Q3 2021 Blackstone Inc Earnings Call
Good day, everyone and welcome to the Blackstone third quarter 2021 and that's the goal.
Mr Yu I'm using my nature.
During the presentation your lines will remain on listen only if you need the assistance told just Keystone.
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If you would like to ask a question. Please key star one piece will be addressed towards the end of the presentation.
I'd like to advise all parties. The conference is being recorded now I'd like to hand over to you host Weston Tucker head of shareholder.
Please go ahead.
Perfect. Thanks, Steve and good morning, and welcome to Blackstone's third quarter Conference call. Joining today are Steve Schwarzman, Chairman and CEO, Jon Gray, President and Chief operating Officer, and Michael J, <unk> Chief Financial Officer.
Relying on our website, we expect to file our 10-Q report in a few weeks.
To remind you that today's call may include forward looking statements, which are uncertain out 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 factors section of our 10-K.
We will also refer to non-GAAP measures on this call 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 an interest in any Blackstone fund.
This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.
A quick recap of our results.
Billable I reported GAAP net income for the quarter of $3 2 billion distributable earnings were $1 6 billion or $1 28 per common share and we declared a dividend of $1 nine to be paid to holders of record as of November 1st.
With that I'll turn the call over to Steve.
Thanks, Weston and good morning.
Thank you for joining our call.
Today.
<unk> reported the best results in our 36 year history.
Distributable earnings more than doubled year over year to $1 6 billion.
While fee related earnings increase.
And sadly 30%.
With both metrics, reaching records for the quarter and the 12 month period.
Investment performance was extraordinary.
That represented one of the best quarters for fund depreciation in our history.
And assets under management Rose.
<unk>, new 5% year over year to an industry record.
$731 billion.
On our last earnings call I shared my view that it was the most consequential quarter in our history.
It represented a defining moment.
Moment in terms of our expansion into the vast retail and insurance markets.
A step change in the firm's earnings power and.
And capacity to generate FRE.
Today's results are proof of concept.
And I believe.
'twenty only at the beginning of a long term acceleration of growth.
Our unique market position today.
The outcome of the substantial investments, we've made over decades to expand our capabilities and build out leading distributions.
<unk> platforms across customer channels.
We're now experiencing record demand for products in the alternatives area.
And while our profitability continues to expand.
We are reinvesting significantly to support current and future.
We are.
In terms of major personnel increases.
As well as our operational infrastructure.
We are creating the foundation for a dramatically more profitable firm.
Further widening the competitive moat.
<unk> grown our business.
As the reference institution in the alternative sector.
We are now reinventing the asset class.
Both in terms of who can invest.
And what they can invest in.
We continue to expand our traditional.
Around business lines meaningfully and are adding an entirely an entire platform our fast growing perpetual capital strategies.
We now offer 16, perpetual vehicles, which generated nearly half of total inflows over the last 12.
12 months.
At the same time, our active pace of deployment.
This is leading to an acceleration of the fundraising cycle for some of our largest flagship funds.
The overall outlook for fundraising is incredibly strong.
We have.
Additional rivals breadth and depth of product offerings with.
With over 50 discrete investment strategies.
Our flagship strategies have consistently outperformed the relevant benchmarks across market cycles.
Clearly the most recent one.
In an environment that continues to be deeply impacted by the pandemic.
Over the last 12 months.
Our corporate private equity funds have been.
Appreciated.
49%.
While our opportunistic real estate funds appreciated.
36%.
This remarkable performance.
As a result of the way, we've positioned investor capital towards areas of the economy.
With superior secular growth.
Coupled with our world class portfolio management capabilities.
Real estate for example.
At least 70% of our portfolio is concentrated in the fast growing logistics.
Rental housing and life Sciences office sectors compared to less than 10% of.
A decade ago.
We believe our portfolio overall is well positioned for future cycles, including a likely scenario of rising interest rates.
In our credit business.
Vast majority of our investments are in floating rate debt.
Benefit in this scenario.
I mean, both real estate and private equity, we focused on high quality companies.
Assets in the best secular neighborhoods.
We believe the fundamental superior R&D of these investments leading to faster cash flow growth should help offset pressure.
<unk> on market multiples that might occur in response to rising rates.
Moreover.
Our experience when exiting investments throughout our history.
It has been at a significant premium to our carrying values given the strategic value we can.
Yeah.
Across all of our businesses, we remain laser focused on generating outstanding returns for our investors in any market environment.
Every one of Blackstone.
Is dedicated to this mission.
The work at our firm.
Creates believe in our mission and embrace our distinctive culture.
Our garage by meritocracy.
Entrepreneurial wisdom.
Excellent.
Who operation.
Protection of capital.
And the highest standards of integrity.
You might as we grow we strive to protect this culture.
To that end.
I've been spending substantial personal time with each of our groups and our new hires to ensure that everyone at the firm internalize our core values.
And I couldnt be more impressed.
But the exceptional quality of the people coming to work at our firm.
This year.
We had 29000.
Unique applicants.
Resulting in a 103 first your analyst hires.
A stunning.
Four 1%.
We are assembling the next generation of outstanding talent.
That will continue to drive the firm's outperformance.
For the decades to come.
In closing.
I've never been more excited about the firm's prospects.
And I. Thank you for joining you in joining us on this remarkable adventure.
And with that.
And a throw the ball over.
John.
I will catch it. Thank you Steve Good morning, everyone. This was as Steve noted in an extra.
Ordinary quarter for Blackstone, and our investors and we are extremely confident in the outlook from here.
I say that because all of the pillars for our success are in place.
We continue to deliver for clients and they are entrusting us with more capital increasingly.
Sure patch work as Steve noted this allows us to broaden who we serve and where we can invest we've compared this to a shift moving from a narrow channel into open waters and we believe this process has just begun.
Most importantly, the last 12 months were the best for fund depreciation.
<unk> on record.
We continue to benefit from our large scale to maddock approach to deploying capital our customers are responding favorably to this performance total inflows were $47 billion in the third quarter and 148 billion over the last 12 months.
Nearly half of which was perpetual as Steve highlighted.
Perpetual AUM rose over 70% year over year to nearly $200 billion and is up three fold since our 2018 Investor day.
Our real estate core plus business remains the largest driver.
<unk> of perpetual capital as well as fee related earnings at the firm and.
In less than eight years.
It has grown to nearly $100 billion across six vehicles, roughly the size of our opportunistic real estate business we.
We raised $10 billion for this platform.
For them in the third quarter alone with strong demand from both institutional and retail investors, including $75 billion for be reached.
We launched <unk>, our new vehicle focused on European real estate earlier this month with inflows to start in Q4 in.
In addition.
Our credit segments non traded BDC decried raised $3 5 billion of equity capital in the third quarter, we expect demand to grow over time for these and other products we plan to introduce.
Turning to infrastructure, our $14 billion perpetual vehicle is.
Now over 80% committed and we've reopened fundraising.
The vast opportunity set and the strength of our team we expect this business to grow significantly over time.
In the secondaries area Sps latest flagship vehicle is on track to reach approximately 20 billion.
Yeah.
Nearly double the size of the prior 2019 funds.
We completed an initial close of $8 billion, a few weeks ago, and we expect to begin the investment period this quarter.
In credit we saw 65 billion of inflows in the last 12.
Months with continued robust demand for direct lending and floating rate liquid strategies are actively managed loan ETF S. R. L and is now the largest of its kind in the world and nearly $8 billion.
Moving to Asia, where our business will see meaningful growth. This.
This year with our third real estate and second private equity vintages in the region raising capital in.
In real estate Asia, we closed on $4 billion in.
And expect to raise approximately $9 billion.
30% larger than the prior fund and.
And in private equity Asia, we've raised six.
Scholars and will soon hit the $6 4 billion dollar cap nearly three times the previous funds.
Lastly in Bam, we expect to finish the fund raising our second GP Stakes vehicle another perpetual strategy in the fourth quarter, reaching approximately $5 5 billion.
<unk> size, we've been actively investing in this area, including acquiring stakes in two high quality alternative managers recently with a third in process totaling more than $1 billion and $5 <unk>.
Looking forward several of our drawdown funds are deploying capital faster than our original expect.
Patients and are now over 50% committed including global private equity global and European real estate growth equity private equity energy European credit and energy credits and our secondaries real estate funds.
The timing of successor funds will be up.
I expect enough investment pace today.
With our growing menu of perpetual strategies the outlook is positive.
Turning to deployment the firm's expansion has opened up many new areas, where we didn't have pools of capital previously.
The third quarter was our busiest ever with 30.
$7 billion invested in an additional 30 billion committed to pending deals the largest were in rental housing transportation infrastructure logistics and sustainability linked businesses.
Finally on the realization front, we remain very active which Michael will discuss.
One transaction to highlight a few weeks ago, we announced the sale by our breath funds of the Cosmopolitan hotel in Las Vegas at a gain of nearly 10 times original cost the largest profit on a single asset.
Investment in the history of our real estate business.
This investment is a classic example.
Buy it fix it sell it model at work and which we transformed the asset and improved operations.
Our long term capital combined with our focus on value creation led to a tremendous outcome for our investors.
In closing it is impossible to not feel energized about the firm.
<unk> prospects.
<unk> is a branded fast growing capital light asset manager with an enormous addressable market in the future is bright.
With that I will turn things over to Michael.
Thanks, John and good morning, everyone.
I'll first.
Review the firm's record results and then we will discuss investment performance in the balance sheet.
Starting with results distributable earnings in the quarter more than doubled year over year as Steve highlighted and for the LTM period, nearly doubled to $5 4 billion or.
Our $4 19 per share.
This step up in the.
Earnings power is being driven by two important underlying dynamics in our business first the continued acceleration of fee related earnings and second the significant expansion of the firm performance revenue potential.
First with respect to FRE, which increased 28% year over year to 779.
$9 million in the third quarter for.
For the last 12 months FRE rose, 37% to $3 billion.
Or $2 47 per share driven by the combination of 30% growth in fee revenues and significant margin expansion.
Sorry margin for this period expanded to 54, 8%.
The highest level ever and we expect full year 2021 margin to be approximately in this 55% area.
As a reminder, our FRE is 100% driven by fee revenues from third party contracts and includes all cash operating expenses and corporate overhead.
At nearly.
And 50 cents per share FRE has more than doubled since 2018 and the outlook is very strong.
The scaling of perpetual strategies in particular is transforming the firm's earnings profile with their compounding effect.
These strategies, primarily involve management fees that benefit from both accelerating inflows.
$2 appreciation in NAV.
Along with fee related performance revenues that crystallize on a recurring schedule without asset sales.
Combination of drivers that you've heard about today gives us confidence in the trajectory of FRE.
With respect to performance revenues net realizations increased nearly fivefold in the third.
Order to almost $1 billion.
And increased sharply to $3 billion for the last 12 months.
On realizations in the quarter reached a record $22 billion.
Reflective of the scale of our global platform and included the recapitalization of India based digital services provider emphasis the sale of software company.
Third klunder.
Certain logistics multifamily and office assets in the U S and Europe.
We also monetize stakes in various public holdings and refinanced a number of portfolio companies.
The firm significant multi year expansion in the breadth and scale of strategies, coupled with the excellent investment performance of that scale deployment.
<unk> across our businesses has driven a step function change in the firm store of value invested.
Performance revenue eligible AUM reached 393 billion in the quarter up nearly 50% year over year and nearly double its level of three years ago.
At the same time the net.
Accrued performance revenue receivable on the balance sheet has grown to $8 3 billion.
<unk> level in our history.
23% sequentially and importantly, more than double its pre COVID-19 level of Q4 2019.
This is a dramatic upward reset in this forward indicator of performance.
Performance revenues overtime.
Turning to investment performance, which as you've heard today was simply outstanding across the firm.
Opportunistic funds appreciated 16, 2% in the quarter, while the core plus funds appreciated seven 6%.
Together, leading to the best fund appreciation in the history of our real estate business.
For the last 12 months, the breath funds appreciated, 36% and core plus appreciated 23%.
Returns continue to be driven by gains in logistics U S suburban multifamily in life Sciences office.
In private equity the corporate PE funds had another excellent quarter appreciating nine 9% and 40.
9% over the last 12 months depreciation.
Depreciation in the quarter was strong across both the private and public portfolio, particularly in our technology related holdings.
All our companies are seeing robust double digit revenue and EBITDA growth.
Our secondaries business reported a standout quarter with 17% appreciate.
Appreciation and 53% over the last 12 months.
On the tactical opportunities funds appreciated two 3% in the quarter and 35% over the LTM period.
In credit private credit strategies reported a gross return of four 5% in the quarter and 25% LTM with the quarters performance.
It's driven by improving fundamentals tightening spreads and strength in energy positions.
Finally in Bam the bps composite return was one 3% growth in the quarter and 13% for the last 12 months outperforming the <unk> Global index by over 400 basis points for the LTM period.
When.
As volatility spiked in September and the S&P declined 5% in the months Bam produce a positive return in bps protecting capital in a down market.
Overall strong returns across the firm equated to <unk> $28 billion of total fund depreciation in the quarter and a record $110 billion over the last.
Last 12 months, reflecting exceptional value creation for our investors.
Final note on the firm's financial position in early August we Opportunistically issued $2 billion of 710, and 30 year notes at a weighted average pretax cost of two 2%.
Our average debt maturity now stands at.
14 years with a two 7% overall pre tax cost on fixed rate long dated debt.
We maintain our a plus credit rating one of the two best ratings in the asset management industry.
So to recap.
<unk> reported record or near record results across all of our key metrics this quarter and our forward.
Word momentum has never been stronger.
We believe that these records reflect reality.
<unk> of the continuing transformation of our business and its earnings power.
With that we thank you for joining the call and we'd like to open it up now for questions.
Thank you everybody.
If you would like to ask a question. Please key star then one on your telephone.
Question has been answered or you wish to install at Keystone to yeah.
Yes that you limit your questions to one only if you would like to ask a follow up please redial back in television.
The question Keith.
Okay.
Yeah.
And your first question is from the line of.
Glenn show.
As a cool. Please go ahead.
Hi, Thank you very much.
So if I could I wanted to ask a question.
In the high net worth space, So pretty amazing to see I think 11, and a half ish billion of course be reading be Craig.
So you mentioned B pass.
A question I have is is that market.
How can we think about it relative to what we've seen in the U S.
S U S size wise and expectations, and then taking a bigger step back.
Retail, obviously has lower allocations of the capacity to handle more is a lot. So curious how you're thinking about what other types of products and as the flood of competition comes in how big of a.
Deal as the 10 year head start that you have.
Alright, good questions I'll start with the <unk> question Glenn.
I would say in Europe. The market overall market is not as large of course is the U S and it's very early days for for this type.
Europe product.
And we're going to do it deliberately we'll start with one distributor as we did going back on the REIT and then over time add others.
But I think it could be meaningful I think it's early days, there's a lot of savings in Europe.
Low yields.
Alternatives or.
Something that are a little different the way real estate products historically have been distributed there have been different and we're a bit of a trailblazer a bit like we were with theory, when we revolutionize the non traded REIT market here, it's a little bit of Virgin territory.
Starting out.
I'd say our expectations are.
It's likely not to get to the scale of <unk>, but we think it could be meaningful and we will take a number of years.
What I would say in terms of other products is we think there is a potential to do more products I don't think youre going to be surprised about that.
That given the scale of our platform here at Blackstone.
Can't get there are other things, we can do in multiple geographies and multiple asset classes.
I think the key consideration for US is that we deliver returns that we're focused on our brand long term and delivering for individual investors just as we do for institution. So.
We will do it in a deliberate and thoughtful way when we have the right program the right setup, but the short answer is yes. There is more to do as it relates to the head start we.
It's very helpful. I think it is helpful to get to scale.
Earlier it is helpful to have several hundred people in our private wealth.
Wealth area, who built relationships over a decade. It is helpful to have the plumbing the legal compliance disclosure all of that matters and it really helps to have the platform to deploy the capital and so others will come into the space like everything Theres competition.
We do have a big head start and we have a brand.
That is very powerful and if theres one thing to emphasize about Blackstone.
Isn't why we've been so successful being a capital light firm, it's the power of the brand and you see that nowhere more than in the retail channel and that is a real durable advantage, we believe and we're going to continue to build on.
Thank you.
Thank you. Your next question is from the line of Alexander <unk> from Goldman Sachs. Please go ahead.
Good morning, Alex.
Alex I'm not sure if youre on mute there.
Sure why don't we go ahead move to the next caller and Alex can dial back into the queue.
I think Keith So Youll next question is from the line of Robert Lee <unk>. Please go ahead.
Great. Thanks, Good morning, Thanks for taking my questions. The first one maybe John you kind of hit.
<unk> kind of the.
Your fundraising so strong you have this kind of scale of capital coming in mix you talk about you know.
On the deployment side, how you how you are kind of able to to deploy that kind of keep returns going you know without affecting the market just from a pricing perspective.
Just given the shifts.
On a wall of capital and then maybe a follow up question for Steve I mean, you kind of hit your 100 billion core target ahead of schedule. So what's next.
So I'll start on the deployment side.
I think.
Well we've been doing.
<unk> consistently as a firm over a long period of time is answering this question, which is how do you deploy as you grow larger and larger it's existed as long as I've been at the firm.
And even longer for Steve and one of the advantages. We have is scale our year to date, we've been involved in 13 public to privates, which.
<unk> transactions that are often harder.
For other firm because of their size and complexity. The second thing I'd say is we've really broadened our platform and where we're deploying capital so.
If you looked in the quarter to 10 largest transactions we did in terms of investments.
Which are minutes all of them were done in vehicles that did not exist five years ago.
If you think about it they were they were in be read they were an infrastructure. They were in <unk>. They were in core private equity so deploying capital for us at scale has gotten.
And clear because we have more or as an add water and that has really helped us as the capital comes in and we do it geographically across the globe, we do it across risk and return as well and then the last thing I'd say and we talk a lot about this is this thematic approach focusing.
Easy on good neighborhoods.
What we've tried to do as a firm is identify where there are real secular tailwind in the migration of everything online sustainability life Sciences global travel coming out of Covid. The rise of places of the Middle class in India alternatives.
<unk> look at these different asset classes and tried to deploy capital directly on team and then sometimes one derivative off we bought a company this quarter called Chamberlain, which is the parent of lift master garage door openers. It's a great example of thematic investing one is it's a play on the big housing.
<unk> build that we think is coming and secondarily. It's a play on e-commerce, because the best way to deliver goods to your home when you're not there sure your garage door and there's all sorts of connected technology in that area. So I'd say unique advantages at scale unique advantages given the breadth of products and then this.
<unk> level high conviction investing that we're expressing across the firm and we're leaning in and flooding the zone in those areas and that combination has allowed us to deploy a lot of capital with that I will let see Steve set a new very high target [laughter] well I I think you were asked Robert.
I.
Highland exactly sort of how do I feel about.
Where where what we accomplished in the core plus area and whenever we go into a new area or introduce a new product.
Actually it's fun for me too Rob.
Have a vision Oh.
It doesn't how big we can be consistent with great performance.
For our investors. So we certainly got this one right.
And we've got Ah.
A lot of momentum of course behind that.
And every one of our areas.
Hum.
Sort of set a similar expectation.
Internally I don't know that we've disappointed internally on our goals.
But but.
Part of the way of managing a great firm is having amazing people.
Prospects and disciplined when we go into something.
And set targets.
For success, both investment wise.
Scale wise and we're all used to that kind of system here.
Thank you so much for taking my questions.
Yep.
And Green Keys <unk> next question comes from Jerry O'hara.
From Jefferies. Please go ahead.
Great. Thanks, Thanks for taking my question. This morning, perhaps one for for Michael but.
Clearly a lot of performance fees in the pipeline, hoping you might be able to.
Give us a little sense of what's to come into <unk>, and <unk> and I guess I don't know if theres anything you can sort of say I know you've done in the past with respect to Hilton, but the cosmos Cosmopolitan sale, obviously is material and anything you might be able to help us.
Think about that.
It would be helpful as well thank you.
Sure Jerry well.
You know, we don't give sort of near term guidance, but the big picture as I mentioned in my remarks is this net accrued performance revenue.
Our receivable that's double what it was pre COVID-19.
Much of it is relatively liquid about a third of the private.
That would be a portfolio at a M. D is publicly traded.
We will take advantage of that based on market conditions.
Obviously, the invested performance revenue AUM has grown considerably.
We entered this quarter with.
Sort of some locked in realizations that are under contract and we will expect those tests to.
He lives in this quarter and into several quarters to come the cosmopolitan transaction, we expect to close in the first half of next year not this not in the fourth quarter.
And obviously there are other things in the pipeline things that we've mentioned in things like the habit. So.
You know quarter to quarter.
It's not sort of.
A fruitful.
Sort of a guide to that or to predict that but big picture. We're in a remarkably.
Good position over time.
Fair enough. Thanks, Thanks for the call.
Thanks Jerry.
Keith. Thank you. Your next question is from Michael.
With Morgan Stanley. Please go ahead.
Hey, good morning, Thanks for taking the question just hoping you could update us on some of the technology investments that you're making across the firm.
If you think about digitizing automating parts of your business, how do you think about the opportunity set there where cana.
Sort of Digitization of Blackstone would be most helpful. On what challenges would you face as you think about building the tech stack architecture of the future for Blackstone.
Hey, Mike It's Michael Thanks for the question.
You know I'd step back and say we've been in the technology and innovation area, we talk about innovation in terms.
Product development, New strategies, where were we think were pretty good.
We also have been investing for years in innovation around how we run our own business from an internal standpoint and from a you know how do we transform the basic daily work of the business Middle and back office and also from an investing standpoint.
And I think we'd say in our industry.
<unk>, even though the industry itself is somewhat in development on that front that.
Stepping back in the technology area.
We've been investing in people and in hardware and software for a bunch of years now.
Actually I have nearly 400 employees in technology and data science, it's we.
We used to say is the fastest growing part of the firm I'd say, it's not one or two or three fastest growing areas of the firm.
That includes among other groups our data science team that has around 20 people that'll be 30, I think pretty soon.
We havent Theyre doing wonderful work and it's really a process and discipline, that's getting embedded more and more in our business overall, particularly in the work we do on looking at new investments and also our portfolio of health care portfolio companies.
And as you know our global head of portfolio operations.
<unk> Ah Jen Morgan was the co CEO.
In the technology area historically.
We've internally developed on the technology side.
A real and this is getting to your question I think specifically.
Sweet of internally developed products and the fund accounting area in the Investor.
After reporting area, both institutions traditional institutions and the retail area.
Which I think reflects that when we started really lean into this sort of 15 years ago. The industry. The alternative industry. Then was very nascent in terms of having the solutions developed both for GPS and for Lps, So we turn to.
In part making.
Making a significant effort internally and we think we've developed a stack that it's still a work in progress in some ways, but.
We think are actually as good or better than sort of third party solutions that are available. If you look at a business like E access that that Ah. Another firm bought a couple of years ago at a pretty high value.
And you look at sort of we have equivalent internally delta products.
That are.
Both Lps and others tell us right pretty well against those outside solutions. We also and then ill sort of pause.
We have a program we announced a higher in this area a couple of years, a couple of months ago, which we call our innovation program.
We don't.
I'll talk a lot about it's a small program, but we do use internal capital to purchase small stakes and early stage companies in the Fintech area of the prop tech area or enterprise Tech area of the cyber areas. We've made almost a 30 investments or so over a bunch of years.
All mostly quite successful, but Moreover, because of the dollars aren't so big.
Big from a financial point of view it really these companies and we kind of mutually benefit from a deeper relationship in this whole ecosystem.
In terms of cutting edge products and also just being in the mix in this area in it I think it has real tangible benefits to.
How we think about innovating in our firm overall, so that's a little.
Bit of a multipart answer Mike.
It's not something we sort of talk about or we've named for external purposes, Holistically, but we've been at this for a long time, where scale we have scale in terms of people organization process.
And we're going to keep at it still early days and there's a long way to go.
Great. Thank you.
Okay.
Thank you. Your next question is from Brian Bedell of Deutsche Bank. Please go ahead.
Great. Thanks, Good morning folks. Thanks for taking my question, maybe just a two parter on fund raising too.
Yeah, just just in looking at this year I think you've you're Jewish your initial target of course was to approach 200 billion of inflows, including the insurance.
Partnerships looks like you'll be easily exceeding that and just wanted to sort of sanity check that and then also for next year is there a possibility.
Raising the next vintages of the flagships in private equity and real estate given that faster drawdown in pace.
For next year, and then is that you know.
Given your traction overall in the retail traction a possibility to get to 200 billing even without <unk>.
<unk> ownership next year and then if you wanted to just also just talk about the potential for an ESG impact offerings and then maybe just comment on the sustainable investments you've been making within the funds as well.
Yeah.
So maybe Michael will talk.
<unk> this year, but but what I would say overall is.
Got a lot of momentum.
The perpetuals, obviously have great momentum not just in the retail channel not just with some of these insurance things, but institutionally I talked about.
Infrastructure I'd also mention our DPP core plus business institutional real estate core plus still bigger than what we're doing on the individual investor side as it relates to the drawdowns. The good news is if you look across the board. The fund performance is very strong.
About it is the best forward indicator of investors' desire to invest in future Blackstone funds fund.
Fundraising for those will be a function of how quickly we deploy capital we have a number of these funds.
You noted that are now over 50%.
It's a question when we get in most cases.
And that 70% that's when we start thinking about fundraising so it's hard to predict.
But we expect a good reception when we go back out that's certainly been our history I would say the one headwind on fund raising that exists out there is that private equity has been such a strong sector that investor.
Northern or in some cases over allocated.
I think that will be very bullish for our secondaries business and I think we will see our investment community raise their allocations to private equity and alternatives in general and that's more limited to P. Not as much of an impact at all on real estate or infrastructure private credit.
But overall it is a picture of strength as it relates to fundraising, it's one where really strong performance a broad array of products.
Successful deployment, we think will lead to large scale fundraising.
Not giving you a specific answer as to timing, but I think it's fair to say that if you look back there's probably.
<unk> step function increase in the amount will raise versus where we thought of say three years ago and thats. The combination of larger and more drawdown funds and this big step up in perpetual funds and then add to that now the expansion into insurance. So this is happening in a lot of different directions, it's hard.
<unk> exactly how it will all land and what the timing is but I think the path of travel is very clear.
And then just on the ESG.
Oh on ESG, so what I'd say on that is I think that the most relevant areas for us.
Three areas.
We actually.
To quantify this at our board meeting this week in.
In the energy credit and energy that areas.
You went back in time, there was much more orientation towards hydrocarbons in E&P that at a lot of those activities. We've emphasized in a significant way over the last three or four years and we've been doing much more.
More around the energy transition and have great success, we announced a big transmission line of hydro power from Quebec to Queens, a few weeks ago, we put an investment into a public company called the right technologies, which moves solar panels, we did it.
Preferred with warrant so we've had.
<unk> talked about a success.
And I would expect the next vintages of our energy equity and energy that fund will be heavily oriented towards the transition towards sustainability I think investors will react well and I think similarly, we'll do more in infrastructure. Another way investors can play it with us at Blackrock.
So there is a lot of investment demand and then I would say in some of our more liquid structures.
Areas some of the things we do in insurance.
On asset backs I think youll see more there. So I think overall as an asset class the demands for capital are enormous and I think a lot.
Blackstone will coming from private capital, so I think that bodes well, but it'll be expressed at our firm in multiple areas.
Great Great. Thank you for all the color.
Yeah.
Thank you. Your next question is from Patrick Davitt Autonomous Research. Please go ahead.
Hi, Good morning, everyone. One of the big takeaways from our competitor Investor Day. This week with a focus on kind of building out investment grade direct origination capacity to address this idea of fixed income replacement for particularly insurance money desperate for higher yields and obviously that opens you up to two more so a bigger piece of the client.
AUM pie could you discuss to what extent Blackstone's focused on this idea of building similar fixed income replacement strategies, particularly as you bring in so many large insurance partnerships this year.
We agree that this is a huge theme.
If you think about our fixed income investors.
Serge.
Individual investors institutions, and certainly insurance companies you do almost exclusively fixed income investing buying a liquid CUSIP bond today in many cases can't meet their long term needs and so what you see happening is asset managers, who have these originally.
Patient capabilities being awarded are more and more assets over time, and that's certainly been the story with us.
And one of the keys to this of course is having those origination capabilities I would say and real estate origination and in corporate credit origination we're a leader.
Originals or at the very top I think in structured an asset back there are certain areas like renewables, we've been very active aircraft, but there are many more verticals and I would say there's room for us to grow and expand we are going to build our capabilities. Because I think this is very important and that.
I think you will see this movement of of pools of capital who want to own credit assets get much closer to the borrowers and that's really what's going to be facilitated and then I would just add of course as we do this we're not going to rely on taking on large scale liabilities.
And doing spread investing against those what we're going to be focused on as being a third party manager of capital in this area just as we've done historically as a firm.
We're ready for the next question too.
Thank you that question is from the line of Al not.
Keep it up.
BNP. Please go ahead.
Hi, Good morning, one question Disney So we we've seen a lot of U S insurance deals like AIG deal.
Wondering if you could discuss whether you see opportunities to do enjoy.
Those top deals in Europe.
These are the regulatory regulation around capital Conduces wilderness and within this availability of books in general Thank you.
So there could be some opportunity in Europe the structure of insurance. There's this concept of with profits that makes.
And many of the countries more challenging to do and in some countries the regulatory framework.
It's possible that in some ways some of the Asian countries may be easier to adopt the model.
Our hope though is.
That we will find a way to do more in Europe over time, but I would say there are more.
These changes are the reason why this should happen back to the earlier question is if your European insurance company, and you're buying corporate or government fixed income today are earning virtually no return and so I think it's going to be important for these insurers to have more origination capabilities. So I think it will.
Will head that way over time, but I would say it's behind the U S. At this point.
Great. Thank you.
Yeah.
Thank you. Your next question is from Ken with an <unk> of J P. Morgan. Please go ahead.
Hi.
Good morning.
So senator Warren put out some legislation aimed at private equity investing.
<unk> don't invest all over the world with investment dollars raised from clients all over the world are in various asset classes. So maybe one how much of Blackstone could be impacted.
<unk> bye.
By the Wall Street, Looting act and what parts might not be and then maybe two are you seeing political and regulatory involvement in private markets investing.
In Europe, and Asia, and as scrutiny, they're sort of rising as well.
So.
I'd start with the.
And the fact that we do as a firm.
And I think others in the industry, we are remarkably proud of and Unfortunately I think there is this outdated view sort of stuck in the 19 eighties of private equity and alternative firms.
Harming companies and communities and nothing could be further from the truth. If you look at what we do to accelerate growth I mean, we announced yesterday an investment.
Sarah Blakely Spanx business, a terrific company terrific founder lots of potential we're going to help that business grow faster same story.
Where they're spoon and Hello Sunshine, we did this with Whitney Wilford of Bumble, what we're doing around Green energy, where we've invested $11 billion in the last two years, we're really proud of that what we're doing in life Sciences as a leader accelerating development of powerful technologies to make human beings live.
With three longer and safer lives.
And then it's just a traditional private equity what we do with businesses to make them grow is so important and I haven't figured out yet how you destroy companies and somehow generate the kinds of returns private equity has amongst our clients private equity is the highest returning asset class.
And that's happening because we're growing businesses and investing in businesses and I give you that as background because as we walk policymakers around the world and in the U S through the facts they increasingly understand that so I.
I I don't expect that there will be a specific legislation that will pass.
I don't see that is near term likely we are as I said very proud of what we do and I think we're going to continue to do it in a good way have a positive impact and at the end of the day of course, so many of the benefits flow to pension funds and their police officers firefighters teacher city workers around the world.
And particularly here in the United States. So a lot of pride in what we do and we feel really good about it and when we get a chance to articulate that generally the facts went out and we would expect that will happen in the future.
Yeah.
Thank you.
Some key you're next.
I assume is from Chris Kotowski Oppenheimer. Please go ahead.
Yeah good morning.
I forget the exact words that you used in your opening comments, but it was something like that you were.
Poised for an even greater breakout in earnings and I was wondering.
Just with a 56% FRE margin.
Were you implying that there is significant upside to that as you launch the next generation of flagship funds and so on or should we not get greedy and just and just kind of expect earnings growth to follow AUM growth.
<unk> claimed the next couple of years.
Well, Chris I think the comment was a broad one and a really positive one not necessarily that any aspect of earnings growth, but about the overall picture and the overall picture on FRE.
And also on performance revenues were I think with both cylinders were firing and hubs.
Tremendous position so.
I think over time, we've exhibited strength on both the top line and in terms of our ability to exhibit operating leveraging and expand.
Expand margins over time, but over time, we would expect that to continue generally but no need to overreact into common.
Okay Alright.
Alright.
Yes.
Your next question is from the line of Jeff and Ryan Shay pins Killer taste. Please go ahead.
Hi, great good morning.
Question on infrastructure business.
$14 billion.
Thank you said, 80% committed in reopening for fund raising.
Love to get an update on what L. P appetite looks like.
In that area right now you know how relevant something happening in Washington is either.
Influencing the opportunity or sentiment around the opportunity and then just if you can.
And the counter update about how you guys are thinking about the addressable market there still seem like a big area of white space, obviously relatively small.
Relative to the firm and I think opportunities. So just an update there would be appreciated.
So we.
We feel terrific about this infrastructure business.
And just a.
Primarily because we've done a great job out of the box returns wise for our customers. That's always the most important thing we've delivered for our customers.
What I would say is there's a lot of interest generally in infrastructure, particularly as people think.
Owning hard assets with long duration and some yield in a rising inflationary environment. So I would suspect that we'll have good responses to the business. What I would point out is this is not a drawdown funds. So like our V. P. P core plus institutional real estate business, we will start.
Start to raise money on a quarterly basis.
What tends to happen is you have a surge of fund raising and you deploy the capital as the Q goes down you raise more capital, but what we like about the business is the type of assets you can invest in we just made this large investment in data centers, we really like digital infrastructure.
Structure, we've done a big investment in a fiber to the home business based in the southeast U S. A we have some really attractive transportation businesses around ports and roads and airports and as I said I think investors like this asset class a lot there are under exposed to it.
And there are not many places where there are open ended funds that provide liquidity over time and that they find attractive as well. So this is a business that today at $14 billion is small I believe relative to its long term potential.
And I would just add to that that you know are our strategy.
And the demand for it and the deals we've been doing it doesn't rely on sort of whether public private partnerships come to pass out of the current legislation or into the future the physical infrastructure gap around the world muscle, but demand in areas like digital infrastructure with John mentioned, just organically are so large private capital will is there is sort of the primary.
<unk> today.
And if.
Partnerships between governments and private investors emerges or expands over time, then that some I would say that it'll be interesting and sort of gravy, but not something we're you know we're sort of depending on.
Okay, great. Thank you.
Yes.
<unk> solution will final questions comes from the line of Alex Pleuston Goldman Sachs. Please proceed.
Greg Good morning, Hey, guys, sorry for the <unk> for the phone issues earlier.
I wanted to follow up on the discussion around retail product and really think about capacity.
John.
Some of the capacity dynamics earlier on which again it sounds like you have plenty of origination capabilities not not to really worry about it. The capacity question that I have is really with respect to concentration with various distribution platforms. Just given the size of the business for you today and given how quickly it's been growing are there any concerns on the horizon with respect to just.
John you would how much capital is single distribution platform can have with a single manager.
It's a good question.
The good news is the market is so large that even with an individual distribution house working seem like a lot of capital is still pretty.
A number of these places have multi trillions of dollars of assets under management. So if you end up with 30 or $40 billion, even 80 or $100 billion.
It's still a small percentage and also I would point out in the U S where we're.
Small days.
Along the path of <unk>.
We think around the world, particularly Asia, there was a lot of savings looking for alternatives and exposure to the type of things we do.
Overall, I think globally, there's 70 trillion of wealth.
Early people with more than $1 million of investable assets, which is the target traditionally.
And I think they were allocated to alternatives I don't even know maybe 1% or something of very very low.
Number and so when we think about where this can go yes the potential is.
With significant and.
In closing the reason we're so excited is we're early days on the retail journey I think the story is similar in insurance. We're early days for folks like us to manage capital and in the institutional World. We continue to see increasing allocations and we're still growing fast in.
Is channel as well so having these multiple very scalable.
Channels and us with this very powerful platform.
This is a really strong combination and what gives us so much enthusiasm and optimism as we look forward.
Thanks very much.
<unk> and <unk>.
I can't say to Weston Tucker for closing remarks.
Great. Thanks, everyone for joining us today and look forward to following up after the call.
Goodbye.
Yeah.
Yes.
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