Q4 2019 Earnings Call
Good day, everyone and welcome to the Blackstone fourth quarter and full year 2019 Investor call. My name is lastly, an idea that manager during the presentation you a lunch will remain in listen only and if you look quite assistance at any time. Please can you still see about when your telephone call Tonight, you will be happy to assist you I'd like to advise that there will be acumen nice session.
During the call and if you wish to ask a question. It is just all then well on your telephone I'd like to advise all policies at the conference is being recorded for replay purposes, and I would love to hand, you over to Mr. Weston Tucker head of Investor Relations. Please go ahead Sir.
Great. Thanks, Leslie and good morning, and welcome to Blackstone's fourth quarter Conference call, joining today's call, our Steve Schwarzman, Chairman and CEO , John Great President and Chief Operating Officer, Tony James Executive Vice Chairman, Michael J., Chief Financial Officer, and Joan Solotar had a private wealth solutions.
Earlier. This morning, we issued a press release in slide presentation, which are available on our website, we expect to file our 10-K report later next month.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially we do not undertake any duty to update these statements for a discussion of some of the risks that could affect results. Please see the risk factor section of our 10-K.
We're also refer to non-GAAP measures and you'll find reconciliations in the press release on the shareholders page of our website also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase and interest in any in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.
So a quick recap of our results we reported GAAP net income of $978 million for the quarter distributable earnings were $914 million or 72 cents per common share and we declared a dividend of 61 cents to be paid to holders of record as of February 10.
So with that I'll now turn the call over to Steve.
Good morning, Thank you for joining our call.
Blackstone reported an excellent set of results for the fourth quarter.
Capping a landmark here for the firm.
Our investors entrusted us with the remarkable $134 billion of capital during the year.
$134 billion.
New money during the year.
And we deployed 63 billion around the world on their behalf.
Both record amounts.
We grew our 11 by 21%.
To a new industry record of $571 billion.
In terms of earnings, which Michael will discuss in more detail, we reported 27% growth.
Distributable earnings and fee related earnings for the quarter.
Very significantly for shareholders in 2019, we successfully converted the firm from a partnership to Corporation.
Looking at vastly easier to owner stock.
We've been pleased with the market response, so far.
I should say very pleased.
What the market response, so far.
And the positive migration and our shareholder base that's underway.
By removing the restraints of our form restructure.
PTP discount.
VX stock is starting to reflect the powerful trajectory of our firm.
Meanwhile, the from continues to evolve and advance as one of the great public companies of the world.
With the market cap.
$75 billion Blackstone is now the 86 Larges us public company.
On ranks in the top Cortile on key metrics, such as long term revenue and earnings growth.
Profitability and dividend yield.
We continue to expand our global platform into new areas and since our IPO in 2007.
Has grown by six and a half times.
We've also become significantly more diverse.
Intended the dominant franchises, we built in the highest returning areas of alternatives, such as opportunistic real estate and corporate private equity.
Further along the risk return spectrum.
In two areas such as more stabilized core core plus real estate.
Infrastructure and various credit strategies.
We've launched several new business lines, including most recently.
Life Sciences and growth equity.
These extensions allow us to offer a much broader menu of products to our limited partners.
Significantly increased universe of potential investments, we can make.
By having a laddered set of funds in each area.
With different return characteristics.
Like soon can become a single style for limited partners looking to invest more in alternatives.
We also serve as a single integrated capital provider for companies and individuals seeking solutions.
We can provide control minority or preferred equity.
Growth capital.
Mezzanine or senior loans, and basically any other form of capital across sectors and geographies.
We can segment large investments across multiple vehicles as we did with the GLP logistics portfolio discussed last quarter, which had an opportunistic element.
As well as a more stabilized core plus element.
Blackstone's scaling diversity.
Allow us to do with others cannot.
And speak to the entirety of large investments.
Our reputation for fair dealing.
Means potential portfolio companies and partners prefer to do business with us.
And they get more tangible benefits than just capital.
Including access to our world class operational capabilities, our knowledge base and our global network.
And as Blackstone continues to grow we benefit from making more introductions from one area the firm to another and.
And we further increase our shared intellectual capital that moves around the firm.
All of this adds to our remote.
And our competitive differentiation.
Blackstone is today more than ever the partner of choice and reference institution in the fast growing alternatives industry.
There was a long runway for growth ahead.
One final note for me.
As you likely seen Dave Calhoun.
Former members of the firm's management Committee has recently accepted the position as CEO of Boeing.
Dave was originally the CEO of one of our portfolio companies before joining Blackstone as head of our portfolio operations group.
He was instrumental in building this team into the World Class organization is today.
Whose capabilities of mission critical in driving change in creating value in our investments.
His appointment to such a key role at Boeing.
Speaks to the unique strength of Blackstone's people and culture.
And while we will greatly missed Dave.
Having him at the home of Boeing is both tremendously important to them.
And for our country.
I have great confidence he will be successful.
We wish Dave the very best and thank him for his significant contributions to our firm.
And with that I'll turn things over to John Great.
Thank you, Steve and good morning, everybody.
We have consistently outlined a simple vision for Blackstone over the last couple of years characterized by several key principles first if we continue to deliver strong investment performance, we will attract more capital both existing and new areas.
Secondly, a shift towards more perpetual capital will grow and improve the quality of our earnings.
Third we will emphasize deployment in faster growing parts of the global economy, where we see more opportunity for capital appreciation.
Fourth we will continue to expand our sources of capital to the retail and insurance channels.
Fifth.
We will maintain a capital light business relying on our people track record and brand to grow.
Six we will simplify our story for shareholders, making this stock easier to understand and own.
As we move into the new year I wanted to update you on how we're tracking against these priorities.
First starting with investment performance and fund raising our performance remains highly differentiated as it has for 30 plus years with 15% net returns from inception in opportunistic real estate in corporate private equity, 14% and secondaries and 11% in tact to.
Ladies and credit.
These returns have generated a deep reservoir of Investor Trust.
Power, the Blackstone innovation machine, allowing us to meaningfully exceed our fund raising objectives.
Three years in a row, we've achieved over $100 billion of inflows and while the fund raising for our largest flagship funds is behind us we should be approaching $100 billion again this year.
Investors want access to Blackstone products more than ever.
Secondly, we're seeing faster growth in perpetual capital, which is transforming our asset base and earnings into something much steadier than what we generated historically.
In the past our business primarily consisted of episodic drawdown funds and our capital deployment equated to planting the seeds of annuals.
That continues to be a terrific business, but as our perpetual AUM growth. We are increasingly planning perennials whichever were occurring in compounding contribution to the firm's financials in total perpetually UN increased 43% year over year to 104 billion.
$1. These vehicles are generally characterized by lower return targets as well as management fees and performance revenues calculated on and Navy and no mandatory return of capital. This has helped drive our fee related earnings to record levels for both the quarter end the year.
To give you a sense of the power of the Blackstone brand coupled with the shift to perpetual capital look no further than be reek. This vehicle, which just had its third birthday, so $2.8 billion of inflows in the fourth quarter with AUM nearly tripling year over year to $13 billion.
Demand continues to accelerate as we add new distribution partners, resulting in an additional $1.4 billion of inflows on January onest.
We're deploying the capital well into unique investments, including most recently.
Sale leasebacks on the MGM Grand and Mandalay Bay in Las Vegas, when you take our leading real estate franchise and offer an institutional quality product to retail investors. The results are powerful.
Including be read our real estate core plus business has grown to $46 billion up 31% year over year.
Other perpetual vehicles include our $14 billion infrastructure fund and our credit BDC.
When we sold our interest in our prior $20 billion BDC platform. In 2018, we told you that we would quickly rebuild one of the leading direct lending businesses in the world with full ownership of the economics, including separate accounts, our U.S direct lending platform in total has grown to over 12.
Billion dollars of AUM, a testament to the strength of our credit team and our brand.
Third in terms of our shift towards faster growing parts of the economy, you can see it in multiple places a little over a year ago, we acquired a small but highly talented life sciences team with tremendous domain expertise and plug them into the Blackstone platform and fund raising engine.
We raised $3.2 billion in the first closed for our New fund in December and fully expect to hit the four and a half billion dollar hard cap, representing a fivefold increase compared to the prior fund.
And we are incredibly proud of the lifesaving advances Blackstone life Sciences is accelerating most recently in the bladder cancer area.
In addition to life Sciences were just started raising our first dedicated fund in growth equity and in Asia will be in the market. This year with our second regional private equity fund, which along with our Asia opportunistic in core plus real estate funds will further augment our capital in this fast growing region.
We also continue to invest in rapidly growing businesses in the fourth quarter, We announced a 3 billion dollar acquisition of magical at the parent of Bumble in emerging leader in the online dating market.
Other promising investment teams include companies focused on cloud migration content creation and last mile logistics in total across the firm we deployed over $17 billion in the quarter and a record $63 billion for the full year setting the foundation for future.
Your realizations.
Fourth we've talked about increasing our presence in the underserved retail and insurance markets. In 2019, we raised a record $26 billion from retail investors most of which came from customized products and we hope to exceed that amount. This year in insurance, we now move.
Manage over $60 billion DVU Lam with significant runway ahead.
A few weeks ago, we announce hiring yield to alert to lead this initiative.
Deal is a deep industry and investment expert with lots of experience is a perfect choice to drive this business forward.
Fifth even as a firm continues to grow rapidly. We've told you we do not need to utilize capital to produce that growth.
In fact over the past two years, while lemons grown approximately $140 billion to $571 billion, our balance sheet investments declined to just $1.9 billion, we have no net debt and basically no need for capital.
As a result, we've been able to return 100% of earnings to shareholders over the past two years, we continue to payout enormous dividends and our repurchase program has resulted in a share count that is lower today than two years ago.
Six we told you we wanted to make our stock easier to understand and own.
We simplified our reporting to focus on distributable earnings which reflect the cash earnings of the company.
We implemented a share buyback program with the commitment to keeping the share count flat and of course, we converted the firm to a corporation deep. These changes have been met with a positive response by the market. We're gratified that shareholders are starting to recognize the power of this franchise income.
Good morning, Blackstone is in terrific shape by any measure and we are holding firm to the path. We outlined our clients are quite pleased with our performance in our entrusting us with more of their capital.
Our people are energized and proud to work at the firm and the opportunities for continued growth even in a challenging investment environment are significant with that I will turn things over to Michael.
Thanks, John and good morning, everyone.
Our fourth quarter results represent a very strong conclusion to an outstanding year.
Total AUM rose, 21% year over year or approximately $100 billion two new record levels. The result of $134 billion of gross inflows and $33 billion of market appreciation, despite $40 billion of realizations.
Inflows continued to be broad based across the firm, including $57 billion in private equity and $34 billion in real estate.
Both record years for those segments, along with $31 billion in credit and $12 billion in Bam.
As John alluded to despite the successful completion of our flagship so called Super cycle, We expect another very strong year inflows in 2020.
Indeed, two thirds of 2009 teams inflows or $86 billion were from products outside of the four flagship funds. The majority of which were from strategies that continuously raise capital I'll discuss the fund rise fund raising pipeline in a moment.
Fee, earning AUM grew 19% to $408 billion of which nearly a quarter is now perpetual.
Fee related earnings continued on the strong positive trajectory outlined previously up 23% to a record $1.8 billion for the full year or $1.49 cents per share.
Despite firms numerous growth initiatives fr re margin expanded over 200 basis points to 48.4% in 2019, the highest level ever.
Distributable earnings for the year rose, 7% to $2.9 billion.
For the fourth quarter de rose, 27% to $914 million or 72 cents per share underpinned by 27% growth UNEV, Ari and a 33% increase in net realizations in terms of key drivers. The fourth quarter included the benefit of performance revenues crystallizing for both be read.
Bam as a result in real estate fee related performance revenues more than tripled year over year to $150 million and in Bam performance revenues increased fivefold to $109 million, while D more than doubled to $185 million. The result of a healthy 8.2% growth company.
As a return for the year across a growing eight when base.
The fourth quarter also marked the best quarter for realizations in two years and included the final exit of our position in invitation homes and the sale of our Swedish residential platform temblor. Among other sales. These deals exemplify the firm's high conviction approach in this case the significant need for investment capital in high.
Hi quality residential housing stock.
In total realizations in our opportunistic breadth and corporate PE funds were completed at an aggregate multiple of 2.2 times invested capital consistent with the strong long term historical performance of these platforms.
Turning to investment performance in real estate that Brett funds had another excellent quarter appreciating 4.7% in.
In private equity attack ops, and secondaries funds reported similarly, strong results appreciating, 7.7% and 5.4% respectively.
The corporate PE funds appreciated 1.5% with stable underlying performance, partly offset by declines in two public positions. Excluding these corporate p. appreciation was 4.7%.
In credit the performing credit cluster rose a healthy 3.8% gross while the distressed cluster declines, 0.8% and a continued challenge distressed market.
And lastly, and Bam a composite gross return was 2.2% for the quarter.
Overall fund depreciation drove the net performance revenue receivable up 22% year over year to $4.3 billion, its highest level and nearly five years. Despite strong realizations at the same time performance revenue eligible AUM in the ground rose, 18% year over year to a record $249 billion, while our drive.
Powder balance increased to a record $151 billion. This sustained momentum in terms of both fund raising and deployment puts the from an excellent position to continue building long term value for shareholders.
Moving to the outlook first in terms of fund raising the pipeline for 2020 remains extensive as I mentioned, we are in the market with and expect to complete fund raising this year for life Sciences. The fourth real estate debt fund the second GP Stakes fund the second European direct lending fund and the third infrastructure Secondaries Fund.
We've launched fund raising for our second core private equity vehicle and expect a significant first close in the next few months.
We've also started raising our new growth equity and impact funds and later this year will start raising our second PE Asia and fourth credit mezzanine funds.
In addition to the significant number of drawdown funds. We expect continued strong growth in real estate core plus including be right along with ongoing inflows in us direct lending long only credit and insurance among other areas in total 2020 should be another robust year.
Moving to the fiery outlook and our previously outlined roadmap in terms of key drivers three to four flagship funds are now raised and activated.
We expect to activate the fourth global private equity in the coming quarters. Following the execution of one or two more deals in the predecessor fund BCP seven.
BCP eight is then subject to a four month fee holiday.
We previously discussed a path to $2 per share of fiery, including achieving greater than $1.70 in 2020.
While we will not be giving specific guidance our confidence in exceeding these original targets is very high.
And thinking about the shape of 2020 overall I'd share. The following thoughts we entered the year with a promising pipeline for 2020 realizations, which we expect to build and materialize as we move through the course of the year.
In addition, given the meaningful growth in scale and financial contribution of the firm's perpetual vehicles, which generally earned performance revenues at year end, there's a seasonal benefit that was evident in our 2019 results and we expect the seasonality to continue going forward.
As such we believe more than ever it is most informative to look at the firm's earnings over a full calendar year.
In closing.
At our Investor Day in September of 2018, we shared a roadmap with respect to the near and longer term financial outlook for the firm.
We described then a path for record fund raising and we subsequently subsequently delivered nearly $200 billion of total inflows.
We outlined a powerful step up UNEV Ari and annual Fr re has already increased 30% in the six quarters since that time and continues on a sharp upward trajectory.
And we made the case better stock was substantially undervalued ahead of the re rating which is now underway.
We entered 2020 in a position of tremendous strength and remain fully committed to continued to deliver for investors.
With that we thank you for joining the call I would like to open it up now for questions.
Thank you and thank you happy long your question and answer session will now begin if you wish to ask a question. It is just start then on your telephone.
If you want to withdraw that question it started.
Just as a reminder, if you wish to ask a question just star then one on your telephone and if you could just limit your questions to one question I am pleased we into the queue. If you need to ask another thank you.
Okay. So your first question comes from the line of Glenn Schorr.
He from Evercore. Please go ahead, Glenn you alive in the call.
Hi, Thank you I appreciate it.
I guess, just looking for an update on two of the business platforms different questions, but but just an update on insurance you've made some key hires there there's talk of a lot of risk transfer deals going on in the marketplace an update there and then in the secondary business, where your performance is awesome.
There's been a ton of money being raised in the market, including now Goldman Sachs and the market like just your thoughts for the secondaries business going forward and do you see that same supply of money coming in thanks.
Thanks, Glenn I'll start with the secondary business, Yes, there has been big fund raising in that space, including our fund raising but I think you have to put it in context.
Overall alternatives are now I think as six trillion dollar business and last year about $100 billion transacted, so less than 2% in the market. So it's a market where as investors keep allocating and by the way as you know alternatives are growing 8% to 10% a year, they're still not an.
Liquidity, so fewer fund manager and you want to sell interest in a certain sector or older vintage funds, it's hard to do and so what we're seeing is a market response, where new capitals coming in I think the good news is that the discounts that exists in terms of buying these interest have persisted and so we still see it is a very.
Favorable place to deploy capital and in fact SP has already committed 50% of its latest private equity funds. So even though the business is growing we still think theres a lot of room here in terms of insurance.
This is a market that has obviously a lot of capital that is under pressure as a result of extremely low global interest rates theres a need to move out of.
Investment grade corporate and sovereign debt and to look at things like direct private credit structured credit and alternatives. We think we're pretty uniquely positioned to do that.
We announced as I mentioned, the hiring of Gail and we're looking at a number of situation. So I think this could be a little bit lumpier.
But we're spending a lot of time, Tony in particular has been spending a lot of time on this and we're hopeful overtime, we're going to announce some meaningful things here.
I might just jump in.
Considering are still putting the building blocks in place, we think getting having 60 over $60 million value EMS, a pretty good start from here the growth will be a lot like infrastructure private equity in the sense that we'll have spurts of growth as we close funds and we closed on deals.
We remain as those yes, because everything.
Thanks appreciate it thanks.
Thank you.
Next question.
Correct.
Well I have Morgan Stanley . Please go ahead honestly alike.
Yes.
Great. Thank you good morning, Thank you Frank Good morning, Mike.
Hey, So just curious if you're thinking about really a little bit bigger picture about just straight semi described last decade, the 20 times as a golden age from private marketplace, given a supportive market backdrop and significant growth in the asset class, but I guess as we're sitting here today. The industry has a few trade and dry powder, you have purchase motor and leverage.
Multiple at all levels that are elevated debt terms that are looser with covenants I'm. Just curious how you would characterize the last decade for private market and looking forward. How are you described to 20 twentys, what the twentys will be like as a decade for the private markets and how different might this be.
Well, Mike I think we're in the early stages of the maturity of the alternative space I think big picture as you know in in asset management, we're seeing on the liquid side, a lot of movement into EPS and passives, because they've outperformed overtime active manager.
And on the other end of the barbell Big movement into alternatives again because of performance has been really strong which is the Blackstone story that is what underpins our success.
If the question is are we sort of at the end of the runway just to put numbers on this I talked about six trillion in alternatives I think the investable universe. If you look at institutional retail and insurance is something like I don't know 170 trillion. So although it's grown a lot as a percentage.
Of assets out there, it's pretty small and if we are in an environment, where interest rates will persist at a low level I think investors will increasingly be looking for trading some liquidity for higher returns, which is what underpins. So much of what we do so we think this is as.
I said still in the early stages of a maturity that these these businesses can continue to grow and I think what's also important to point out is people still think of this narrowly as private equity or real estate private equity very high returning strategies, which obviously, we continue to be market leaders and but what it is real.
The about also is the spreading out here of all these different activities were engaged in many of which are longer duration and have lower return targets and it's obviously easier to deploy capital if you're buying more stable assets that you'll hold for long period of time without those same high target so think about that in.
Our credit BDC or in infrastructure or in core plus real estate and we still think we're in early days. There. So we have a fair degree of optimism. It Doesnt mean, there won't be economic cycles, along the way. It Doesnt mean markets won't go down of course that will happen, but if you look out 10 years from now we envision the alternative space.
Being much larger than what you see today.
Great. Thank you.
Thank you.
Our next question comes from the line of Craig Siegenthaler from Credit Suisse, you're leaving the coal Craig. Please go ahead.
Thanks, Good morning, everyone.
Good morning, and as we as we look towards the next annual Russell 1000 add in June I was just hoping that you could provide us an update on your thoughts behind making small changes to your corporate governance, which could include moving a small nodding voting rights in the flow, which would help bx qualify for the index.
No tracking for this index isn't huge from Bts and index funds, it's around 4%, but the shadow tracking from active managers that are benchmark to the Russell is much higher.
So on structure.
Our structure and long term approach has has really worked for US. It's worked for our limited partners. It's worked for our employees. It's worked for our shareholders.
We like what it does in terms of the way we look at the world, how we deploy capital and so the short answer is we don't have any plans to change our structure.
Thank you John .
Thank you.
Your next question comes from the line.
From Wells Fargo, you'll live in the call Chris. Please go ahead.
Great. Thanks, guys.
Question on direct lending.
Yes, a lot of Bdcs. If you look at the public markets have not worked out very well I think quite a few of them are trading below NAV and experiencing credit losses.
Any any thoughts on why the industry is having so many challenges and what's pretty benign credit environment and how how Blackstone as you build this business out Ken can really Buck this trend.
Well you know what I would point to is we have a mortgage riet Blackstone mortgage Trust said has performed extraordinarily well now for quite some time I want to say something like 15% compounded returns.
Close to that maybe it's 13% now for six or seven years and there we've been incredibly disciplined and being a first mortgage lender and being really thoughtful around credit.
As we build this direct lending platform, we're very focused on making this a senior oriented lending platform. If you look at a lot of the challenges that are out there a lot of it's focused on people stretching for yield doing things.
In that take on undo credit risk and.
And we think by staying very focused sort of in our lane very disciplined in how we financed the business much like Blackstone mortgage trust, we can deliver for our direct lending customers and for investors.
And I'd just add onto that addition to our.
Superior risk management in this area our origination capabilities.
Creating deals our relationships with issuers sponsors corporates into space. We think is second to none and that's both in the us and Europe , we have we have.
Very large scale direct lending businesses as you know in both in both regions.
[music].
Okay. Thanks, Chris.
Thank you.
Your next question comes from the line of Alec well stolen from Goldman Sachs. Your life in the call. Alex. Please go ahead.
Great. Thanks, Good morning, guys. So I was hoping to dig a little bit more into the perpetual capital and the performance fees. It generates for you guys and understanding the seasonality in the fourth quarter, but it's obviously been important we will continue to be an important growth driver. So maybe spend a couple of minutes, there and what I'm trying to get I guess is.
Maybe help us frame how much of the are you wham within the perpetual capital segment.
Kind of locked in 2019, what that could look like into 2020.
No I think there's like a three year kind of seasoning effect to it. So just kind of help us brain frame the asset base it how meaningful that could be for you guys going forward.
I'll just one comment I'd make is.
There's a range of of of sort of realizations that occur so be read is an annual realization.
Actually our credit BDC I think is quarterly.
Some of the the core plus BPP vehicles are every three years infrastructures every three years. If a couple of co investments that are five years. So there is there's a range.
And be read is the fastest growing piece of this.
But I don't know Michael you want to add into I think thats, a great set up because.
It is a mix of those strategies across be read BPP, our BDC business bx empty infrastructure with different characteristics, but what's happening here and you really saw reveal itself in this quarter and this year fourth quarter and 19.
Is in particular, the B. Riley driver of our business.
Tripling our performance our fee related performance revenues in the real estate segment.
Year over year and that sort of trajectory is going to continue between.
The fund raising the deployment and the performance.
And again it is it is scheduled it's recurring we know what will happen. It on a date certain at the end of every year and so that alongside the other products, which will in the case BPP and infrastructure layer and fees. According to those sort of multiyear anniversaries.
And then the BDC business, which as John said has that quarterly.
Cadence to it and is also in ramp mode over time.
All those things together are very powerful and as I pointed out in my remarks perpetual capital is now basically a quarter of our fee, earning AUM, so and growing rapidly as John said early things together are.
A very important narrative and I would just add one one additional point, which is in BPP. It's every three years from when the Investor comes in so it's not the same three year period. So as BPP gross you will every quarter there should be different investors different times of the year as they come along so there is a maturity.
Thats going on here that business continues to grow we announced a large deal in the last week in Japan, which will be another I think important piece as we grow our core plus real estate business in Asia, as well and so having more and more these vehicles that are open on a quarterly basis to raise capital deployed.
Capital and then take incentive fees based on NAV as opposed to sales that really is what we're talking about in terms of perennials.
Okay.
Thank you.
Your next question comes from the line of Bill Katz from Citigroup. Your line open the call Bill. Please go ahead.
Okay. Thank you very much for taking the question. This morning, maybe a two part question if I could flip. The then just impossible Mike perhaps.
First question is is that quickly so affirming the so the Matt pathway on flurry sort of wondering if you could update us are you thinking around the related margins to that and then a bigger picture question Fred on you guys.
Given the significant multiple expansion that Blackstone has enjoyed over the last year post conversion does it alter your thoughts on capital return in anyway.
You grow faster growing I will do this uptake.
Take the more narrow marijuana hey, bill on margins.
You heard us say that over long periods of time, we sort of average 100 200 basis points a year, but not always.
Every year.
And we continue to see that sort of structural aspect of our of our business. Obviously in a year like 2019 ended year like 2020, where we're in a more rapid acceleration mode on ever re growth be operating leverage benefit among other things is even more powerful so.
So we're not going to make a call around margins this year, but we feel good about certainly staying on that sort of trajectory.
So as it relates to capital return, we like our models as I said on the call. We're we're paying out a 100% of our earnings today, it's roughly 85% in the context in dividends and 15% in share buybacks.
We think giving this capital back to shareholders is the right thing to do and we like the mix at this point Bill of how we're doing it.
Thank you.
Thank you very much on your next question comes from the line of Kelley Hall RF from Jefferies. Your line open the call Daily. Please go ahead.
Great. Thanks, maybe just a little bit on the 100 billion of fund raising that you kind of.
Pointed to for this upcoming year.
Clearly one of the flagship funds is in the mix there, but perhaps you could sort of point to the components of where you see some of the outside for an outsized fund raising coming from from it from a product our strategy standpoint, as we as we look forward. The next next 12 months. Thank you.
So show I would say, it's a mix we talked about.
Oh, yes.
I would say, it's a mix.
In our core plus real estate area, which includes obviously as we've mentioned be read ERP. It's continued growth in direct lending.
We talked about raising our next vintage of both corporate and real estate Mezz. Those are both should be sizeable funds.
It's some of these new initiatives like like growth equity impact.
Michael touched on all of these things, but but it's just the breadth and depth as a platform continues to expand and Thats why as opposed to in the past where you could point to one or two things very large flagships today. They are just multiple areas. We are raising capital for many of which are now open.
Full year round.
Great.
Thanks, Jerry Okay. Thank you Sir your next question comes from Ken Worthington from JP Morgan Your line in the coal Ken. Please go ahead.
Hi, good morning.
You have given us a bunch of outlook.
Very helpful and I was hoping you could complete the picture with maybe some colors on the realization outlook for this year for private equity in real estate. So if market conditions remain similar to where they are today, maybe how does the seasoning of investments.
What does that suggest for this year for your pipeline versus maybe what you experienced in 2019.
Yes, Ken I'd sort of refer back to my comments in my remarks that as always it's it's early in the year by definition, we don't give much by way granular sort of guidance certainly.
But we enter the year with some as I said, a promising pipeline.
Across both those businesses.
In particularly some some pretty chunky projects, we're working on and we'll see how they play out in the course of the year.
So our teams are working hard on all those fronts and.
We do have assets and companies in position.
In in conducive markets for potential events.
And then obviously in terms of the Big picture you are asking for 2020, but longer term.
As we talked about.
This sort of the net accrued performance revenue receivable position highest in over four years, where we are uninvested performance eligible.
OEM in the ground $250 billion. All those are basically mathematical indicators of the kind of the long term trajectory for monetization potential.
Okay. Thanks worth a try I appreciate it.
Thanks, Ken.
Thank you. Your next question comes from the line of Mike Kelly from Bank of America utilizing the call. Mike. Please go ahead.
Hi, good morning, Thanks for taking the question.
Great success in the retail channel I think you said 26 billion 19 can you give us an update on that opportunity maybe in terms of platforms in the U.S. and even outside the us in any of relationships with maybe the types of products that are gaining traction. In addition to be read and then any new initiatives in the pipeline.
Sure so.
We've mentioned the past their three ways that were building that out one is to deepen and broaden the relationships in the channels that we're in and that's a very real.
Opportunity second is grow the distributors and that's both domestically and also regionally and third is new product and I would say all of those are happening and earn at the penetration remains incredibly low and just as John alluded to on the institutional side. If you think about individuals in a low.
No interest rate environment, where a stock markets are pretty high there's a real desired to reallocate to alternative so I would say the current products set as we talked about the perpetuals that are out there those continue to gain traction.
With advisors, we're already working with as well as new advisors Theres been a lot of growth on that internationally at very attractive and then without going into detail.
There is.
What we believe will be a category killing.
Product that we plan to launch by the end of this year and and there'll be a global launch and then we had a few other things that are in the lab as well. So I still think it's quite early days. So I would just add to Jones comments by saying.
The retail channel is where you really see the power of our brand that our ability to too.
Sell these products across not just the United States, but the world is very very powerful and so as we create things that work for these markets and we spend a lot of time trying to develop them.
We think we have a a receptive audience and we're going to be disciplined Jones talking about something thats a potential these things always take time to get done.
But but when we deliver something as we've done in be read.
And we think we can do it with other products. We think the market is very large for the kind of things we do.
Alright, Thanks, a lot.
Thank you. Your next question comes from the line of Devin Ryan from JPM Securities. Your line open the call Devon. Please go ahead.
Thanks, Good morning, India JMP Securities.
Appreciate.
The question and most of the night asked and answered, but just a question on infrastructure opportunity.
8 billion of inflows last year to an outgoing deployed almost 14 committed.
It feels like it's maybe a little bit quieter there given all the other irons in the fire, but I'm just curious if we get an update on the trajectory of the strategy and just kind of momentum in the opportunities there.
Sure.
As I said earlier this is a space we have a lot of enthusiasm for.
We've deployed about 20% at this point of the fund, it's a little bit.
Lumpier, just because of the nature of the assets you're buying more concentrated.
We feel good about the pace I would tell you our pipeline actually looks robust today and I wouldn't be surprised in the first half the year, if we announced a number of transaction. It's obviously competitive in the low interest rate environment lots of institutions are looking at infrastructure, but we think our ability to source big opportunities.
To deal.
With public market situations as we did with tallgrass.
Our ability to intervene in assets and I think thats really important for us as a firm to really add value that will enable us to deploy the capital and this is a business I would expect overtime that would be much much larger than $14 billion.
Thank you.
Okay. Thank you and your next question comes from the line of Brian The Dell from Deutsche Bank. Your line open the call Brian . Please go ahead.
Great. Thanks, good morning folks.
Let me just switching gears, a little bit to deployment, John maybe if you want to just just characterize.
A couple couple of thoughts there obviously, the dry powder continues to build up up up over a third year on year deployment levels definitely healthy.
But maybe if you can you just talk about.
What the plan.
The longer term plan is for deployment given your very robust fund raising are you concerned that is you're going to have too much dry powder hanging around and.
And as you look at the valuations where do you find challenges you find more opportunities that you think can keep the decline of healthy and returning I returning over the long term that that is obviously a very timely question I was it a pension fund yesterday I was asked about this and.
I talked about it being a challenging time.
I would just reiterate a few of the things I said earlier first is because of the expansion of the platform. We just have many more places to deploy capital and not all of them are Super high return strategy. So the ability to do infrastructure indirect lending in core plus real estate deals and do them around the world is.
Very helpful. I talked about the sale lease backs in Las Vegas, those are very innovative transactions done by the real estate team that we would not have done previously without these vehicles.
We talked about a bladder cancer drug that is very promising that our life sciences team deployed $400 million into again the expansion of the platform. There allows you to invest in the sector that has.
I think pretty favorable dynamics given limited competition I'd also say that for US scale is still are calling card.
Steve talked about GLP.
Which was a $20 billion transaction, we did the Merlin transaction in the in the theme Park area. A 9 billion dollar transaction again in a newer vehicles core private equity. So big deals is still not as much competition, our ability to intervene I would point out that we bought Hilton in 2000.
Seven.
Obviously, not ideal timing and yet because we brought in a terrific management team work closely with them. The company succeeded in thrive, we ended up making $14 billion for our investors and so there are opportunities even in a challenging market and I would not compare this to the excesses of owes six so seven and.
Then specifically what I'd say is there are places in the world, where where we think valued looks better I've talked in the past about the UK of Brexit does make it grow more slowly but the market has traded off considerably in dollar terms, we're still big fans of India, which is a market that has a bit of financial turmoil, but has.
Really great long term fundamentals.
Particularly in the ITC space and we've done a lot in real estate in private equity Secondaries I mentioned in area, we think theres a need for more capital to leverage loan market, which gets a lot of bad press.
I think the fact that spread there are wider than high yield even though these loans are senior in the capital structure doesn't make a lot of sense to us, particularly given low default rates and very strong coverage ratios and then as I mentioned a lot of focus on some of these thematic areas like last mile logistics cloud.
Migration.
On live entertainment, a bunch of things aging populations global travel trying to get behind those because in a world of high valuations and low growth being a high conviction investor really makes a difference. So I can see it's a tough time to deploy capital on the other hand, our platform are set up and in the.
Themes, we believe in our still giving us the opportunity to put out money.
That's great respect to thank you.
Thank you and your final question comes from quick.
William Blair your live in the call Chris. Please go ahead.
Hi, guys. Thanks Big picture question, just given the firm's tremendous growth in recent years I'm I'm wondering if you can talk about the process for approving transactions and.
How thats involved just given the significant jump in deployment.
Yes, I guess all from what I'm trying to understand how strong management standpoint, you're monitoring quality versus a few years ago.
Just given the increased increase in the throughput thanks.
I love that question.
That is what our business is all about.
Fund raising is obviously important but it's all about investment performance and we talk about it we had our partners meeting. This week, we talked about it at length, we talked about at all the time, which is maintaining our discipline. The most important thing is that we run a centralized investment process, what we've done.
Is made monday's alot busier Blackstone in terms in the number of global investment committees, we do not we have folks on the ground doing different activities all around the world, but we still allocate capital centrally and so it means the number of memos some of us to reading on a weekend are quite substantial.
But we think that is very important and we can never let go of that and so we're spending more time. We're also populating more of our people from different areas across the investment committees. We're trying to make sure. We have is much connective tissue as possible and so it doesn't matter fits life sciences or growth equity would.
Never knew part of the firm we create it all gets back sort of connected back into the mother ship and then we have the same process of heads up Committee memos pre IC Committee Memos Review Committee investment Committee memos, all going through multiple layers in each group. So that we try to reduce the number of defects it doesn't.
I will never be mistakes, but it greatly reduces the number it's the reason why the firm's been so successful for so long, it's something that Steve has preached since the beginning and we're sticking with this formula. So as we grow we will continue to have a very very disciplined and focused investment committee process in the final.
Thing I'd say is the one thing today that worries us the most and obviously their political issues interest rates all sorts of things.
The Big thing is the disruption that's happening in almost every industry. How it's impacting these businesses as technology changes and that I can tell you. It doesn't matter if it's an infrastructure dealer credit deal real estate private equity Doesnt matter that is the number one focus when we look at the risk in the downside of new investments.
Thanks, John .
Okay. Thank you.
Now I'd like to hand, you back to Weston Tucker for final remarks.
Great. Thanks, everyone for joining us this morning, and look forward to following up after the call.
Thank you everyone that concludes your conference call for today you may now disconnect. Thank you for joining and enjoy the rest of today.
Yeah.
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