Q4 2023 Blackstone Group Inc Earnings Call
Okay.
Good day, and welcome to the Blackstone fourth quarter and full year 2023 Investor call. Today's conference is being recorded at this time all participants are in a listen only mode. If you require operator assistance at any time. Please press star Zero. If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
At this time I would like to turn the conference over to Weston Tucker head of shareholder Relations. Please go ahead.
Great. Thank you 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 J, <unk> 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. This later next month.
Weston Tucker: I'd like to remind you that today's call may include forward looking statements, which are uncertain and may differ from actual results materially we do not undertake any duty to update these statements for a discussion of some of the factors that could affect results. Please see the risk factors section of our 10-K.
Michael Carrier: Well also refer to non-GAAP measures and you'll find reconciliations in the press release on the shareholders page of our web site.
Michael Carrier: 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.
Michael Carrier: Quickly on results, we reported GAAP net income for the quarter of $109 million distributable earnings were $1 $4 billion or $1 11 per common share and we declared a dividend of 94 sites, which will be.
Paid to holders of record as of February 5th with that I will turn the call over to Steve.
Stephen Allen Schwarzman: Good morning, and thank you for joining our call.
Stephen Allen Schwarzman: Blackstone reported strong results for the fourth quarter of 2023.
Stephen Allen Schwarzman: Including our highest distributable earnings in six quarters.
Do you have the volatile year for global markets.
Stephen Allen Schwarzman: Most major equity indices rebounded from significant declines in 2022.
Stephen Allen Schwarzman: Wide intra year swings driven by historic movements in treasury yields.
Stephen Allen Schwarzman: Economic uncertainty and geopolitical instability.
Stephen Allen Schwarzman: Against this backdrop Blackstone generated steady fee related earnings of $4 3 billion for the year.
Stephen Allen Schwarzman: Underpinning healthy distributable earnings of $5 1 billion.
Stephen Allen Schwarzman: Performance revenues were down as expected in the context of limited realizations as we choose to sell less and unfavorable markets.
Michael Carrier: Designed to firm to provide resiliency in times of stress and captured the upside as markets recover.
The fourth quarter as bond yields declined market's rallied we executed several realizations driving strong sequential growth.
Michael Carrier: <unk> to one point.
Michael Carrier: $4 billion.
2023 was also a year of important milestones for Blackstone.
Michael Carrier: With the first alternative manager to surpass one trillion dollars of assets under management.
Michael Carrier: We were also the first in our sector to be added to the S&P 500 index.
Michael Carrier: Positioning our stock to be even more widely owned.
We were pleased that <unk> shares ranked in the top 20 best performing.
Michael Carrier: Out of the 500 stocks.
Michael Carrier: And the S&P 500 index last year.
Michael Carrier: Blackstone is now at 55th largest U S public company by market cap.
Michael Carrier: Exceeding the market value of all other asset managers.
Michael Carrier: And in December we.
Michael Carrier: We released our sixth annual holiday video.
Michael Carrier: Which has received over 8 million views.
Michael Carrier: Which may not say something about our limited acting skills, but it certainly says something about the Blackstone brand.
Michael Carrier: Our funds appreciated overall in 2023.
Michael Carrier: Highlighted by strength in credit.
Michael Carrier: Infrastructure corporate private equity.
Michael Carrier: Life Sciences.
Michael Carrier: As we weather the difficult environment for real estate.
Michael Carrier: Stepping back over the last two years.
Michael Carrier: The campaign by central banks to control inflation.
Michael Carrier: Has resulted in muted returns.
Michael Carrier: Most traditional asset classes.
Michael Carrier: The S&P 500.
Michael Carrier: Returned.
Michael Carrier: Only 3%.
Michael Carrier: Over two years, while the media and U S stock actually declined 9%.
Michael Carrier: And the REIT index was down 14%.
Michael Carrier: The traditional 60 40 portfolio.
Michael Carrier: Lost value.
Michael Carrier: Down 3%.
Michael Carrier: In contrast, Blackstone Blackstone flagship strategies generated positive appreciation over this period and meaningfully outperformed the relevant public indices for example.
Michael Carrier: Our corporate private equity funds appreciated 12% over the past two years compared to the S&P up 3%.
Michael Carrier: Outperformance of 9%.
Michael Carrier: Our real estate equity strategies appreciated 1% to 6%.
Weston Tucker: Compared to negative 14.
Weston Tucker: Public Reits.
Weston Tucker: Does that dramatic.
Weston Tucker: Outperformance.
Weston Tucker: In credit our private credit strategies depreciated, 25% growth.
Weston Tucker: The high yield index was up only 2%.
And generated a 13% gross return to the bps composite over the past two years.
Weston Tucker: A remarkable achievement in liquid markets and well ahead of the hedge fund index.
Weston Tucker: Actually was down 1%.
Weston Tucker: Thats outperformance of 12%.
And finally, our infrastructure business appreciated 33% over the past two years compared to only a 7% return for the S&P infrastructure index.
Weston Tucker: That's outperformance of 26%.
Weston Tucker: This outstanding performance is.
Weston Tucker: One of the reasons, we've been able to build this platform from zero six years ago.
Michael Carrier: Over $40 billion today.
Michael Carrier: Overall, the ability to outperform market indices over long periods of time is what are the alternatives asset class and Blackstone in particular continue to have significant momentum.
Michael Carrier: Our limited partners have benefited from the exceptional balance of the firm and the careful way we positioned their capital.
Michael Carrier: Volatile world.
Michael Carrier: One of the key advantages it comes from our leading scale is having more.
Michael Carrier: Better and richer private data.
Michael Carrier: Which informs how we invest.
Michael Carrier: And John referred to this on TV today.
Michael Carrier: Our portfolio consists of over 230 companies.
Michael Carrier: More than 12000 real estate assets and one of the largest credit businesses in the world.
Michael Carrier: We marshal real time data across these holdings to develop macro insights that we then share across all of our businesses, allowing the firm to adapt quickly.
Michael Carrier: Ranging conditions.
Michael Carrier: We believe our access to information exceeds that of our competitors.
Michael Carrier: Positions the firm very well as we move towards a world driven by artificial intelligence.
Michael Carrier: Area on which we are already very focused.
Michael Carrier: This process of aggregating data and information helps us identify trends early and often.
Michael Carrier: Leads us differentiated views on what's happening around the world.
Michael Carrier: In early 'twenty. One for example, it led us to the conclusion that inflation would be higher and more pervasive in the consensus expectation and.
Michael Carrier: And we've positioned the firm accordingly.
Michael Carrier: We then started speaking publicly and inflation was moderating as early as October 2022.
Michael Carrier: With increasing frequency in 2023.
Michael Carrier: Data from our portfolio companies showed that inputs input cost inflation was rapidly declining.
Michael Carrier: We persisted in the SKU, even when the 10 year treasury yield spike to a 16 year high of 5% in October.
Michael Carrier: As we all know that.
Michael Carrier: 10 years subsequently declined over 100 basis points and to year end the opposite of what many market participants believed would happen.
Michael Carrier: Our access to information is an enduring competitive advantage here at Blackstone.
Michael Carrier: And this advantaged grows as we grow larger.
Michael Carrier: As we move into 2024, we note that the rise in investor confidence around the shift from a restrictive monetary policy to one that is more accommodating.
Michael Carrier: We now believe CPI.
Michael Carrier: Is running below that.
Michael Carrier: <unk>, 2% target.
Michael Carrier: After adjusting our reported numbers for shelter costs.
Speaker Change: Which lagged what we've observed on the ground is one of the largest investors in this area.
Michael Carrier: At the same time U.
Michael Carrier: U S economy has remained quite strong.
Michael Carrier: Unemployment is nearly unchanged since the startup of the fed's tightening cycle.
Michael Carrier: Most consumer segments are healthy.
Michael Carrier: Balance sheets are strong and credit fundamentals remain solid and our own portfolio. Our companies are showing strong top line performance overall as well as earnings growth as cost pressures have eased.
Michael Carrier: We see a resilient economy.
Michael Carrier: Be it one it is to show a decelerating.
Michael Carrier: What we're seeing is consistent with this our planning.
Overall with the <unk>.
Weston Tucker: Cost of capital moving lower market confidence returning.
We believe we are entering a supportive environment for our business.
Michael Carrier: Changing market conditions take time to fully translate to our financial results the fourth quarter reflected an acceleration in key forward indicators, including both fundraising and deployment.
Michael Carrier: We're planting seeds.
Michael Carrier: Expanding invested capital in the ground and with nearly $200 billion of dry powder, our purchasing power for investments.
Michael Carrier: Seeds almost any other company in the world.
Michael Carrier: I'll believe.
Michael Carrier: We will look back at 2023 is the bottom for our firm.
Michael Carrier: Looking forward <unk>.
Weston Tucker: <unk> is exceptionally well positioned to navigate the road ahead.
Weston Tucker: Our investors can count on the dedication of our people and.
Michael Carrier: And the enduring nature of our culture characterized by excellent achievement team.
Michael Carrier: Teamwork.
Michael Carrier: Hard work and the highest standards of ethics and integrity.
Michael Carrier: Our employees embody these values.
Michael Carrier: Approach their work every day.
Michael Carrier: And for what they do.
Michael Carrier: Unwavering commitment to serving our clients.
Michael Carrier: We've created an environment with firm.
Michael Carrier: As defined by meritocracy.
Michael Carrier: And a quality of opportunity.
Michael Carrier: We do not discriminate against anyone based on race.
Michael Carrier: Background religious beliefs gender or sexual orientation.
Michael Carrier: We are proud of these values.
Michael Carrier: Our people want to create and build their careers at Blackstone.
Michael Carrier: And there is a huge demand to work at the firm.
Michael Carrier: We had 62000 unique applicants.
Michael Carrier: For 169 positions and the latest analyst class, reflecting an acceptance rate of zero point to seven 1%.
Michael Carrier: Dramatic change from when we started the firm 38 years ago.
Michael Carrier: When frankly.
Michael Carrier: Anyone wanted to join us.
Michael Carrier: This provides the foundation for the next generation of remarkable talent.
Michael Carrier: And will drive our growth for the foreseeable future.
Michael Carrier: Blackstone is an extraordinary place.
Our prospects are very strong.
Im highly enthusiastic about what we will accomplish for our shareholders in 2024 and with that I'll.
John: I'll throw the ball over to John.
John: I'm happy to catch it thank you, Steve and good morning, everyone.
John: I am proud of how we've navigated the challenging markets of the past few years by focusing on the right sectors. We believe we're now heading into a better environment as Steve noted with inflation and cost of capital headwinds moderating.
John: This backdrop is leading to the emergence of three powerful dynamics across our business.
Michael Carrier: We believe that real estate values are bottoming.
Steve: Second our momentum in the private wealth channel is building.
Steve: And third investment activity has picked up meaningfully across the firm, which is a key element of creating future value.
Steve: I'll discuss each of these dynamics in more detail.
Steve: First as I said, we believe values in commercial real estate are bottoming. This doesn't mean, there won't be more troubled real estate investments to come in the market, particularly in the office sector, which were set up during a period when borrowing costs were much lower nor does it mean, we won't see a slowing in.
Steve: <unk> in certain sectors with access near term supply.
Steve: What it does mean is that the cost of capital appears to have peaked as borrowing spreads have begun to tighten and the fed is no longer raising rates unlikely cutting them in 2024.
Steve: Also importantly, new construction starts have started to move down sharply in commercial real estate, which is quite positive for long term values.
Steve: While it will take time, we can see the pillars of our real estate recovery coming into place.
Steve: We are of course, not waiting for you all clear sign and believe the best investments are made during times of uncertainty, we announced three major real estate transactions in the past few months the $3 5 billion take private of tried calling residential a partnership with digital realty to develop $7 billion of data centers.
Steve: In a joint venture with the FDIC to acquire a 20% stake in a $17 billion first mortgage portfolio from the former signature Bank. We think this is just the start and Blackstone real estate has 65 billion of dry powder to invest into this dislocated market.
Steve: Meanwhile, in our existing portfolio, we've absorbed the increase in interest rates and cash flows are growing or stable in most areas. We continue to see robust fundamentals and logistics student housing and data centers, which together compromise comprise the majority of our real estate equity portfolio.
Michael Carrier: That said in Q4, the value of our funds declined by four to four 5% primarily relating to two factors first the single largest driver was the decline in the unrealized value of our interest rate hedges as treasury yields fell we put these structures in.
Place to fix our financing costs ahead of the rise in interest rates and they have generated significant value.
Michael Carrier: Second in our life Sciences office and U S. Multifamily holdings near term performance has decelerated as new supply works its way through the system.
Michael Carrier: The residual effect of construction undertaken in a low rate environment.
Michael Carrier: The good news is that new supply in these sectors and for virtually all other types of real estate is declining materially as I mentioned.
Michael Carrier: We believe that with our exceptional portfolio positioning in large scale dry powder, our real estate business will emerge from this cycle even stronger than before.
Michael Carrier: Outside of real estate, our other businesses are demonstrating resiliency and fundamental strength, our credit and insurance teams had a remarkable year in 2023.
Michael Carrier: With gross returns of 16, 4% and the private credit strategies and 13% in liquid credit. These are extraordinary results for a performing credit business the default rate across our nearly 2000 non investment grade credits is only 30 basis.
Michael Carrier: <unk> points over the last 12 months and in our investment grade focused business. We placed our originated $30 billion of a quality credits on average in 2023 for our major insurance clients, which generated 190 basis points of excess spread.
Michael Carrier: Compared to comparably rated liquid credits.
Michael Carrier: In corporate private equity our operating companies overall reported healthy revenue growth in the fourth quarter of 7% year over year, along with margin strength on.
Michael Carrier: On the inflation front wage growth continued to moderate and for the first time in two and a half years. The majority of our survey companies are not finding it challenging to hire workers.
Michael Carrier: And finally for Bam since the start of 2021, when we brought in Joe Dowling to lead the business. The bps composite has been up every quarter outperforming the 60 40 portfolio by approximately 200 basis points.
Joe Dowling: Moving to the second key dynamic emerging in our business our momentum in private wealth.
Blackstone has been serving this channel with a dedicated organization for 13 years, and we are the clear market leader with nearly $240 billion of a AUM.
Michael Carrier: We built enormous trust with our investors by delivering outstanding long term performance, including 11% net returns annually from be reach largest share class and 10% for <unk>.
Michael Carrier: We raised nearly $5 billion in the channel in Q4, including $3 6 billion for our perpetual vehicles.
Michael Carrier: Subscriptions for perpetual has accelerated to $2 7 billion on January 2nd reflecting the best month of fundraising from individual investors since June 2022.
Michael Carrier: <unk> had its best month since May 2022, raising $1 1 billion in January and our new private equity vehicle DXP raised $1 $3 billion in January which we believe is the largest ever first close of its kind.
Michael Carrier: DXP will leverage the firm's full breadth of investment capabilities in private equity, including buyout secondaries tactical opportunities life sciences' growth and other opportunistic strategies.
Michael Carrier: At the same time.
Michael Carrier: <unk> has weathered the storm and real estate markets in December repurchase requests were down over 50% from Q3 and down 80% from last January peak.
Michael Carrier: If current trends continue we expect to be auto proration this quarter.
Michael Carrier: The reach semi liquid structure has worked as designed since launching the vehicles seven years ago by providing liquidity while protecting performance.
Michael Carrier: Six of those years redeeming investors were fulfilled immediately over the past year. It took a little over four months on average to be substantially redeemed. We believe investors experience of receiving double the public REIT market over the past seven years with this semi liquid structure is proof of concept we continue to be.
Michael Carrier: Optimistic about our prospects and the vast underpenetrated private wealth channel given our performance the investment we've made in distribution and our highly differentiated brand.
Joe Dowling: In addition to private wealth. We also have very strong momentum in the insurance channel. Our AUM grew 20% year over year to 192 billion.
Joe Dowling: And we have clear line of sight to 250 billion over the next several years with existing clients alone.
Joe Dowling: We expect to benefit from multiple engines of growth as these clients execute pension risk transfers additional annuity sales new insurance block deals and separate accounts for sector specific lending.
Joe Dowling: Turning to the third key dynamic the firm's investment activity is accelerating.
Joe Dowling: Following a choppy year, we deployed $31 billion in the fourth quarter up two five times from Q3 and committed $15 billion to pending transactions. We continue to emphasize key thematic areas, including digital infrastructure enterprise software and energy transition.
Michael Carrier: In private equity, where privatizing two leading digital marketplaces, including at a vintage in Europe and Rover My family's favorite in the pet space. We also committed to acquire <unk> energy services software firm in the U S and in online payments business in Japan.
Michael Carrier: In credit borrower demand is multiples of supply today and deployment and our credit insurance and real estate credit businesses more than tripled in Q4 compared to the third quarter to $21 billion and we've also been providing creatively structured capital solutions and Tac ops set.
Michael Carrier: <unk> and Bam.
Michael Carrier: As Steve highlighted we're planting seeds for future realizations at a favorable moment and.
Michael Carrier: In closing we are optimistic on the path ahead with multiple powerful dynamics unfolding in our business the recovery will not be a straight line, but as always our brand and track record will continue to drive us forward and our shareholders stand to benefit from the firm's substantial embedded earnings power.
Michael Carrier: Over time, and with that I will turn things over to Michael J.
Michael Carrier: Thanks, John and good morning, everyone.
Michael Carrier: The firm delivered resilient performance in 2023, and as we move forward beyond what we believe was a cyclical trough for key business lines, we are well positioned.
Michael Carrier: I'll first review financial results, and then will discuss the key elements of the forward outlook.
Michael Carrier: Starting with results total AUM increased 7% year over year to new record levels led by robust strength in credit and insurance.
Michael Carrier: Total inflows reached nearly $150 billion for the full year, a third best in our history, despite the challenging fundraising environment.
Michael Carrier: Delighted to firms expansive breadth of strategies.
Michael Carrier: Fee, earning AUM increased 6% year over year, while base management fees rose, 7% to a record six 5 billion.
Michael Carrier: Q4 represented the 56th consecutive quarter of year over year growth of base management fees.
Michael Carrier: Fee related earnings were $4 3 billion for the year were $3 58 per share stable with the prior year.
Michael Carrier: Underpinned by the growth in management fees, along with continued margin expansion notwithstanding a decline in fee related performance revenues FRE.
Weston Tucker: FRE margin expanded 75 basis points to 57, 8% for the full year.
Weston Tucker: Highest level ever.
Weston Tucker: Fee related performance revenues were $859 million for the year with a lower contribution from real estate, partly offset by a 51% year over year increase in these revenues from our direct lending business as it continues to grow and scale and impact to the firm's financials.
Weston Tucker: Distributable earnings were $5 1 billion in 2023 or $3 95 per common share.
Weston Tucker: While FRE was a balanced earnings throughout the year the shape of the year was driven by our sales activity.
Weston Tucker: Net realizations were muted in the first three quarters as we remained highly selective amidst a volatile backdrop for broader markets and asset values.
Weston Tucker: In the fourth quarter, we took advantage of more favorable conditions to execute the sales of public stock across multiple holdings, along with a number of other realizations.
Speaker Change: In addition, Bam crystallized incentive fees for most of its open end strategies annually in Q4, and the segment's performance revenues increased 43% year over year commensurate with its strong overall 2023 investment performance.
Speaker Change: In total net realizations for the firm were $425 million in the fourth quarter up 16% year over year and up 64% sequentially from Q3.
Speaker Change: The growth in net realizations lifted total distributable earnings to $1 4 billion in the fourth quarter.
Speaker Change: Highest level in six quarters as Steve highlighted our $1 11.
Speaker Change: Common share.
Speaker Change: Moving to the outlook.
Speaker Change: The firm is moving forward strong underlying momentum across multiple drivers of growth.
Speaker Change: First in our drawdown funds business, we've raised over 80% of our 150 billion target for the most recent vintage of flagships, but less than half was earning management fees as of year end.
Joe Dowling: We expect this to increase to the substantial majority, earning management fees by the latter part of 2024.
Joe Dowling: The recently launched the investment period for our European real estate vehicle and over the coming quarters, we expect to activate our flagships corporate private equity.
Joe Dowling: <unk> energy transition growth equity infrastructure secondaries and by early next year GP Stakes in life Sciences. These funds will earn fees following their respective fee holidays.
We expect to activate our corporate private equity flagship in the near term, which has raised $18 billion to date towards target of at least $20 billion.
Joe Dowling: Followed by a four month fee holiday.
Joe Dowling: At the same time, we are moving towards the next vintage of fundraising for multiple strategies, including the near term launch of fund raising for our fifth private credit opportunistic strategy targeting $10 billion.
Second our perpetual capital platform has continued to expand today, comprising 44% of the firm's fee, earning AUM.
Joe Dowling: Key drivers of recent growth includes <unk>, and our infrastructure platform, which grew fee, earning AUM by 26% and 21% in 2023, respectively.
Co mingled VIP infrastructure vehicle has achieved 15% net returns annually since inception and its next scheduled crystallization of fee related performance revenues will occur in the fourth quarter of this year with respect to three years of games.
Joe Dowling: Third in the insurance channel.
Joe Dowling: AUM has reached 192 billion up 20% year over year as John noted driven principally by our four major clients.
And we anticipate substantial inflows from them going forward underpinning strong growth in fee revenues in FRE in this channel.
Joe Dowling: Finally with respect to realizations.
Joe Dowling: We are positioned for an eventual acceleration realizations in the context of more supportive markets. Although it will take time to build the pipeline.
Joe Dowling: Performance revenue eligible AUM in the ground is $505 billion.
Joe Dowling: Up 12% over the past two years, despite volatile markets and up over 70% in three years.
Joe Dowling: We hold a large scale high quality portfolio, which is well diversified across asset classes regions and vintages.
Our net accrued performance revenue on the balance sheet stands at $5 8 billion.
Joe Dowling: The firm's embedded performance related earnings power is significant.
Joe Dowling: As always our long term capital affords us the patients to optimize our exits over time as markets heal in order to maximize value for our investors.
Joe Dowling: In closing history has shown that Blackstone has always emerged from cycles even stronger.
Joe Dowling: Business has been built on this throughout nearly four decades.
We are now in the process of emerging from a significant cycle and we are confident that history will repeat itself again because of the power of our brands our platform our people and our culture.
Joe Dowling: With that we thank you for joining the call and would like to open it up now for questions.
Joe Dowling: Thank you as a reminder, please press star one to ask a question.
Joe Dowling: Ask you limit yourself to one question only to allow as many questions as possible.
Joe Dowling: We'll go first to Craig Siegenthaler with Bank of America.
Thanks, Good morning, everyone.
Joe Dowling: My question is on investing Steve I think I first heard your bullish commentary at Davos last week, but John really supported it today in the prepared comments with this.
John Williams: The MBS market reopening and cost of capital falling spreads are tighter. So the backdrop does seem to be a lot better winning with them. When you last hosted a call it thats not sober.
Craig Siegenthaler: And also your deployments new commitments were up nicely too so.
John Williams: What is your outlook for deployments broadly in 2024 versus the 74 billion last year it sounds like it could be a double.
John Williams: [laughter] Craig Love the question.
Craig Siegenthaler: I would say putting numbers on this is very hard given the nature of the business.
Craig: What we can say is lots of good things are coming into place right. We've got the fed moving from tightening to lowering rates, you've got debt market spreads starting to come down a bit you've got an equity market that has rallied I think we're going to see the IPO market.
Craig: Pickup and then M&A volume is picking up as well there are lots of companies out there.
Craig Siegenthaler: Who would like to sell things private equity firms in particular, there are folks in real estate have been frozen here for a couple of years. So.
Craig Siegenthaler: Putting numbers on it is hard, but we would expect deal activity to pick up it's sometimes of course takes time to do these things. So a bunch of the deals you saw in private equity we've been working on for some time, but the path of travel here is sort of up into the right in terms of deal activity, putting an exact number I think it's just tough.
Craig Siegenthaler: Thank you we'll take our next question.
From Crispin Love with Piper Sandler.
Crispin Love: Thanks. Good morning, I. Appreciate you taking my question can you just give us your views on the apartment sector right. Now you made a pretty good size deal in the space last week. So curious on your views on that deal and just apartments in general as we head into 2024, and how that stack rigs against the other sectors.
Crispin Love: We're most active in real estate and if you could see additional activity in that space.
Crispin Love: So a couple of things here the transaction, we announced last week included an apartment component, but that was mostly in Canadian apartments. The vast majority of the company is focused on single family for rent.
Crispin Love: That space because of the shortage of single family homes has been much stronger.
In the multifamily space.
Crispin Love: As we've noted here what we've seen is a.
Crispin Love: A surge of new supply that was put in place during the low rate period when values have moved up a lot and that's going to take probably 12 months, maybe a little longer to work through right now rents have moved down to a level, where they are pretty flat in some cases modestly negative.
Crispin Love: And as I said that will take some time. The good news is multifamily construction is now down about a third and so once you sort of work through this we should be in a much better place in the overall backdrop is one of a housing shortage in the United States. So single family stronger near term multifamily.
Crispin Love: Definitely a little bit weaker but in overall constructive housing environment in terms of our investment activity. It's possible you could see us invest into the weakness in multifamily because we've got a long term constructive view, even if there are some near term headwinds.
Crispin Love: Yeah.
Crispin Love: Thank you Christine we will go next.
Chris Shutler: We will go next to Michael Cyprus with Morgan Stanley.
Michael J. Cyprys: Hi, good morning, Thanks for taking the question I wanted to ask about the commercial real estate lending platform that you have from VX emptied breads and the institutional SMA is I was hoping you could talk a bit about how you're broadening out the platform and the capabilities and how big of an opportunity set do you see given certain end market pressures.
Michael J. Cyprys: As well as certain constraints facing U S banks and other existing CRE investors.
Michael J. Cyprys: While we definitely think it's a good time to be a commercial mortgage real estate lender because the sentiment is so poor and to your point Michael capital as pull back banks are trying to reduce exposure our business today I think is a little over $70 billion in that space.
Michael J. Cyprys: And the nice thing about the capital we have is it really runs the gamut, we have our BREDS funds, which are more high yield in nature, we're raising the fifth vintage of that we do transitional mortgages and Blackstone mortgage Trust then we have our insurance clients, who want to do more stabilized real estate.
Michael Carrier: And then we also have for the insurance clients and other clients, what we do in the <unk> market around liquid securities and real estate debt and we think this is a sector that is really lag. If you look at spreads are pretty wide by historic standards loan to values have fallen it's the natural thing that happens after a downturn and so.
Michael Carrier: I think this is an area that can continue to grow at a pretty good clip just because I think you can earn very attractive returns relative to the risks and just like on the equity side. This is an area, we're going to be leaning into as we move into this year.
Michael Carrier: Great. Thank you. Thank you we will go next to Finian O'shea with Wells Fargo Securities.
Finian O'shea: Hey, everyone. Good morning.
Finian O'shea: Michael I appreciate your color on the flagship in management fees.
Finian O'shea: Can you touch on if there is perhaps more of a headwind to come in terms of step downs or otherwise as you go through the the flagship holiday periods or if it should be more of a smooth journey from here.
Michael Carrier: Given of course stable to improving deployment over the course of this year. Thank you.
Michael Carrier: Sure.
Michael Carrier: Yes, as we outlined.
Michael Carrier: This year as opposed to last year, where I think in the second half of the year there was more of a sort.
Michael Carrier: Sort of an absence of significant flagships lighting prep Europe being an exceptional late in the year.
Michael Carrier: But there will be a series of activity, we anticipate throughout the year.
Michael Carrier: I mentioned sort of the multiple funds that fit in that category.
Michael Carrier: Almost all of them as you alluded to have a three or four month fee holiday. So it will be sort of seeing that unfold in the course of the next few quarters.
Michael Carrier: And you will see all else equal because of the fee holiday some marginal pressure on that.
Michael Carrier: But I think what we look at the overall growth rate and how that will layer in.
Michael Carrier: We see an embedded upward ramp on management fees, although it will accelerate later in the year as opposed to earlier.
Michael Carrier: Thank you.
Michael Carrier: We'll go next to Alex Blaustein with Goldman Sachs.
Alex Blostein: Hey, everybody. Good morning, Thank you for the question.
Alex Blostein: Another one on real estate and maybe zoning in on core real estate for a second and obviously lower interest rates should be really helpful to maybe reigniting some of the investor demand for that part of the market, but how are you thinking about both institutional and retail appetite for core real estate from here, whether it's BP or buried.
Alex Blostein: And what is sort of the level of interest rates, we need to see where those products become compelling again from an investor allocation perspective.
Alex Blostein: So Alex I don't know if it's necessarily.
Alex Blostein: Exactly a certain level I think it's about momentum as you know after investors have have taken losses, even if they're modest losses.
Alex Blostein: <unk> to be caution real estate because of the lag in when challenges materialize, we'll have a number of negative headlines coming out over the course of the year and so what happens is I think investors tend to take their time in terms of pivoting back to the space. That's certainly what happened in the early Ninety's, that's what Hal.
Alex Blostein: <unk> nine and so there is caution so you don't see huge sort of surge of capital flowing in on a dime. What happens is as the recovery first you get this sort of bottoming effect and you start to get some growth in values and then the consensus starts to change what happens in this period of time as you.
Alex Blostein: <unk> tend to get I think the greatest opportunities for investing because you can see the light at the end of the tunnel, but capital Hasnt flown into this space and then over time as results get better. There is limited new supply rates have come back down then people start to go back in because they feel like it's safe to do so I think the short answer.
Alex Blostein: That will take a bit of time on both the institutional and individual investors side, but it's tied to performance and it will take multiple quarters of strong performance, where people say hey, Im comfortable doing this in the meantime, we should be looking to take advantage of this lack of confidence in the marketplace.
Brian Bedell: Thank you we will go next to Brian Bird.
Brian Bedell: Okay.
Brian Bedell: Alright, great. Thanks, good morning folks.
Maybe a question for Michael and maybe John as well, but just.
Brian Bedell: Michael.
Michael: And talking about the pace of the.
Michael: Activations of the funds just wanted to get your sense of confidence.
Michael: Growing the fee related revenue not not including fee related performance is just the base revenue.
Michael: And a double digit pace in 2024, and it sounds like that pace will for calendar 'twenty would actually accelerate based on the timing.
Michael: <unk>.
Michael: The activations throughout the year and then if you can also comment on your view on FRE margin or for 24, excluding the impact.
Michael: Our fee related performance, you said a center that can create noise, but just maybe confidence in scaling the business to.
Michael: Margin expansion in 2004.
Michael: Yeah.
Michael: Sure Brian two parts of that question on the first one on the sort of trajectory of management fee growth for $24 25, I think the short answer is we feel good about it.
Brian Bedell: Can't wait.
Brian Bedell: Don't have the crystal ball necessarily in terms of like quarter to quarter, but structurally we have that embedded ramp as I mentioned it will accelerate throughout the year given me.
Pete.
Brian: A series of funds that will light and we see good strength in the latter half of the year and also in 2025 as you point out.
Brian: We're focused on drawdown funds thats, an important engine the business obviously among other key positive factors its insurance, where we've sort of.
Brian: Had a lot of visibility and articulated it since we really scaled started scaling systems a couple of years ago about built in.
Brian: In many cases contractual inflows from our four large partners and other insurance clients, which and we are pursuing the sort of the industry overall I think with a lot of optimism in the credit insurance area. So.
Brian: I think multiple engines not just the new drawdowns.
Brian: Firing there, although again I think it will accelerate through the course of the year into 'twenty into 'twenty five.
Brian: On margins.
Brian: Obviously, we're in a in a sort of more.
<unk> macro environment, we feel good about our execution on on margins in 2023.
Brian: And what I would say about the outlook is.
Brian: That.
It's early in the year and as always we would encourage you to look on a full year basis, not sort of measure it quarter to quarter, but with that said at the outset of a year again I would reinforce the message of margin stability as a general guidepost.
Speaker Change: Thank you we'll go next to Brennan Hawken with UBS.
Brennan Hawken: Good morning, Thanks for taking my question.
Brennan Hawken: You sort of touched on this a little bit with the margin stability point, but one thing I'm just curious about mechanically so full year 2023, FRE revenue down almost 3% yet comp ratio up over 200 basis points F. R E comp ratio so.
Brennan Hawken: How do how is it possible to generate positive comp ratio leverage when revenues are down does that just suggests that.
Brennan Hawken: FRE margin might compress when revenues grow or just we should think about FRE margins stable.
Brennan Hawken: Just maybe help me understand those mechanics.
Craig Siegenthaler: Yes, I Wouldnt Brennan I would actually just think about it in the real world, our ability sort of collectively to manage our cost structure, which we feel very good about.
Craig Siegenthaler: There is I think structurally a robust underlying long term margin position of the firm that we've demonstrated what sort of operating leverage built into our model.
Brennan Hawken: At the same time, we believe that we take a disciplined approach to cost management and have a fair degree of control over our cost structure.
Brennan Hawken: And as part of that of course, we do take into account the financial performance of each business in terms of management compensation in a given year and I think you also saw on non comp operating costs operating expenses. You also saw the rate of growth in 2023 significantly lower from the prior couple of years. So that's really how we think about it we're not sort of takers of the environment we actively.
Brennan Hawken: Manage.
Our business.
Brennan Hawken: We will go next to Ken Worthington with JP Morgan.
Kenneth B. Worthington: Hi, Good morning, Thanks for taking the question I wanted to dig into the outlook for real estate carry alright. It was clearly depressed in 2023 and Jonathan you mentioned the bottoming of real estate valuations how long do you expect it could take for real estate carry to get back to more normalized levels.
Kenneth B. Worthington: Is this something that you see could possibly bounce back later in 'twenty four is it sort of more obviously at 2025 sort of event or do you expect it could take a while.
Kenneth B. Worthington: Longer into 26, or 27, and then when real estate carry does bounce back to this sort of normal level, what does the macro picture look like at that point.
Jonathan Smith: Okay, well, it's always hard to have a crystal ball, where things are going to develop but but clearly when youre going through a cycle like this as we've talked about it takes a bit of time.
Jonathan Smith: And even the sales process in real estate, where you don't have a lot of liquid public securities you take off the shelf and sell.
Jonathan Smith: That lends itself to time, so yes, I wouldn't expect a big surge in realizations in real estate in the first half of the year, we would expect as we look out over time it will pick up.
Jonathan Smith: It's possible you could do larger transactions with some public companies to get things done.
Jonathan Smith: Certainly our confidence as you get to the back half of the year and into 25, you feel better about that and so I guess, what I would say is this is a transitional year in terms of realizations in real estate I would generally keep expectations on the lower side.
Jonathan Smith: I would feel a lot better as I look out over time and the macro environment for that is a lower rate environment, where we're back to modest growth.
Jonathan Smith: We're at modest growth and we have limited new supply and people are investing again in this asset class because its delivering favorable results. So I do think on real estate realizations, you need a little bit of patients I say that of course, and then something will happen, but that would be our base case assumption. The good news is we feel terrific.
Jonathan Smith: Where we've deployed the capital the huge exposure, we have and some of the very best sectors. The majority of our real estate portfolio on the equity side is in logistics student housing and data centers, all sectors, where we're seeing high single digit rates of growth even in this environment. So when the environment gets better we think.
Jonathan Smith: We'll have the kinds of things the market wants and we will do it when we think values are appropriate we want to maximize returns for our customers because as you know performance is the most important thing and we think as we come out of this cycle just like we did out of the last real estate cycle, we're going to emerge stronger other competitors. We don't believe we'll have the same kind of.
Jonathan Smith: Returns and will help us even further grow our market share. So we want to do this in the right way and it may take a bit of time, but we feel very confident about the ultimate outcome.
Jonathan Smith: Great. Thank you.
Jonathan Smith: We will go next to Patrick Davitt with autonomous research.
Jonathan Smith: Hi, good morning, everyone.
Jonathan Smith: Despite the recovery in markets and competence there are still a lot of observers out there, including senior executives at some of your competitors it seemed pretty cautious on the view that this is going to be a much better private equity realizations year, some even saying that hey, mark still need a negative reset you hinted at it in the prepared remarks, but could you expand on where you stood.
Patrick Davitt: <unk> on that debate and do you have any broader thoughts on why there appears to be such a wide disparity in the <unk> outlook amongst your peers. Thank you.
Patrick Davitt: Well I guess I'd start with the facts last year, we were actually up year on year in private equity realizations.
Patrick Davitt: And generated.
Patrick Davitt: Strong realizations from that sector, which I think says something.
Joe Dowling: About our portfolio, where we positioned it and also the March there. So I think our optimism comes from.
Joe Dowling: We're positioned.
Some of the sectors in terms of.
Joe Dowling: Digital migration, what's happening in energy transition life Sciences, a bunch of businesses in sectors that have done quite well. The fact that we had greater than 7% revenue growth in our portfolio in the fourth quarter. We saw margin expansion as costs came down I'd say, we overall feel.
Joe Dowling: Pretty good about our portfolio.
Joe Dowling: And I think it's a combination as we've talked about of good underlying economic growth.
Joe Dowling: <unk> sectors, and now a more favorable capital markets environment with inflation and rates coming down so that leads us to have some confidence here.
Joe Dowling: Things can change as we saw last share quickly in March of last year with the bank crisis in the late summer with rates moving up but as we sit today, we feel pretty good and so I think in terms of what you own where you carry it.
Joe Dowling: That leads you to your relative level of confidence I believe and so we still feel pretty good about the outlook in private equity.
Joe Dowling: Thank you we'll go next to Dan Fannon with Jefferies.
Joe Dowling: Thanks. Good morning. My question is on DXP and was hoping to.
Joe Dowling: Maybe talk about the addressable market for this product I believe you typically have exclusive distribution relationships.
At the start so I'm wondering when do you think that there'll be broadly available and how that potentially could scale.
Joe Dowling: Well I'd start with the backdrop on individual investors, we've talked about it on these calls in the past, but theres about 80 trillion of wealth globally folks who have more than $1 million of investable assets.
Joe Dowling: We estimate that that's about 1% allocated to alternatives versus call it 29%, 30% with our institutional clients. We think that has a lot of room to grow.
Joe Dowling: Shown success, obviously in strong performance with our private real estate vehicle or private credit vehicles, and we think the natural evolution here as a private equity vehicle strategy is broad based as we talked about on the call not just traditional corporate private equity, but tactical opportunities secondaries.
Joe Dowling: <unk> growth life Sciences really plays to our strengths of this broad platform that we have.
And so as we look forward here, we think individual investors will respond and of course, it's a function of how we deliver overtime. Initially we had a very strong start with that $1. Three first close which reflects the relationships. We built up over time I think an interesting fact.
Joe Dowling: And that was pointed out yesterday is 85% of the financial advisors, who allocated to DXP and that first close had already allocated to be read and even a higher percentage and allocate to be Craig showing cumulatively between <unk> and <unk> showing that our customers feel.
Craig Siegenthaler: Tremendous loyalty to us so the fact that we have these deep long relationships we've developed.
Craig Siegenthaler: Confidence we've delivered performance I think that makes us uniquely position in the retail space and we think creating access to private equity in a semi liquid format will be more attractive.
Craig Siegenthaler: We'll still be investors in the individual investors face, we will invest with us in drawdown funds, but of course, you don't get all that capital back for 12, plus years, and it's got a little bit of a different structure lends itself to a smaller investor universe, we think theres going to be a lot of receptivity to this product we're going to have to do like we do.
Craig Siegenthaler: Did with be read and be Craig, which is deliver for the customers as we do that we think this product can grow to scale. We're today at $60 billion of equity in theory, roughly <unk> 60 of gross assets and we think this product has the opportunity to grow as well, but we've got to deliver for the customers get out there engage and do it.
Craig Siegenthaler: Over time.
Great. Thank you. Thank you will.
Ben Wyatt: Go next to Ben <unk> with Barclays.
Ben Wyatt: Hi, good morning, and thanks for taking the question I wanted to ask on the insurance influence I guess first for the quarter are there inflows really picked up quite a bit versus Q3, and I think came in nicely ahead of where you had initially at least kind of indicated last quarter. You were looking for the year. So was there any sort of pull forward does that sort of changed the outlook for 2024, and then just taking tactically you indicated you would get to the.
Ben Wyatt: $2 50 over the next several years.
Ben Wyatt: Can you be any more specific into what is several mean, how should we be thinking of this $15 billion to $20 billion over the next like three four years, how should we be thinking about that just as we're kind of fine tuning our models. Thank you.
Michael: Ben It's Michael I think overall, there's really good momentum sort of embedded in our insurance and credit business and then just in terms of in real time the interest in flows we're seeing.
Michael: Answer your first question we don't.
Michael: Sort of drivers the inflows I don't think involve sort of a pulling forward from 2025.
Michael: A balanced attack across credit insurance between.
Michael: Insurance clients direct lending, which we highlighted in the 8-K seven 5 billion not just from B credit, but also from institutional clients, our CLO platform, our ABS platform and so on so I would say a very diversified sort of balanced attack if you will.
Michael: I think in terms of the inflows.
Michael: We see in the insurance area, specifically I think earlier in 2023, we talked about sort of a general range target of $25 to $30 billion inflows from before major partners.
Michael: We actually came in a bit above the high end of that range and this year I would just say as a starting point I'm certainly ending point, but it's starting to point, we see baseline expected inflows from those for our clients in that range or better.
Michael: I would just add given our model, which is in the open architecture the opportunity to do SMA with other.
Michael: Individual insurance clients not necessarily these four large strategics, we think that opportunity is significant in and of course, we're out there looking for other strategic partners and our plan as you know is to run a capital light insurance business.
Michael: Managing money and doing it for a wide variety of clients given the performance what we've been able to deliver in terms of credit quality and yield premium we think will attract more insurance companies. So this is an area. We believe have real momentum and we think we have multiple engines of growth and we're going to be added and having.
Michael: These four anchor clients is very helpful.
Michael: Got it thank you very much.
Michael: We'll go next to Mike Brown with K B W.
Mike Carrier: Great I wanted to just ask on the fee rates in the real estate in the credit business, we noticed that they declined in the fourth quarter and understanding that's an output and can be noisy quarter over quarter do you view. This as maybe the right jumping off point into 2024 and can you just help us think about.
Mike Carrier: Maybe the blending of the fee rates on a go forward basis as we expect.
Mike Carrier: About the push and pull of kind of the lower fee rate insurance AUM contrasted with the higher fee high net worth inflows.
Sure Mike.
Mike Carrier: Look I think overall, if you look at our across the firm sort of the math of our average.
Mike Carrier: Average management fee rate across the whole firm, it's been I think remarkably stable over multiple years.
Mike Carrier: If you look at more recently in the last quarter at specific segments, you mentioned credit insurance. If you just do the math I think.
Mike Carrier: It was down like a basis point.
Mike Carrier: So I think it is it is quite stable even though.
Mike Carrier: The growth of <unk>.
And as an attractive and I think high margin growth in our insurance area that does come at a lower sort of a weighted average management fee and so I think to the extent theres been aggregate dilution at the margin or lowering at the margin.
Mike Carrier: Over the last few years, it's been a lot of that is the insurance flows and obviously, we'll take that and if you look sort of excluding the insurance solutions business the.
Mike Carrier: The fee rates have been really really stable.
Mike Carrier: In real estate I think quarter over quarter, there was the effect of the.
Mike Carrier: Of the signature that portfolio coming in.
Mike Carrier: Which is.
17 billion actually fee, earning AUM.
Mike Carrier: That's obviously exciting transaction, we do earn different tiers of fees across most of those assets, we earn fees from the bread equity we're putting in we earn are different.
Mike Carrier: <unk> on our co invest capital and then an overall fee on the asset portfolio, which is at a lower rate, which is how that works with these sort of large scale.
Mike Carrier: That asset portfolio, so that had that as the largest explainer I think of a little bit of <unk>.
Mike Carrier: Lowering of it.
Frankly between quarter over quarter.
Michael: Thank you Michael.
Steven <unk>: We'll go next to Steven <unk> with Wolfe Research.
Speaker Change: Hi, good morning.
Speaker Change: So I wanted to ask a question on election game theory, and I recognize John that you don't have a crystal ball you already covered that but just given the likelihood of a Trump biden rematch potential changes in protectionist policies energy transition and for a what have you you alluded to.
Speaker Change: The accelerated deployment across the platform, but do you see any risk of an activity air pocket until we get improved election clarity in how does it inform your own approach to managing the portfolio and your dry powder across the different strategies.
Speaker Change: Yeah.
Well.
John Williams: I think there'll be obviously intense intense focus on the election.
John Williams: I think it will not detour detour transaction activity, particularly if inflation keeps coming down.
The fed starts cutting interest rates I think that will be more dispositive.
John Williams: There are sectors, which may be more or less affected depending on which party wins here, although its very possible that if one party wins in terms of the presidency. Another party might win in terms of the.
John Williams: The house and so forth and so you end up with divided government and policy changes overall are more moderate I think the most important thing to remember from our firm's standpoint is we take a long term approach when we're investing capital and we try not to get caught up in just the news of the day and if you.
John Williams: Look at our firm over the nearly 40 years since Steve founded here, we've been in governments, where we've had blue red purple and we've delivered for our customers in those environments and since 2007 delivered for our shareholders. We don't expect that to be any different but I'd say transaction activity is going to be more tied to.
The fed's activities, then the election and for US. It's taking this long term approach, but also keeping an eye on are there areas that are more sensitive politically but overall, if we think it's a good time to deploy capital, we're not going to let the election prospects dissuade us.
John Williams: Helpful color John.
John Williams: Thank you we'll take our next question from Bill Katz with Citi Cowen.
William Katz: Okay. Thank you very much I appreciate you taking the questions. So maybe circling back to the credit platform for a while so I appreciate that you have a multi vectored opportunity set there, but there's been some building debate in the market around the outlook for direct lending in light of the fact that perhaps the issues around the banking system are starting to stabilize as a result of that sort of a pickup in <unk>.
William Katz: In the case loan market how are you.
William Katz: I think it plays through in terms of the direct lending opportunity in terms of both unit growth as well as spreads should I. Appreciate you have a very big fund in the market, but just your broader thought process on how it plays out from a competitive and a return perspective. Thank you.
William Katz: Thanks, Bill I think on the on the direct lending front specifically.
Bill: There is more capital coming into the market today as you said the banks are coming back although their appetite for bridging things for long periods of time I still think is a little more limited, but there are other players coming into the direct lending space. The good news going back to the earlier conversation is we're seeing a pick up.
Bill: In transaction activity and so although the supply of capital may be picking up here I think the demand for that capital will grow I'd also say for US specifically with 100 plus billion in this space our ability to write very large checks is a very significant competitive advantage. So the fact that we can commit.
William Katz: To a multibillion dollar transaction on our own across our various private vehicles are bdcs that is really helpful and structurally I think direct lendings competitive advantage is our ability to give borrowers certainties from the bank standpoint of course, they've got to have some flex because they want a distal.
Mike Carrier: Butte that paper, they don't want to take losses, we because we are in the storage business can offer that borrower certainty and so particularly on new originations. We think that is an area that will continue to be strong for direct lending. We think a pickup in deal activity will be helpful. Here and we think our scale will certainly be.
Craig Siegenthaler: Be helpful. So, yes, I think the environment does get a little more competitive the good news is the credit quality of what's being originated still feels very good I mean, the average loan to value last year for us in our direct lending was only 40% a fraction of what it was let's say 15 years ago, and you look across our portfolio and direct.
Craig Siegenthaler: Lending and defaults are almost nonexistent, which is quite remarkable so the platform seems to be in good shape, there may be more capital coming to the space, but I think there'll be more deal flow as well so that's a positive.
Thank you.
Craig Siegenthaler: Yeah.
Arnaud <unk>: Our final question will come from the line of Arnaud <unk> with BNP.
Arnaud <unk>: Hey, Good morning, I was wondering if you could discuss the outlook for someone's fee related revenues would be recent DPP in 2020 full given what you've said on high levels of competition in multifamily and what that does to two rent growth and also given the potential for floating rates in the U S. How should we think about.
Arnaud <unk>: The potential for another cap rates and valuations versus amusement and answers. Thanks.
Yeah.
William Katz: Well I would say this I go back to the Big picture here, which we talked about which is.
William Katz: We do think we're seeing a bottoming in values, but we don't think this is some sort of V shaped recovery.
William Katz: So for US we've said, we think it's a very good time for deployment.
William Katz: Putting your finger on exactly what values will move to it's hard to do but certainly rates coming down new supply coming down are helpful. For the sector I would say this I would expect this year will certainly be better would be my expectation from a valuation standpoint relative to 'twenty, three but making predictions on <unk>.
William Katz: <unk> lands I think that's tough to do this early in the year, but there are some good fundamental things happening on the ground.
William Katz: That will conclude our question and answer session I would like to turn the call back over to Weston Tucker for any additional or closing remarks.
Weston Tucker: Great. Thank you everyone for joining us today and look forward to following up after the call.
Weston Tucker: Yeah.
Weston Tucker: [music].
Weston Tucker: Yeah.
Weston Tucker: Yeah.