Q4 2021 Blackstone Inc Earnings Call
Okay.
Good day, everyone and welcome to the Blackstone fourth quarter and year end 2021, Investor call hosted by Weston Tucker head of shareholder Relations. My name is Leslie and I'll leave that manage it during the presentation. Your lines will remain on listen only and if you require assistance at any time. Please please don't say well no telephone and a coordinator will be.
Happy to assist you there will be a Q&A session at the end of the presentation and if you could limit your questions to one and then if you wish to ask further questions. Please rejoin the queue.
I'd like to advise all parties. The conference is being recorded for replay purposes, and now I'd like to hand, you over to your host for today Weston. Please go ahead.
Terrific, Thanks, Leslie and good morning, and welcome to Blackstone's fourth quarter Conference call. Joining today are Steve Schwarzman, Chairman and CEO , Jon Gray, President and Chief operating Officer, and Michael Chae, Chief Financial Officer earlier. This morning, we issued a press release and slide presentation, which are available on our website.
We expect to file our 10-K report later next month.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially we do not undertake any duty to update these statements.
For a discussion of some of the risks that could affect results. Please see the risk factors section of our 10-K.
Well 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 please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any blackstone funds.
Do you have cash that is copyrighted material of Blackstone and may not be duplicated without consent.
On results, we reported GAAP net income for the quarter, a $2 9 billion distributable earnings were $2 3 billion or $1 71 per common share and we declared a dividend of $1 45 to be paid to holders of record as of February seven.
With that I'll now turn the call over to Steve.
Thank you Weston.
Good morning, and thank you for joining our call.
Today Blackstone reported the most remarkable results in our history on virtually every metric.
Distributable earnings Rose 55%.
The $2 $3 billion in the fourth quarter and.
And increased 85%.
The $6 2 billion.
For the year.
Investment performance was exceptional including over 40% appreciation.
Our opportunistic real estate and corporate private equity funds for 2020 one.
And we raised.
$270 billion of inflows.
Over a quarter of a trillion dollars in one year lifting assets under management.
By 42%.
The $881 billion.
No other alternative firm in the World has approached this level of absolute growth.
Single year.
We told you in the second quarter that it was the most consequential in our history.
That assertion was not based on short term results.
Was reflective of the sea change underway in asset management, and our positioning within it.
Which is now playing out even more powerfully.
Obviously anticipated.
Capital flows continue to shift.
Towards two ends of a barbell on one side.
Low cost passive funds on the other side closer accelerating towards alternatives, but trend benefit numerous firms in our industry, but none.
More profoundly than Blackstone.
And the world of alternatives Black.
Blackstone.
A clear choice for global limited partners looking to invest in the asset class.
Whether it's a retail distributor or an institutional investor that needs to deploy billions of dollars across the capital structure.
Today, we offer nearly 60 investment strategies.
Up from 35.
Five years ago.
We have the deepest menu of available products with compelling performance across our platform.
The largest flow of investment activity in.
In the world.
The result is a powerful network effect.
Our customers are constantly in our store.
And our shelves are full.
Which results in Blackstone and gaining a huge percentage of repeat business.
A high likelihood it will choose our new products as well.
This network effect.
Sends to new platforms that we launch.
Our Lps know that when we launch a new product is with the intention of building the highest quality business.
And that our scale and reach can have an extraordinarily positive effect.
For them.
For example.
The clean energy transition.
It's been a major investment themes across the firm for several years now.
We are already one of the largest providers of private credit in this area.
Last week, we launched the sustainable resources platform to pull together the full breadth of the firm's resources.
We see an opportunity to invest $100 billion in support the energy transition in climate change solutions over the next decade.
Blackstone intends to be a global leader in investing.
A force for good in this critically important area.
Across the firm we are exceptionally well positioned to continue growing in a way that is unprecedented in the alternatives asset class.
And I couldnt be more confident in our momentum.
Despite the significant correction underway in the global markets.
The average stock in the S&P has declined.
17% from its recent peak.
While the average NASDAQ stock is down 44%.
The alternative managers stocks have not been immune to these pressures.
And we've noted investor concerns around the impact of inflation.
Prospect of rising interest rates and.
And the ability to continue raising capital.
I believe the tremendous balance of our firm.
And the careful design of our portfolio.
Well once again allow us to not only navigate this environment, but to thrive in it as we have for <unk>.
36 years.
And our $280 billion real estate business, which generated nearly half of our earnings last year.
Over 70% of the equity portfolio is in the best areas.
<unk>.
Rental housing and life Sciences office.
Leases in this portfolio are shorter duration.
With the ability to reprice as we move through the inflationary period.
Importantly.
In the United States, we're now seeing rents in these sectors grow at two to three times the rate of inflation.
And that's the cost of new construction rises with inflation.
The greatly benefits the value of our existing holdings.
In corporate private equity our portfolio is also well positioned for inflation.
Our holdings are concentrated in areas with strong secular growth.
That are more resilient to rising input costs.
Our operating companies reported 23%.
Year over year growth in revenues in the fourth quarter.
That's really stunning 23%.
Revenues.
And two thirds, so our margin expansion in the year.
And our nearly 200 billion corporate credit business as interest rates move higher in response to inflation.
We expect our returns to benefit.
The vast majority of our investments in corporate credit.
And floating rate debt.
Which helps protect capital and.
<unk> provides a better and better return.
As phase III increase.
And while higher rates can be a headwind for liquid markets.
With $136 billion of dry capital.
Dry powder capital across the firm, we can move quickly to invest when pricing becomes more favorable.
From a fundraising perspective.
I expect our strong momentum to continue in the current environment.
In the institutional channel Lp's are increasing their allocations to alternatives in fact.
80% of Lps.
According to a recent survey by frequent.
In most cases, they are concentrating capitals with fewer managers, which favors blackstone.
In the retail channel.
Individuals in the U S have accumulated two eight trillion dollars of excess savings since the start of the pandemic.
Our perpetual products and real estate and credit.
Our uniquely designed with inflation in mind to protect capital.
And generate substantial current income.
In total we raised $50 billion of equity capital in this channel last year.
And despite the uncertainty in the markets.
Financial advisors have very high confidence in the attractiveness of our products.
I have personally lived through many cycles here at Blackstone in the past 36 years.
And each time, our firm has come out stronger than before.
Market softened over correct in a way that is disconnected from fundamentals.
When you look at our firm's progression.
Including today's exceptional results it should be clear.
The fundamentals of Blackstone are dramatically accelerating.
We've been telling you for years about these powerful trends.
And what we've told you.
Has come true.
At our Investor day, a little over three years ago.
We shared our vision of reaching one trillion dollars of AUM in eight years.
We now believe we will reach one trillion dollars.
Of AUM this year.
Half the time, we predicted.
We've nearly tripled.
FRE.
And doubled GE over this period.
Our profit margins have continued to expand.
And today are three times higher.
In the medium.
The largest 100 U S public companies.
Blackstone has an unrivaled position in our industry.
Our prospects are extraordinary.
We have the most recognized brand which.
She has been continually reinforced.
<unk> market cycles.
Our firm is regularly acknowledged by third parties for the strength of our franchise.
Excluding by Morgan Stanley was repeatedly selected us as one of the 30 best companies in any industry.
And our unique culture continues to set us apart.
Characterized.
By the highest standards of excellence and integrity.
Unwavering dedication to our clients.
New product innovation and a commitment to preserve capital.
In closing as.
As we move into 2022.
Market landscape will undoubtedly present challenges but.
It will also provide opportunities that we are very well positioned to capitalize upon.
The firm has never been in a stronger position.
Every part of our business has ambitious plans.
Remarkable momentum.
And then unquestionable will to win.
I have never had cheaper confidence in our future.
And pride in our people.
Thank you for your support.
That helps.
I'll turn it over to John .
Thank you, Steve and good morning, everyone. It was another tremendous quarter for Blackstone and our investors highlighted by extraordinary growth.
AUM increased to $150 billion in three months the equivalent of a top 10 global alternatives firm as we continue to expand the platform with a significant focus on perpetual capital strategies. This is driving a meaningful step up in the growth and quality.
<unk> of our earnings with both distributable earnings and FRE, reaching record levels for the quarter and year.
We've achieved these results while sticking to our model managing third party capital relying on our brand and track record to grow.
With minimal net debt no insurance liabilities, we have no need to retain capital and had been able to return 100% of earnings to shareholders of course, the foundation of our business remains investment performance in our funds posted outstanding returns in 2021.
Sure.
We continue to benefit from our thematic approach to deployment emphasizing faster growing areas of the economy, which were again the largest drivers of appreciation in our funds.
Nowhere is that more apparent than in real estate, which led the firm's returns in the fourth quarter in.
In my 30 year career, I've never seen real estate fundamentals in the sectors, where we our focus is strong as they are today.
The strength of our returns powers, the Blackstone innovation machine, allowing us to expand who we serve and where we can invest.
10 years ago, our business, primarily consisted of episodic drawdown funds pursuing opportunistic returns.
While this remains a terrific and vital business to us we've added three more engines all growing rapidly.
I'll briefly touch on all four.
Starting with retail.
Investor demand for institutional quality income solutions, coupled with the Blackstone brand is a potent combination we raised over $13 billion of equity capital in the fourth quarter across three products.
<unk> and <unk> the equivalent of a large drawdown fund every quarter.
Theory more than doubled last year to $54 billion of NAV.
On the back of exceptional performance generating a 30% net return and was the largest contributor to earnings in the quarter.
Moving to our institutional perpetual funds. This evergreen platform is approaching and should surpass the $100 billion milestone this year.
There was significant investor demand for long dated strategies that compound and value in.
In infrastructure, we reopened to new capital in the fourth quarter, raising nearly $7 billion and bringing the strategy to $23 billion of perpetual capital after only four years.
A few weeks ago, we announced a $3 billion investment in <unk> the <unk>.
Largest private renewables company in North America.
In real estate, we talk a lot about the REIT, but don't forget the power of our institutional core plus strategy.
P P, which grew over 30% last year to $61 billion.
Turning to our drawdown funds given the strong pace of deployment across the firm, we're now moving into a new flagship fund raising cycle.
Over the next 18 months, we expect to have launched and substantially complete fund raising for nearly all of the firm's major drawdown strategies 17 funds targeting approximately $150 billion in aggregate, reflecting a 25% increase.
Over the prior cycle.
We expect to start raising our two largest flagships global real estate and corporate private equity this quarter.
Our third largest private equity secondary launched in the fourth quarter raising $13 billion in Q4 and is on track to reach approximately $20 billion.
Which would be the largest secondary vehicle ever raised.
Other vehicles in this pipeline include real estate Asia Real estate Europe real estate credit private equity energy growth equity tactical opportunities real estate and infrastructure secondaries, Spe's GP continuation strategy European credit clean energy credits Bam seating and <unk>.
<unk> strategies and life Sciences, the breath of the firm today is truly remarkable.
Finally in insurance, our business more than doubled last year to approximately $160 billion with the closing of the AIG and ever Lake mandates.
AIG has.
Committed an additional $42 billion and we expect to find additional growth opportunities in this area over time on a capital light basis.
Gather these four engines helped drive total inflows of 155 billion in the fourth quarter and 270 billion for the year.
This expansion has also opened up many new avenues to invest in the fourth quarter was our busiest ever with 66 billion deployed and then an additional 19 billion committed to pending transactions the largest new commitments were in some of our favorites secular neighborhoods, including renewables.
Rental housing logistics and content creation.
In closing when we look at what's in front of us and our momentum in four distinct verticals, we could not be more excited about the future.
We believe it is a mistake to under estimate the power of this brand and the potential of this business and with that I will turn things over to Michael.
Thanks, John and good morning, everyone.
Over the past several years, we've been highlighting transformation of the firm's capital base and earnings power with a focus on three important dynamics first that sustained robust <unk> growth and the scaling of perpetual strategies would accelerate fee related earnings.
That are growing breadth of funds and investment firepower combined with strong returns on greater deployed capital would expand the firm's store of value and performance revenue potential.
And third that we would grow in a capital light way with a definitive focus on delivering value to shareholders.
The firm's record results are a perfect reflection of these dynamics at work.
First with respect to FRE, which reached one $8 billion in the fourth quarter and rose a remarkable 71% for the year to $4 1 billion.
Or $3 37 per share.
It was only a year ago that we effectively hit our investor day target of $2 per share and since then <unk> AUM is up 42%.
Fee, earning AUM is up 38%.
Perpetual capital AUM more than doubled to $313 billion.
Across 18 separate vehicles.
<unk> strategy is now comprised 42% of the firm's fee, earning AUM and their growth in number and scale is contributing to FRE in two important ways management fees that compounded with accelerating inflows and appreciation in NAV.
And fee related performance revenues that crystallized on a recurring basis without asset sales.
In total management fees rose, 26% for the year to $5 2 billion.
Fee related performance revenues increased more than fivefold to $2 billion driven.
Driven by battery, which crystallizes these revenues annually and <unk>, along with a significant contribution for the PPP funds the direct lending platform in credit and in the fourth quarter infrastructure.
The combination of 60% year over year growth in total fee revenues and the firm's robust margin position drove FRE margins to 56, 3% for the year.
The highest level ever.
Looking forward the outlook for FRE is strong and.
In the context of the forward growth verticals that John discussed across three of them. The majority of capital is perpetual with a significant and compounding financial contribution that I described.
Combined <unk> of.
<unk> <unk> and <unk> alone tripled in 2021.
Setting a higher baseline for fee revenue entering the year.
Alongside that we expect to see a material future benefit from the upcoming flagship fundraising cycle with $150 billion targeted to be raised and respective investment periods activated over time.
Moving to performance revenues in the growing store of value.
Net realizations more than doubled in 2021% to $2 9 billion.
Powered by record fund realizations of 77 billion.
For the fourth quarter fund realizations were $21 billion, including the sale of consumer finance platform extra.
Several holdings in Tac ops, including specialty retailer Diamond's direct and upstream energy platform in credit and certain U S logistics in multifamily assets.
We also monetize stakes in various public holdings and refinanced in a number of portfolio companies.
The Blackstone innovation machine is creating a level of activity that is unprecedented for both the firm and our industry at large driving a meaningful elevation of our performance revenue potential.
The dramatic expansion of the firm's strategies has driven a more than threefold increase in aggregate deployment from $45 billion in 2000 $18 billion to $144 billion in 2021.
This in turn has led to a more than doubling our performance revenue eligible value in the ground over this period to approximately $450 billion.
Despite almost 200 billion of realizations.
Importantly, as the firm has grown there's been no diminution of investment performance the measure of the ongoing value creation and the capital we have cumulatively deployed.
On the contrary the firm's returns in 2021, where some of our best.
The breadth of opportunistic funds appreciated, 44% corporate private equity, 42% secondaries, 50%, Tac ops, 35% infrastructure, 30% growth equity, 28% real estate core plus 25% and private credit 22%.
Our band composite rose, 8% growth for the year outperforming the HFF Rx Global index by over 400 basis points with significantly lower volatility than the broader market consistent with BAMS mandate.
And breadth in corporate private equity we reported the best annual returns in over a decade in secondaries core plus in Tac ops since inception of the strategies and in private credit since 2013.
Strong investment performance powered $2 $2 billion of net performance revenues in the fourth quarter and lifted the balance sheet receivable to $8 7 billion.
Or $7 28 per share.
This level in our history.
This balance more than doubled year over year, notwithstanding $3 $5 billion of realized distributions.
Other outstanding growth in both FRE and net realizations drove distributable earnings for the year up 85% to a record $6 2 billion.
Or $4 77 per share.
Finally on delivering value to shareholders, our strong financial position and limited use of capital have allowed us to fully distribute our earnings to shareholders through dividends and share repurchases.
These totaled $6 $5 billion with respect to 2021.
A record year for the firm and we believe by far the largest capital return by any public asset manager in a single year.
In closing the firm is truly firing on all cylinders, our momentum has never been stronger with enormous structural tailwind and multiple engines of growth. We are very optimistic about the future of Blackstone.
With that we thank you for joining the call and would like to open it up now for questions.
Thank you and thank you everyone. Your question and answer session will now begin if you wish to ask a question. It is just star then one on your telephone if you could just limit your questions to one and then if you wish to ask further questions. Please rejoin the queue.
And your first question comes from Craig Siegen, Tyler from Bank of America, you alive and Nicole Quake. Please go ahead.
Thanks, Good morning, Steve John Michael Hope, you're all doing well and congrats on the $155 billion range this quarter.
Thank you Greg Thanks, Craig.
So my question is on capital deployment at $66 billion is an impressive number over 90 day period, but can you talk about some of blackstone's scale advantages with investing and how you can deploy so much capital across so many businesses and mostly private assets at scale.
It's a really important question I think the key thing Craig is the expansion of the platform. We keep talking about what's interesting. If you look in the fourth quarter half. The money. We deployed was in strategies that didn't exist five years ago. So it was b REIT.
B cred, and our infrastructure business to retail one institutional all perpetual and those platforms. As you know tend to have I would describe as maybe simpler products that are repeatable and scalable which is different than what we do opportunistic.
Fortunately our returns as you know in private equity real estate private equity and those areas have been extraordinary but these platforms allow us to deploy significant amounts of capital and we own assets for long periods of time.
Particularly in the equity oriented funds and so when we buy for instance, our ports business or data center business or in our apartment platform. We can deploy capital through the existing portfolio companies, which is different than in typical drawdown buy it fix it.
<unk> model so scale here.
And the nature of the capital is allowing us to deploy more capital. There is also just the breadth of the private markets. What we're seeing secondaries had a record deployment quarter and thats not a surprise because we talked about it last quarter. Many institutions have seen extraordinary performance from their private equity pools and some.
We're looking to make new allocations, but they are selling older funds and that's led to huge deal volume there and then I would say at our scale. There is this really interesting network effect that we talked about the last couple of weeks and our management Committee.
We're now because we have so many different types of capital. So many different parts of the capital structure geography, We're a full service solution provider to anybody who needs capital it could be controlled private equity it could be a minority stake could be structured equity and Tac ops it could be credit obviously it <unk>.
Across the gamut and so that again is giving us more power. So it's.
The whole combination it's sort of this flywheel that's been created here.
The intellectual capital, we built up where we have great expertise in markets. It's the fact for so many counterparties, we'd become a one stop solution using real estate as an example, we may engage with somebody on something that starts as equity and then they decided to actually want to borrow money, we have our real estate debt business. So theres something.
Really powerful that's happening here at our scale and the way we work together is helping that so our optimism of deploying capital is high and obviously if markets dislocate in that regard. It's helpful. Also.
Thank you John .
Thank you. Your next question comes from the line of Alex Bluestein from Goldman Sachs. Your lives and Nicole. Please go ahead.
Hey, good morning, everybody.
So I appreciate the updated target on reaching a trillion in AUM. This year and obviously $150 billion in flagship is great, but I was hoping we could dig in a little more into the funding backdrop in the current environment.
I guess understanding that the secular underpinnings remained quite strong, but how sensitive do you think the momentum we're seeing particularly in retail for Blackstone over the last 12 months and.
And some of the other product will sustain and the more truckload market backed up that we've seen so far in January so maybe I was hoping to get a little more what are you hearing real time from Europe institutional Lps as policy, our retail distribution partners.
Well right now we're not hearing any change.
We talk to our institutional and retail customers everyday in fact, I tried to talk to a CEO at least one or two every day because it's important to stay close to your customers.
<unk>.
To put things in context of course, the S&P. Despite the trade offs total return is up nearly 40%.
In two years and also I would say whats interesting is remember our clients institutional.
And retail clients have large exposure to fixed income show many of them are thinking about how can I change yet think about our private credit business, which is so well positioned with direct lending with a leading player in leveraged loans and CLO. So clients are thinking about those things.
I think I would also just point to the fact that alternatives have consistently delivered for customers and thats built up a lot of loyalty over time. This year 2021 of course was no exception. It was our best year for appreciation.
And so I would say our clients tend to take a longer term view, obviously if markets trade off a lot that can have an impact, but if you remember back in 2020, despite not being able to visit with our clients. Despite all the turmoil, we still had a very good year raising capital and so I just think we've gotten to a place as you hear from US you listened to that.
List of 17 drawdown funds, you think about all the different perpetual vehicles think about all the different channels. This is really changed fundamentally as a business. We're just raising capital from many different sources and I think for individual investors as context Thats, an 80 trillion dollar market that today is probably I don't.
1% to 2% allocated to retail and when you look at our products in those particular areas focus on the larger ones now be read and be Craig.
Those products are actually quite well targeted for a higher growth higher inflationary environment, Steve talked about ownership and <unk> of the kind of assets be reached more than 80% logistics and rental housing the kind of assets hard assets you want to own in a rising rate environment be Craig is.
All floating rate debt, so as the fed raises rates it benefits from that and of course the performance of those products has been remarkable and so yes is it possible as markets trade awful lot youll see some slowdown, but but I would say overall on the ground today, we're continuing to see very positive momentum.
Our outlook.
He is quite good given where we sit.
Great very helpful. Thanks, Scott.
Thank you. Your next question comes from the line of Gerry O'hara from Jefferies. Your line Nicole. Please go ahead.
Great. Thanks, and good morning, I wanted to pick up a little bit on the fundraising specific to the secondaries fund it I think.
If I heard you correct, roughly a $20 billion target, which looks to be roughly double I think the prior vintage. So I was hoping you might be able to just kind of unpack the dynamics of the of that market a little bit and why why you feel such a large fund is I guess appropriately positioned are sized for a tour.
The opportunity thank you.
Yes, we talk a lot about megatrends in good neighborhoods and people often associated just with maybe technology or life Sciences clean energy, but one of the great neighborhoods is alternatives alternatives today.
<unk> 10 trillion dollar industry, which sounds big.
They are basically equal in size to five technology companies on the west coast of the United States and they compare to 250 trillion.
Stocks and bonds that are out there and so.
The industry as you know has been growing at double digit rates for a long time.
It feels like certainly based on our results, that's accelerating and yet at the same time.
Liquidity for those who want to exit early from funds is pretty limited.
So.
There is a very small percentage of the outstanding NAV that trades every year today.
Between one and 2% and so what's happening is you have an asset class that is growing very large and liquidity that was already too small for the existing asset class and that is creating a huge tailwind. So what's interesting in our secondaries fund not only did we realize the most we also deployed the most.
Capital because investors are trying to free up capacity. So we see this as a market that is going to continue to scale.
We're not surprised investors are responding what they've responded to burn pairing. The team have delivered outstanding returns to customers 16 net for a very long time, even higher in the most recent vintages. So it's a market we like a lot there seems to be some structural inefficiency because of the lack of liquidity and it's growing fast.
So this is another area of Blackstone that I think has a lot of potential relative to where it sits today.
Great. Thanks for the context.
Thank you. Your next question comes from Brian Bedell from Deutsche Bank, You're live in the call. Please go ahead.
Great. Thanks, good morning folks.
That's on a great quarter again in a year.
Maybe just circling back on.
Some of the inflationary comment that you made earlier.
Just in thinking about.
The potential positive correlation of inflation and real estate performance and maybe in the context of the REIT in particular, given the performance fees that were generated.
Should we think about that return profile for <unk> read as we go into 'twenty, two and potentially have an inflationary.
Drop that persists through the year and I guess the the punch line is should we think of inflation is being positively correlated with performance fees.
For <unk> and then maybe if you just wanted to talk about.
This capacity be.
You read as well in terms of where you're.
Is there any capacity constraints on that fund in the next one to two years, given the fund raising cycle fundraising profile of it.
Great. So what I would say on an <unk> back to the earlier comments is the fund has been really well positioned by our real estate team that the leadership of our real estate group, Ken Kaplin, Kathleen Mccarthy <unk> runs our U S business.
I've set up this product now.
With more than 80% in rental housing in logistics and yes, those asset classes are performing extraordinarily well.
We said, it's Steve said it in his remarks, the rents are growing two to three times the rate of inflation and not only are the market rents growing in many cases the rents of course in place are well below the market rates and because.
We're in this inflationary environment and there are supply chain challenges, it's hard for for new supply to respond as quickly as one would expect in fact in logistics, we think in some markets between land and cost.
Replacement cost has gone up close to double I'd say aggregated Lee in the asset classes, we like its probably up more than 30% in the last couple of years. So owning these kind of short duration hard assets with pricing power is very positive.
That being said.
I wouldn't want to say, we're going to produce the same kind of extraordinary performance that happened in 2021.
Because that was really special and there will be some headwinds from rising rates on values, but overall, we feel very confident about the <unk> portfolio and continuing to deliver for shareholders in the kind of environment, we face today.
Okay. That's helpful. Thank you.
Thank you. Your next question comes from the line of Robert Lee from K B W.
Nicole Please go ahead.
Good morning, Rob can you can you hear us.
Oh, sorry about that.
Thanks for taking my questions.
Congrats on another good quarter.
Just kind of curious.
I guess the SEC recently came out with some proposals on new disclosure for <unk>.
Private equity or private investments may be the way to describe it and since I guess my experience no. Good financial services business seems to go unpunished overtime. You know what is it that kind of keeps you up at night, if anything if you look at the kind of regulatory.
Environment out there both here and outside the U S. As you know is there anything that kind of you are particularly focused on.
So what I'd say on that is the technical.
Think changed they announced yesterday that she can comment on is mostly around systemic risk and reporting systemic risks.
So.
Applied to a range of industries private equity hedge funds and others.
I think for US what we focus on is the fact that we've done such a good job for customers for such a long period of time that we have delivered solid returns you obviously see that.
In our public financials, our investors get even more detail and that to US is really important and the second factor that I think is <unk>.
Very important is we're always striving it's been something very important to Steve since the day I joined us from 30 years ago.
And even going back longer for him operating at the highest levels of integrity transparency and disclosures that that is a core value of this firm.
And thus whatever comes out from a regulatory environment, we will adapt and we will of course comply and Thats just the way we run our business. So.
We understand that we're in an environment of heightened scrutiny and we will obviously respond to it in the right way.
Great. Thank you so much.
Thank you. Your next question comes from Michael <unk> from Morgan Stanley You're live in the call. Please go ahead.
Hey, good morning, Thanks for taking the question just wanted to ask about retail more broadly maybe just taking a step back looking at retail client portfolios.
Steam to face the challenge around providing income for an aging demographic for some time now I guess to what extent do you see rising interest rates as alleviating those challenges and improving the relative attractiveness of more traditional fixed income products at a higher rate backdrop, and then bigger picture what unmet needs do you see from the retail clients.
And white space more broadly for Blackstone to provide other solutions to retail customers over time.
Thanks, Mike.
I think.
The response from investors to this kind of environment.
As it relates to their fixed income portfolio is there going to be looking for ways to maintain yield, but not take duration risk and so the problem is if they go into long term corporate or government fixed income they may get some yield today, it's still small maybe it goes up but.
If rates continue to move with inflation stays high they've risk of capital impairment.
And so the idea of trading some liquidity.
For yield oriented product, where yield actually grows with rising interest rates I think becomes increasingly attractive and that bodes I think very well for our credit products.
And we have obviously we have.
Our non traded BDC be Craig we also have a public BDC Blackstone secured lending trusts so.
I think both of these.
Our well positioned in this kind of environment more broadly in retail what I would say is.
Youre not going to be surprised that this place is focused on innovation and growth.
We have gotten to a place in the retail market that is very differentiated the fact that we've been at this for more than a decade.
Net we've got several hundred people already dedicated to private wealth under Jones <unk> should be the 300 people by the end of the year that we've created products not just our traditional drawdown bump. These perpetual vehicles that meet customer needs that are taking I think a much more.
Investor friendly approach on fees.
And also have delivered Blackstone Blessed best in class focus on returns.
Really made a difference and we've started Steve talked about shelf space, We've got really unique shelf space in these platforms relationships with the distributors the financial institutions with the financial advisors and with the underlying customers and so because of the confidence we built that in.
Enables us to offer other products like a really great consumer brand company and so we're working on a number of things. Some are geographic in nature used <unk>. As an example that is the European version of <unk>. It's just started nobody's talking much about it it's now at $700 million. It is.
A couple of platforms. It will grow over time, and we're looking at different areas, we're not ready to talk about those but I can just say that don't be surprised if you see other introductions into this area as we try to meet client needs and try to create products that often offer yield.
They offer an element of liquidity that you can't see in traditional alternative drawdown products and customers are responding in a positive way. So we see this area as having very significant potential.
Mike.
If you look at it from the perspective of.
Distributors.
Okay.
I want to have products that are oriented to protecting capital, but going up continually along with.
Increases from the fed.
And.
We.
We've had some.
Very unusual conversations because.
The retail channel was dramatically.
Under allocated to.
Two alternatives and the kinds of increases that.
Some of the distributors are hopeful.
Achieving.
Is it three times four times.
Increase.
And this is a massive pool.
Full of capital.
And.
It's.
Central they come up with good products.
And that's what we do.
So.
I think.
Why this is less about us and more about them.
What the world thinks it's going to need.
Particularly.
If you look forward.
More.
Volatility.
It's sort of where do you put your money.
Where do you think it's safe.
Right.
Where you are playing with the trends.
And.
That's what we're doing.
We're doing it all over the world.
So I think this is.
There's been enduring.
Kind it kind of trend, but as John said, we've taken.
The approach of bringing our institutional quality products to.
To the retail market.
And.
After 10 years of investment plus the other thing we've been doing.
Over that time period is running.
In this sector, we call at Blackstone University.
We have.
Yes.
Fas.
From different firms.
Firm.
Spending a day or two learning about selling these types of products, which for some of them.
So.
New.
In fact, they've been rewarded.
With performance.
So it makes them want to sell more.
Our products and so it's a virtuous circle.
And we're really.
Extremely engaged.
New product development.
That will meet the needs of these types of customers.
When John's.
So really excited about this.
You just got a reason to be.
Great. Thanks, so much.
Thank you and your next question comes from the line of Devin Devin Ryan from J P. JMP Securities. Your line Nicole. Please go ahead.
Hi, Thanks. This is Brian Mckenna for Devin so looking at the broader private equity portfolio I know you've been allocating more capital to growth investments, but I am curious as to how the mix of the portfolio has evolved over time on this front and then has there been any pickup into blood and deployment opportunities into growth recently, just given that the dislocation in the public markets.
Thanks.
Well, we've been really thematic, Brian and where we deploy capital and so yes technology has grown as a greater percentage of the mix.
It Hasnt just been a technology story in that area has served us really well. It's one of the reasons. When you look at our returns in our private equity flagship corporate corporate private equity area. We've seen such great returns, but it's also other thematic areas, we've been doing a bunch around sustainability.
In terms of investing in software and other businesses that provide support to the green energy transition that's underway, we've been deploying capital in housing supply and construction chain in a very meaningful way, we have a large company in Europe , that's done quite well.
<unk> been focused on leisure and all forms of travel and we've done this in real estate, but also in private equity we closed on a sizeable transaction with a company called DFS that processes <unk>.
For people from developing markets to visit developed markets and what we're what we're anticipating of course, there thematically is a big recovery of travel as we come out of Covid and so the good news is we haven't been really big into industrials and areas where exposure to rising input costs.
Labour and materials can really squeeze margin, we've tried to focus on businesses with secular tailwind, where we have pricing power and thats why we feel quite good about the positioning of our private equity portfolio, even as we move into this bit of a different environment.
Thank you John .
Thank you. Your next question comes from Finian O'shea from Wells Fargo, You're live in the call. Please go ahead.
Hi, good morning, everyone on the market environment again can you talk about the impact so far on on market activity or deal flow are you seeing any changes in pricing or transaction volumes at this point.
So I think it's a little early as I commented earlier, the real estate market certainly not.
Thank you.
In private equity there was just such a surge at the end of last year some of that people thought.
In anticipation of tax changes there were probably more sellers.
I think if the economy stays healthy we will still see decent transaction volume I do think in the technology and growth areas as the public market has had a more dramatic reset.
That debt there it may take a little bit more time.
To adjust the private market to the to the public market pricing I think that bodes very well for our growth equity business that's positioned well.
I would say the good news is from our teams on the ground seeing stocks off materially is definitely engage more conversations with us and companies out there. So sometimes this seed planning takes a little bit of time.
But my expectation is there should be a decent year for deal volume, we may see a little bit of a slowdown on the corporate side here as people readjust, but then I would expect at some point it probably pick back up.
Thank you.
Thank you. Your next question comes from Glenn Schorr from Evercore ISI. Your line Nicole. Please go ahead.
Hello, Matt.
Maybe I could just ask one quick follow up on rates and growth stocks, because you just touched on it but.
So you mentioned some higher rates you have a lot of inflation protected assets, both do well rents going up 2% and three times inflation and.
<unk> is a lot of floating rate so all thats great.
I think one not all but one of the reasons where lots of growth stocks have cracks as you know this was just a higher discount rate and its impact on multiple so blackstone.
Partially pivoting more towards growth investing is another avenue for growth. So I'm just kind of curious on.
How do you weigh what's happened in the market impact.
Rates on all kinds of Levered investments.
Versus the <unk>.
Specific opportunities that you see ahead of you I'm, sorry, if some of that as well.
Yeah look I think the question on package is really important in some of these faster growing industries and I'd make a couple of comments.
We tend to focus on companies that have positive cash flow.
And make money, particularly in private equity when we invest in tech and it's often tech services businesses.
Even in our growth equity business, we focus on companies that either make money or have high gross margins and the companies that are facing the greatest pressure today are those that are more speculative in nature that have to keep raising capital over time, and where the increase in discount rate impacts value, So where are we.
Focus I think is really important I would also point out that even in some of our tech companies, we've taken public as they've traded off we still have very significant embedded gains given where we bought these businesses and when you look at the performance of our more tech oriented investments.
In the fourth quarter revenues in our tech companies in private equity were up 20% and in growth up 40% and thats not a surprise because even though there's been a pullback in market. There are big secular trends that are still underway all of us are getting more Amazon boxes to our home E. Commerce is growing 15 20.
Percent cloud migration continues to accelerate I was talking to our head of technology, John Stecher yesterday, who estimates our portfolio companies are spending 15% to 20% more on technology. This year that is an awful big number consumers education moving online when you talk about <unk>.
<unk>, what's happening we've made a big push into Ed Tech they've gone from spending 5% to 7% more on software and digital today to 15 plus percent digital infrastructure of course, benefiting because you need datacenters in towers and so there is secular growth in these areas yes. Some.
These stocks shortly got to levels that didn't make sense. We've now seen a pullback, but I wouldn't know say, therefore technology technology services content creation. This stuff doesn't make sense to invest in we think it could lead to more opportunities and more rational pricing and we really like the portfolio of businesses.
We're investing in it and Glenn I'd, just as Michael I'd, just add to that that particularly in private equity yes.
Yes. These are businesses with great secular tailwind that grew in the fourth quarter when the order of 20% topline, but they're highly profitable. They are at scale and we importantly, we bought them at reasonable prices were still value investors since we bought them at reasonable prices and multiples of things like EBIT that you rarely and metric you really hear about in the space and <unk>.
<unk> and as always with all investments for 35 years, we underwrote them too long term exit multiples that assume normalization of rates and multiples and so forth. So and as a result, we feel we have significant embedded gain in the portfolio overall notwithstanding fluctuations in markets.
Thank you for all of that then.
Thank you and your next question comes from the line of auto Gablet from BNP, you're live in the call. Please go ahead.
Yes, good morning.
Could I ask please.
On the wealth and mass affluent channels in Europe .
They seem to be developing very well could you give us some a bit more color on how what youre doing in Europe , you mentioned earlier fitness.
Hitting $700 million how far could this go what are the products that you're launching.
Are you getting closer to entering partnerships with some of the key European wealth managers. Thank you.
Yes, Europe is I think an area of real opportunity for us over time, but I do want to acknowledge that it's more challenging in the sense.
Almost every EU country has its own <unk>.
<unk> about private wealth they are not all synchronized.
Obviously, there are different languages.
As well and and you have.
Much less consolidation generally amongst distributors wealth managers and show the amount of boots on the ground you need.
To distribute this and legal work you need to do is significant.
The good news is we've got some terrifically talented people leading that effort for us in Europe , and we've been committing significant resources to this and we will continue to move and I think this is another market, where we could have a meaningful first mover advantage, where the strength of the brand really matters the products really matter.
We have distributed.
With some of the global firms, our <unk> product, our <unk> products, but now having more targeted products in Europe in euros will make a difference, but I wouldn't expect it to move as quickly just because it requires a lot of effort country by country, but we are as Steve likes to see.
Say a persistent bunch. So this is something where we're really focused on.
Okay. Thank you and your next question comes from Adam Beatty from UBS. Your line Nicole. Please go ahead.
Good morning, Thank you for taking the question.
Gave some context earlier about how the firm has grown and evolved in the past few years since the Investor day, It would be great to get your thoughts on how the organization has grown and evolved at the same time to be able to support the the much larger a round the doubling of number of products et cetera, and maybe.
In particular, the role of technology in that thanks very much.
So that is something you might imagine we spend a lot of time talking about because the most important thing as we grow is to maintain our culture attracting great talent.
Making sure they have a wonderful experience here the best people want to come that we continue to be a meritocracy and also making sure we maintain our investment discipline, we never want to be a franchise business. We still have centralized investment control, we've got to make sure we maintain process and discipline.
As we grow because thats the way investment managers get into trouble. So what are we doing in this regard I would say theres a multitude of things obviously, it bottomed up we've been expanding our analyst class, meaning meaningfully, but also our training and Onboarding something Steve has been really focused on we put a law.
Lot of effort on to make sure we have people as integrated as possible we've been doing more in the way of lateral hiring we've hired a number of senior leaders to lead new initiatives or to move into existing business is something in the past we hadn't done as much of but given our rate of growth we need to do that and then we see.
A highly integrated management Committee operating Committee every Monday morning, we do our Bx TV you might've seen our holiday video that made fun of us about it we are focused on keeping this firm connected and then the investment committees are still run out of New York centralize different investors.
Committees for different groups, but a number of people who are similar including folks who are on this call on a multiple of these investment committees and so we're thinking about our process how to streamline it in certain ways, but maintain the same investment discipline that we've always had over time and the great News is we've had.
A lot of continuity with people here and we're also attracting all this wonderful talent. So the number we talk about 29000 young people last year applying for 120 jobs, that's an incredible number and I am happy when I applied way back when that wasn't the number.
But but it's really important to maintain control and discipline as we have these really tremendous levels of growth.
That's perfect. Thank you very much.
Thank you and Youll final question comes from Chris Kotowski from Oppenheimer. Your live in the call. Please go ahead.
Hi, Yes, good morning, and thank you I guess Thats a question for Michael probably but I wanted to understand the.
Fee related performance fees, a bit better because I recognize obviously it was a great quarter and a great year, but the first nine months were were pretty darn good.
And as of end of the third quarter.
The accrued performance fees in <unk> or something like $500 million and then it ended up the year end performance fees ended up being.
One 5 billion.
Was that just because you had kind of accrued to conservatively in the first part of the year or was there a jump in the fourth quarter or what drove that.
No I think well first of all you have to look obviously the difference between gross and net and so when you see the APR receivable that we disclose every quarter. That's obviously on a net basis and what you see on a consolidated and by segment basis in our 8-K, when and when they become that becomes realized revenues.
Is growth as gross revenues and so.
With the cost and comp against that in the overall fee related compensation line.
So.
You can see it coming on a net basis in the prior quarter.
There was also.
Incentive fee in the fourth quarter from infrastructure that you would have also seen on the on the receivable in the prior quarter, but then add to that of course in the fourth quarter. You also get the benefit of the further appreciation in inflows and growth in asset base. So.
It's there.
We're cognizant that overtime and confident that over time.
A number of different factors, the visibility and sort of.
The predictability of this I think will only be enhanced over time, even as it scales and grows.
Okay, great and on the private equity side, the $212 million.
Is that.
Uh huh.
Yes.
Which.
Each category.
<unk>.
Drove that.
Whats our tracking mechanism towards that end and should that be a once a year thing or is that a.
Quarter by quarter thing from here.
Right, Chris So as I mentioned in my remarks, and then just now to your first part of your question that was the that was the incentive fee from infrastructure from our infrastructure fund and and.
And that is in that category, along with the PPP funds that has periodic but recurring incentive fee.
Events.
Typically three years from the three year anniversary of the investor inflows or in some cases five year, principally three years in the case of infrastructure three years.
Okay, Great I'll, just say overall in terms of in terms of this area as I mentioned, you saw NAV growth ingest.
<unk> a triple in the year, so $21 billion between those two strategies went to 67 billion entering this year, we had inflows on January one between the two strategies of $4 billion.
And obviously as we've talked about we feel great about the positioning of the portfolios and the further appreciation. So you combine those three factors and notwithstanding that we have a tougher compare relative to that terrific theory return, we feel really good about the growing fee base.
And the outlook ahead.
Great. Thank you.
Thank you and now I'd like to hand back to Weston for closing comments.
Great. Thank you everyone for joining us and look forward to following up after the call.
Goodbye. Thank you.
Thank you Weston and thank you to all your speakers and thank you everyone that concludes your conference call for today you may now disconnect. Thank you for joining and enjoy the rest of your day.
Yeah.
Yes.
Thank you.
Yes.
Sure.