right now, we're seeing investors cautious really towards all equity vehicles. And we're seeing something better in terms of flows today in BCRED, because investors are more open to the debt business. But we think this is just a question of time. If we deliver, given the portfolio we built, the structure we've got here, this is working for investors, as we've talked about, 12% since inception, triple the public REIT index. That's ultimately what matters. The portfolio positioning, what's matters, and then as that performance shows up, as markets become a little less volatile then I think you'll see a resumption of more positive flows here.

Brian Bedell:

Great. Thank you for all that color.

Alex Blostein:

Hey, guys. Good morning. Thanks for the question. So I was hoping we could expand the credit discussion a little broader to sort of all things private lending in prior periods of dislocation, Blackstone really used it as an opportunity to sort of build out new businesses. And direct lending has been going there in that direction for a while. CRE, as we talked about, looks interesting. But what else is out there that you think is currently performed by the banks that could fit the private model? Where do you see the biggest kind of disconnect between supply and demand? And maybe talk a little bit about your ability to raise capital around those initiatives.

Alex Blostein:

Great. Thanks for that.

Finian O'Shea:

Hi, everyone. Good morning. A question on the growth opportunity in retail. Can you talk about the competition with cash and how you're positioning products for success against higher money market yields? Thank you.

Operator:

Thank you. We'll take our next question from Gerry O'Hara with Jefferies.

Michael Chae:

All right. Gerry on FRPRs we talked about this before in my remarks, but we definitely see an acceleration. And I specifically point to two things. BPC FRPRs in the second half of the year. We have a schedule. It's known what will be eligible for incentive fee events. I think we mentioned last quarter four times more AUM will be crystallizing this year than last year. There was very little in the first quarter. There'll be a modest amount in the second quarter -- in the second quarter. So it's a really second half event, the ultimate dollars. And that will obviously be a function of the embedded gains at that time, but we have decent visibility on that. I'd also note on BCRED, which is sort of a little bit below the radar as it relates to FRPRs. That is obviously a steadily expanding base of both management fees and FRPRs. And those FRPRs are based on investment income borrowers paying interest. It's a very stable and crystallizes core. So it's a very stable source of incentive fees. And I'd note that FRPRs for BCRED break it out, but those doubled year-over-year in the first quarter actually. So there's important underlying momentum, I think, from multiple areas, not just the ones we get a lot of attention. On margins, as I said in my remarks, I would just say the big picture is we -- I think stepping back, we -- I think it's fair to say we've demonstrated the ability to generate significant operating leverage over time. So and that comes from strong underlying management fee growth for long periods of time and disciplined approach to cost management and our biggest area of cost compensation. We fundamentally have a performance aligned structure over which we have considerable control. So in terms of the outlook, as always, I would focus on full year delivery, not intra year, quarter-to-quarter. I'd refer you back to my comments from last quarter regarding confidence about market stability. And so for the full year 2023 relative to 2022, I think we continue to do.

Ben Budish:

Hi there. Thanks for taking the question. I wanted to ask about refinancing risk across the portfolio, thinking about real estate in particular. But kind of wondering, are there any areas where you have portfolio companies or real estate assets paying fixed rates under debt where there could be a potential step up over the next few years? How are you guys thinking about that risk there?

Michael Chae:

And Ben just to add some stats around that, I mean, I would just reinforce what Jon said. I think we're -- our teams are the best in the business actually at sort of managing capital structures, laddering maturities and making that constant process, locking in, floating rates, fixing floating rates at attractive moments. And so just in terms of some metrics, across our real estate and private equity portfolios, these are portfolio companies. With the average maturity remaining life in the maturities are about four and a half years. So we're talking about the end of 2027. So really good runway there. As Jon said, minimal maturities across the portfolio this year. And in a business like private equity, even though there's typically, on the face of it, essentially a fixed high yield component, but also a floating rate senior debt component. As I mentioned, our teams worked and have worked in the past to fix those floating rates at attractive times. So approximately probably two-thirds of our private equity debt is essentially fixed rate at attractive levels. So we're very, I think, conscientious and focused about managing our capital structures.

Operator:

We'll go next to Patrick Davitt with Autonomous Research.

Jon Gray:

Yeah, it's interesting. Our clients love private equity. That's the bottom line. And why do they love private equity? It's because it's been the best performing part of their portfolio for a long period of time and virtually every one of our clients. So when you have something that does well, you generally want more of it. Their challenge, of course, is that it's grown to be above their target. So they could have 10% or 12 or 15% target. They're above that. And so they're constrained. And therefore in some cases they're doing some secondaries. In some cases they're raising the allocations. We talked last quarter about New York State raising allocations to private equity, but it's making them more cautious in the sense they only have so much budget to allocate. But it's not because of a lack of desire. And I would make the broader point which is so important to our firm overall. Our clients like alternatives, our institutional clients, insurance clients, individual investors. And so the mega trend is intact. We're in a more challenging moment, but clients desire for alternatives is very strong. But there are some structural challenges just in the near term because they may be over allocated right now. Those things tend to go away over time and their desire will be -- will become reality. And so that's what gives us a lot of confidence. But yes, near term, a more challenging private equity fundraising environment.

Operator:

We'll take our next question from Michael Brown with KBW.

Michael Chae:

Michael, overall, I think zooming out on the firm and on the real estate segment, as you probably know, management fee rates over long periods of time have been remarkably stable. And in fact, if anything tilting upwards, probably the one sort of dilutive factor is frankly the great growth of insurance in that sort of by a couple of basis points overall affects the firm's overall management fee rate. I think for the real estate segment and Jon can chime in on relative growth rates, long-term positive tailwinds obviously around the growth rates of both the actual management fee rates, I think on the BREDS business are not such that I think you would see the overall segments, weighted average management fee dilute by very much over time.

Operator:

We'll take our next question from Bill Katz with Credit Suisse.

Jon Gray:

Thanks, Bill. I would say we still see this as an enormous area of opportunity. There's $85 trillion of wealth in accounts where people have more than $1 million to invest. On average, folks in the individual investor space are only allocated 1% or 2% to alternatives, as opposed to our institutional clients who are 25% or 30%. So there seems to us to be a lot of runway in this area. It does tend to lend itself a little better to yield oriented products. So real estate and credit not a surprise. We started in these areas. I think as it relates to the liquidity features. I think we've done a very good job creating these products. So we were match funded. I think BCRED for us, which has quarterly redemption features and a bit of a delay on when those redemptions come out is probably a little bit of a better structure. That being said, you've seen with BREIT, we've done a terrific job managing this, running it with appropriate liquidity and delivering great returns for our investors. And I do think as these products evolve over time, there'll be a little more focus on how potentially they can be tweaked to optimize both return and risk. Also, when you sell these products, what kind of program and setup can you use to make sure investors recognize this should be a long-term holding for them like it is for institutional investors. In terms of new products. Yes, I think private equity broadly is an area of opportunity. It's corporate private equity. For us, it could be secondaries, it could be life sciences, growth, tactical opportunities. We really have a unique platform that can source a lot of deal flow. Again, this is a less liquid area than real estate and credit. So the structure would have to align with that. And then I think infrastructure is something we haven't talked about on the call could be an area of opportunity. As you all know, we've grown that business in five or so years to 36 billion of assets, outstanding performance really delivered for institutions. Again, it's a long-term compounder with a yield component should be attractive. So and then I think there are subcategories who knows real estate debt, other areas, multi-asset credit. I think as we build relationships with individual investors and deliver for them their confidence in investing in a range of products and having a mix of both the semi-liquid vehicles and then for some drawdown vehicles. I think all of that will grow. People are focused on the near term. It's a volatile market. There's more caution today. But the long-term trends, as I said, are very much intact, I think, particularly in the retail space.

Operator:

We'll go next to Rufus Hone with BMO.

Jon Gray:

The numbers, the total amount of credit origination across real estate, asset backed corporates. I don't know, Michael, do you have that number?

Jon Gray:

Yeah. And I would say overall, these are in the tens of billions of dollars in terms of the scale of this. We have made an enormous investment in people. I don't know to the specific numbers how much margin improvement. I think this is mostly about the growth in assets and fees overall. Like all our businesses, there tends to be a margin improvement over time. I mean, really, since we've gone public over the last 15 years, you've seen steady improvement in margin. I would expect in this area, you would see margin improvement over time. But we just see a lot of white space in this area. And once you have these engines of origination, once you have a large commercial real estate origination capability, a direct lending capability, once you're doing things in all sorts of these asset backed areas we talked about, then you can attract more assets. So I would just say overall, still early days in our mind.

Rufus Hone:

Thank you.

Arnaud Giblat:

Good morning. Thanks for the question. If I could come back to you to the private wealth space, a number of your competitors are entering or looking to enter the space there. I'm just wondering if you could touch a bit more on your competitive how you see the competitive situation evolve there. What's your competitive advantage maybe in light of the fact that today the private investors might be a bit less allocated, so maybe there might be less of a brand advantage? So I'm just wondering how you're thinking about really positioning and increasing your competitive moat there? Thank you.

Steve Schwarzman:

One other thing. We've been doing this for like ten years, roughly. And when we started, hardly anybody in that channel knew what we were doing or what the program was. And so we started a series of in-person what we call BX universities, Blackstone universities. And we have had, I don't know the number, whether it's 10,000 or FAs who've been at the firm. And they usually come for a day and we introduce them to each of our different business areas. We teach them how alternatives work. Differences between that and other types of immediately liquid types of investments as well as why the returns are higher. And I can't overestimate for you of, how important this is, because when somebody comes and spends a day and sometimes it's more than a day and learn something from the ground up. They go back and they talk to people who work with them, people who are in the same office and they say, you should really be doing this. And that's sort of viral kind of internal marketing is pretty remarkable. And since we've been doing it, when no one was doing this, I mean, we were just alone. We have a group of people who really trust what we're doing and our fulfilment organization, which is different and service for customers of that type is totally unlike institutional type of support. And we built that over a very long period of time and no one else had that who competes with us. And so there is a -- when Jon mentioned the first mover advantage, it's really about people and reputation and knowledge and performance. And that type of thing really is quite enduring. So I leave you with that one.

Operator:

Good day, and welcome, everyone, to the Blackstone Fourth Quarter and Full Year 2022 Investor Call. During the presentation, your lines will remain on listen-only. [Operator Instructions] I'd like to advise all parties that this conference is being recorded. And with that, let me hand it over to Weston Tucker, Head of Shareholder Relations. Weston, please go ahead.

Steve Schwarzman:

Well, thank you, Weston, and good morning, and thanks, everybody, for joining the call. 2022 represented the most challenging market environment since the global financial crisis. Central banks around the world embarked on one of the most aggressive tightening cycles in history. Combat the highest inflation in a generation. In the United States, we saw the highest level of inflation since 1981. Federal funds rate here rose from basically zero at the start of the year to 4.5%, the largest increase in 50 years. Equity markets fell sharply as a result with the S&P down 18% for the year, NASDAQ down 33%, public REIT index, not to be forgotten, down 25%. The intra-year movements were even more extreme, these indices down 26% to 37% at their lows. In credit, the high-yield and high-grade indices declined 11% and 13%, respectively. Overall, the 60:40 portfolio at one of the worst years on record. And against this extremely unfavorable market backdrop, Blackstone delivered earnings and dividend growth for our shareholders. Distributable earnings, for example, rose 7% to $6.6 billion in 2022, while fee-related earnings increased 9% to $4.4 billion, a record year for the firm on both metrics, despite the collapse in equity and debt markets. The fourth quarter, although we had fewer realizations due to the environment, we generated strong DE of $1.3 billion, reflective of the firm's substantial earnings power, which has grown dramatically over the past several years. Most importantly, Blackstone distinguished itself compared to almost all diversified liquid securities managers by preserving our limited partner's capital. The year in which the typical investor lost somewhere between 15% and 25% of their money, our limited partner investors had a highly differentiated outcome. Our flagship strategies in real estate, private credit and secondary's appreciated 7% to 10%, while those losses were recurring elsewhere. Our Hedge Fund Solutions business achieved a gross composite return of 5% with positive returns every quarter of the year. Our corporate private equity, tactical opportunities and liquid credit strategies were down only modestly for the year between 1% and 3%. One of Blackstone's core principles since our founding in 1985 involves the preservation of capital as a necessary component of the investments we make. We assess investment opportunities rigorously always with a focus on not losing our clients' money. In addition, of course, we seek returns that significantly exceed public market benchmarks over time. This year, we are proud that we again executed on this foundational principle. Our approach to investing has enabled us to grow from having no assets in 1985, to becoming the largest alternative asset manager in the world today. As you would expect, our investors are rewarding us, including remarkable inflows of $226 billion just in 2022, which drove 11% growth in assets under management to a record $975 billion. Our inflows this year alone qualify as a top 10 alternative manager out of the over 10,000 alternative managers globally. But Blackstone and others started in the alternatives business, institutional investors provided almost all of the capital for investment. That business remains robust today as institutions are continuing to increase allocations. The vast $85 trillion private wealth channel, a new generation of investors is starting to experience the benefits of alternatives as well, a development led by Blackstone, where we have the largest market share. 20 years ago, we started raising money in this channel by offering access to the same high-quality products we offer to institutions. Over a decade ago, we built a dedicated private wealth team, which today comprises approximately 300 people globally, where we invested significantly to establish the leading sales and service organization in our sector, interfacing with the largest wealth distribution systems. Six years ago, we launched our first large-scale customized products for individual investors. These products were designed to provide attractive returns by investing in longer term assets and therefore, capture the premium for liquidity, which is the basis of much of our business. And we structured these products to provide liquidity over time, subject to limits as it is essential to match the time horizon of investments with the duration of capital. This is a foundational principle of portfolio construction. And these products have worked exactly as intended. Blackstone's largest product in the private wealth channel, BREIT, has delivered 12. 5% net returns annually since inception six years ago, for its largest share class, earning over three times the public REIT index. Been a lot of talk about public REITs. We've out-earned them by three times. In 2022, BREIT's net return was over 8%, while equity and debt markets were melting. And its growth in net operating income, 2022 was 65% higher and public REITs through the latest available public data, that’s some performance. Blackstone's second largest product in this area of BCRED, has achieved 8% net returns annually, significantly outperforming the relevant credit indices and is yielding over 10% today, exclusively in floating rate debts. The response to our performance has been extremely positive. In 2022, our sales in the private wealth channel totaled a remarkable $48 billion, not exactly what you're hearing in the media. In the fourth quarter, despite market headwinds, our sales were robust $8 billion, including $4 billion in our perpetual vehicles and $4 billion in other strategies. On a net basis, after repurchases, we saw positive net inflows in this channel of $3 billion overall in the fourth quarter with strong demand for our drawdown products. Specifically, our perpetual strategies saw moderate net outflows in the quarter of approximately $800 million. As one would expect, flows in these strategies are impacted by market cycles. We believe we're seeing a temporary decline in an otherwise very positive long-term growth trajectory. Firstly, speaking, I've been in finance for over 50 years and I'm frankly quite surprised by the intense external focus on the flows for BREIT at a time of cyclical lows in stock and bond markets. For those of us that build and create businesses, what's going on is highly predictable. It should be expected that flows from high net worth individuals would decline to nearly all types of new investments in this environment. Having navigated five major market declines in my career, I've learned that focusing just on what's happening at the bottom of cycles. This leads the public regarding likely future trends for appreciation and growth in well constructed and historically high-performing products. My experience is these market bottoms often last for relatively short periods of time are followed by a resumption of historic trends. At Blackstone, we are focused on the long term, not next month. And rather than simply counting balls and strikes, we're working to win the World Series. And as we all know, not all World Series are won four games to 0, all people remember is who won the World Series, and that is our intention, and that has been our experience with the vast bulk of our products. Our funds are built on performance and our consistent experience over nearly four decades has been that with strong returns, flows will follow. The need for very high-quality products in the private wealth channel is very substantial, and we're bringing something highly differentiated in terms of our portfolio and performance. What we've created for individual investors is so good that one of the most sophisticated institutions in the world contacted us and indicated they wanted to invest as well. Earlier this month, the University of California system invested $4 billion in BREIT and is investing an additional $500 million beyond that, which we announced yesterday with an effective six-year hold. This investment builds upon a 15-year relationship between our firms. I had the pleasure of meeting with UC's Chief Investment Officer over the holiday period, and he said they consider BREIT has one of the best positioned real estate portfolios in the United States. This investment provides BREIT with substantial additional firepower and flexibility, and represents a powerful affirmation of the portfolio and its performance. It also illustrates the significant advantages of buying products from Blackstone. Investors and our funds get access to the full capabilities of our firm, not just those of an individual portfolio manager, including our intellectual capital, relationships, creativity and the many other benefits that come from our leading market position. We use these advantages to drive the best outcomes possible for our customers. Our distribution partners understand this as well, and they've told us they plan to continue to expand their client's access to alternatives. Blackstone's commitment to the private wealth channel is stronger than ever. And we believe our performance in this cycle will ultimately provide impetus for significant growth in this area. Our returns in the face of adverse markets and adverse media are proof of concept and our disciplined approach to institutional asset management applies for the benefit of individuals as well. In closing, as we move into 2023, Blackstone is uniquely positioned to navigate the challenges of today's world on behalf of all of our investors. As a whole, our portfolio is in excellent shape with an emphasis on downside protection, as well as upside when asset values ultimately recover from this cycle. With almost $187 billion of dry powder, we have more capital than almost any other financial investor in the world to buy assets opportunistically when values are low and liquidity is scarce. We have lived through many cycles and have always emerged stronger, growing the firm to greater heights. Public market and investors who don't understand our model historically, upon the risk missing out on Blackstone's substantial long-term stock performance. Our people own 36% of Blackstone's equity. I can tell you, this is a group that is extremely bullish on our firm's prospects. And with that, I'll turn things over to Jon.

Michael Chae:

Thanks, Jon, and good morning, everyone. Firm's results reflect strong performance in difficult markets. Our business continues to demonstrate remarkable resilience and fundamental strength in terms of investment returns, inflows and earnings power. I'll first review financial results and then we'll discuss investment performance and key elements of the forward outlook. Starting with results. Despite the challenging backdrop, fee-related earnings, net realizations and distributable earnings, all saw a meaningful positive growth for the full year, with FRE and DE reaching record levels, as Steve highlighted. FRE increased 9% to $4.4 billion or $3.65 per share, powered by very strong growth in management fees and healthy margin expansion, notwithstanding a decline in fee-related performance revenues. Our expansive breadth of growth engines and the activation of new drawdown funds throughout the year, lifted base management fees 25% to a record $6 billion for the year and the 52nd straight quarter of year-over-year base management fee growth at Blackstone. At the same time, FRE margin expanded 75 basis points to 57.1%, the highest level ever for a calendar year, reflective of the firm's robust margin position and ability to manage costs with discipline in a difficult environment. Fee-related performance revenues were $1.4 billion for the year, driven by strong returns across our perpetual strategies, with contribution from 12 discrete vehicles. Looking forward, the setup for this high-quality revenue stream in 2023, and beyond is quite favorable, which I'll discuss further in a moment. Distributable earnings increased 7% in 2022 to $6.6 billion or $5.17 per common share, driven by the growth in FRE, along with a 4% increase in net realizations. The shape of the year was impacted by our realization activity, which, of course, is market dependent. We saw a record first half driven by certain large realizations of note, while the pace of sales slowed in the second half, reflecting overall market activity levels. FRE remained a balance to earnings throughout the year, 2022 comprising four of the firm's five best quarters for FRE in history. In the fourth quarter, FRE was $1.1 billion or $0.88 per share. The year-over-year comparison was affected by the change in the crystallization schedule for BREIT's fee-related performance revenues in 2022. Previously, each full year's revenues crystallized in the fourth quarter, which moved to a quarterly crystallization in the first quarter of 2022. Notably, excluding these revenues, the firm's FRE growth in the fourth quarter was positive 7%, more in line with the full year. Distributable earnings in the fourth quarter of 2022 were $1.3 billion or $1.07 per common share, down from the prior year record quarter. Stepping back, despite a muted backdrop for realizations for much of the year, our distributable earnings were above or well above $1 per share every quarter for the past six consecutive quarters, which had only previously occurred three times in our history. This reflects well the elevation of our earnings power that is underway. Turning to investment performance. Against the volatile market backdrop of 2022, our funds protected investor capital. In the fourth quarter, the corporate private equity funds appreciated 3.8% with strength in our travel-related and energy holdings along with our publics broadly. Our portfolio companies are well positioned overall with continued strong revenue growth and resilient margins. In real estate, the Core+ and opportunistic funds depreciated 1.5% to 2% in the quarter. In the context of rising cost of capital, we've continued to increase cap rate assumptions across the portfolio, driving the fourth quarter decline. Notwithstanding this impact, our real estate strategy still saw significant appreciation for the full year due to robust cash flow growth across our holdings. Of note, 10-year yields have moved meaningfully lower since year-end, which, if sustained, should provide additional valuation support over time. In credit, the private credit strategy is appreciated 2.4% and the liquid strategies appreciated 3%, reflective of a resilient portfolio, generating strong current income against a stable backdrop for credit generally in the quarter. And in BAAM, the BPS gross composite return was 2.1% in the quarter, the 11th quarter in a row of positive performance. Overall, our portfolios are performing well in a challenging external operating environment. Turning to the outlook. First, as it relates to realizations, we expect sales activity to remain muted in the near-term given market conditions. And as always, when markets ultimately stabilize, we would expect realizations to reaccelerate as well. With respect to FRE, we continue to expect a material step-up over the next several years, led by the combination of first, our drawdown fundraising cycle; second, expanding contribution from perpetual strategies; and third, the substantial largely contractual growth of our dedicated insurance platform. In terms of the drawdown funds, the fee holiday for our global real estate flagship has ended, and 2023 will include a nearly full year contribution of management fees. We expect to launch the investment period for the corporate PE flagship later this year, subject to deployment which will be followed by an effective four-month fee holiday. We will launch various other funds in the coming quarters depending on deployment. In total, only $56 billion of our $150 billion target was earning management fees as of year-end. Federal strategies continue to grow in number and scale with over 50 discrete vehicles today, a combined fee AUM of our four flagship strategies BPPE, BREIT, BIP, and BCRED, grew 30% in 2022 to $184 million. This sets a substantially higher baseline for fee revenues entering the year. In addition to NAV-based management fees, over 30 of the perpetual vehicles are eligible to generate fee-related performance revenues, and the firm will continue to benefit from the layering effect of these revenues. We previously noted that the BPP platform has four times more AUM subject to crystallization in 2023 and 2022 concentrated in the second half of the year. Finally, in insurance, we ended 2022 with over $100 billion of AUM from our four large clients, generating $450 million of management fee revenue for the year. As these mandates grow over time, both organically and by contract, we anticipate fee revenues just from these mandates will more than double to approximately $1 billion in four to five years, including strong double-digit growth this year. These revenues carry attractive incremental margins given our extensive existing capabilities. So, to summarize, with multiple embedded key drivers we have strong confidence in continued FRE expansion in 2023 and beyond. In closing, despite the uncertainties in today's world, we entered the new year from a position of fundamental strength. Our earnings power is elevated dramatically for the past several years. And looking forward, we have great confidence in the future. With that, we thank you for joining the call and we'd like to open it up now for questions.

Craig Siegenthaler:

Good morning Steve, John. Hope everyone is doing well.

Craig Siegenthaler:

So Infrastructure Partners is generating sizable inflows pretty much every quarter now, AUM is around $35 billion. What's been driving the improvement in fundraising momentum at Infra? Is it partly the inflation had qualities? Is it more contribution from the private wealth channel? And also, is PIF still matching every dollar of inflow? And I think that was up to $40 billion.

Craig Siegenthaler:

Thank you, Jon.

Glenn Schorr:

Hello. Thanks very much.

Glenn Schorr:

So, I think, Steve put it well earlier when talking about its essential to match the duration of assets with the capital. And there's a perception or reality in some ways that the quarterly liquidity products don't do that. Now, they work and you're protecting shareholders. So I understand, they hit the bottom line. So my question is, we've been talking about for a while now and experiencing retail, the private wealth channel contributing 30% to 50% of flows for the company. So I'm curious how you evaluate the client experience, the client being the SA, the platform, the end client that's asking for money and has to wait. And so, the bigger picture question is, do you still have confidence in that 30% to 50%, do you need some reinnovation of product wrapper? I know, I asked something like that last quarter, but we have thee months more of conversations. So I'd love to get your mark-to-market on all of that. Thanks, so much.

Glenn Schorr:

Thank you.

Michael Cyprys:

Great. Thanks. Good morning. Just more of a bigger picture question around growth and innovation. I guess, if we look at your growth in recent years, many of the products that are contributing today did not exist 5 or 10 years ago. So, if we look out over the next 5 to 10 years, can you talk about some of the white space that you see for innovation for new business opportunities, opportunities for new strategies and just the overall opportunity set for Blackstone to innovate from here? And ultimately, how different might the Blackstone of 2030 look versus today?

Michael Cyprys:

Great. Thank you.

Ken Worthington:

Hi. Good morning. And thanks for taking the question. Wanted to dig into BPP and the outlook for growth in this product. So maybe first, have you gotten a reaction to the arrangement you made with UC and BREIT from customers of BPP? Maybe second, even outside of Mileway and BioMed, growth has been very strong for BPP. How's the outlook for growth over the next few years changed as it seems like growth has stalled more recently there? And then lastly, do you see other Mileway and BioMed opportunities for adjacency growth in BPP? And what might the nature of those adjacencies look like?

Ken Worthington:

Great. Thank you.

Finian O’Shea:

Hi, everyone. Good morning. On private credit. I appreciate the color you had earlier on the US direct lending potential via your insurance relationships. Of course, the BDC can continue to grow as well that complex. But beyond these, can you talk about the broader institutional efforts? And if you have an eye on expansion into, say a fund complex or an evergreen for that asset class?

Finian O’Shea:

Thank you.

Brian Bedell:

Great. Thanks. Good morning, folks. Just back on BREIT and BCRED. Just John, if you had a crystal ball, I guess, in the sort of near-term intermediate term on when you think the redemption requests might abate. And just in thinking about that, getting through the Asian investors, which, obviously, were a redeemer – heavier redeemers last year and then getting sort of burning through the – any of the folks that are not happier want to redeem and getting to those happy investors, so to speak. Just in terms of the redemption profile, when would you think you might burn through those requests and get to sort of more of a positive net positive profile. And if you can differentiate that with BCRED and then also just are there more potential institutional investor opportunities in BREIT like you see?

Brian Bedell:

That’s super helpful. Thank you.

Alex Blostein:

Hey good morning everybody. Thanks for the question. I was hoping to zone in on your secondaries business. You guys raised the potential amount of capital for the latest fund. And it feels like there could be quite a bit of activity in the secondary space, given changes LPs are making and obviously, significant macro movements. So, as you think about velocity of capital in the secondaries business, both LP and GP-led transactions. How do you expect that to shake out? What does that mean for maybe additional product innovation and fundraising within the secondary franchise for Blackstone?

Alex Blostein:

Great. Thank you.

Gerry O'Hara:

Great. Thanks. Hoping you could just clarify some comments I believe I heard with respect to where you are on the sort of 12 to 18-month fundraising time horizon towards $150 billion. And specifically, what is sort of ahead of you where you see some of the larger sort of fundraising and what vehicles? What the sort of makeup of the remaining sort of target goal looks like? Thank you.

Gerry O'Hara:

Great. Thank you.

Adam Beatty:

Thank you, and good morning. Just a follow-up on BPP. You talked a little bit about kind of slowing new commitments in the near or medium term. Just wondering in terms of existing clients and redemption requests, if those are elevated at all, whether that might be driven maybe by liquidity as in the retail channel or just buy some other reallocation. Also on that, to the extent that redemption requests were to be elevated either now or in the future does that impact at all your ability to collect performance fees? Thank you.

Adam Beatty:

Very helpful. Thank you.

Patrick Davitt:

Hi, good morning everyone. Could you update us on how -- I know it's early, obviously, but how LP, like, institutional LP commitment discussions have evolved as we restarted the process in January. More specifically, any signs that the backup and PE fundraising is starting to clear? And then more broadly, could you frame any asset classes that you're seeing any meaningful shift in demand for positively or negatively?

Weston Tucker:

Thanks. Next question please.

Ben Budish:

Hi. Thanks so much for taking my question. I wanted to ask about the FRE margin profile. You beat the consensus expectations up pretty nicely in the quarter. Just thinking about in fiscal 2023 and over the next few years, you've kind of indicated a sizable step-up in FRE. You indicated very high turns business to scale. Just wondering, if you could share your thoughts around FRE margin expectation for fiscal 2023 and how it should grow over the next couple of years? Thanks.

Ben Budish:

Okay. Great. Thank you so much.

Brian McKenna:

Thanks. Good morning everyone. So you're clearly in a great position to deploy capital into the dislocation across markets with $187 billion of dry powder. A lot of this capital sits within your traditional drawdown funds and strategies. So how should we think about deployment activity moving forward for some of your retail products?

Brian McKenna:

Thank you.

Weston Tucker :

Great. Thank you, everyone, for joining us today and look forward to following up after the call.

Operator:

Good day, everyone, and welcome to the Blackstone Third Quarter 2022 Investor Call hosted by Weston Tucker, Head of Shareholder Relations. My name is Ben, and I'm your Event Manager. During the presentation, your lines will remain on listen-only. [Operator Instructions] I'd like to advise all parties that this conference is being recorded for replay purposes. [Operator Instructions] And now I would like to hand it over to your host. Weston, the floor is yours.

Steve Schwarzman:

Thank you, Weston. Good morning and thank you for joining our call. The third quarter of 2022 was a continuation of one of the most difficult periods for markets in decades. Global markets extended the dramatic sell-off to characterize the first half of the year. The S&P 500 falling another 5%, bringing the year-to-date decline to 24%. The public REIT index was down 10% in just a quarter and 28% year-to-date. The NASDAQ fell 32% year-to-date. And in debt markets, high-grade and high-yield bonds declined 14% to 15% in the first nine months of the year. Our inflation, rising interest rates and a slowing economy, combined with ongoing geopolitical turmoil, have created an extremely difficult environment for investors to navigate. The traditional 60:40 portfolio is down over 20% year-to-date, its worst performance in nearly 50 years and sentiment in almost all areas is likely to remain negative, given the Fed's commitment to continue increasing interest rates to combat inflation. Against this highly challenging backdrop, Blackstone delivered excellent results for our shareholders. Fee-related earnings for the third quarter rose 51% year-over-year to $1.2 billion, representing our second best quarter on record. We generated strong distributable earnings of $1.4 billion, or $1.06 a share, as Weston noted. While most money managers focusing on liquid markets have seen declining AUM, we've continued to grow. Our assets under management increased 30% year-over-year to a record $951 billion, with strong demand for our products across the institutional private wealth and insurance channels. Just last week, we announced our fourth major partnership in the insurance space with Resolution Life, a leading life and annuity block consolidator, which we expect to comprise approximately $25 billion of AUM in the first year and over $60 billion over time as their platform grows. Key to Blackstone success with our customers is that we have protected their capital through these remarkable market declines. One of our core principles, since we founded the firm in 1985, is to avoid losing our clients' money, and we've done an excellent job of that. As the largest and most diverse alternatives firm in the world, we have unique access to data and insights on what is happening in the global economy, allowing us to anticipate trends and we believe, minimize risk. We then carefully choose sectors and which type of assets to buy and actively work to build great companies and platforms. We use this advantage as well to help determine areas of focus in the liquid securities area. This synergistic approach has led to distinctly strong positioning across our business today. For example, in real estate, approximately 80% of our portfolio is in sectors where rents are growing above the rate of inflation, including logistics, rental housing, life science office and hotels. In corporate private equity, our emphasis on faster-growing companies has resulted in a 17% year-over-year revenue growth in our operating companies in the third quarter, led by our travel leisure-related holdings. At 17% growth in revenue, as the economy is slowing all over the world. This is a stunning result, given the size of our portfolio which, in total, across our private equity business employs approximately 500,000 people. In corporate and real estate credit, we benefit from close to 100% floating rate exposure and we're experiencing negligible defaults. And our hedge fund solutions business is performing remarkably well with the BPS composite achieving positive returns in the third quarter and every quarter so far in 2022. This is a highly differentiated outcome in liquid securities compared to the year-to-date decline of 24% in the S&P. Blackstone's long history of outperformance and capital protection is, of course, critically important to our LPs and their constituents. They have found it difficult to achieve their objectives by investing in traditional asset classes alone. That's why LPs around the world are choosing to increase allocations to alternatives, in particular, to Blackstone. Recent research from Morgan Stanley estimates that private markets AUM will grow 12% annually over the next five years. We shared growth in areas such as infrastructure, real estate and private credit as investors seek yield and inflation protection. All areas of distinctive competence here at Blackstone. From a channel perspective, Morgan Stanley predicts the greatest growth among individual investors, with allocations to alternatives from high net worth investors more than doubling in five years to 8% to 10% of their portfolios. This represents a major paradigm change when we identified over a decade ago and trillions of dollars of opportunity which Jon will discuss in more detail. Blackstone is the clear leader in this channel with the largest market share among alternative managers. Blackstone occupies a special status with customers and potential customers around the world. They are facing significant uncertainties today and are looking to us to help them navigate these challenges. And we believe we are uniquely positioned to do so. We are proud of the trust that they place in us and we remain steadfast in our mission to serve them. In closing, our firm has prospered across the many cycles of the past 37 years since we started. We had no assets then. And today, we're closing in on $1 trillion of AUM. Historically, we've taken advantage of the pullbacks to deploy significant capital at attractive prices, extend our leadership position across business lines and invest in new initiatives as well as in our people. For our shareholders, this has translated into extraordinary growth, and we have no intention of slowing down. We are in the early innings of penetrating new channels and markets with enormous potential. The firm's earnings power continues to expand, concentrated in the highest quality earnings. Even though the investment climate is challenging, we have the confidence, the resources and the loyalty of our customers and our people. We continue to develop our franchise for the benefit of all of our constituencies. And with that, I'll turn it over to Jon.

Michael Chae:

Thanks, Jon, and good morning, everyone. The firm’s third quarter results highlighted business model designed to provide resiliency in difficult markets. At the same time, we are advancing through the largest fundraising cycle in our history, which coupled with our expanding platform, Perpetual Capital Strategies is setting the foundation for a material step up in FRE. I’ll discuss each of these areas in more detail. Starting with results. One of the best illustrations of the durability of our financial model is the continued powerful trajectory of fee-related earnings. In the third quarter, FRE increased 51% year-over-year to $1.2 billion or $0.98 per share, powered by 42% growth in fee revenues, along with significant margin expansion. With respect to revenues. The firm’s expansive breadth of growth engines lifted management fees to a record $1.6 billion, up 22% year-over-year, and 4% sequentially from quarter two. At the same time, the continued scaling of our perpetual strategies combined with strong investment performance across those strategies led to $372 million of fee-related performance revenues. With respect to margins. FRE margin for the nine months year-to-date period, expanded nearly 100 basis points from the prior year comparable period to 56.5% and is tracking above our previous expectation. We now expect full year 2022 margin to be in this same 56% area in line with 2021. Distributable earnings were $1.4 billion in the third quarter, underpinned by the robust momentum in FRE. Net realizations declined year-over-year as the market environment unit activity levels as expected. While the backdrop for exits is likely to remain less favorable in the near term. One of the key attributes of our model is that we can focus on executing our operating plans and creating value for the long-term patiently waiting to identify the optimal opportunities for modernization. In the meantime, the firm’s performance revenue potential continues to build. Performance revenue eligible AUM in the ground grew 26% year-over-year to a record $494 billion. Net accrued performance revenues on the balance sheet stand at $7.1 billion or nearly $6 per share, down over the past few quarters, primarily due to record realization activity, but still double its level of two years ago. Moving to investment performance. As Steve noted against the backdrop of continued pressure in global equity and credit markets, our funds protected investor capital, Core+ real estate, credit and BAM appreciated 1% to 3% in the quarter. In corporate private equity and opportunistic real estate, values were largely stable, and tac op saw modest depreciation of approximately 2%. These returns included the negative impact of currency translation for our non-U.S. holdings related to the stronger U.S. dollar. Few additional observations on our returns. First, in private equity, our portfolio companies historically have been held at a meaningful discount to public comps in terms of valuation multiples, which continues to be true today. In alignment with that in terms of outcomes, exits have occurred at a significant premium compared to unaffected carrying values. Second, in real estate, in the context of rising interest rates, we’ve materially increased cap rate assumptions across the portfolio. Notwithstanding this impact, our real estate strategies has still seen strong appreciation year-to-date as cash flow growth and dividends have more than offset the impact of wider cap rates. Turning to the outlook, which is characterized by the firm’s continuing progression toward higher and more recurring earnings. As we highlighted last quarter, we expect the combination of our drawdown fundraising cycle along with the growing contribution for perpetual strategies, the lead to a structural step up in FRE over the next several years. In terms of the drawdown funds, we launched the investment period for the global real estate flagship in August with an effective four-month fee holiday for first closers. We will launch other funds over time depending on deployment. With respect to perpetual strategies, we previously discussed the layering effective fee-related performance revenues, and noted that BPP in particular has four times more AUM, subject to crystallization in 2023 than in 2022. At the same time, the private wealth perpetual vehicles have continued to compound in value with fee earning AUM increasing $27 billion since the start of this year and $94 billion in total, setting a higher baseline for fee revenues going forward. As Jon described, these vehicles remain exceptionally well positioned, and for BCRED specifically, it’s worth highlighting that the driver of fee-related performance revenues is investment income, borrowers paying interest which has a high degree of visibility. Overall, the dual catalyst of our drawdown fundraising cycle and the ongoing perpetualization of our business give us confidence in the multi-year outlook for FRE. One final item of note. Last month, our insurance client Corebridge successfully completed its IPO, despite the extremely difficult capital markets backdrop. This represented an important milestone in their evolution as a standalone public company. Blackstone was not a seller in the offering, nor was Corebridge, and we are committed to being shareholders for years to come. We have a very positive view on the value of the company, including the expected benefits from increasing base rates and widening spreads. We’ve been pleased with the success of our partnership to date and look forward to continuing to deliver for them as their exclusive investment manager for key asset classes. In closing, the firm is in an excellent position saying our all-weather model for protects us in times of stress and provides a powerful foundation for future growth. We have great confidence in what the firm will achieve in the years ahead. With that, we thank you for joining the call and would like to open it up now for questions.

Craig Siegenthaler:

Hey, good morning, Steve, Jon, hope everyone’s doing well.

Craig Siegenthaler:

My question is on fundraising. There’s been multiple headwinds this year with the crowded private equity backdrop denominator effect, and it seems some weakness with U.S. pension plans, although probably more strength from sovereign wealth funds. But we haven’t seen this really impact Blackstone’s results yet with strong fundraising again last quarter. Can you provide us an update on the fundraising front and Blackstone’s overall ability to grow organically if the bear market extends into next year?

Michael Chae:

I just add that starting from our – Steve, from our first fund in 1987, we made a very significant component of non-U.S. investors. And I think at a time when the U.S. is less favorable, because the factors you mentioned in the pension funds, the fact that we are so global for so long those type of relationships tend to be enduring and personal because people are coming from foreign countries and foreign cultures, and when they decide that they want to trust you make significant commitments and then you deliver time after time after time. There’s a certain bond that you have. And the flows, as Jon mentioned, have been more directed outside the United States. And that gives us just a terrific balance of where we can go to raise money.

Operator:

Perfect, thank you. Our next question is coming from Ben Budish from Barclays. Please proceed.

Jon Gray:

So as I said, what’s remarkable is the U.S. economy in particular has been very strong. Europe has held up better than people expected. Places like India are strong. As a data point here, the fact that we saw 17% revenue growth in our private equity portfolio says something I think pretty profound that there’s still a lot of strength and it also reflects that sector selection. So the fact that we’ve done so much in private equity, in travel, leisure bodes well for us. Our energy infrastructure, energy transition assets are all doing quite well. I think where we positioned ourselves has helped us and it’s similar for us in the real estate market, as Michael commented on the positioning in such a big way in logistics and then rental housing, hotels, all areas with strong growth. Overall, back to your comment, we do think we’ll see a slowdown here. It’s just inevitable. When you take the cost of capital from 0% to 4% and debt capital widens even more with spreads widening. People start to think about de-leveraging, paying down their debt. They’re less focused on expansion. There’s more caution, and that’s going to lead to a slowing that will happen over time. And that’s what we’re anticipating and that’s what we’re telling our companies. So I think that’s something that all companies need to think about in terms of how severe it is. I think it’s hard to say. What I would comment on is we’re in a much better spot as a global economy than we were back in 2008, 2009. We don’t have the same kind of over leverage we had back then in housing, in commercial real estate, in banking institutions. So that makes you feel better, but there’s no question there is a slowing coming here. We should anticipate that and obviously, the stock market has been thinking about that.

Operator:

The following question comes from Michael Cyprys from Morgan Stanley. Michael, please proceed.

Steve Schwarzman:

Thanks, Michael. Obviously, the UK and Europe face some real challenges in the near term. There is the inflation challenge driven by their energy challenges, which are much more pronounced than what we have in the United States. Their central banks need to raise rates in order to maintain their currencies and not have further inflation. In addition, as they raise rates, their housing markets, many of them tend to have floating rate mortgages versus our 30-year fixed rate model, which puts additional pressure on the European economies. I would say to date, things have held up better and our companies have performed better than you would expect. Companies are adapting to the higher energy prices and their usage and efficiency, but it is going to be a challenging period. I think as investors, what you have to overlay against that is just how much the currencies have moved and how much the valuations have moved down. You’ve seen currency movements here of nearly 20% in Europe and the UK and you look at the UK in particular, the stock market, there’s trading it below nine times earnings. So we look at that and say, wow, these are interesting places. A bunch of the thematic trends we like could be around travel, could be around technology, infrastructure logistics. There’s still attractive assets in continental Europe and the UK and yet prices and investor enthusiasm’s gone down. And so to us, that makes for an attractive entry point. Sometimes it takes time for these things to manifest themselves, but we think we’ll be busy in Europe over the next few years. I would say on the LDI question in particular there was some selling, as you know, of CLO paper. We like others participated in that. It seems to have abated at this point, but I wouldn’t be surprised as rates move up that there aren’t other four sellers as pressure grows in the system. And then back to our model, $182 billion of dry powder, the ability to make decisions really quickly to move quickly when there are periods of dislocation. It happened back in Brexit, it happened back in 2008, 2009. We try to take the opportunity to deploy capital on behalf of our investors. So I think you have to be cognizant of the economic challenges in Europe, but open minded to the opportunities given the repricing that’s underway there.

Operator:

The following question comes from Brian Bedell from Deutsche Bank. Brian, please go ahead.

Jon Gray:

Thank you, Brian. What I would say this area is about for us is providing credit to this enormous energy transition that is underway. So if you think about the trillions of dollars that need to be spent to move us from 85% dependency in the U.S. a little bit lower in Europe on hydrocarbons to a lower number, it’s going to require a lot of equity. It’s going to require a lot of debt. To us the most form of financing is not necessarily financing finished projects, which liquid investors will pay, will accept very low for in order to hit their net zero targets. We think if you back developers as we’ve been doing successfully of projects, if you lend to some of the service providers in the space. If you lend to consumers, we’ve been a very active in providing financing since in the solar market to consumers. We think this is a good way to go because there's an enormous need for capital and so we're excited about – we're also excited about our energy equity area as well for similar reasons because of the need for capital. And in our infrastructure, we've been doing a lot. We made a large investment we talked about six months ago in Invenergy, which is the largest builder of solar and wind projects in the United States. I would say, as it relates to ESG overall, the driver for us is being a fiduciary and deliver to our customers. They're focused on this area. We also see a big opportunity set because of the need for both debt and equity capital. We think we're building new platform and ecosystem. We said publicly we want to invest $100 billion in this area across our various platforms over the next decade. I think we can do that and generate favorable returns. So I'd say it's an exciting area that is still in the early days of its expansion.

Operator:

Moving to our next question from Alexander Blostein from Goldman Sachs. Alexander, please proceed.

Jon Gray:

Thanks, Alex. I guess I'd step back and say the reason my hard assets are interesting in an environment like this is because the replacement cost goes up pretty significantly. In inflationary environment, the cost to build the labor cost, which is a big component has gone up and probably the largest input cost of money goes up significantly. And the yield on cost that you need to build a new project goes up. So I was talking to a major apartment developer who builds 15,000 units he has under construction today. He said next to cut his budget to 4,000 units, a 75% decline in terms of his new construction. So what you see happen in an environment like this is you start to see a reduction in new supply, which is obviously helpful in the long-term and these hard assets are beneficial because they don't have much exposure to input costs, and there's going to be a few of them, as I said, built. So that argument for investing into hard assets. The challenge, of course, is in a rising rate environment, if you own a hard asset feels like a bond, or worse an older office building, then I think you're going to see a challenge to value because the income is not growing much and rates have gone up. On the other hand, if you're in rental housing and you have pricing power or logistics, where we're still seeing in the U.S., 30% increases in rents. In Europe, nearly 20% increases in rents, the duration of [indiscernible]. Even as the cap rates go up, you can still see value appreciation, albeit at a lower rate. So as it relates to institutions, yes, they become more cautious in this environment, so they don't allocate quite as much. They pause, we've seen this before, but as you get to the other side of this, healthy real estate fundamentals. And by the way, unlike almost every other down cycle, what we have going into this, particularly logistics and rental housing is low rates of vacancy and limited new supply and a lot less leverage. So we go into this in a better way. And then as a result, we start to see this sharp decline in new supply, it should be even better coming out. So I think long-term assets real estate, which is obviously a big area of focus for us, it is a really good area to be in. And then I would just say, obviously, we have – we're – our scale is larger than anyone else in the world. We see more on the ground than anybody. We have access to capital, both debt and equity. So it's an area we continue to have a lot of confidence in even if there are some near-term headwinds.

Operator:

The following question comes from Gerry O'Hara from Jefferies. Gerry, please go ahead.

Jon Gray:

Well, it does, I think, impact some investors. Fixed income starts to look more attractive. But if you think about our clients and their long-term obligations, the rates they want to produce are generally above investment grade fixed income. And so I don't think they can move their portfolios out of alternatives in a meaningful way. It has been their best performing sector. And if anything, what they may say is, you know what, I'm really interested in private credit because I get the benefit of short duration income as the Fed raises rates. So Blackstone, I'm interested in doing that. That's attractive. I'm interested potentially in infrastructure because it's got inflation hedges and income streams that are often tied to CPI or RPI in Europe. And so I'm interested in that. We haven't really seen a movement out of the complex. We still see people interested in the sector. The composition of where they allocate could change. But the other thing I'd say about our investors is they've been at this a long time, the institutional ones in particular, and they don't want to just be procyclical. So they know that to leave growth equity after the tech market sold off in a big way doesn't make a ton of sense, the same thing in private equity. And if you went back to the early 2000s, you went back to 2008, 2009, leaving these sectors and time prices go down is not the best decision. So I'd say they take a longer-term view. They're sticking with what they've done. They may reallocate a little bit. I think private credit will be a beneficiary, and that's something obviously we do in scale. But I don't see any sort of large-scale movement away from this very attractive asset class.

Operator:

The next question comes from Bill Katz from Credit Suisse. Bill, please proceed.

Michael Chae:

Sure, Bill. Look, I think, as you know, we always encourage folks to look at margins over longer time frames, not just a single quarter, given interior movements and puts and takes in any period. And so as I said and framed on the – in my remarks, on a nine month year-to-date basis, margin is up 100 basis points. And in terms of the key drivers, which is getting at your question on the expense side, just to unpack it, with respect to compensation expense, similarly, looking at that on a year-to-date basis, our comp ratio is stable. It's right in line with the year ago, maybe within 30 basis points. And then in terms of OpEx, non-comp operating expense, it actually declined quarter-over-quarter about 6% driven by a range of factors. T&E, which we talked about in the past couple of quarters, is still higher than a year ago, but it's actually down quarter-over-quarter and other factors. So overall, I think what this reflects is few things very strong year-over-year and good quarter-over-quarter top line growth, obviously. Combined with a disciplined approach to cost management, we feel very comfortable in our ability to control and carefully manage costs in our business, all within the context of continuing to invest in our people and infrastructure to support growth. So the result of all of this, we think continues to be a very stable and healthy in the margin picture.

Operator:

The following question comes from Kenneth Worthington from JPMorgan. Kenneth, please go ahead.

Jon Gray:

So on BPP, I think the specific answer on that is currency, I think was the specific answer because...

Jon Gray:

And Asia.

Jon Gray:

And Asia. So I think that's what you saw there, not outflows out of the complex. As it relates to BREIT, as I said in my remarks, it's not a surprise that you would see a deceleration in flows from individual investors when you've had this kind of market decline. I think the number in active equity and fixed income, something like $500 billion of outflows. And remarkably, as you know, we've had positive inflows throughout the year, which has been pretty exceptional. I would say as it relates to near-term flows, yes, it's possible that we could see negatives over some period of time. But the key, which we keep pointing out is the performance that we've delivered and the portfolio we've built. So if you look at BREIT, the fact that we've delivered 13% per year for six years versus 4x greater than the public REIT index or that BCRED has delivered 8% versus significant losses in fixed income over two years. That, of course, makes an enormous difference. There's also the positioning of these portfolios, which is if you look at what BREIT owns, we keep talking about it, rental housing, which is the biggest contributor now to inflation, and then you look at what BCRED owns, it's floating rate debt, which is benefiting, of course, every time the Fed raises rates. And just to put a point on performance again, if you look at BREIT up 9% this year, which versus the rest of the world is, of course, quite striking so we look at this not necessarily in the context of months or this quarter, we look at this over time. And we see individual investors at 1% to 2% allocated to alternatives versus institutions that are 25% to 30% allocated. And our view is with these products, what we're offering is attractive to individual investors and they will continue to find so. Does it mean we have times when things are a little difficult? Yes, in terms of flows, we saw that in March 2020. But in the fullness of time, what we think we're going to see is investors respond to our investment management performance. That's the key driver over time.

Operator:

The next question is from Adam Beatty from UBS. Adam, please go ahead.

Jon Gray:

So Adam, it's exactly what you referenced there, which is in a moment of dislocation, it takes time. Sellers' expectations change, they pause. Obviously, lenders, in some cases, move to the sidelines and transaction activity slows. And if you went back again to the 2008, 2009 dislocation, it took a bit of time. But then ultimately, of course, we were able to plant a lot of good seeds into the right kind of environment. I would expect deployment will be muted for a bit of time. That doesn't mean we're not going to find some opportunities and that sellers won't start to get creative, providing financing, maybe taking back some equity in a transaction. I think it will build over time. But until you get I think a little more certainty out there, until people become more confident about inflation starting to head down that rates have hit their peak levels. I think you'll see a slower level of transaction activity. I think the key for us is that we don't have to be forced investors at any time, neither buyers nor sellers. So if there is a slowdown in market activity, we can afford to be a little patient. And then when opportunity emerges, we can move. And I would just say that as our platform grows, I think you'll see us be able to do more and more even in a tougher environment. Areas like insurance, we can deploy capital on an unleveraged basis at very low cost relative to others. I think that will be a busy area. But I would say an expectation of slower deployment in the near-term is reasonable, but at some point, picking up meaningfully.

Adam Beatty:

Excellent, thank you guys. Much appreciated.

Patrick Davitt:

Hey, good morning, everyone. My question on that same topic, more specific to private credit. Obviously, I appreciate your comments on better spreads and lack of competition helping you, and it looks like the deployment held up pretty well in 3Q. But how should we think about...

Patrick Davitt:

Can you hear me now?

Patrick Davitt:

Okay. So yes, so I appreciate the comments on better spreads and competition helping credit deployment. And that held up pretty good in 3Q. But how should we think about the pace of credit deployment through a period of continued deterioration in deal markets? Do you think it can hold up if M&A and sponsored deal volumes, in particular, are getting increasingly anemic? And if so, what do you think kind of offsets the deal volumes being a lot lower?

Patrick Davitt:

Thanks.

Finian O’Shea:

Hi, everyone. Good morning. Sort of staying on the same theme. Can you talk about the financing markets for funds? And if you see any impact there on growth across the platform or in any particular strategies?

Finian O’Shea:

We'll say borrowing from banks, securitization, capital markets sometimes. But yes, transaction – yes.

Finian O’Shea:

Thank you.

Brian McKenna:

Thanks. Good morning, everyone. So I had a question on hedge fund solutions. Year-to-date performance has actually been pretty healthy despite the tough backdrop for public markets. So are you starting to see any increased demand for the product on the heels of this performance? And then related, how is the business tracking for year-end incentive fees in the fourth quarter?

Brian McKenna:

Thank you.

Chris Kotowski:

Yes, good morning. Thanks. I mean, I guess, the striking thing to me is that if you look at the public, apartment, logistics and lodging rates, the earnings are up, the estimates are up, the estimates for next year are higher than for this year, but the stocks are down 30%. And so, I guess, it leads me to think one, a, do you need to run BREIT with more liquidity just in case the perception there gets negative? And then b, when you use your methodology for looking at the asset values in BREIT, and if you apply that to the public companies, do those all of a sudden look a whole bunch more attractive relative to your valuations?

Chris Kotowski:

Very interesting. Thank you.

Rufus Hone:

Great. Good morning. Thanks very much. I was hoping to get an update on how your private equity portfolio companies are performing? And also on their ability to manage higher debt service costs as the economy slows down. And related to that, I was curious to know how you’ve structured the debt at your portfolio companies. If you could share roughly what the mix is between fixed and floating rate debt? And to what extent you may have hedged the floating portion that would be really helpful. Thank you.

Steve Schwarzman:

And I would say performance wise, the third quarter again remarkable 17% revenue growth. Real strength as we talked about in travel and leisure, businesses like Crown Resorts, Merlin Entertainments, we have a visa processing business. All of these companies seeing very strong revenue growth. We have large exposure to energy and energy transition. Of course, that’s been one of the best areas in the global economy. And that sector positioning for us, I think has made a very big difference relative sort of the overall mix of companies out there. We also, when we did technology investing, we focused on profitable tech businesses, enterprise tech businesses, which are continuing to grow nicely. So we are as we said in the opening, we’re seeing slow down economically, but still really good momentum. And particularly in our companies, there is still some margin pressure out there. Labor costs mean that the bottom line’s not growing as fast as the revenue line is. But I would say on the ground today, at least for our portfolio is still pretty good.

Operator:

Up next is Arnaud Giblat from BNPP Exane.

Jon Gray:

We think it’s a really great time for what will be a $20 billion industry leader secondary fund. What happens in moments like this a little bit like my earlier comments is you see a pause from sellers. They want to wait and see where valuations come out. Sometimes they may not be enthused about potential discounts as the funds may get marked down. And they accept that the valuations are different than they were 12 months earlier. Then you see transaction activity pick up. I would say overall as alternatives have grown in a big way, the secondary’s business is very well positioned because people need liquidity for a wide variety of reasons, and there just hasn’t been enough growth in the secondary space. And again, it speaks to the power of Blackstone. The fact that we’ve got a leading industry platform in this area as well is really advantageous. We believe that we’ll see a pickup in volumes. It may take six months for that to happen. That’s been the history, but when it happens, because of the scale of our platform and our ability to invest in all sorts of funds. We’re invested in more than 4,000 funds, which gives us a real competitive advantage when somebody’s looking for a holistic solution. So we like the space, we think it’s going to be a busy space. It may just be a little bit slower here for a couple quarters.

Operator:

Our final question comes from Brian Bedell from Deutsche Bank. Brian, please go ahead.

Jon Gray:

Yes. On the $250 billion that’s really the $150 billion today plus where we think both Corebridge is going to grow to plus Resolution, plus a little bit of organic growth as well.

Jon Gray:

Yes. On Resolution, what’s attractive to us is that their focus on this legacy closed blocks. And so there are a lot of insurance companies out there today. And this is an area where there is a lot of deal flow who want to move out of their old call it life insurance book. Resolution is uniquely positioned. The CEO of Cadre has been doing this for a very long time. He’s built a terrific team to not only underwrite the liabilities but then to service the customers. What he hadn’t done historically was focus as much on the asset side, generally buying liquid rated fixed income. And what we’re bringing to Resolution is new capital to help them grow and what we think is a very good time and the ability to directly originate credit. And this is this mega trend I talked about, but the ability to make real estate loans, corporate loans, infrastructure loans, asset back loans and do that at scale, we think that is a very compelling opportunity. Resolution was exciting about it. And it gives us another engine. So we’ve obviously got Resolution focused on these closed blocks. In the case of Corebridge and also F&G, we have firms that are growing in the fixed annuity space in a big way. So we’ve got multiple engines of growth for assets in this space. And the base rates have moved up and the spreads have widened. So if you think about a market where it’s a very attractive time to be deploying capital and repositioning out of traditional fixed income into private credit, this is that moment. We’re excited about this and we really like this model as we talked about, which is asset like we don’t have to take on insurance liabilities and multi-client. We’re not just limited by one balance sheet, we can work with a variety of clients who all benefit from the scale and diversification we can give them.

Operator:

Allow me to now hand it back to Weston Tucker for closing remarks.

Operator:

Thank you for joining everyone. That concludes your conference. You may now disconnect. Please enjoy the rest of your day. Goodbye.

Operator:

Good day everyone and welcome to the Blackstone Second Quarter 2022 Investor Call hosted by Weston Tucker, Head of Shareholder Relations. My name is Ben and I'm your event manager. [Operator Instructions] Thank you. I'd like to advise all parties that this conference is being recorded. And now, I would like to hand it over to your host. Weston, the floor is yours.

Steve Schwarzman:

Thanks a lot Weston. Good morning and thank you for joining our call. As you know the second quarter in the first half of 2022 represented some of the worst periods for market performance in history. Investors were anticipating extremely high levels of inflation, rising interest rates, and a slowing economy. The S&P fell 16% in the quarter and 20% in the first six months of the year, the largest first half decline for US equities in over 50 years. Debt markets experienced the largest decline on record. Taken together, the typical 60-40 portfolio produced its worst return since the Great Depression of the 1930s. Capital markets activity, of course, slowed dramatically including US IPOs down over 90% year-on-year and commodity prices soared, but now appear to be backing off from their highest levels. Despite these hostile conditions, Blackstone again delivered outstanding results for our investors. Distributable earnings in Q2 nearly doubled year-over-year to $2 billion, one of the two best quarters in our history, driven by 45% growth in fee-related earnings and record realizations. We raised a remarkable $88 billion of inflows, that's $88 billion of inflows in the quarter in the midst of the market chaos, our second highest quarter ever and equal ironically to Blackstone's total AUM at the time of our IPO in 2007. For the past 12 months, inflows reached $340 billion, driving a 38% increase in AUM to a record setting for us $941 million. We are about midway through the largest fundraising cycle in our history, with enormous support from our limited partners, providing us with an unprecedented $170 billion of dry powder capital. And over the next several years, we expect historically attractive investment opportunities to arise from this dislocation. As a result, our fundraising cycle and the deployment of our dry powder should significantly expand the firm's earnings power and fee-related earnings over time. How can Blackstone generate these extraordinary results, while most other money managers are suffering? We believe that it is the power of our brand, and our superior performance, which have enabled us to build unique relationships with our clients over decades. We've also benefited from the remarkable trends started over 30 years ago of increasing allocations to alternative managers, as investors seek higher, sustainable returns, including retail investors, which represent a vast and largely untapped market. Limited partners across customer channels rely on us, to produce differentiated outcomes, compared to what they can achieve in traditional asset classes. In the second quarter, for example, our flagship strategies again, dramatically outperformed the relevant market indices, most notably in real estate and our hedge fund solutions business. In real estate, while the public REIT index fell 17% in the quarter, our Core+ funds were up 2.3%. I'll do that again for you. The index is down 17%, we were up 2.3%. And our opportunistic funds protected capital, down only 1%, so we only performed by 16% for our customers over the index. For the first six months of the year, our real estate strategies appreciated 9% to 10% versus a 20% decline in the REIT index, equaling an outperformance of roughly 3,000 basis points. I don't know many asset classes that perform -- outperform indexes by 3,000 basis points. Meanwhile, in liquids, BAM achieved positive returns again in the second quarter, and a 1.8% growth for the first half, outperforming the S&P by 2,200 basis points for the six-month period and the hedge fund index by nearly 700 basis points. This is exactly what BAM's products are designed to do in down markets. These results frankly are stunning compared to the losses, most investors are experiencing. What drives our fund's outperformance and allows us to sustain it overtime? Our investment process is highly differentiated including a rigorous focus on choosing the best sectors and assets always with a priority of protecting capital. And we create value in our investments with our deep portfolio operations and asset management capabilities. We had anticipated higher interest rates and more pervasive inflation for sometime, and we position the firm's portfolios to reflect that, which Jon will discuss in more detail. We're seeing the clear benefits of that foresight today and so are our customers. Looking forward, market conditions will remain challenging. We're cautious on inflation which we think could stay higher for longer than most expect and central banks will have to continue responding. It will be a difficult balancing act in combating inflation, while trying to minimize the negative impact on economies. Europe is also facing the most severe impacts of the war in Ukraine in terms of dislocations in energy markets, in the global food supply. And in Asia the periodic reassertion of COVID remains a headwind to growth. These conditions of course create significant uncertainty for markets. And the critical question is, how much has already been incorporated in the broad-based declines that have occurred. It is impossible to know the exact outcome because it depends on future Central Bank actions, but economic softening along with corporate margin pressure will be prevalent. Blackstone is uniquely positioned to navigate these uncertainties on behalf of our investors. We've lived through many cycles in our 36-year history. In each one we learned a lot and each one reinforced the importance of having long-term committed capital. The vast majority of our AUM today is under long-term contracts or in perpetual structures, helping us avoid the large decreases in AUM experienced by many other money managers in this environment as we've all seen. Our model also provides us the advantage of patience to buy assets and the flexibility to sell when the time is right. Meanwhile, our portfolio is in excellent shape having been carefully designed with the current environment in mind. The firm is extremely secure financially with a market cap today of $120 billion, minimal net debt and importantly, no insurance liabilities. Our fundraising should allow us to invest large-scale capital at lower prices providing the basis for substantial realizations in the future. We expect a significant expansion of FRE over the next several years which Michael will discuss. In conclusion, despite the difficult conditions that come with every Central Bank tightening cycle. I am extremely confident that Blackstone has always, will prosper and grow even stronger in the future. And with that I'll turn it over to Jon.

Michael Chae:

Thanks Jon and good morning, everyone. For the past several years, we've been highlighting the continuing expansion and transformation of our AUM and earnings. At our Investor Day in 2018, we first shared the message about a meaningful step-up in earnings power, driven by the combination of first the drawdown fundraising cycle, at the time consisting of five flagships targeting $60 billion; and second, the growing contribution of our perpetual capital platform. Over the subsequent four years, our asset and earnings base and quality have expanded dramatically powered by these factors. Firm's second quarter results, reflected another definitive step on this journey. Meanwhile, the key elements of the forward outlook favorably resemble our set up four years ago, with a new drawdown fund cycle underway and a growing array of perpetual strategies. I'll discuss each of these areas in more detail. Starting with results. The exceptional range of growth engines firing across the firm has continued to propel AUM, to new record levels. Management fees grew 28% year-over-year, to a record $1.6 billion in the second quarter and were up 6% sequentially from Q1. Combined with $347 million of fee-related performance revenues in the second quarter, generated by a variety of perpetual vehicles, total fee revenues exceeded $1.9 billion up 51% year-over-year. Fee-related earnings increased 45% year-over-year to $1 billion, reflecting the strong growth in fee revenues. With respect to FRE margin, as we've stated before, it's most informative to look over multiple quarters given intra-year movements. On a year-to-date basis, FRE margin was 55.1% in line with the prior year comparable period, despite a significant step-up in T&E expense from muted levels last year. As we noted then, the COVID-related reduction in T&E spend, was a benefit that would eventually reverse. Adjusting for this impact year-to-date 2022 margins were stable with the full year 2021 as well. For 2022, we expect full year margin to be approximately in the same 55% area, reflecting expansion of over 200 basis points in two years and 900 basis points in four years. Distributable earnings increased 86% year-over-year, to $2.0 billion in the second quarter or $1.49 per share driven by strong growth in both FRE and net realizations. Net realizations rose over 2.5 fold to a record $1.3 billion, powered by Mileway and The Cosmopolitan. While the overall effect of the current environment will be to slow realizations in the near-term, our performance revenue potential continues to build. Invested performance revenue eligible AUM grew 39% year-over-year to a record $487 billion. Net accrued performance revenues on the balance sheet stand at $7.5 billion or over $6 per share. While down from a record level in Q1, primarily due to realizations, this store of value is still up 11% year-over-year and is up nearly threefold from the same period two years ago. Turning to the outlook. Similar to the road map we provided four years ago, we believe the combination of the firm's latest drawdown fundraising cycle and the ongoing expansion and scaling of our perpetual capital platform will lead to a structural step-up in the firm's FRE over the next several years. First, our $150 billion target across 18 drawdown funds represents an increase of over 25% compared to their prior vintages. This engine alone should add approximately 20% to FRE as these funds are raised and activated over time. We expect to launch the new $30 billion real estate flagship in early fall with an effective four-month fee holiday for first closers. We will launch other funds at various points over the coming quarters depending on deployment. At the same time and alongside the drawdown funds, our perpetual capital platform has expanded dramatically since Investor Day. In the past 12 months alone, perpetual AUM more than doubled to $356 billion consisting of 21 strategies across 51 discrete vehicles with more in development. Most of these vehicles generate recurring fee-related performance revenues and momentum in this high-quality earnings stream continues to build. Indeed perpetual strategies now comprise 45% of the firm's total performance revenue eligible AUM in the ground or $219 billion, reflecting a model that is less and less dependent on asset sales. In the past, we referred to the layering effect of these revenues as crystallization events occur on different cycles across strategies. In the case of BPP in particular, we expect to see a meaningful step-up in fee related performance revenues in 2023 with four times more BPP AUM subject to crystallization than in 2022. Overall, our perpetual platform including both institutional and retail strategies has been a key driver of the firm's evolution towards higher and more recurring earnings, a progression we expect to continue. So in closing as Blackstone moves into the second half of 2022 despite the many uncertainties in the world, we are highly confident in the future. Our business model is set up to provide extraordinary resiliency in difficult times as shown throughout our history. At the same time, we have multiple engines growth, driving us forward and are putting in place the foundation for a material step-up in FRE. With that, thank you for joining the call and would like to open it up now for questions.

Michael Cyprys:

[Technical Difficulty] which we hear is getting a bit tougher. But then when we look at your results you raised a staggering amount of capital in the quarter. So just curious your perspectives on the broader fundraising backdrop here for the industry and then how do you expect the balance of the year to play out for Blackstone? And then any additional help you can provide around how to think about the fee activations and timing around that into the -- for the rest of the year and into 2023 and what that means for the financial profile? Thank you.

Michael Chae:

Mike, I referred to how the fundraising cycle and there's sort of 20 or so discrete strategies that these vehicles have launched and will continue to launch over the course of the coming quarters depending on deployment. And so I mentioned the big new BREP global fund that we expected to launch in the early fall subject to the standard fee holiday. And then I think beyond that you'll see depending on deployment more funds launching. And I would say in terms of -- you'll see a substantial impact from that in 2023. And then in terms of full fees from the broader sweep of those funds much of that in 2024, we would expect that, again, it's deployment dependent.

Operator:

Our second question is coming from the line of Ken Worthington from JPMorgan. Ken, please go ahead.

Jon Gray :

Okay. That is a long question, Ken. I guess, I'd start with what we think is a misperception about the business. And it may go back in time to the fact that these businesses used to have a narrower base, we're engaged in a relatively small number of activities and had a small number of customers. And as we've talked about on past calls, we really see ourselves having moved into these much more open waters. Alternatives have gone from being sort of a niche business to something that's broadly accepted that the performance has proven resilient, and that has given customers more and more confidence. That's why even different than 2008, 2009 customers recognize that this is a great vintage. We said on the call, we expect to raise a private equity fund equal in size. We expect to raise a growth fund similarly even larger than the last fund. In previous cycles investors may have shied away. Now, because of our track record and confidence in the industry, investors recognize this is a compelling time to invest in this space. I'd also point out that the way the business is built we talk about both staying power and firepower. So, on the staying power front, we have a firm Steve articulated that has virtually no net debt, no insurance liabilities. We are a very well-capitalized business for any kind of environment. And then our funds are set up in ways where we are not for sellers of assets. So when we go through periods of dislocation we're able to ride through them. If you look back at our data, over 30-plus years interestingly our funds that have been through recessions produced the same multiple of invested capital. It just takes a little longer to get there. And people have been around the business, I think understand that. The other factor here that, I would point to is we've got all this dry powder. And I think that's going to prove to be very advantageous, both in terms of FRE but taking advantage of a difficult market. And then I would talk about, where we've deployed capital. We've been really focused on what we call good neighborhoods. We've been talking to all of you now for 18 months about inflation and so when you look at our portfolios they don't necessarily reflect the market overall. So, we've got 28% in private equity in travel and energy that's different than the market. In real estate, where we have a large portion of our portfolio in residential rental housing and logistics very different than the overall market. In fixed income, our BXC our credit business and our BREDS real estate debt business are heavily oriented virtually, all to floating rate debt obviously very important. And when you look at some of the products pivoting to you specifically asked about BREIT and BCRED, the fact that they're designed for an inflationary environment gives us a lot of confidence. In the case of BCRED, you've got floating rate debt. So every time the Fed raises rates returns go higher. In the case of BREIT, you own short duration hard assets in that case 80% residential housing and logistics, where the fundamentals are phenomenally strong. I guess, I should just comment specifically the question was about redemption in those two vehicles. I'd say a number of things. First of all, if you look at the data in the quarter overall in retail we had $15.5 billion of inflows very remarkable. In the three products primarily, BREIT and BCRED, but also our European product BPIF, we had $11 billion of inflows in the quarter. We did have $3 billion of redemptions – the $2.9 billion of redemptions. I would also point out on July 1, which doesn't show up in the quarterly data, we had another $2.4 billion of inflows. So these are products that have a lot of momentum. I would point out that, we operate them with low leverage. In the case of BCRED it's around one to one. In the case of BREIT I think as of the latest quarter its right at or slightly below 40% leverage. We also run them with significant amount of liquidity, excess liquidity, to meet our clients' needs over time. And I think, it's super, super important to focus on the fact that, these portfolios have delivered extraordinary performance. Steve articulated this, but in markets that are down sharply the fact that BCRED has managed to produce slightly positive performance, BREIT I think is up over 7% net this year. That's really exceptional. And again it goes back to what we own in these portfolios. And so being positioned in the right place for a good environment and then having a terrific product to address it we think is really important. I would also say as a final point in these vehicles of course beyond the enormous amounts of liquidity we run them with, we also have structures here again that make sure we never have to be a force seller. So, we've been really thoughtful in designing them. But the thing that gives us the greatest confidence is individual investors are continuing to allocate capital and the performance and the positioning is so strong.

Operator:

Our next question is coming from Alexander Blostein from Goldman Sachs. Please go ahead.

Jon Gray:

So, I would say Alex near-term when you have this kind of market volatility, you would expect to see net flows to slow. We saw this by the way back in 2020. It was a short period, but we saw back then a pretty dramatic decline in net flows we continue to execute, and of course, that turned over time the other direction. And of course, if you look at IPO markets or other areas, we've seen much sharper declines relative to what we've experienced here. When we talk to our distribution partners, I think what they would say and what we see in our data and I mentioned most of the repurchases as we call them are coming from a smaller subset of our investors in Asia. And the majority of investors here in the United States have been fairly stable. I would say investors the feedback are they like these products, they like the performance of these products, and that's the reason we're continuing to sell them. If the markets continue to be challenging, then you can expect that it's a more difficult period for net flows. But then again I go back to we've got products that are well-designed with ample liquidity. And then again you look at the numbers on the ground. And I think this is where it's worthwhile to talk about what's happening. So, in BREIT, we mentioned that same-store net operating income was up 16% in the quarter. That's well above I think almost any public real estate company today and it speaks to the positioning and the geographic positioning as well. Rental growth is even higher in these portfolios. And what that allows us to do or has allowed to happen here is between the dividends we pay and the growth, the multiples have come down in terms of the valuation metrics and yet we've still managed to deliver positive performance. And that's what we're seeing out there, which is incredible performance on the ground. And in BCRED, again, as I said, floating rate will help a lot. So, the short answer is in a choppy environment, you could see a tougher retail net flows environment. But you're continuing to see meaningful positive flows. You saw it again at the beginning of July, and we're continuing to see strong performance. And that's what we think will continue to make a big difference.

Operator:

Our next question is coming from Glenn Schorr from Evercore ISI. Glenn, please proceed.

Jon Gray:

When transaction activity slows that can impact deal volumes in terms of originating private credit. Although in this environment, the banks have grown more cautious and that's creating an opportunity for private lenders. In terms of our portfolio, it really varies. We've been talking a bunch about BREIT. In that case virtually all of the debt we fix long-term. We do that similarly in our perpetual vehicles like BPP. We have a lot of fixed rate debt in our infrastructure business as well, because these are long-term hold assets. BCP has also been pretty disciplined in fixing out a trade. That's our private equity business, maybe not quite as much as we do in some of our long-duration real estate or infrastructure products. And then I would say, in our opportunistic real estate business, we have more floating rate debt. But again, we're much more lowly leveraged than we were in the past. And so, when I look at sort of where our portfolio sits, our leverage, our coverage versus 15 years ago and the stability of the type of assets we own, we feel so much better. And by the way, it's not just us. If you look at the default rates across the credit world, it's still pretty low. So, yes, higher rates will impact the net cash flow you have to distribute, and also, of course, has an impact on multiples and we're seeing that in the marketplace. But overall, we don't see that as being a major issue for our portfolio.

Operator:

Our following question is coming from Craig Siegenthaler from Bank of America. Please go ahead.

Jon Gray:

So, we have meaningful additional capacity in both of these vehicles in order to, obviously, meet our investment requirements, but also if there are liquidity requirements, sizable excess liquidity, I don't know what's disclosed in the documents for these vehicles. But I would just characterize it as quite significant. We've created these products recognizing you could go through a more challenging period of time. And so, that is definitely not something we view as an issue.

Operator:

Our next question is coming from Robert Lee from KBW. Please proceed.

Michael Chae:

Thanks, Rob, its Michael. I think, you heard it right, a 20% increase from basically run rate FRE levels, which includes management fees and also fee-related performance revenues. So -- but that 20% is coming from just the management fee effect and contribution to FRE overall. So the numerators, the management fee uplift to FRE from this cycle of flagship drawdown fundraising, relative to the current run rate FRE base. And that's obviously an estimate, but we feel pretty good about it over the coming years. And then, I would just -- without putting more numbers to it, go back to what I said in my remarks, which is, I think certainly qualitatively as we look at it and in terms of sort of the mix of it, there are parallels to the position we're in, which is very favorable as it relates to uplift from the cycle of fundraising and also perpetual capital, both in terms of growth and the base. And then, also, we've talked about over time sort of this -- the layering and seasoning effect, if you will, of platforms, including institutional perpetual platforms in BPP and BIP. And for programs like in BPP's case, which are now six, seven years old, where those fee-related performance revenues mostly have a three-year anniversary, you're starting to see those sort of cycle through for a second and third time. So you'll see the benefit of that in the coming years.

Operator:

Moving on to our next question from Brian Bedell from Deutsche Bank. Please, go ahead.

Jon Gray:

Yes. So on the BREIT outlook, what I would say is it goes back to these really remarkable fundamentals, the best we've seen in logistics and rental housing in our history. That should power strong performance even as multiples come down as cap rates move up something we've already done materially at this point. And there could be more of that over time, but we have such strong fundamental growth combined with the dividend yield today which is 4.5% and that's what's produced the strong performance. That's what gives us confidence about the future.

Brian Bedell:

Okay. Okay. That's helpful. Thank you.

Patrick Davitt:

Thanks. Good morning, everyone. This press report out suggesting that you and some of the other big private credit managers are dialing back on deal financing risk and direct lending. Could you speak to that dynamic and should -- and through that lens, should we expect a meaningful pullback in credit deployment? And on the other hand, is there a potential offset from maybe pivoting to more rescue financing the deal financing to offset that?

Patrick Davitt:

Thanks.

Operator:

Moving to our next question is from Finian O'Shea from Wells Fargo Securities. Please proceed.

Jon Gray:

We have seen a decline, no surprise. Whenever you have moments of dislocation as I keep saying of equity markets, debt markets trading off, you have banks who at these moments sometimes have inventory that they will take them time to move. You see this slow down and you see buyers and sellers sort of resetting their expectations. We saw it in 2020, when it was very short, lasted six weeks. In the most extreme example in 2008 2009, it was 15 months or something. We're not I don't think in either of those conditions. And we're still seeing deals getting done. We did a number of things in private equity. We bought a business at Vara [ph], which is in the life science space doing compliance testing. We bought a business Geosyntec which is an environmental consulting firm. And so there still is activity. But the way it happens is things slow down, people find sort of a floor and then business builds back up. I think in this environment, until there's a little more confidence around the trajectory on inflation I think we'll see slower volumes. Once people get a sense that inflation is turning down more, they'll have a clearer path. And so I would expect the back half of the year will be slower because I think it will take a little time and then things will pick back up. Going back to our model, the good news is we don't have to deploy the capital. We can be patient. We can wait for the right moment. The best opportunities today are clearly in the public markets on the screen and that's where we're spending a lot of time. Then there'll be people who need capital or want to sell a division and then sort of private-to-private transactions will probably pick up over that time. So we've seen these cycles over time. Deal volume will pick back up but I would expect it probably to be slow in the back half of the year.

Operator:

Moving on to our next question from Brian Mckenna from JMP Securities. Please proceed.

Jon Gray:

Yes. We've been very disciplined over time. I mean if you really look across the BREP franchise as you mentioned, $30 billion is a step-up. But it's grown from I guess low double-digits just before the crisis, the financial crisis. And we see the marketplace – if you look at asset value growth in commercial real estate I don't think we've grown faster than that on a relative basis. As you know, where we've seen big growth of course has been in our perpetual products in Core+ both institutionally and retail, which is an even larger market. But what excites us of course, and I think excited our investors is what's going to happen potentially. You see it in the public markets, there could be people who face financial challenges and having a large-scale fund that doesn't require financing commitments allows us to do big things. And we recently committed to buy last-mile logistics business actually closed this week, PS Business Parks, that's in some of the best geographies in the US with incredibly strong fundamentals. And because of our scale we were able to step up. So I guess, what I would say is we're very thoughtful on the size of the capital. We've been asked this question now for 30-plus years. If you look at the BREP global track record at 17 net since inception investors have a lot of confidence in us. And it's a similar story across our firm. We scale the capital in these drawdown funds relative to the opportunity and performance is what matters. We're continuing to deliver that and investors continue to respond.

Operator:

Our next question comes from Adam Beatty from UBS. Please go ahead.

Michael Chae:

Sure, Adam. I think on the second question we're not -- that approximately 20% doesn't rely on margin expansion although over the long-term we'd obviously continue to expect operating leverage and margin expansion and larger funds have that effect. In terms of your first question on operating expense, yes for sure, this was in T&E and we sort of made this call a year ago. I think, we said a year ago it explained about 100 basis points or so of margin impact. And that's exactly what happened. And even though we felt like we were pretty much back to work a year ago if you look at the T&E spend across the firm as our teams really mobilized and investors gathered again and so forth, it was a significant uplift even relative to pre-COVID levels versus pretty minimal spend a year ago. So I would expect that to sort of cycle through over the next couple of quarters and then normalize in the year after that. And I think overall if you look at the full year the second half of the year I think the rate of increase in OpEx will decline as we roll over some lumpier first half comparisons.

Operator:

Next up we have Gerry O'Hara from Jefferies. Please go ahead.

Jon Gray:

All right. Good question. So on the performance front there is a little bit of a lag there. So because you're reporting from underlying managers as opposed to reporting directly from Blackstone, you've got a quarter or so lag. So those were very good results, but obviously we'll expect next quarter they'll reflect what's happening in the private equity market today. In terms of drivers in the business they're really outstanding. If you think about how dramatically the alternative space has grown and yet how little capital is in the secondary space to provide liquidity there is a serious mismatch there. And then when you add to that the number of firms who can buy across the several thousand different managers out there that's even more limited. So we think about this as a special business that will continue to scale over time that there's a structural inefficiency in the business because there's this need for liquidity. I would say, on the deal flow front again what's going to happen now is, investors will probably pause LPs in terms of selling and there'll probably be a period where some markdowns will come through, then we'll see sales pick up again. And many investors one of the flip side positives and this is why the firm having sort of the diversity we have is so important. One of the positives here is the overallocation to private equity that makes fundraising more challenging for many firms. It means that those same institutions are now thinking more and more about selling in secondary. So, we think having a $20 billion fund in that space is going to be very compelling. We have smaller funds in infrastructure and real estate, but that is really a long-term growth engine for our firm. And on retail, I do think there's opportunity. I think the diversity of it, the liquidity, the shorter duration that is a product potentially part of something broader that could be a meaningful addition. And again, it's another one of the factors that's the strength of our firm. And I guess I would just say there was -- we've talked generally about the environment and everybody's focused on this month quarter, I just cannot emphasize enough the strength of our brand and what it allows us to do to create new retail products to do things in insurance on a capital-light basis. Our ability to still fundraise institutionally, despite the challenging environment. You see it in that number $88 billion, I think you'll continue to see it over time in our results.

Operator:

Our next question is coming from Arnaud Giblat from BNPP Exane. Please go ahead.

Jon Gray:

It's a good question. Obviously at some point the very high rates of rental growth will come down, but the backdrop is incredibly constructive. You start with in our two main asset classes here residential and logistics record low vacancies which is different typically than when you're going into a down cycle. In addition to that, what you're seeing is particularly on the residential side, a pretty rapid slowing of new construction. New home starts were down 20% here in the last couple of months because obviously the for sale market, the cost of construction goes up and also financing costs, mortgage costs have gone up really materially. And so, people still have to live somewhere. And so, what's happening of course is you're seeing less new supply. We already have a very big structural shortage and that's pushing more people into the rental market. So that provides a lot of support. I would also point out as history if you went back to the 1978 to 1982 period, the last period of really high inflation in the US, CPI averaged 9% back then. Rental housing apartment rents grew at 9% and new construction declined by 50%. So, I think investors haven't fully appreciated the value of hard assets in this kind of climate. And then on the logistics side what I would say there is, we're still seeing the shift to e-commerce the importance of owning last-mile logistics keeps going up. And then this redundancy desire of companies, who are concerned about supply chain and the need to hold more inventory closer to home, that's creating real demand there too. And so, we see strength there as well. So, surprisingly, despite a lot of the headwinds, these are probably two of the best sectors in the entire economy around the world.

Operator:

Our next question is coming from Rufus Hone from BMO. Rufus, please proceed.

Jon Gray:

Well, we are seeing insurance companies I think increasingly recognizing that having the capability to originate private credit is very important. And particularly in this environment, when the banks get more full on inventory and slow their originations, that makes it more challenging for folks who buy just liquid widely distributed products. And if you have the capability in this environment to make corporate loans, real estate loans, infrastructure loans, asset-backed loans, that is a real competitive advantage. I think insurers are also seeing the strong performance of our insurance clients. We have three meaningful insurance clients, but also other insurers tied to alternative asset managers. That private credit allows them to earn incremental yield without taking on incremental risk. So we're seeing an industry that is beginning to recognize that this is a powerful tool to generate better returns for policyholders. We are in discussions with multiple parties. As we've talked about over time, we don't know when these things hit or not. But what we do have is this very powerful origination engine and a model, where we can serve multiple insurance clients and that gives us the ability to grow in this area. So my expectation is over time, I don't know when we'll come back and find other sizable clients and continue to grow this area. There's really a natural partnership between us and major insurance companies looking for incremental yield.

Patrick Davitt:

Hey thanks for the follow-up. BAM had great performance as you highlighted, but the flows remain pretty anemic. Are you starting to see a shift, maybe in a pipeline of demand building there, as it seems like we're entering a longer-term period where that strategy should be more attractive?

Patrick Davitt:

Thanks.

Brian Bedell:

Great. Thanks for taking my follow-up. Maybe just on the growth angle on the retail side. I think you mentioned you're continuing to focus on expanding those distribution partners. Can you talk about, which areas in particular? I know you're already very well-penetrated in the wire-houses. And I believe the private banks maybe there's a lot more to go there. But maybe talk about that and also the very large RIA market in the US? And also outside of the US, I believe there's an effort in Asia in particular and whether this can all be done with existing products, or does it rely outside the US on creating new retail products?

Brian Bedell:

That’s great color. Thank you.

Operator:

Allow me to hand it back to Weston Tucker for closing remarks.

Steve Schwarzman:

Yeah, I've been quiet today because it's always fun to watch Jon and Michael answer questions. But there was an unanswered piece, I think from JPMorgan question about -- which is very well phrased. What's the, disconnect between what you as management think and sort of what we're seeing on the screen which is not such a happy day here. And I'll just tell you a story just to start out. I was in some place on Sunday and somebody walked up to me and he said, I'm a BREIT investor. In fact it's the biggest thing in my portfolio. And I love you people. This is so amazing. All of my friends are losing a fortune in the market. And I've been making money. This is a simple story. I've been listening to the BREIT discussion and Jon's laid out our wares pretty well, I think. But the reason we have optimism where apparently that's not broadly shared is that we're providing enormous value to people who are investors who remember it. And they appreciate the firm that builds our brand that helps us raise money. It helps us do our function which is to underwrite risk and put really good products out unlike other people where that isn't the case. And we're doing it throughout our asset classes. It's really exciting to be able to outperform markets by thousands of percent. And if you don't think that's a reason for optimism then I find that odd. And I think that's a base that we will be building upon. I would say one retail thing where we talked about if everybody put 100% of their portfolio in BREIT, they'd be the best performing broker in that large system. And so we take a lot of pride in what we do. And we do it carefully. And we've had really good results. In terms of other reasons for disconnect we sit with distributors who say to us I want you to be hugely bigger in my system. And they say -- when they say that they have the ability to do it. It's not a hope. These things are going to happen. And, so I think we have a sense of the future that obviously isn't shared by the market today, but I've been through this a lot of times. And at the end of the day, we prevail. And I don't think there's a reason to be particularly concerned about the long term, because in the long term we also have an amazing group of people at the firm. Truly astonishing group of people and that's how you build a business. And so when I ended my remarks, and said I thought we really do well over time, I didn't just do that as a throwaway line. And I think we have a terrific positioning. I think it's unique in the financial world and we're going to build on it and it's going to work out fine for everybody. So I just wanted to end on that, because I realize, there's a lot of individual questions. But when you step back and look at what's happening here $88 billion in the quarter, I mean, they are giant mutual fund complexes that are hemorrhaging. We're not hemorrhaging. I mean, there's a reason to have some balance here. We're going up in terms of our AUM, not like other famous companies that seem to go down. So I think if you unbundle, what you're thinking and step back and look at what's going to happen in our business over time I think there is an enormous reason for optimism as to what we will be building at end and providing for all of our customers. I apologize for that little speech. But I honestly believe it. And I wish you would.

Weston Tucker:

Thank you, Steve. Thanks everyone for joining us this morning, and look forward to following up after the call.

Operator:

Good day and welcome everyone to the Blackstone First Quarter 2022 Investor Call hosted by Weston Tucker, Head of Shareholder Relations. My name is Christophe and I am the event manager for today. [Operator Instructions] I would like to advise all parties that this conference is being recorded. And with that, I will hand it over to Weston. Please proceed.

Steve Schwarzman:

Thanks a lot, Weston and good morning and thank you for joining our call. Blackstone reported an exceptional start to the year, with the first quarter representing one of the two best in our 36-year history. This was despite increasing interest rates and ever higher inflation, driving major declines in equity and debt markets. Distributable earnings, as Weston mentioned, in the first quarter rose 63% this year over last year to $1.9 billion, while fee-related earnings increased 55% to $1.1 billion. Inflows, capital deployed and realizations all set new records for the firm for any 12-month period. Most importantly, our investment performance was outstanding, dramatically outperforming public indices. Another example of why alternative assets continue to grow rapidly in a risk-off world. These results are highly atypical in money management. But greater than the single quarter, they represent further proof-of-concept, Blackstone’s position in the financial sector, which I believe we are uniquely placed. So, what differentiates us? There are certain attributes that characterize a great financial firm, including strong investment performance over long periods of time, significant growth in assets while maintaining debt performance, the ability to continuously innovate, a trusted brand, loyalty from customers who themselves are healthy and growing, wide geographic and product reach, a distinctive high-performance culture, the ability to attract and keep great talent, and the capacity to identify and act upon paradigm shifts before others. It is rare even for a great firm to possess several of these pillars of success. At Blackstone, I believe we have demonstrated we have all of them. As the largest alternative manager in the world, we have built leading businesses across all of the major asset classes with uniformly outstanding returns. Our flagship strategies have significantly outperformed the comparable public indices, including 16% to 17% net returns annually, corporate private equity and global opportunistic real estate for three decades, leading the indices by approximately 5% to 9% per year. As we have grown larger, we have not sacrificed returns, quite the opposite, in fact. In the first quarter, while nearly every major asset class, outside commodities declined, our funds delivered strong performance. This is best highlighted on the one hand by our real estate business, our largest business, for superior sector and asset selection led to our flagship strategies, appreciating 8% to 10% just in the quarter compared to a 4% decline in the REIT index. On the other hand – sorry, on the other hand, in liquid markets, our hedge fund solutions delivered a positive composite return in the quarter compared to a 5% to 9% decline in the major global equity indices. Strong performance over decades has given us the confidence and ability to innovate. While most companies struggle to build a great business outside of their original success, innovation itself is a core competency at our firm. Today, we have approximately 60 strategies and we are constantly developing more, increasingly in the form of perpetual capital vehicles. As we deliver for our clients across more and more strategies, it deepens our relationships with them and creates a powerful network effect, leading to a greater share of wallet. That’s why our inflows reached $50 billion in the first quarter alone and $289 billion for the last 12 months. Over the past 3 years, our limited partners have entrusted us with $500 billion of inflows, which is greater than the total AUM, any other alternative firm. Above all else, people and reputation are the absolute necessities for finance success. At Blackstone, these are our most important assets and the foundation of everything we have been able to achieve. We have more talented people at the firm today than ever before, operating at the highest level of excellence. And we are reinvesting significantly in our capabilities and people in order to expand our leadership position in every area and further widen our competitive moat. As the gold standard in financial services, Blackstone is the magnet to the industry’s best talent as evidenced by 35,000 unique applications for fewer and only 200 positions in our most recent analyst recruiting class. And we have also been named consistently as one of the Best Places to Work in finance. Taken together, these pillars of success are why Blackstone has continued to post strong results and why we have extraordinary forward momentum despite the current backdrop of rising rates and higher inflation. While no investment manager can be totally immune from these headwinds, we believe the unique balance of our firm and positioning of our portfolio will enable us to mitigate the adverse consequences of these factors. As we have highlighted previously, in our $200 billion corporate credit business, virtually all of our investments are in floating rate debt, which provides a better return for our customers as interest rates move higher. In our nearly $300 billion real estate business, approximately 80% of the equity portfolio in sectors, where rents in the U.S. are growing significantly in excess of the rate of inflation, owning hard assets has historically provided a strong hedge for inflation which favors our $27 billion infrastructure business as well. For our $125 billion corporate private equity platform, our operating companies grew a remarkable 20% – 22% year-over-year in the first quarter partially benefiting from reopening tailwinds. While we are seeing the impact of inflation on some of our companies, which we expect to continue, we believe investing in companies with strong revenue growth is the best protection to generate outperformance in the future. And in our $83 billion hedge fund solutions platform, we expect volatile liquid markets to advantage our downside protected strategies, which we saw in the first quarter. Overall, the transformation of our firm continues, which we first outlined at our Investor Day in 2018, with our AUM rapidly shifting to its perpetual strategies and our earnings towards more recurring FRE. Over this 3.5-year period, perpetual AUM is up over 5x and annual FRE has more than tripled. This transformation makes us more resilient to market cycles and provides additional opportunities to create value for our limited partners. In closing, I have never been more pleased with the positioning of our firm or more optimistic about its prospects. Now, turn it over to our television star, Jon Gray.

Michael Chae:

Thanks, John and good morning everyone. Two key dynamics have underpinned the evolution of our business over the past several years. First, the development of an entire platform of perpetual capital strategies and the scaling of those strategies has fundamentally transformed the firm’s FRE trajectory. Second, the growing breadth of our business and ways to win overall is fueling an expansion of the firm’s store value and performance revenue potential. The net result is higher earnings, higher quality earnings and greater resiliency through market cycles. The firm’s outstanding first quarter results perfectly illustrate these dynamics. First, with respect to perpetual capital and FRE. Perpetual AUM more than doubled year-over-year to $338 billion across 18 vehicles. These strategies now comprise 43% of the firm’s fee-earning AUM and their impact on the repeatability of our capital metrics and earnings can’t be overstated. In terms of capital metrics, over half of the firm’s record LTM inflows and record deployment was from perpetual strategies. It was only 4 years ago that we first surpassed $100 billion of inflows in a single year. The firm is now raising that or more from our perpetual strategies alone. Moreover, nearly all of these vehicles continuously fundraise, creating much more consistency of inflows from quarter-to-quarter. In terms of earnings, the perpetualization of our business is similarly driving a meaningful step-up in the magnitude and resiliency of earnings. As we’ve outlined before, these strategies generate management fees that compound with both inflows and NAV appreciation, which set a higher and higher baseline for fee revenues as we go. The combined fee earning AUM of four flagship perpetual capital strategies, BREIT, BPP, BCRED and our infrastructure platform, BIP, nearly doubled in the last 12 months to over $160 billion including a $27 billion increase from appreciation. In addition to NAV-based management fees, 10 of the firm perpetual vehicles generate fee-related performance revenues, which, by definition, crystallize on a recurring basis without asset sales. Importantly, in the first quarter, BREIT moved from its prior annual crystallization schedule occurring in the fourth quarter of each year to a quarterly crystallization similar to BCRED. The combination of these factors and the exceptional range of growth engines firing across the firm overall is powering continued robust increases in total fee revenues and FRE. Management fees rose 25% year-over-year to a record $1.5 billion. Fee-related performance revenues more than tripled year-over-year to $558 million. And even if you were to adjust the prior period for the BREIT change, they more than doubled. FRE rose 55% year-over-year to $1.1 billion in the quarter or $0.95 per share. We are now approaching a quarterly run rate of $1 per share in this high-quality earnings stream, which is in the area of full year FRE at the time of our Investor Day. Moving to performance revenues and the growing store of value, in the first quarter, net realizations increased 73% year-over-year to nearly $1 billion. Fund realizations reached a record $23 billion and included the refinancing of our U.S. logistics portfolio, the partial sale of fin-tech company, IntraFi, and the monetization of stakes in various private and public holdings across the firm. The dramatic expansion in the number and scale of the firm strategies and commensurate increase in aggregate deployment has led to a record $481 billion of performance revenue eligible value in the ground, up 50% year-over-year. At the same time, sustained investment outperformance across the platform on this growing base of invested capital, has driven a continued expansion of the firm’s store value. In the first quarter, $1.9 billion of net performance revenues lifted the balance sheet receivable 9% sequentially to $9.5 billion or nearly $8 per share, the highest level in our history. On a year-over-year basis, the receivable increased to 84%, notwithstanding $4.3 billion of net realized distributions. Taken together, remarkable growth in both FRE and net realizations drove a 63% year-over-year increase in distributable earnings in the first quarter to $1.9 billion or $1.55 per share. For the LTM period, DE reached $5.36 per share, a record for any 12 months in our history. Looking forward, strong FRE momentum, coupled with a robust near-term realization pipeline, give us great confidence in the outlook. In closing, I’ll go back to where I started with the ongoing transformation of the firm. We are on a path characterized by rising AUM milestones, a path to $1 trillion this year and ultimately well beyond with commensurate significant elevation in earnings power and earnings quality each step of the way. We have four robust growth engines driving us forward. And in all of them, we continue to deliver outstanding results and have the full support of our LPs. Despite the uncertainties of today’s world, we feel great about Blackstone’s future. With that, we thank you for joining the call. I would like to open it up now for questions.

Glenn Schorr:

Okay, thank you. My gut is you have about 50 billion answers to this, but there is been plenty of conversation for the industry that LPs have some cash flow constraints as recent vintages, money was put to work at like a record pace. And now there is less exit so cash flow coming back to them. So that – logic would say that would either elongate capital raises, reduce capital raise, make LPs choose. Clearly, it didn’t affect you, but I wonder if you could talk to that issue in the market. Thanks.

Glenn Schorr:

Alright. Thanks very much.

Craig Siegenthaler:

Good morning, Steve, Jon, Michael. Hope you all doing well.

Craig Siegenthaler:

We have a big picture question on FRE. The macro backdrop has changed a lot since 4Q. We have higher inflation, less economic growth and an emerging denominator effect with institutional allocations, which Jon, you just referenced in the last response. How has all of this impacted your fee-related earnings growth trajectory, if at all?

Craig Siegenthaler:

Thank you, Michael.

Alexander Blostein:

Good morning. Thanks everybody. sI was hoping we could talk for a couple of minutes about opportunities you guys might see to recycle assets from some of the opportunistic strategies into core and perpetual strategies like you potentially could do with Mileway in Europe. I think, Jon, I think you mentioned it’s about a €10 billion commitment in equities from other LPs in a separate account kind of format. So, it’s a compelling transaction, obviously, to crystallize the gains, but more importantly, create additional perpetual of our stream. How are you thinking about that across both real estate and private equity? Are there other opportunities like that on the supply side? And I guess on the demand side from a structure, how is the demand from LPs for these type of vehicles, kind of a single asset SMAs? Thanks.

Alexander Blostein:

Great. Thanks so much.

Michael Cyprys:

Great, thanks. Good morning. I wanted to come back to a point that Steve made about paradigm shifts and a point that Jon made about moving into higher inflation environment creating challenges. So I guess the question is just curious what paradigm shifts you’re seeing take hold today in the midst of rising rates, inflation, supply chain challenges, geopolitics and the return of great power complex. What are the implications that you see for investing from all of that? What new risks and challenges does that create? And if you could talk a little bit about how you are evolving and positioning Blackstone to capitalize on all of that, but also manage through what appears to be a higher risk environment.

Michael Cyprys:

Great. Thank you.