Q1 2021 Blackstone Group Inc Earnings Call
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Good day, and welcome to the Blackstone and first quarter 2021 investor call. My name is Joanne and on your event manager during the presentation. Your lines will remain on listen only and if you require assistance at any time, please Keystone and zero on your telephone and coordinate and we'll be happy to see she if you were.
I'd like to ask a question. Please press star and one I'd like to advise all parties. This conference is being recorded and now I would like to hand over to Weston Tucker head of Investor Relations. Please proceed.
Yeah.
Great. Thanks, Joanne and good morning, and welcome to Blackstone's first quarter Conference call. Joining me today are Steve Schwarzman, Chairman and CEO, Jon Gray, President and Chief operating Officer, and Michael change keep financial Officer.
Earlier. This morning, we issued a press release and slide presentation, which are available and on our website and we expect to file our 10-Q report and a few weeks 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.
We do not undertake any duty to update these statements and for a discussion of some of the risks that could affect results. Please see the risk factors section of our 10-K, we'll 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 for solicitation of an offer to purchase and interest and any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.
So quick recap of our results we reported GAAP net income for the quarter $3 4 billion distributable earnings were $1 2 billion for 96 cents per common share and we declared a dividend of <unk> 82 sets to be paid to holders of record as of May 3rd with that I will turn the call over to Steve.
Okay.
Thank you Wes and good.
Good morning, and thank you for joining our call.
Blackstone and reported remarkable results for the first quarter.
Distributable earnings more than doubled year over year to $1 2 billion.
Fee related earnings rose, nearly 60% year over year and for.
For the last 12 months were up 40%.
On a record $2 6 billion.
Investment performance was extremely strong and in the quarter as it has been for over 35 years.
Driving the balance sheet receivable to record levels.
At the same time, we can.
Drew.
21% year over year with industry record 649 billion.
The firm has exceptional forward momentum.
And I anticipate significant continued expansion of our earnings power, particularly.
Particularly and FRE for.
For the foreseeable future.
This is the result, the new products, we're launching and the.
Celebration of existing ones, which John will describe in more detail and as he did on TV. This morning.
Blackstone is the clear leader and the alternative sector.
We've also established ourselves as one of the leading public companies and any industry.
We've grown from $400000 and <unk>.
<unk> capital and 1985 to become the 87th largest U S public company on a market cap today.
Our long term financial performance has been extraordinary.
For the past decade, we have grown distributable earnings by 17% and per year more than double the median earnings growth of the S&P 500.
We rank in the top quartile of this group.
Day on almost any relevant metric, including revenue and earnings growth.
Aggregate earnings prop.
Profit margins dividend yields and and trading volume.
Blackstone is also widely recognized as one of the best franchises.
Just last month and Morgan Stanley published thereby on a list of the 30 best companies in the United States for long term stock ownership and again Blackstone made the list.
We are in good company.
With firms like alphabet.
Amazon.
Costco.
Microsoft Netflix and <unk>.
Nike and visa.
Like Blackstone.
These companies have built very significant brand equity by offering a distinctive customer experience, resulting and why competitive moats.
And at Blackstone, where and in unique position and the sector and has tremendous tailwind.
We are and the early stages of and an inexorable shift and capital flows towards alternatives as global limited partners continued to increase their allocations and pursuit of better returns.
And the opportunity is enormous.
And is an estimated $6 five trillion.
Our private markets AUM today.
Compared to nearly 250 trillion of public equity and debt markets globally.
We believe Blackstone and the.
Best positioned firm and the world to benefit from these secular trends as the largest for alternative manager with the number one brand.
At our Investor day, approximately two five years ago.
We outlined a number of fundraising and financial targets.
Since that time.
We've grown AUM by nearly 50%.
And on launched over a dozen new strategies, including successful businesses and life science and growth equity.
We have significantly expanded our presence and the private and wealth and insurance channels.
And perpetual capital.
And as more than doubled led.
Led by growth and our real estate core plus platform.
All of this has driven a new doubling of fee related earnings over that period.
As the firm continues to grow it also creates opportunities for our people to lead and.
For the past few years, we've promoted removed approximately 50 of our professionals and to key leadership roles and relevant firm, including two loans new businesses for the overseas sector.
As our people advancing their careers.
Deep bench of talent behind them to step up.
And this organizational dynamism helps to keep our people motivated fosters integration and perpetuates our unique culture.
And the event, we look on externally for someone to help us build the business are.
Our scale and reputation and allow us to attract great outside counsel as well.
Blackstone is an extraordinary place to work and we are regularly cited as one on the best places to work and our industry, including most recently by Fortune magazine.
Also follows a young people want to build their careers here.
<unk> had more than 19000 unique applicants for 93, starting analysts positions last year.
Our people and.
Along with our reputation.
For the firm's most important assets.
Our clients come to expect from us.
And this level of excellence and integrity.
Everyone and for firm strives to produce exceptional results.
I couldnt be prouder of what our people have accomplished together.
Strongly believe the best is yet to come for our employees and preliminary partners.
And our fellow shareholders.
And with that I'd like.
Turning things over to John.
Thank you, Steve and good morning, everyone. It was another tremendous quarter for Blackstone and our investors.
The virtuous cycle of strong investment performance, leading to further inflows and increasingly from perpetual strategies continues to drive our firm.
Th perpetual capital is fueling a powerful transformation and the assets, we manage and the earnings we generate.
<unk> is a branded asset light manager with a compelling recurring revenue model.
Moving to the quarter and investment performance all of our flagship strategies again posted outstanding returns equating to the second best quarter for fund appreciation and the firm's history after Q4.
This reflects the way we position investor capital over the past several years towards fast growing areas of the economy, including logistics life Sciences and tech enabled businesses.
These sectors are benefiting from very positive fundamentals, which have accelerated since the onset of COVID-19.
Our customers continue to respond favorably to our performance and demand for our products is stronger than ever.
Total inflows were 32 billion and the quarter with approximately half in perpetual strategies, including real estate core plus and direct lending.
And total perpetual capital AUM has grown to nearly $150 billion across 15 vehicles up over 130% since Investor day. These.
These are the fastest growing areas of the firm today and it's hard to overstate their positive impact.
Our business has been historically concentrated and long term, but finite lives corporate private equity and opportunistic real estate drawdown funds and.
And these strategies, we acquire and improved companies and assets and then wait for the right time to sell and returned capital to our limited partners.
This is a terrific business model and we will always remain and enormous focus of our firm.
I would compare it to planning seats, which we grow and then harvest before starting the process again.
With perpetual capital. We are now also planning perennials perpetual capital remains and the ground and compounds and value generating management fees and in most cases recurring performance revenues without asset sales.
These strategies are fueling and acceleration and the growth and quality of the firm journey, including the powerful trajectory of fee related earnings that Steve described.
The best for example, this dynamic at work is our real estate core plus business only seven years after launching the platform. It has grown to $77 billion of AUM and has become the single largest contributor to FRE at the firm.
And we are extremely confident in the path forward.
There are five perpetual capital vehicles for this strategy today and we're working on more.
B REIT or retail oriented vehicle has seen fund raising reaccelerate meaningfully from the bottom of the crisis nearly back to pre pandemic levels with $1 $7 billion of monthly inflows after quarter end on April <unk>.
Our newest institutional core plus vehicle focused on life Science office buildings reported another 4 billion of inflows and the first quarter, bringing it to $12 billion.
And in only five months on.
Alongside our perpetual strategies, we're seeing continued strong momentum across the firm our growth equity fund hit its four and $5 billion cap in the first quarter with excess demand.
The largest first time private fund ever raised in this area. This is a remarkable achievement, but particularly show during a global pandemic.
The fund is off to a very strong start with investments and bumble.
<unk> epidemic sound and ISN.
And Asia, our business is expanding further building on our long term success and the region.
We held a $3 billion first close for the second vintage and private equity, which is already larger than the first and the next few weeks. We'll also plan to start raise fundraising the third vintage and real estate in Asia, which we expect to be at least as large as the prior 7 billion dollar funds.
Turning to our secondaries business, our $11 billion S. P. Eight one and the four flagship funds. We highlighted at Investor day is nearly fully invested after only two years, we will shortly begin raising the next vintage, which we expect to be larger with a first close targeted for the second half of this year.
Sure.
In credit demand for our products remains robust and the segment reported 13 billion of inflows and the quarter across direct lending liquid strategies and our fourth mezzanine fund our direct lending business has grown to $27 billion of.
AUM, including a strong start out of the gates for our new non traded BDC.
And tactical opportunities, we're raising our fourth vintage and expect and initial close this summer and lastly, Bam reach new record AUM and the quarter of 82 billion.
Up 11% year over year, despite the recent volatility and the hedge fund markets.
Overall, the outlook remains quite positive for the firm following four consecutive years with total inflows approaching or exceeding $100 billion.
And we're highly confident we'll exceed 100 billion again in 2021.
Investors institutional retail and insurance want access to Blackstone products more than ever.
Our fund raising momentum has given us substantial firepower to invest and we remain very active on that front deploying $18 billion and the first quarter, we continue with our thematic focus including sustainability and the post Covid travel recovery, we recently committed to acquire desktop tech and environmental services business.
And Europe, and Sabre and electrification and infrastructure company in terms of travel as the economy Reopens. We believe the combination of increased consumer savings fiscal stimulus and global cabin fever will be powerful recent commitments emphasizing this theme include acquiring a private aviation business.
A major holiday park, operator, and the U K, our hotel portfolio, and Japan, and a public hotel company in the U S and closing Blackstone continues to deliver our shareholders are benefiting from the positive transformation underway in our capital base and earnings.
And they will benefit from what is not changing the same rigorous investment process standards of excellence and drive to serve our clients that have defined Blackstone for over 35 years with that I will turn things over to Michael Thanks, John and good morning, everyone.
First quarter represented a terrific start to the year characterized by strong momentum and all of our key financial and operating metrics and a record store of value.
Total AUM rose, 21% year over year or 111 billion.
To record levels with every segment, reaching a record for both total and fee, earning AUM.
Fee related earnings rose, 58% year over year to $741 million and the quarter or <unk> 62 per share driven by strong growth and fee revenues and significant margin expansion and.
Management fees increased 25% year over year to a record $1 2 billion.
Fee related performance revenues were $169 million on the quarter.
Driven by the crystallization of revenues from our European logistics platform and real estate core plus we expect the next significant contribution from core plus fee related performance revenues will occur in the fourth quarter.
For the last 12 months FRE rose, 40% to a record $2 6 billion for $2 20 per share for.
Reflective of the continuing positive transformation and the firm's earnings profile that Steve and John described.
Distributable earnings more than doubled year over year to $1 2 billion or <unk> 96 per share underpinned by the growth and FRE and and nearly five fold increase and net realizations to $549 million in.
In terms of key drivers, we took advantage of strong market conditions to bring multiple companies public and also execute sales of public positions.
These included Bumble paces eighth global Apria, and energy and subsequent to quarter and finance of America net.
Net realizations also included a partial sale of the firm's minority stake and Patria and connection with its IPO, which I highlighted last quarter.
Reflected and principal investment income.
Investment performance was simply outstanding across the firm.
The result of favorable sector and asset selection and our funds against the backdrop and rising global equity and credit markets. Despite the historic challenges of last year's market environment. All of our key strategies have appreciated above pre crisis levels in many cases materially above.
And real estate, the breath of opportunistic funds appreciated five 3% and the first quarter, while the core plus funds appreciated three 2% for the 12 months period depreciation was 17, 7% for breath and 15, 2% for core plus.
As has been the case since the start of the pandemic the concentration of our holdings and logistics Life Sciences office and U S. Suburban multifamily continues to drive our performance.
And private equity the corporate PE and tackles, spuds, and appreciated 15, 3% and 15, 1%, respectively, and the first quarter the fourth consecutive quarter of double digit appreciation for both platforms strength was broad based across both the private and public portfolios led by our technology related and <unk>.
Energy Holdings.
Overall revenue and EBITDA trends for our companies are among the best we've seen.
For the last 12 months, both the corporate pay and Tac ops funds appreciated approximately 50% and are now up nearly 30% from pre crisis levels.
The secondary funds, which reported on a two quarter lag also reported double digit appreciation and the first quarter up 10, 6% and.
And we expect strong performance to continue over the coming quarters, given the recent direction of markets.
Our credit business delivered excellent results and the quarter, our private credit strategies reported a gross return of seven 3% and the quarter and 37, 9% for the last 12 months.
The liquid credit strategies reported a gross return of one 6% for the quarter and 27% for the last 12 months. Our portfolio is in excellent health overall with a default rate and our U S loan portfolio of only zero to 2% for the last 12 months compared to a rate of three 8% for the market.
Demand for our credit funds remains robust and segment AUM overall was up 24% over the past 12 months.
We're also seeing record origination activity and credit with $11 billion invested or committed and the quarter.
And Bam the bps composite return was two 5% gross and the quarter roughly double the HFF Rx index and 18, 1% for the last 12 months equating to record on depreciation for the segment of over $12 billion.
Bam successfully navigated the recent volatility and the hedge fund markets created by certain external events of note.
In line with its capital preservation focus.
Overall strong investment performance across the firm powered one 7 billion of net accrued performance revenues and the quarter and lifted the balance sheet receivable up 36% sequentially to $5 2 billion.
The highest level and the firms history, and nearly 30% above pre crisis levels at the same time the firms invested performance revenue eligible AUM increased and remarkable 40% year over year to a record 322 billion. These are both important leading indicators of future value.
In closing our businesses are firing on all cylinders and we have never been better positioned as a firm.
We have effectively no net debt and fewer shares outstanding and three years ago, Despite growing AUM and substantially doubling fee related earnings and returning over $10 billion to shareholders over the same period reflective of the exceptional cash generative nature of our business model.
Looking forward, we believe our brand investment performance and culture of innovation will fuel sustained robust growth.
We are and the early days and penetrating newer channels with enormous potential.
And the firm's earnings power continues to expand concentrated and the highest quality earnings.
As always we will remain laser focused on delivering for our shareholders.
With that we thank you for joining the call and like to open it up now for questions.
Thank you and your question and answer session will now begin if you wish to ask a question. Please key star and one on your kind of thing questions on limited to one question or follow up questions Ms featuring the key.
And I to retool your question Scott and team.
We'll be just fine.
Ask your question and we will have and will remain on listen only.
And.
Just a quick reminder, if you would like to ask a question star.
And then one on your kind of thing.
Our first question comes from the line of Craig If I can go on at Credit Suisse. Please proceed your line and Nickel Creek.
Good morning, everyone.
Good morning.
We had a question on product innovation and it's impressive to see that you already have $77 billion of AUO and core plus and we've also seen multiple new product launches at Blackstone over the last few years and a large increase and perpetual capital strategies with reoccurring fee related earnings, including day rate and now be credit.
Can you walk us through the newer businesses and help us think about how these strategies will help Blackstone as fee related earnings continue to expand and and attractive growth rate.
It's a good question Craig what I would say is that.
Our customers have enormous confidence and hearts and Thats where to start because we've done such a good job over a long period of time. It gives us the flexibility to create new businesses and our brand also allows us to attract talent when we needed to grow some of these new businesses and so.
There's a range of them out there so I just think you.
You talked about core plus real estate.
We introduced the latest product at the end of last year for a life Science office product that is now already at $12 billion, given what's happening and life Sciences, we think there's a ton of potential there.
Over the last few years and we created a dedicated life science business as you know and has a lot of momentum we raised for large funds there and we think theres a lot of potential to innovate and off that.
Similarly growth equity, which we announced had its final close and is off to a terrific start.
Great deployment of capital our infrastructure business as just a few years old and I think has the potential to grow to real scale. We've done a terrific job deploying capital the results are strong.
And then as you mentioned by the way and Secondaries were doing a continuation fund, which is and new product just going in the market now and then we have some of these perpetual vehicles in the individual investor channel that have a lot of momentum be REIT is contributing by the way many of those things I described.
And are out there today, but at a scale, where they're not contributing a ton of economics, but as they grow they will add a lot to the bottom line and of the firm. They also add a lot to the intellectual capital B credit, which you mentioned is still and a fee holiday. It's raised about $3 billion. At this point. It is a product that is <unk>.
Now I think about four months old or so and.
Investors again are responding to Blackstone quality products and a world where people are looking for yield. So I would say all of these things have the potential to grow to be larger we have terrific teams. We have a lot of interest from investors, we're delivering strong results and they'll start to hit.
The bottom line I don't know if we have exact financial impact, but I think there is big potential from a number of these new innovations and.
On the financial impact, Greg what I would add is obviously more established but still quite young initiatives like core plus are contributing in a big way as we've talked about the AUM and core classes up over 50% year over year on and on a relatively big base, but then on the quite new initiatives John mentioned.
John mentioned life Sciences, I would say those and.
And this is I think what youre getting at have gone from sort of a year ago us being in investment mode from a financial point of view to know those businesses being and positive contribution mode, but theres still early and their ramp in terms of that contribution on past so.
A lot going on and I think.
And a very we're very optimistic and the short and longer term.
Thank you and just on.
Our next question comes from the line of Michael Cyprus Morgan Stanley. Please proceed.
Hey, good morning, Thanks for taking the question.
My question is just around democratizing access to the private market and I guess, what opportunity do you see from technology advances and new private market platforms that are emerging to broaden access to the private markets to make it easier for retail to access and what opportunity is there would you say to create.
Perhaps a more delightful and seamless experience on the way into the asset class and over the life from a retail customer standpoint, how do you see that evolving.
It's important because I do think for individual investors, who do not have large finance departments like institutions, making it easier to reporting simpler is important.
And we work very closely with our distribution partners to try to make the experience better for the underlying customers and one of our advantages is the scale of offerings the breadth of <unk>.
Products, we offer the number of people, we have dedicated to our private wealth solutions area, Joe and solar turned and her team who've done a great job, we are spending more and more time on technology to try to make that experience better. We're also doing more in terms of communications because when you go from having hundreds of customer.
There's to tens of thousands of customers, how you reached and changes and so I think this is part of the evolution I think and our scale given the number of products. We offer we are uniquely set up to do this it will be done in partnership with the big firms, who distribute who have the financial advisers in relation.
And ships they are critical to our business, but it's an area I think both sides have to get better because the customer experience I don't think it's good enough yet.
And that money.
A couple of things one John alluded to this.
In terms of simplifying our reporting so this is less about technology and more about our own and innovations around things like be REIT versus historically have non traded REIT sort of I think we are more opaque outperformance about.
And the customer experience, so creating a fee structure that was like our institutional fee structure.
<unk> for retail investors easy to understand making performance report and more transparent and then I'd just say one sort of maybe smaller and more granular technology point and where were.
We happen to be a small investor and my capital, but more importantly, we work with them a lot around sort of partnering to make.
On the retail customer and smaller investor experience.
Better and more transparent with higher service levels around their technology platform. So we're pleased to be partnered with them as well.
Great. Thank you.
Thank you on next question comes from the narrowing of quickly Chris Harris Wells Fargo. Please proceed Craig.
Great. Thanks, guys.
So really outstanding investment performance and the quarter.
We're hearing a lot more from investors.
And we're talking about the prospect for potentially much higher inflation.
And what our Blackstone views on this and how does it guide your investment decision, making process if at all.
I think it's the major risks that's out there today.
We and I think a lot of others believe the economic recovery will be quite strong.
And which should fuel positive revenues, we're seeing that and our portfolio and positive earnings, but the question and around inflation pressures and.
And multiples and so our response to that is to try to buy businesses that are in these good neighborhoods that have real tailwind that can grow to offset what could be some multiple pressures and you see that.
And obviously tech and life Sciences and global logistics.
And in this quarter, we talked about big push into Covid recovery travel play, which we did and a number of bids.
And the World, we talked about sustainability and area, where obviously, there's a lot of capital flowing in and opportunity as we electrify the grid and try to clean up the planet how.
Housings and other area, we like flat, we bought a business that does furnishings for single family homes.
On a finishes I should say for single family homes, we've done a lot of rental housing in our real estate business and so what we're trying to do is position ourselves for things that look and feel.
Least bond like as possible.
People worry at times and real estate.
Concerns around that yes, if you own a 20 year flat leased office building that could be concerning but if you own multifamily apartments, where you're resetting the rents every year and there is a ton of job creation and household formation you can capture the benefits of growth and that's how we're trying to prepare ourselves for what we do think will be a higher.
<unk> environment.
Thank you. Our next question comes from the line of Alex Barron.
And I start time from Goldman Sachs. Please proceed.
Hey, good morning, everybody.
I was hoping to build on the topic of growth and perpetual capital products and obviously real estate core plus has been and enormous success for you guys. When you look out across the rest of blackstone's portfolio and the rest of your verticals.
One do you think is sort of ripe.
To see similar degree of growth and somewhat degree of success given customer demands and your distribution abilities.
Well I would say, Alex Theres still a lot of runway and real estate.
First starting spot not just in the United States I think we can do more globally, both institutionally and retail so I still think we're early days and the build out of that.
My next stop would be in credit.
In the U S and in Europe.
Obviously, we talked about the early returns and the private BDC in terms of people allocating more capital.
And a yield hungry environment, if you can deliver consistent yield without taking undue risk I think thats attractive I think that can grow.
As you move into private equity.
There are more opportunities we've grown our core private equity business, which I don't think we deem as perpetual capital, but has 20 year fund life and I think there could be opportunities with secondaries, and some things and private equity potentially for individual investors, but the most important thing to us is to make sure the cut.
<unk> has a good experience. So if we design a product we want to deliver on the promise of that product and that's first and foremost we know we can raise capital for lots of different things what matters is that we deliver and so I do think there's opportunity for more things and a perpetual format there could be royalty opportunities there could be other op.
<unk>, but it has to be built for scale and built to deliver for the customer.
Okay. Thanks, John.
Our next question comes from the line of Glenn Schorr Evercore ISI. Please proceed.
Hello.
A question on the insurance side.
Obviously, a focus for everybody and you've made some hires to sharpen that focus.
Correct me if I'm wrong my perception is that announced deal activity has slowed a little.
Curious, what you're seeing and say the pre pipe pipe conversations and maybe just remind us of how your appetite is focused and thoughts on size and sizing.
And im talking on balance sheet investment. Thanks.
Okay and I.
I'd say a few things first off what's driving the opportunity is this very low rate environment.
Which I think makes it important debt insurance company balance sheets are able to originate more credit directly and so insurance companies getting more tied to asset managers makes sense because they are the ultimate storage share for that fixed income it could be real estate could be corporate credit.
Could be structured credit and that's that's the trend driving this for us.
Pro forma for the Allstate acquisition, which we expect at the end of this year, we'll be at over 100 billion and insurance AUM.
We think we are.
Pretty well positioned in this business because of the breadth and depth of our credit platform across the firm in both corporate credit and real estate credit and increasingly structured credit.
And we're spending a lot of time and space.
<unk> large runs that business for us is a very talented executives and we think theres a lot of opportunity for US. We think we can help serve insurance company customers in terms of use of capital.
We have talked about being a balance sheet light company, we will not own a majority of an insurance company.
And the case of all state as an example, we took a little less and a 10% stake in order to do that transaction and bring in outside investors I think thats a good model for us, where we take a minority stake and and engage and a long term contract and try to maximize the returns without taking undue risk for that insurance.
On the balance sheet, so I think Blackstone because of our scale. How we're positioned I think we can do a lot to help insurance companies and we're going to continue to spend a lot of time and the area. We hope to grow it but it is it is chunky. So it's hard to forecast exactly when and where it will happen, but we will be disciplined around use of capital in this.
Context.
Thank you. Our next question comes from memory.
Robert Lee at <unk> for you sounds like your lines.
Great. Thanks, good morning, good for everyone's doing well.
Maybe a follow up and a way to felicia's question.
Installation usually comes higher rates and.
And to what extent, you're seeing such strong demand you and all your peers.
Certainly low rates and vas.
And maybe Matt.
Is there and then.
Point or at what point do you think that GE and began inflation and rates do continue to move higher that that has some knock on effects.
Impacting and maybe even at the margin kind of and the <unk>.
Very strong demand we've seen for on types of the alternatives.
Well, what I would say is.
The trend today, obviously strongly towards alternatives and we've been watching it for a while it seems to be accelerating combination of rates, but also performance I mean, if you look over long periods of time and private equity and real estate private equity we've delivered 15% net for three.
Plus decades and investors see that.
The other thing I'd say is.
And I don't think a movement of a 100 basis points for something in fixed income rates, we'll reverse for us. If you think about our clients oftentimes big institutions still have targets and 7% or so for the absolute level of interest rates and what they can get from fixed income doesn't meet their targeted returns.
And they need higher returns, we believe we can generate from private asset and the trade to Sn.
Essentially trade away and liquidity for higher returns make sense. If you look and the credit markets for instance, I always find it fascinating net high yield bonds today have the same maybe a little bit tighter spread and leverage loans, even though leverage loans are senior and the capital structure that reflects again the liquidity.
Premium and people demand for leveraged loans relative to bonds and that really runs throughout the system and also I would say our ability to intervene and businesses when we own the real estate or infrastructure or companies and that consistent return, we've been able to generate and so I think increasingly what you see from investors is this.
As a and accepted asset class they are almost all moving towards more and yes. If rates go up it could impact markets could impact us, but I still believe there's sort of long term and extra both trend that Steve described I think that's likely to continue.
And.
Thank you very much.
Thank you on next question comes from the line of Ken Worthington with JP, Morgan and Keith Pricey.
Hi, good morning.
So there were a number of hedge fund events and the quarter you guys called out Gamestop, I think and the main stock early in the quarter and then there was the impact on hedge fund from the <unk> family Office later in the quarter.
It looks like Bam not only was unscathed performance was good gross redemption slowed materially how has the perception of hedge funds changing following the good 2020 for the industry and what are your thoughts on the potential for more consistent inflows looking forward for Bam.
So.
Reiterating what you pointed out Bam has had a really solid last 12 months in the fourth quarter. Despite the turmoil and the hedge fund industry our bps.
Index was two 5% up for US we were up 18% over the last year and so delivering for the clients key if you look at total AUM and the business is up 11% year on year and I think the Bam team has done a really good job navigating a difficult environment and delivering.
We've also made some important hires as you know we brought and Joe Dowling, who was the CIO longtime CIO and Brown and did a terrific job there to be the co head of Bam, We recently announced the hiring of Scott Palmer Who's a very successful hedge fund manager to help launch our new products.
And we're adding more investing talent into Bam and I think in a low rate environment and.
Thank you.
Most of US believes the long end of the curve moves up but it feels like central banks are going to stay accommodated people are looking for places to deploy capital in some cases more liquid like and hedge funds.
But where they also have some downside protection and they are not correlated necessarily with stock market share interest rate. So I think that puts Bam is an excellent steward of capital as having a lot of opportunity I would also add in adding this investment talent, but we're looking to do and bandwidth to continue our core mission of delivering.
Steady returns downside protected but also add some things where there is some upside where theres some thematic investing some exposure to tax and growth.
China potentially those areas for different customers and offer a broader range of products. So the band business, which has not grown hotel on over the last five years. If you asked us that's a business that we think could grow a lot.
It could be a bit of a sleeping giant and I think as we build out the team there we will get to show some positive things over time and Ken just to add on this and we've talked about before I think overall as John said very good financial performance I think the net flows and the first quarter showed a quite stable picture, but sort of beneath the surface as we've talked about.
There is this growth and higher fee direct investment strategies, that's going on relative to the traditional fund of funds business that portion is.
Almost a third of the AUM or overall now and I think a good reflection of that is first of all revenues being up 27%. If you look LTM over prior period and the average management fee rate. If you look at it three years ago was about 70 basis points. If you do the simple math of management fee revenues divided by the fee, earning AUM and today, that's about 80 basis points, which.
Along with the AUM growth, you've actually had price and increases in together and that kind of revenue growth. So.
I think structurally the business is expanding and pivoting and a very attractive way even as.
We're also very focused on the traditional bps business and being all we can be in that area.
Great. Thank you.
Thank you on next question comes from the line of Mike carrier.
And Eric Please proceed.
Great. Good morning, and thanks for taking the question just given the improving economic backdrop, why don't you try to gauge where things stand across the platform from pre COVID-19 levels. So any color you can provide with key portfolio companies, whether it's in terms of revenue or EBITDA growth for absolute level as well as on the <unk>.
Estate portfolio in terms of occupancy and rental rates and thanks a lot.
So I think it's pretty dispersed on.
Obviously, the tech related businesses, we have have seen enormous increases and.
And our tech related tech enabled portfolio looks like a lot of the world our businesses associated with content creation, obviously extremely positive demand for life Sciences, and life Science real estate really strong.
So that area would be quite good the overall portfolio in the first quarter and private equity was up double digits. The strongest in revenue than it's ever been and that reflects broader base things starting to spread out.
Into the broader portfolio now what we're beginning to see is growth in the physical world.
<unk>.
Record slots activity at the Cosmopolitan and.
Our infrastructure business, our ports company.
Some more volume than it's ever and a month well up from 2019 levels and so some of this and the physical world Youll begin to see and coming quarters and.
And in real estate, specifically I would tell you that in the logistics and rental housing spaces.
And which represent the bulk of our portfolio.
And I don't think we've ever seen fundamentals on the ground better and thats not yet sort of in the numbers, but it's starting to pick up and a big way logistics had been stronger but rental housing now with job creation household formations really picking up on the flip side of course office markets remain weak retail remains challenged.
Hotels are just starting to pick up so it's still disbursed, but we're seeing a shift share from really strong just and those.
Sectors that did well and COVID-19 now to sectors that had been on their back and theyre starting to pick up momentum and so it feels pretty broad base more U S. Now Europe lagging and if they've had a slower time getting the vaccines out Asia better they've done a better job, but I think as you see the vaccine spread.
Economic dam is really starting to burst and it's going to be widespread in terms of and increase in activity and revenues across most businesses.
Great. Thanks, a lot.
Thank you on next question comes from the line of Kathy Miner at JMP Securities.
Yes.
Great Good morning.
Question, just on the spec market impact on deployment or realization activity and clearly we will see where we go from here with whats maybe increased SEC's scrutiny, but yes, there are more spec ipos and the first quarter than all of 2020, so theres going to be a lot of capital looking to buy assets and so I'm, just curious kind of how youre thinking about.
Competing with specs it to some degree and whether that's pushing you earlier.
Into the into the cycle of investing and companies and also just kind of thinking about snacks as an outlet for realization opportunities. Thank you.
So on specs, we have not.
<unk> sponsored and any spec share it but we have done a number of transactions with them merging taking back stock and cash and for our private equity portfolio. It's led to a number of the realizations you've read about in Q1 in terms of the competitive dynamic I think and.
Some cases, yes, specs are providing some competition to us, but oftentimes as you know we tend to focus on larger transactions, which are tougher for specs.
Many sellers want to sell businesses, and who are selling outright and they wanted to get 100% cash many growth companies don't necessarily want to go public and show it works for certain universe. So.
And with that more select universe, there can be a little more competition.
But overall, we haven't seen it impede our ability to deploy capital, we put out $18 billion and a quarter.
By the way, it's mostly a U S phenomenon to date.
But we put out $18 billion and the quarter, which was our third best quarter of deployment and our history. So we're still finding areas to invest and spacs are out there it feels like they'll probably be fewer ipos and specs in the coming months, but I don't think theyre going away I think youll see some changes maybe in terms of their disclosure.
Some changes in terms of alignment, but I think we will see specs and the markets for some time to come.
Okay. Thank you.
Our next question comes from the line of Bill Katz debt Ttp's price CFO.
Okay. Thank you very much for taking my question. This morning, most of the Big picture questions have been asked already so maybe just a line item question, Michael for yourself and I Wonder if you could comment on maybe the outlook for FRE CAGR, just given the tremendous tailwind to AUM and the mix shift and then the FRE margin in Q1, and how sustainable is that and how should.
We think about that and looking ahead as well thank you.
Sure Bill Thanks.
Look on the FRE outlook.
<unk> positive.
Stepping back I think qualitatively there.
For so key fundamental drivers that most of you are aware of to our FRE momentum first is expansion of our existing strategies on vehicles, we continue to benefit from that and the first quarter on second as we talked about earlier exceptional innovation of new businesses.
Scaling and beginning to contribute to profitability and nicely PX GBS sell less being good examples of that third perpetual capital robust expansion transformational effect on our earnings power given the perpetual and compounding nature of those assets and then for its to your point a strong margin for.
And which I will talk a bit more debt in the second.
We put out a target once at Investor day.
2018 for as you know as you all know well $2 for the full year 2021, we achieved that a year earlier than expected and.
And one quarter into this year, we're at $2 20, LTM, so 10% above that $2 level. So from here. We just say that we're very confident and our continued effort and momentum given the dynamics I described and.
And on margin Bill just to help you a bit.
First quarter looking at any one quarters.
There's always a bunch of different factors first quarter had a number of positive factors strong operating leverage revenue is growing well in excess of expenses.
Had comparisons against us fee holidays, and the prior year and private equity on the new business is ramping I mentioned, and then the sort of Covid teeny effect or benefit, which we're all rooting for expecting to reverse later in the year and in terms of the outlook.
We don't want to focus on any one quarter, but more over a full year period. If you look in that vein at the LTM margin, it's approximately 54% and Phil and I'd say, that's a reasonable reflection of and approximate run rate for the full year at this point so hopefully that's helpful.
Thank you.
Thanks Keith.
Question comes from the line of Gerry O'hara Jefferies. Please proceed.
Great. Thanks, maybe maybe actually just dovetailing off of that prior question.
Michael I think if I heard correctly, you mentioned that the fee related performance revenues would the next significant I suppose event would be for Q.
Can you, perhaps just remind us what some other funds that we should be sort of mindful of where you can draw those performance fee revenues.
And and anything else that might help us kind of.
Think about those in and.
Other quarters, I, suppose and not just for <unk>. Thank you.
Sure Jeremy look I think first of all stepping back.
In terms of these.
These fee related firms revenues.
We do view these as a very high quality revenue stream, it's derived from perpetual capital paid on a recurring basis on a scheduled and contractual timetable without having to sell assets. So it's very much aligned fundamentally to our view on FRE.
The sort of main component is today core plus as you know that's both BP and be reached.
I think sort of modeling <unk> straightforward.
If it happens at the end of the year and the fourth quarter, you can actually track throughout the year and our and our.
Our net.
Net accrued disclosure and the 8-K sort of that balance as it grows and the courts for the year.
And then there's the BP portion of core plus which are institutional vehicles and those typically crystallize on the third year anniversary of investors subscriptions.
And that that performance receivables also separately disclosed and the release, so and you saw on <unk>.
Happening this quarter and while there'll be modest amounts and the second and third quarters.
For fourth quarter in terms of core plus really as I said when youll see the next significant contribution there also in terms of other areas for the firm.
And the credit area, our BDC area and there it's a quarterly.
Fee related performance revenue based on incentive fees.
And that is contributing and each quarter.
It is in ramp mode. So there was a more modest amounts, but we expect those over time to grow as well. So those are the two key factors infrastructure is also.
A strategy that.
And that will resemble <unk> in terms of its.
FRP art structure, so a number of different products core plus being the sort of.
Biggest could signal contributor right now in terms of strategies and platforms.
But this is something that if you step back on a full year basis will continue to scale over time.
Thank you and next question comes from the line of Patrick Davitt.
And Mr. <unk>. Please proceed.
So there's a non cash effect.
The largest alternative managers to a more balance sheet intensive kind of skin and the game book value compounding view of the business. It sounds like from your earlier and starting to answer that there really hasn't been any change or evolution and your thinking on that model, but are you concerned that having so many of the largest players tacking in that direction could force the issue and maybe.
Drive clients or even insurance partners to demand increased capital allocations from their managers.
No.
We've been at this for a long time.
You know.
And and over 35 years for model has worked well.
We put capital in but it is modest as a percentage of the overall size of the funds for the capital we manage and.
And people rely on our.
Investment process. The talent, we have to deliver and that model continues to work and there are these.
And these other firms are terrific firms, we have enormous respect for them, but they've chosen something different strategically.
And we prefer where we sit today with a market cap right around $100 billion.
And virtually no net debt.
We like that model doesn't mean, we won't use capital we have to do some strategic acquisitions or.
Minority investments and the context of insurance, but we think as long as we deliver for the customers, which is what we've done historically and did and a big way and Q4 and now again in Q1 that more capital flows will come to us and it won't require us to invest significant capital and so we're going to stick with that model, we feel really good about it at all.
Also allows us to pay out obviously significant dollars to our shareholders.
Thank you and on the <unk>.
Question comes from the line of ads and BT at UBS. Please proceed.
Alright, Thank you and good morning, I wanted to follow up on the real estate growth runway, specifically, the global opportunity and logistics real estate, obviously, it's been fruitful here domestically and I saw something recently about Blackstone and potentially getting involved and warehouse development in India, where you're already strong and office. So wanted to get a sense from you.
And of how repeatable that might be across the globe and where youre seeing opportunities. Thank you.
It's super repeatable, and it's being done and scale.
I don't have the exact numbers, but I think about half of our warehouse portfolio, which is over $100 billion growth.
Excluding the debt on it is outside the United States.
Probably close to that number.
<unk> is a huge chunk of assets, we're growing in Asia.
And the fundamentals. It's the same story everywhere, which is as retail moves increasingly online and there's more demand for warehouses, particularly last mile warehouses and so we've been the biggest buyer and Europe.
We're active in China.
Sold a platform in Australia that was in our closed and breath Asia Fund.
But we like the fundamentals everywhere and as the economy Reopens I think we will see more traditional demand automotive and housing other businesses and that will help the challenge. Your concern is will we see a lot of new supply and so we continue to focus on this last mile. So it's a space we like.
And if you think about our real estate portfolio and why we have confidence looking forward.
Is because we're 40% allocated to the best sector and real estate globally, and so I think you'll see those same fundamentals there are little bit behind the U S. Other than China, because online is behind but they're playing catch up and so being on the ground and all of those markets is really important.
Excellent. Thank you Jeremy.
Thank you and our final question comes from the line of credit cash whiskey and.
Highway and company. Please proceed.
Yes, good morning, and thank you I just wanted to follow up on the.
Real estate performance fees.
Discussion that you had a couple of minutes ago and in the press release, you highlighted the logic core crystallization that happen every three years.
Just wondering I mean as core plus and is built is is there a portfolio of those things of those kinds of assets that.
That will see crystallize on the third.
<unk> anniversary of the funds and how do we assess the size of that and is that going to start.
And kind of.
More and more on a sporadic basis, all sprinkled through the year.
As you go forward.
Well I would say the short answer is yes, we have a.
And you have large open ended institutional vehicles, VP U S Europe, and Asia and now <unk> life Sciences, we did some individual large transactions as funds themselves logic core European logistics platform is one of them.
We own Stuyvesant town here in New York, as well and so.
And then the investors and the funds come in at different times as Michael said, so hopefully over time there'll be more of a spreading a lot of these deals got done at year end. So we tend to have more and the fourth quarter be read as set up and the fourth quarter, but you're right. We've been planning a lot of these perennials and they should be blooming more and more.
And greater amount and at different times of the year and this is why you hear a lot of enthusiasm something very special is happening.
<unk> stone.
Extremely specials happening and our core plus business and net is growing and yes over time. This not only the base management fees from core plus but these performance related fees should come in on a regular basis.
And just as a follow up do we see that on do we see these.
Accrued performance fees on the disclosure and page 18, or the performance fee is separate from carried interest.
You do see them you see it broken out for both BP and for <unk> separately.
Okay Alright.
Okay. Thank you that's it for me.
Thanks, Chris and.
And now I'd like to hand back to Weston Tucker for final comment.
Great. Thanks, Oliver on for your for joining US this morning, and look forward to following up after the call.
Thank you and that concludes your conference call for each day you may now disconnect. Thank you for joining and have a mek.
And <unk>.
And.
Yeah.
Yeah.