Q1 2024 Blackstone Inc Earnings Call
Yes.
Operator: Good day, and welcome to the Blackstone first quarter 2024 investor call. This conference is being recorded.
Speaker Change: Good day and welcome to the Blackstone first quarter 'twenty 'twenty four investor call.
Speaker Change: Today's conference is being recorded at this time all participants are in a listen only mode.
Operator: 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'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Weston Tucker, head of shareholder relations. Please go ahead.
Speaker Change: You require operator assistance at any time, please press star zero, if you'd 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'd like to turn the conference over to Weston Tucker head of shareholder Relations. Please go ahead.
Weston M. Tucker: Thanks, Katie. And good morning. And welcome to Blackstone's first quarter conference call. Joining us today are Steve Schwarzman, Chairman and CEO, John 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-Q report in a few weeks. I'd like to remind you that today's call may include forward-looking statements that are uncertain and may differ from actual results materially. We do not undertake any duty to update the state.
Thanks, Katie and good morning, and welcome to Blackstone's first quarter Conference call. Joining me today are Steve Schwarzman, Chairman and CEO, Jon Gray, President and Chief operating Officer, and Michael Chae, Chief Financial Officer.
Weston M. Tucker: Earlier. This morning, we issued a press release and slide presentation, which are available on our website, we expect to file our 10-Q report in a few weeks.
Weston M. Tucker: I would 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.
Weston M. Tucker: For discussion of some of the factors that could affect results, please see the risk factors section of our 10-K. We'll also refer to certain on-gap measures, and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent.
Weston M. Tucker: We'll also refer to certain non-GAAP measures and you'll find reconciliations in the press release on the shareholders page of our website.
Weston M. Tucker: 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.
Weston M. Tucker: It's audiocast is copyrighted material of Blackstone and may not be duplicated without consent.
Weston M. Tucker: So on results, quickly, we reported a gap net income for the quarter of $1.6 billion. Distributable earnings were $1.3 billion, or $0.98 per common share, and we declared a dividend of $0.83, which will be paid to holders of record as of April 29. With that, I'll turn the call over to
Weston M. Tucker: So on results quickly, we reported GAAP net income for the quarter of $1 $6 billion.
Weston M. Tucker: Distributable earnings were $1 3 billion or <unk> 98 per common share and we declared a dividend of 83 cents, which will be paid to holders of record as of April 29th.
Weston M. Tucker: With that I'll turn the call over to Steve.
Stephen Allen Schwarzman: Good morning, and thank you for joining our call. Blackstone reported strong results for the first quarter of 2024, including healthy distributable earnings of $1.3 billion, as Weston mentioned, underpinned by the highest fee-related earnings in six quarters. On our January earnings call, following a volatile multi-year period for global markets, we noted an improving external environment and shared our view that 2023 would be the cyclical bottom for our firm. However, changing market conditions take time to translate to financial results, including realizations and performance revenues. We are seeing positive momentum across many key forward indicators at our firm. Inflows were $34 billion in the first quarter and $87 billion over the past two quarters.
Steve: Good morning, and thank you for joining our call.
Steve: Blackstone reported strong results for the first quarter of 2024, including healthy distributable earnings of $1 $3 billion as Weston mentioned.
Steve: Underpinned by the highest fee related earnings in six quarters.
Steve: On our January earnings call. Following a volt volatile multiyear period for global markets, we noted that improving external environment.
Steve: Chaired our view that 2023 would be the cyclical bottom for our firm.
Steve: While changing market conditions take time to translate to financial results, including realizations and performance revenues.
Steve: We are seeing positive momentum.
Steve: Across many key forward indicators at our firm.
Steve: Inflows were $34 billion in the first quarter and 87 billion over the past two quarters.
Stephen Allen Schwarzman: We invested $25 billion in Q1 and $56 billion in the past two quarters, with a strengthening pipeline of new commitments. We are planting the seeds of future value at what we believe is a favorable time for deployment. At the same time, our fundraising in the Private Wealth Channel meaningfully accelerated in the first quarter. Sales for our professional vehicles increased more than 80% from the fourth quarter to $6.6 billion, as we've stated before. The short-term movements in stock and bond markets impact capital flows in this channel, but ultimately,
Steve: We invested $25 billion.
Steve: Quarter one.
$56 billion in the past two quarters with a strengthening pipeline of new commitments.
Steve: We were planning the seeds of future value and.
Steve: And what we believe is a favorable time for deployment.
Steve: At the same time, our fundraising in the private wealth channel meaningfully accelerated in the first quarter.
Steve: Sales for our perpetual vehicles increased more than 80% from the fourth quarter to $6 6 billion.
Steve: We've stated before.
Steve: But short term movements in stock and bond markets impact capital flows in this channel.
Steve: Ultimately.
Stephen Allen Schwarzman: Flows follow performance, as well as innovation, as we're seeing now. We've delivered 10.5% net returns annually for BREIT's largest share class for more than seven years, and 10% for B-CREB over three plus years, and we continue to successfully launch new strategies, including our private equity vehicle, BXPE, in the first quarter, with $241 billion of AUM and private wealth at Blackstone. We have the leading platform in our industry by far. We've established a significant first mover advantage with the number one market share for each of our major seasonal products, along with a high percentage of repeat business across channels. Blackstone is built on long-term investment performance. We've achieved 15% net returns annually in corporate private equity and infrastructure since inception. 14% in opportunistic real estate and secondary, 12% in tactical opportunities, and 10% in credit.
Close follow performance as well as innovation as we're seeing now.
Steve: We've delivered 10, 5% net returns annually for <unk> largest share class over more than seven years.
Steve: And 10% for B create over three plus years.
Steve: And we continued to successfully launch new strategies, including our perfect private equity vehicle VX p/e in the first quarter.
Steve: With $241 billion of AUM in private wealth at Blackstone.
Steve: We have the leading platform in our industry by far.
Steve: We've established a significant first mover advantage with the number one market share for each of our major season products, along with a high percentage of repeat business across strategies.
Steve: Blackstone is built on long term investment performance.
Steve: We've achieved 15% net returns annually in corporate private equity and infrastructure since inception.
Steve: 14% and opportunistic real estate and secondaries.
Steve: 12% and tactical opportunities and 10% in credit.
Stephen Allen Schwarzman: In the first quarter, our funds reported steady appreciation overall, highlighted by Strength in Infrastructure, Credit, and our multi-asset investing platform, BXMA. Our portfolio is in excellent shape, and our limited partners continue to benefit from the way we've positioned their capital, emphasizing good neighborhoods such as digital infrastructure, logistics, and energy transition. The firm's thematic approach to deployment is informed by the real-time data and insights we gather from our global portfolio, which helps us to identify trends early and build conviction around our ideas.
Steve: In the first quarter, our funds reported steady appreciation overall pipeline.
Steve: Highlighted by strength in infrastructure.
Steve: And our multi asset investing platform Bx MAA.
Steve: Our portfolio is in excellent shape and our limited partners continue to benefit from the way we've positioned their capital emphasizing.
Steve: We emphasize in good neighborhoods such as digital infrastructure.
Steve: <unk> and energy transition.
Steve: The firm's thematic approach to deployment is informed by the real time data and insights we gather from our global portfolio, which helps us to identify trends early and build conviction around our ideas.
Stephen Allen Schwarzman: Blackstone is the largest and most diversified firm in the alternative areas, with over $1 trillion of assets under management. And we believe our knowledge advantage is, consequently, a unique asset in our industry. For example, digital infrastructure, one of the firm's highest conviction investment themes today, is a powerful example of this knowledge advantage at work. Just as we recognized the rise of e-commerce nearly 15 years ago and started buying warehouses, we anticipated a paradigm shift around demand for data centers.
Steve: Blackstone is the largest and most diversified firm in the alternatives area with.
Steve: With over one trillion dollars of assets under management.
Steve: We believe our knowledge advantage consequently is.
Steve: As a unique asset in our industry.
Steve: For example, digital infrastructure.
Steve: The firm's highest conviction investment themes today.
Steve: Is a powerful example of this knowledge advantage at work.
Steve: Just as we've recognized the rise of e-commerce, nearly 15 years ago and started by warehouses.
Steve: We anticipated a paradigm shift.
Steve: Demand for data centers.
Stephen Allen Schwarzman: Driven by growth and content creation, Cloud Adoption, and most importantly now, the revolution underway in artificial intelligence. Others now know that AI requires exponentially more computing power and capacity than was previously imagined. On a personal basis, in less than two weeks, I am participating in the dedication ceremony for the Schwarzman College of Computing at MIT, which will be heavily focused on this area. What has Blackstone done? with our conviction.
Steve: Even by growth in content creation.
Steve: Cloud adoption and most importantly, now the revolution underway in artificial intelligence.
Steve: Others, now know that AI requires exponentially more computing power and capacity than was previously imagined.
Speaker Change: On a personal basis and less than two weeks I am participating in the dedication ceremony for the Schwarzman College of computing at MRI.
Which will be heavily focused on this area.
Speaker Change: What has Blackstone done.
Speaker Change: With our conviction.
Stephen Allen Schwarzman: We identified QTS, the fifth-largest US data center REIT, as a well-positioned but poorly trading public company with tremendous long-term potential, or B-REACH. VIP Infrastructure and BPP Perpetual Strategies acquired the company for $10 billion in 2021. And its lease capacity has already grown six-fold in less than three years. Today, QTS is the largest data center company in North America.
Speaker Change: We identified QTS, the fifth largest U S data center REIT has a well positioned but poorly trading public company with tremendous long term potential.
Speaker Change: Our <unk> REIT.
Speaker Change: The IP infrastructure and PPP perpetual strategies.
Speaker Change: Acquired the company for $10 billion in 2021.
Speaker Change: And its lease capacity has already grown.
Speaker Change: Six fold in less than three years.
Speaker Change: Today QTS is the largest data center company in North America.
Stephen Allen Schwarzman: We are building a variety of other data center platforms around the world as well. Blackstone vehicles now own 50 billion dollars of data centers globally, including facilities under construction, and there is an additional $50 billion in prospective future development pipelines. Blackstone is highly differentiated in our ability to conceptualize a new business area and transform it into a potential $100 billion opportunity. We are also actively investing in other companies in AI-related areas. We're buying, as well as financing, several firms that design, build, and service data centers. We recently financed a cloud infrastructure business supporting AI development.
Speaker Change: We are building a variety of other data center platforms around the world as well.
Speaker Change: In total.
Speaker Change: Blackstone vehicles now own $50 billion of.
Speaker Change: Data centers globally.
Speaker Change: Including facilities under construction.
Speaker Change: And there is an additional $50 billion in prospective future development pipeline.
Speaker Change: Blackstone is highly differentiated in our ability to conceptualize a new business area.
Speaker Change: And transform it.
Into a 100 billion potential opportunity.
We're also actively investing in other companies in AI related areas, we're buying as well as financing several firms that design build and service data centers.
Speaker Change: We recently financed a cloud infrastructure business supporting AI development.
Stephen Allen Schwarzman: And now we've transitioned to addressing the sector's growing power needs, leveraging our sizable energy infrastructure platform, which includes the largest private renewables developer in North America. There are several other powerful megatrends that we expect to drive the firm forward, both in terms of where we invest and where we raise capital. The most compelling of these today include the secular rise of private credit, where we have one of the world's largest platforms for infrastructure. Energy Transition
Speaker Change: And now we've transitioned to addressing the sector's growing power needs.
Speaker Change: Leveraging our sizable energy infrastructure platform.
Speaker Change: Which includes the largest private renewables developer in North America.
Speaker Change: There are several other powerful megatrends that we expect to drive the firm forward both in terms of where we invest and where we raised capital the.
Speaker Change: The most compelling of these today include the secular rise of private credit.
Speaker Change: Where we have one of the world's largest platforms.
Speaker Change: Infrastructure.
Speaker Change: Energy transition.
Stephen Allen Schwarzman: Life Sciences and the Expansion of Alternatives Globally, and particularly in Asia. In each of these areas, we've established leading platforms with tremendous momentum. Looking forward to 2024, the market environment will remain complex. The economy is stronger than expected, but it's starting to slow down a bit. In terms of inflation, despite the recent US CPI readings, we're seeing decelerating wage growth and minimal input cost increases across many of our companies. In real estate, we see shelter costs moderated, although contrary to government data. We believe inflation will trend lower this year, although the pace of decline has slowed recently.
Speaker Change: Life Sciences, and the expansion of alternatives globally and.
Speaker Change: And particularly in Asia.
Speaker Change: And each of these areas, we've established leading platforms with tremendous momentum.
Speaker Change: <unk> forward in 2020 for the market environment will remain complex.
Speaker Change: The economy is stronger than expected, but it is starting to slow a bit.
Speaker Change: In terms of inflation.
Speaker Change: Despite the recent U S CPI readings.
Speaker Change: We're seeing a decelerating wage growth.
Speaker Change: <unk> had minimal input cost increases across many of our companies.
Speaker Change: In real estate.
Speaker Change: We see shelter costs moderating con.
Speaker Change: Contrary to government data.
Speaker Change: We believe inflation will trend lower this year.
Speaker Change: Although the pace of decline has slowed recently.
Stephen Allen Schwarzman: Geopolitical turbulence, including wars in the Middle East and Ukraine, adds further uncertainty to the business environment. And 2024 is a major election year, as we all know, with nearly half of the world's population going to the polls, which injects uncertainty around the future of important policies that impact the global economy. Blackstone is well positioned against this evolving backdrop. Our portfolio is concentrated in compelling sectors. And we have the industry's largest dry powder balance of nearly $200 billion to take advantage of this opportunity.
Speaker Change: Geopolitical turbulence, including wars in the Middle East and Ukraine adds further uncertainty to the business environment.
Speaker Change: In 2024 is a major election year as we all know with nearly half of the world's population going to the polls.
Speaker Change: Injects unpredictability around the future of important policies that impact the global economy.
Speaker Change: Blackstone is well positioned against this evolving backdrop.
Speaker Change: Our portfolio is concentrated in compelling sectors, and we have the industry's largest dry powder balance of nearly 200 billion.
Speaker Change: To take advantage of opportunities.
Stephen Allen Schwarzman: Our long-term capital provides the flexibility and firepower to invest, while affording us the patience to sell assets when the time is right. The firm itself could not be in a stronger position with minimal net debt and no insurance liabilities, allowing us to distribute $4.7 billion to shareholders over the past 12 months through dividends and share repurchases. And we are in the early days of penetrating markets of enormous size and potential. With that, I will turn it over to John.
Speaker Change: Our long term capital provides the flexibility and firepower to invest while.
Speaker Change: Affording us the patients to sell assets when the time is right.
The firm itself could not be in a stronger position with minimal net debt and no insurance liabilities, allowing us to distribute $4 7 billion.
Speaker Change: The shareholders over the past 12 months through dividends and share repurchases.
Speaker Change: And we are in the early days of penetrating markets of enormous size and potential.
Speaker Change: With that.
Speaker Change: I'll turn it over to John.
Jonathan D. Gray: Thank you, Steve, and good morning, everyone. We are pleased with the firm's performance in the first quarter and the momentum building across our business. This momentum is underpinned by three key developments. First, the transaction environment is strong.
John: Thank you Steve and good morning, everyone. We are pleased with the firm's performance in the first quarter and the momentum building across our business. This momentum is underpinned by three key developments.
John: The transaction environment has strength.
Jonathan D. Gray: Secondly, in private credit, demand from both investors and borrowers is expanding. And third, our private wealth business is re-accelerating. I'll discuss each of these areas in more detail. Starting with the transaction environment, the market backdrop has become more supportive. However, the 10-year Treasury yield is still down from its October peak, despite the recent run-up.
John: Secondly, private credit demand from both investors and borrowers is expanding.
John: Third our private wealth business each week celebrating I'll discuss each of these areas in more detail.
John: Starting with the transaction environment. The market backdrop has become more supported the 10 year Treasury yield is still down from its October peak. Despite the recent run up borrowing spreads have tightened significantly and the availability of debt capital has increased significantly.
Jonathan D. Gray: Borrowing spreads have tightened significantly, and the availability of debt capital has increased significantly. We're also seeing M&A activity, and the IPO market restart. As we've stated before, the recovery will not be a straight line, but we're not waiting for the all-clear sign to invest.
John: We're also seeing M&A activity and the IPO market restarting.
John: As we've stated before the recovery will not be a straight line, but we're not waiting for the all clear shine to invest.
Jonathan D. Gray: We deployed $25 billion in the first quarter and committed an additional $15 million to pending deals, including subsequent to quarter end. We were most active in our credit and insurance areas, which I'll discuss further in a moment. In real estate, we shared our view in January that commercial real estate values were bottoming, providing the foundation for an increase in transaction activity. This has coincided with several major investments by Blackstone. Just last week, we announced the $10 billion take-private of a high-quality rental housing platform, Air Communities, which follows our announcement in January to privatize Tricon Residential. Rental housing remains a major investment theme for us, given the structural shortage in this space. The U.S. is building roughly the same number of homes today as in 1960, despite having almost twice the population.
John: We deployed $25 billion in the first quarter and committed an additional $15 million to pending deals, including subsequent to quarter end. We were most active in our credit and insurance area, which I'll discuss further in a moment.
John: In real estate, we shared our view in January at commercial real estate values, we're bottoming, providing the foundation for an increase in transaction activity.
John: This is coincide with several major investments by Blackstone.
John: Just last week, we announced the $10 billion take private of a high quality rental housing platform, Eric communities, which follows our announcement in January to privatize Tracon residential.
John: Rental housing remains a major investment team for us given the structural shortage in this space.
John: U S is building roughly the same number of homes today adds in 1960, despite having almost twice the population.
Jonathan D. Gray: We're also quite focused on European real estate, where we've now raised $7.6 billion for our new flagship vehicle as of quarter end. In private equity, we closed the acquisition of Rover in the first quarter, a leading digital marketplace in the pet space, along with an online payments business in Japan and a healthcare platform in India. The economy in India, which I visited two weeks ago, remains incredibly strong.
John: We are also quite focused on European real estate, where we've now raised $7 6 billion.
For our new flagship vehicle as of quarter end in.
John: In private equity, we closed the acquisition of Rover and the first quarter.
John: A leading digital marketplace in the pet space, along with an online payments business in Japan, and our healthcare platform in India. The economy in India, which I visited two weeks ago remains incredibly strong we're fortunate to have what we believe is the largest private equity and real estate platform in that country.
Jonathan D. Gray: We're fortunate to have what we believe is the largest private equity and real estate platform in that country. Back home, our dedicated life science business announced a $750 million collaboration with Moderna to support the development of mRNA vaccines for influenza, and our growth equity fund invested in Seven Brew, an innovative quick service coffee franchisor. As Steve highlighted, we are planting the seeds of future realization.
John: Sorry.
John: Back home, our dedicated life science business announced a $750 million collaboration with Madonna to support the development of mrna vaccines for influenza.
And our growth equity fund invested in seven barrel and innovative quick service coffee franchise or.
John: As Steve highlighted we are planting the seeds of future realizations.
Jonathan D. Gray: Turning to the second key development, our expansion in private credit. There is powerful innovation underway in the traditional model of providing credit to borrowers. Corporate insurance and real estate debt businesses comprised over 60% of the firm's total inflows in the first quarter and nearly 60% of deployment. We continue to see strong interest in non-investment grade strategies such as opportunistic, direct lending, and high-yield real estate lending.
John: Turning to the second key development or expansion in private credit.
John: It was powerful innovation underway in the traditional model of providing credit to borrowers our corporate insurance and real estate debt businesses comprised over 60% in the firm's total inflows in the first quarter and nearly 60% of deployment.
John: We continue to see strong interest in non investment grade strategies, such as opportunistic direct lending and high yield real estate lending.
Jonathan D. Gray: We're also now seeing a dramatic increase in demand from our clients for all forms of investment-grade private credit, including infrastructure, particularly in energy transition and digital infrastructure, residential real estate, commercial and consumer finance, fund finance, and other types of asset-based credit. In our investment grade focused business, we believe there is a massive opportunity to deliver higher returns to clients with lower risk by moving a portion of their liquid IG portfolios to private markets. Alternatives have taken a meaningful share of public equity portfolios over the past 30 years, but little on the fixed income side.
John: We're also now seeing a dramatic increase in demand from our clients for all forms of investment grade private credit, including infrastructure, particularly in energy transition and digital infrastructure.
<unk> real estate commercial and consumer Finance fund finance and other types of asset based credit.
John: In our investment grade focus business. We believe there is a massive opportunity to deliver higher returns to clients with lower risk by moving a portion of their liquid portfolios to private market alternatives have taken meaningful share in public equity portfolios over the past 30 years a little on the.
John: Fixed income side in.
Jonathan D. Gray: In the insurance channel, this migration has been underway, and we've created a capital-light open architecture model that can serve a multitude of limited partners. Worth noting, we crossed the $200 billion AUM milestone in insurance this quarter, up 20% year over year. In addition to our four largest clients, we now have SMA relationships with 14 insurers, which continue to grow in number and size. We placed or originated $14 billion of A-rated credits on average for them in the first quarter, up 71% year-over-year, and nearly $50 billion since the start of 2023. These credits generated approximately 200 basis points of excess spread over comparably rated liquid credits.
John: In the insurance channel. This migration has been underway and we've created a capital light open architecture model that can serve a multitude of limited partners.
John: With noting we crossed the $200 billion.
John: AUM milestone in insurance this quarter up 20% year over year.
John: In addition to our four largest clients. We now have the SMA relationships with 14 insurers, which continue to grow in number and size.
John: We place two originated $14 billion of a rated credits on average for them in the first quarter up 71% year over year and nearly $50 billion since the start of 2023.
John: These credits generated approximately 200 basis points of excess spread over comparably rated liquid credits.
Jonathan D. Gray: In addition to insurance clients, pension funds and other LPs see the value we're creating in private credit, and there's been a strong response to our product offer. With nearly $420 billion in BXCI and real estate credit, we're extremely well positioned to directly originate high-quality assets on behalf of a much larger universe of investors. We've also established numerous origination relationships as well as bank partnerships, most recently with Barclays and KeyBank in areas like consumer credit card receivables, fund finance, home improvement, and infrastructure credit. And we plan to add more. These arrangements are a win-win.
John: In addition to insurance clients pension funds and other Lps see the value, we're creating in private credit and there has been a strong response to our product offerings with nearly $420 billion.
John: <unk> real estate credit, we extremely well positioned to directly originate high quality assets on behalf of a much larger universe of investors.
We've also established numerous origination relationships as well as bank partnerships, most recently with Barclays and Keybanc in areas like consumer credit card receivables Fund finance home improvement and infrastructure credits and we plan to add more <unk>.
John: These arrangements are win win they create more flow for our investors who want to hold these investments these assets long term and they help our partners better serve their customers, we expect our credit and insurance platforms to grow significantly from here.
Jonathan D. Gray: They create more flow for our investors who want to hold these investments, these assets for the long term, and they help our partners better serve their customers. We expect our credit and insurance platforms to grow significantly from here. Moving to the third key development, the reaccelerating trends in our private wealth. In January, we noted our momentum building as market volatility receded.
John: Going to the third key development, the re accelerating trends in our private wealth business.
John: In January we noted our momentum building as market volatility receding.
Jonathan D. Gray: And with the launch of BXP, we now offer three large-scale perpetual vehicles, providing individual investors access to even more of the scale and breadth of Blackstone. Our sales in the Wealth Channel were a robust $8 billion in the first quarter, including $6.6 billion for the perpetual strategies, as Steve noted. Subscriptions for the Perpetuals increased 83% from Q4 and marked the best quarter of fundraising from individuals in nearly two years.
John: And with the launch of DXP, we now offer three large scale perpetual vehicles, providing individual investors access to even more of the scale and breadth of Blackstone.
John: Our sales in the wealth channel were robust $8 billion in the first quarter, including $6 6 billion for the perpetual strategy as Steve noted.
John: Subscription for the Perpetuals increased 83% from Q4 and marked the best quarter fund raising from individuals in nearly two years.
Jonathan D. Gray: BCRED led the way, raising $2.9 billion. BXPE has received very strong investor reception, raising $2.7 billion in its debut quarter. And we plan to expand to more distributors over the coming month. Additionally, over 90% of advisors that have transacted with BXP have previously done so with BREIT or BCREIT, illustrating the affinity for our products and the power of the Blackstone brand in this channel. At the same time, BREIT has successfully navigated a challenging two-year period for real estate markets.
John: <unk> led the way raising $2 9 billion DXP has received very strong investor reception, raising $2 7 billion in its debut quarter and we plan to expand to more distributors over the coming months.
John: Over 90% of advisors net of transaction transacted with DXP had previously done so with be read or be Craig illustrating the affinity for our products and the power of the <unk>.
John: Blackstone brand in this channel.
John: At the same time.
John: <unk> has successfully navigated a challenging two year period for real estate market in semi liquid structure has worked as designed by providing liquidity while protecting performance.
Jonathan D. Gray: Its semi-liquid structure has worked as designed. By providing liquidity while protecting performance, eREAD has delivered double the return of the Public Read Index since inception over seven years. This outperformance continued with strong results in Q1, underpinned by outstanding portfolio positioning that includes growth in its data center exposure. Purchase requests in BREIT have fallen 85% from the peak to the lowest level in nearly two years, and the vehicle is no longer in proration.
John: <unk> has delivered double the return on the public REIT index since inception over seven years. This outperformance continued with strong results in Q1 underpinned by outstanding portfolio positioning that includes growth in its data center exposure.
John: Were purchased.
John: Quest in B REIT have fallen 85% from the peak to the lowest level in nearly two years and the vehicle is no longer in proration.
Jonathan D. Gray: We're now seeing encouraging signs in terms of new sales, while repurchase requests are continuing their decline in April as well. We are confident in the recovery of B-read flows over time, given performance. When looking at the $80 trillion private wealth landscape overall, allocations remain extremely low, and we expect a long runway of growth ahead. In closing, the firm is exceptionally well-positioned, supported by both cyclical and secular tailwinds. That's why we believe the future is very bright for blacks. With that, I'll turn things over to Michael Chae. Thanks.
John: We're now seeing encouraging signs in terms of new sales while repurchase requests are continuing their decline in April as well.
John: We are confident in the recovery of the REIT flows overtime given performance.
John: When looking at the 80 trillion private wealth landscape overall allocations remain extremely low and we expect a long runway of growth ahead.
John: In closing the firm is exceptionally well positioned supported by both cyclical and secular tailwind.
John: That's why we believe the future is very bright for Blackstone.
John: With that I'll turn things over to Michael J.
Michael S. Chae: Thanks, John, and good morning, everyone. The firm delivered strong results in the first quarter, highlighted by the re-acceleration of fee-related earnings. I'll first review financial results, and we'll then discuss investment performance and the forward outlook. Starting with results, fee-related earnings increased 12% year-over-year to $1.2 billion, or $0.95 per share, the highest level in six quarters and the third-best quarter in firm history, powered by double-digit growth in fee revenues coupled with the firm's robust margin position with respect to revenue.
Michael S. Chae: Thanks, John and good morning, everyone.
Michael S. Chae: <unk> delivered strong results in the first quarter highlighted by the Reacceleration of fee related earnings.
Michael S. Chae: First review financial results and will then discuss investment performance and the forward outlook.
Michael S. Chae: Starting with results fee related earnings increased 12% year over year to $1 2 billion.
Michael S. Chae: Our <unk> 95 per share the highest level in six quarters and the third best quarter in our history.
Michael S. Chae: Led by double digit growth in fee revenues, coupled with the firm's robust margin position.
Michael S. Chae: With respect to revenues affirms expansive breadth of strategies lifted management fees were a record $1 7 billion.
Michael S. Chae: The firm's expansive breadth of strategies lifted management fees to a record $1.7 billion. Notably, Q1 reflected the 57th consecutive quarter of year-over-year growth of base management fees at Blackstone. Related performance revenues doubled year over year to $296 million, generated by multiple perpetual capital vehicles in credit and real estate, including a steadily growing contribution from our direct lending business. Scheduled Crystallization and our European BPP Logistics Strategy and BeRe, set up for these high quality revenues, are favorable in 2024 and beyond, which I'll discuss further in a moment.
Michael S. Chae: Notably Q1 reflected the 57th consecutive quarter of year over year growth of base management fees at Blackstone.
Michael S. Chae: The related performance revenues doubled year over year to $296 million generated by multiple perpetual capital vehicles credit and real estate, including <unk>.
Michael S. Chae: Steadily growing contribution from our direct lending business.
Scheduled crystallization and our European BP logistics strategy and Barry.
Michael S. Chae: The setup for these high quality revenues is favorable in 2024 and beyond which I will discuss further in a moment.
Michael S. Chae: With respect to margins, FRA's margin was 57.9% in the first quarter, in line with full year 2020. Distributable earnings were $1.3 billion in the first quarter, or $0.98 per common share, stable year-over-year and underpinned by the growth in FRE. Net realizations remain muted at $293 million, and going forward, we expect a lag between improving markets and a step up in net realizations.
Michael S. Chae: With respect to margins FRE margin was 57, 9% in the first quarter in line with full year 2023.
Michael S. Chae: Distributable earnings were $1 $3 billion in the first quarter or <unk> 98 per common share stable year over year and underpinned by the growth in FRE.
Michael S. Chae: Realizations remained muted at $293 million and going forward, we expect a lag between improving markets and a step up in net realizations.
Michael S. Chae: In the meantime, the firm's strong underlying FRE generation has supported a consistent and attractive baseline of earnings, with Q1 representing the 10th consecutive quarter of FRE over 1 billion dollars. We did execute a number of sales in the quarter, including a stake in one of the largest cell tower platforms, public stock of the London Stock Exchange Group, and the sale of certain other public and private holdings. We also closed or announced several dispositions in our real estate and infrastructure perpetual vehicles, which, as a reminder, do not earn performance revenues based on individual asset sales but on NAV appreciation. These included a trophy retail asset in Milan for one point three billion euros, representing the largest real estate single asset sale ever in Italy.
Michael S. Chae: In the meantime, the firm's strong underlying FRE generation has supported a consistent and attractive baseline of earnings with Q1, representing the 10th consecutive quarter of FRE over $1 billion.
Michael S. Chae: We did execute a number of sales in the quarter, including a stake in one of the largest cell tower platforms public stock at the London Stock Exchange group and the sales of certain other public and private holdings.
Michael S. Chae: We also closed or announced several dispositions in our real estate and infrastructure perpetual vehicles, which as a reminder, do not earn performance revenues based on the individual asset sales, but on NAV appreciation. These included a trophy retail asset in Milan for $1 3 billion euros, representing the largest real estate single asset sale ever and it.
Michael S. Chae: Portfolio warehouses in Southern California and a prime office building in Seoul. Each of these sales generated a substantial profit individually, and in aggregate, a gross multiple of invested capital of approximately two times. These dispositions exemplify the significant quality and embedded value within the firm's investment portfolio. Turning to investment performance, our funds generated healthy overall appreciation in the first quarter, as Steve noted. Infrastructure led the way with 4.8% appreciation in the quarter and 19% over the last 12 months with broad gains across digital, transportation, and energy infrastructure.
Michael S. Chae: Ali.
Michael S. Chae: Fully of warehouses in southern California, and a prime office building in Seoul.
Michael S. Chae: Each of these sales generated a substantial profit individually and in aggregate a gross multiple of invested capital of approximately two times.
Michael S. Chae: These dispositions exemplified the significant quality and embedded value within the firms investment portfolio.
Michael S. Chae: Turning to investment performance, our funds generated healthy overall appreciation in the first quarter as Steve noted.
Michael S. Chae: Infrastructure led the way with four 8% appreciation in the quarter and 19% over the last 12 months with broad gains across digital transportation and energy infrastructure.
Michael S. Chae: The QTS Data Center business was the single largest driver of appreciation for VIP, B-REIT, and BPP-US and for the firm overall in Q1. The co-mingled BIP vehicle has generated 15% net returns annually since inception, powering continued robust growth, with platform AUM increasing 22% year-over-year to $44 billion. The corporate PE funds appreciated 3.4% in the quarter and 13% for the LTM period.
Michael S. Chae: QTS data center business was the single largest driver of appreciation for VIP.
Michael S. Chae: And PPP U S and for the firm overall in Q1.
Michael S. Chae: Co mingled VIP vehicle has generated 15% net returns annually since inception, powering continued robust growth with platform AUM, increasing 22% year over year to $44 billion.
Michael S. Chae: The corporate PE funds appreciated three 4% in the quarter and 13% for the LTM period.
Michael S. Chae: Our operating companies overall have reported healthy, albeit decelerating, revenue growth, along with margin strength. In credit, we reported another outstanding quarter in the context of strong fundamentals in debt markets, generally, and tightening spreads, with a gross return for the private credit strategies of 4.1% and 17% for the LTM period, and a default rate across our nearly 2,000 non-investment grade credits was less than 40 basis points over the last 12 months with zero new defaults in our private credit business in Q1.
Michael S. Chae: Our operating companies overall reported healthy, albeit decelerating revenue growth along with margin strength.
Michael S. Chae: In credit we reported another outstanding quarter in the context of strong fundamentals in that market generally and tightening spreads with a gross return for the private credit strategies of four 1% and 17% for the LTM period.
Michael S. Chae: Default rate across our nearly 2000 non investment grade credits is less than 40 basis points over the last 12 months with zero, new defaults in our private credit business in Q1.
Michael S. Chae: Our multi-asset investing platform, BXMA, reported a 4.6% gross return for the absolute return composite and 12% for the last 12 months, its best quarterly performance in over three years and the 16th consecutive quarter of positive returns. Since the start of 2021, the composite has delivered nearly double the return of the 60-40 portfolio net of fees, a remarkable result in liquid markets. Finally, in real estate, the Core Plus funds appreciated 1.2% in the first quarter, while the BREF opportunistic funds appreciated 0.3%. These returns include the negative impact of currency translation for our non-U.S. holdings related to the stronger U.S. dollar, equating to 20 and 60 basis points of impact on each strategy respectively.
Michael S. Chae: Our multi asset investing platform Bx MAA reported a four 6% gross return for the absolute return composite and 12% for the last 12 months.
Michael S. Chae: <unk> quarterly performance in over three years, and the 16th quarter in a row of positive returns since.
Michael S. Chae: Since the start of 2021, the composite has delivered nearly doubled the return of the 60 40 portfolio net of fees, a remarkable result and liquid markets.
Michael S. Chae: Finally in real estate core plus funds appreciated one 2% in the first quarter.
Michael S. Chae: While the breath opportunistic funds appreciated <unk>, 3%.
These returns included the negative impact of currency translation for our non U S holdings related to the stronger U S dollar equating to 20% and 60 basis points impact on each strategy perspective as.
Michael S. Chae: As John noted, we see a recovery under way in commercial real estate, and in our portfolio, cash flows are growing or stable in most areas. Overall, strong returns lifted net accrued performance revenue on the balance sheet, a firm's store of value, sequentially to $6.1 billion, or $5 per share. Meanwhile, performance revenue eligible AUM in the ground increased to a record $515 billion.
Michael S. Chae: As John noted, we see a recovery underway in commercial real estate and in our portfolio cash flows are growing or stable in most areas.
Michael S. Chae: Overall strong returns lifted net accrued performance revenue on the balance sheet, our firm store value sequentially to $6 1 billion or $5 per share.
Michael S. Chae: Meanwhile, performance revenue eligible AUM in the ground increased to a record $515 billion.
Michael S. Chae: The resiliency and strength of the firm's investment performance over many years and across cycles powers the Blackstone Innovation Machine and provides the foundation for future growth. Moving to the Outlook, where several embedded drivers support a favorable multi-year picture of growth. First, the firm has raised approximately $80 billion that is not yet earning management fees, in new Drawdown Fund vintages that haven't yet turned on, along with certain other... These will commence when investment periods are activated or capital is deployed, depending on the strategy.
The resiliency and strength of the firm's investment performance over many years and across cycles powers. The Blackstone innovation machine and provides the foundation of future growth.
Michael S. Chae: Moving to the outlook, where several embedded drivers support a favorable multiyear picture of growth.
Michael S. Chae: The firm has raised approximately $80 billion that is not yet, earning management fees and new drawdown fund vintages that haven't yet turned on along with certain other funds feasible.
Michael S. Chae: These will commence when investment periods are activated or capital is deployed depending on the strategy.
Michael S. Chae: We plan to activate our corporate private equity flagship this quarter, which has raised over $19 billion to date, followed by an effective four-month fee holiday. We expect to activate several other drawdown funds over the balance of the year, followed by respective fee holidays. Our platform, Perpetual Strategies, has continued to expand, now comprising 45% of the firm's fee-earning AUM. As a reminder, our private wealth professional vehicles, including B-REIT and B-CRED, generate fee-related performance revenues quarterly, as will BXPE, starting in Q4 of this year.
Michael S. Chae: To activate our corporate private equity flagship this quarter.
Michael S. Chae: Which has raised over $19 billion to date, followed by an effective four month fee holiday, we expect to activate several other drawdown funds over the balance of the year followed by respective fee holidays.
Michael S. Chae: Our platform perpetual strategies has continued to expand now comprising 45% of the firm's fee, earning AUM as.
Michael S. Chae: As a reminder, our private wealth perpetual vehicles, including <unk> and <unk> generate fee related performance revenues quarterly.
Michael S. Chae: As will be SPE, starting in Q4 of this year.
Michael S. Chae: Our institutional strategies, BPP and real estate, and BIP and infrastructure, generate these revenues on multi-year schedules with a sizable crystallization for the co-mingled BIP vehicle scheduled to occur in Q4 of this year with respect to three years of accrued gain.
Michael S. Chae: Our institutional strategies PPP in real estate, and VIP and infrastructure generate these revenues on multiyear schedules with a sizeable crystallization for the co mingled VIP vehicle scheduled to occur in Q4 of this year with respect to three years of crude gains.
Michael S. Chae: Third, our investment-grade-focused credit business is on a strong positive trajectory, as John highlighted, and we expect $25 to $30 billion of inflows again this year from our four major insurance clients. In closing, the firm is moving forward in a position of significant strength. Our momentum is accelerating key growth channels, and our underlying earnings power, emerging from this period of hibernation, continues to build. We have great confidence in the outlook for the future.
Michael S. Chae: Third our investment grade focused credit business is on a strong positive trajectory as Jon highlighted and we expect 25% to $30 billion of inflows again this year from our four major insurance clients.
In closing the firm is moving forward in a position of significant strength.
Michael S. Chae: Sentiments accelerating key growth channels and our underlying earnings power emerging from this period of hibernation continues to build we have great confidence in the outlook for the fourth.
Michael S. Chae: With that, we thank you for joining the call and would like to open it up now for questions. Thank you. As a reminder, please press star 1 to ask a question. We ask you to limit yourself to one question to allow as many questions as possible. We'll go first to Michael Cyprys with Morgan Stanley. Hi, good morning. Thanks for taking the question. Wanted to dig in on
Speaker Change: With that we thank you for joining the call I would like to open it up now for questions.
Speaker Change: Thank you as a reminder, please press star one to ask a question. We ask you limit yourself to one question to allow as many questions as possible.
We'll go first to Michael Cyprus with Morgan Stanley.
Michael J. Cyprys: Hi, Good morning, Thanks for taking the question I wanted to dig in on the infrastructure of the platform continues to build I heard $44 billion AUM strong returns, 15% now maybe you could just update us on the platform build out the initiatives here that can help accelerate growth. It seems like a tremendous market opportunity out there just curious what you see as the gating item on.
Operator: Thank you. As a reminder, please press star 1 to ask a question. We ask you to limit yourself to one question to allow as many questions as possible. We'll go first to Michael Cyprys with Morgan Stanley.
Michael J. Cyprys: Seeing this business multiples of the size, maybe talk about some of the steps, we're taking around expanding your origination funnel it infrastructure and as well as expanding the vehicles for capital raising across the return spectrum at customer sites globally. Thank you.
Jonathan D. Gray: Thank you, Mike. Infrastructure is clearly an area with a lot of potential for us. As a reminder, our program is less than six years old at this point, and we're already at $44 billion. The key, like building everything we do, is delivering performance for customers. Sean Klimczak and the team have delivered 15% net returns since inception in an open-ended vehicle, which is different than many of the other players in the space.
Speaker Change: Thank you Mike infrastructure is clearly an area with a lot of potential for us as a reminder, our program is less than six years old at this point.
Speaker Change: And we're already at $44 billion.
Speaker Change: The key like building everything we do is delivering performance for the customers' Sean <unk> and the team have delivered 15% net returns since inception, and an open ended vehicle, which is different than many of the other players in the space. We think that is a very powerful model because it allows us to partner with other law.
Jonathan D. Gray: We think that is a very powerful model because it allows us to partner with other long-term holders, and it matches the duration of the capital to long-duration infrastructure. We position the business in three big areas. Transportation infrastructure coming out of COVID, energy and the energy transition, obviously a very important area today for a whole host of reasons, and then digital infrastructure, which Michael pointed out has been the biggest driver of value, both in real estate and in infrastructure and across the firm in this most recent quarter.
Speaker Change: Long term holders and it matches the duration of the capital to long duration infrastructure, we position the business in three big areas transportation infrastructure coming out of Covid energy and energy transition, obviously, a very important area today for a whole host of reasons and then digital.
Speaker Change: Infrastructure, which Michael pointed out has been the biggest driver of value both in real estate and in infrastructure and across the firm in this most recent quarter. So we think we've done a really exceptional job deploying the capital we have a lot of clients who are quite pleased I think the base business can grow and I think there are opportunities.
Jonathan D. Gray: So we think we've done a really exceptional job deploying the capital. We have a lot of clients who are quite pleased. I think the base business can grow, and I think there are opportunities geographically to expand this. Our current fund is focused primarily on the U.S., but we've done a number of large things in Europe, and I think there are opportunities for infrastructure in both Europe and Asia over time, and it's an area that we have real strength in.
Speaker Change: Geographically to expand our current.
Speaker Change: Fund is focused primarily on the U S. But we've done a number of large things in Europe, and I think there's opportunities in infrastructure in both Europe and Asia over time, and it's an area that.
Speaker Change: We have.
Speaker Change: Real strength I would add to the mix infrastructure credit something we're doing as well and interestingly when you think about what we're doing for our insurance clients, what we have in infrastructure and things like digital infrastructure Green energy, It's very helpful for investment grade debt as well given our insights and relationships. So this is an area where.
Jonathan D. Gray: I would add to the mix infrastructure credit, something we're doing as well, and interestingly, when you think about what we do for insurance clients, what we have in infrastructure and things like digital infrastructure, and green energy, it's very helpful for investment-grade debt as well, given our insights and relationships. So this is an area where we're still seeing investors showing a lot of enthusiasm. I think it will continue to be a growth area on the back of what we built. I think we can create other products, and we see this growing to be, as we've talked about in previous calls, a triple-digit AUM business.
Speaker Change: We're still seeing investors showing a lot of enthusiasm I think it will continue to be a growth area on the back of what we built I think we can create other products and we see this growing to be I think as we've talked about in previous calls a triple digit AUM business and John I'd, just add and I think he might agree that I think if you step back Mike you cut it.
Jonathan D. Gray: And, John, I'd just add, and I think you might agree, that I think if you step back, Mike, you could analogize it to the multi-decade growth path of real estate, that business overall, with respect to another area of real assets infrastructure, and that is geographic slash regional expansion, expansion up and down the risk-return spectrum across asset classes, between equity and debt, and also serving different customer channels, whether it's retail So that's another way to dimension it.
Speaker Change: <unk>, it's sort of a multi decade growth path of real estate that business overall with respect to another area of real assets infrastructure and that is geographic slash regional expansion expansion up and down the risk return spectrum across asset classes between equity and debt and also serving different customer channels, whether it's REIT.
Speaker Change: Tail insurance or institutional so that's another way to dimension.
Speaker Change: Great. Thank you.
Speaker Change: Thank you we'll go next to Craig Siegenthaler with Bank of America.
Craig William Siegenthaler: Good morning, everyone.
Craig William Siegenthaler: My question is on real estate, so with deployments picking up with both the Tri Con and apartment income take privates and John I heard your comments earlier this morning, but it sounds like the.
Operator: Great, thank you. Thank you. We'll go next to Craig Siegenthaler with Bank of America. Good morning, everyone.
Operator: My question is about real estate. So with deployments picking up with both the Tricon and apartment income, take privates, and John, I heard your
Craig William Siegenthaler: <unk> House view is that the work from home and interest rate hit.
Craig William Siegenthaler: All baked into cap rate. So given all of this can you comment on where we are in the investing cycle.
Craig William Siegenthaler: Dry powder at breath, PPP and be right.
Operator: Thank you. We'll go next to Craig Siegenthaler with Bank of America.
Craig William Siegenthaler: I also wanted your perspective on returns now that theory is back above its prep, putting <unk> in a better position for FBR.
Jonathan D. Gray: Sure, Craig. As we've talked about, and you noted, there have been two big headwinds here, one in the office sector, specifically in the U.S., where we have very little exposure to the impact of remote work and also capital needs in older office buildings. The second thing has been the movement upward in interest rates and the rise in spreads that have happened. And both of those, I believe, peaked back in October.
Speaker Change: Sure Craig.
Speaker Change: As we've talked about and you noted there have been two big headwinds here one in the office sector, specifically in the U S, where we have very little exposure to the impact of remote work and also capital needs an older office buildings.
Speaker Change: The second thing is just been a movement upward in interest rates and the rising spreads that happened in both of those I believe peaked back in October and that has really worked its way through the market Interestingly of course, there'll still be plenty of challenging headlines.
Jonathan D. Gray: And that, you know, has really worked its way through the market. But interestingly, of course, there'll still be plenty of challenging headlines from assets that were financed in a different environment as they worked their way through the system. And that sort of, it's almost as if something happened to a ship at sea and then it came ashore.
Speaker Change: From assets that were financed in a different environment as they work their way through the system and that sort of it's almost as if something happened to a ship at sea and then it comes assure we saw this after the financial crisis, where real estate values bottomed in that summer <unk> nine, but you had negative headlines in real estate for the next three years.
Jonathan D. Gray: We saw this after the financial crisis where real estate values bottomed in the summer of 2009, but you had negative headlines about real estate for the next three years. We spent a lot of that time, of course, deploying capital into that dislocated period when people were still cautious. What gives us confidence as we look forward is this reduction in the cost of capital. We've obviously seen spreads tighten a fair amount, probably 125 basis points in CMBS in the first quarter and through the end of the fourth quarter last year.
Speaker Change: We spent a lot of that time of course deploying capital into that dislocated period, where people were still cautious.
What gives us confidence as we look forward here is one is this reduction in cost of capital. We've obviously seen spreads tighten a fair amount of probably 125 basis points in <unk> in the first quarter and through the end of the fourth quarter last year.
Jonathan D. Gray: We also saw CMBS issuance go up fivefold versus the first quarter of 2023. So that, and the fact that the Fed will be bringing rates down at some point here, that's important as well. The other thing I'd add is on the supply front. We've seen in logistics an 80% decline in new starts. We've seen in multifamily a 50% decline in peak starts from peak starts as well. And so that starts to lay the groundwork.
Speaker Change: We also saw CBS issuance go up fivefold versus the first quarter of 2023.
Speaker Change: That and the fact that the fed at some point here, we'll be bringing rates down and that's important as well.
Speaker Change: Other thing I'd add is on the supply front, we've seen in logistics in the 80% decline in new starts we've seen in multifamily a 50% decline in peak starts from peak starts as well and so that starts to lay the groundwork in terms of timing I would think about this period of time is the time of seed.
Jonathan D. Gray: In terms of timing, I would think about this period of time as a time of seed planting for you to be investing in this dislocation because there's a lot of uncertainty. There may be sellers, there may be public companies trading at discounts, and then over time, as things start to normalize, you start to accelerate on the realization. But first, I think it's the deployment period, then the realization period as you move out, similar to that post-GFC period. That's certainly the way we're playing it.
Speaker Change: Planting that you want to be investing into this dislocation.
Speaker Change: Because theres a lot of uncertainty there may be for sellers, there may be public companies trading at discounts and then over time.
As things start to normalize you start to accelerate on the realization, but first I think it's the deployment period, then the realization period as you move out similar to that post Dfc period, that's certainly the way we're playing it and in terms of capital. We obviously have a very large $30 billion Global fund. We said we've raised over seven five in Europe.
Operator: And in terms of capital, we obviously have a very large $30 billion global fund. We said we'd raised over $7 and a half in Europe. We have most of our eight plus billion dollar Asia fund still uninvested. So we have a lot of opportunistic capital to deploy. So we're forward-leaning as it relates to deployment, even though we recognize there's still going to be a lot of assets from a previous period working their way through the system.
Speaker Change: We have most of our eight plus billion dollars Asia funds still uninvested. So a lot of opportunistic capital to deploy so we're forward leaning as it relates to deployment, even though we recognize there's still going to be a lot of assets from a previous period working their way through the system.
Operator: Thank you. We'll go next to Alex Blostein with Goldman Sachs. Hey, good morning, everybody. Thank you for the question. My question is around BXPE, really strong momentum out of the gate, obviously $2.7 billion that you guys highlighted this quarter and last.
Speaker Change: Thank you we will go next to Alex <unk> with Goldman Sachs.
Alex: Hey, good morning, everybody. Thank you for the question.
Alex: My question is around DXP really strong momentum out of the gate, obviously $2 $7 billion that you guys highlighted this quarter and over the last couple of months, what's the vision for this product I guess in terms of both capacity and maybe the appropriate size for the strategy as well as the pace at which you feel comfortable taking in inflows and I don't want to do.
Operator: Thank you. We'll go next to Alex Blostein with Goldman Sachs. Hey.
Alex: Too much apparel with be read obviously, a very different product very different customer base, but thinking of that one I think peaking at north of $70 billion.
Jonathan D. Gray: Well, I think it's a great question, Alex. One of the things we did when we designed BXP was to make the platform as broad as possible so that we could scale the product, and we could be flexible on behalf of investors in terms of where we deploy it. So control, large-scale private equities, part of it, US, Europe, Asia; part of it, tactical opportunities, more hybrid equity, part of it, life sciences, growth, part of it, secondaries, infrastructure, some opportunistic credit.
Alex: How do you think about the size and opportunity for DXP.
Speaker Change: Well I think it's a great question Alex.
Speaker Change: One of the things we did when we designed DXP was to make the platform as broad as possible. So that we could scale the product and we could be flexible on behalf of investors in terms of where we deployed it so control large scale private equities part of it U S. Europe Asia is part of it.
Speaker Change: Tactical opportunities more hybrid equity part of it and life Sciences growth part of it secondaries infrastructure. Some opportunistic credit it's a very broad platform and it enables us to deploy a lot one of the advantages of Blackstone is just our scale and the amount of deal flow we see across.
Jonathan D. Gray: It's a very broad platform, and it enables us to deploy a lot. One of the advantages of Blackstone is just our scale and the amount of deal flow we see across all these different areas and, particularly, our connectivity with many other sponsors in the private equity space through our secondaries, our credit business, and our GP stakes business. We can be great partners to those folks. Obviously, we can make a lot of transactions ourselves. So we think the potential scale here is quite large. As you pointed out with BREACH, we're over $30 billion of equity, and nearly $60 billion of assets in BCRED.
Speaker Change: All of these different areas and particularly our connectivity with many other sponsors in the private equity space through our secondaries, our credit business. Our GP Stakes business, we can be great partners to those folks obviously, we can manufacture a lot of transactions ourselves. So we think the potential scale here is quite large.
Speaker Change: You pointed out be reached scale, where over $30 billion of equity six nearly $60 billion of assets and <unk>.
Jonathan D. Gray: We think this can grow a lot. The key is that we have to deliver strong performance to the underlying customers. We have to be disciplined in how we deploy capital and thoughtful. I think we've been doing that. I think we'll continue to do that, and that's what gives us a lot of confidence, because investors want exposure to private equity. Individual investors want a little bit, excuse me, of a different structure. And that's why I think BXP is so attractive.
Speaker Change: We think this can grow a lot. The key is we have to deliver strong performance to the underlying customers. We have to be disciplined in how we deploy capital and thoughtful I think we've been doing that I think will continue to do that and Thats what gives us a lot of confidence which is investors want exposure to private equity.
Individual investors want a little bit excuse me of a different structure and Thats why I think DXP. So attractive so I think as we come out of this period over the last two years, where there's been a lot of caution and negativity as market sentiment improves.
Jonathan D. Gray: So I think as we come out of this period of the last two years where there's been a lot of caution and negativity, as market sentiment improves, as we show the strong performance from our other individual investor products, I think there's potential here of pretty good size. Again, we've got to do a good job deploying capital, but I've got a lot of confidence, particularly given the breadth of the platform. So the short answer is I think this can grow to be much larger than it is today. Thank you. We'll go next to Dan Fannon with Jeffreys.
Speaker Change: As we show the strong performance from our other individual investor products I think there's a potential here pretty good size again, we've got to do a good job deploying capital, but I've got a lot of confidence, particularly given the breadth of platform. So the short answer is I think this can grow to be much larger than it is today.
Speaker Change: Thank you we'll go next to Dan Fannon with Jefferies.
Operator: Thank you. We'll go next to Dan Fannon with Jeff. All right, thanks.
Daniel Thomas Fannon: Thanks, Good morning, Michael.
Daniel Thomas Fannon: Michael last quarter the message for this year on margins was stability. The first quarter was flat with last year as you think about the momentum in the business that you highlighted in the prospects for growth and growth in AUM. How are you thinking about margins as you think about the rest of the year.
Michael S. Chae: Thanks, Dan. Yeah, I think that my message is, you know, consistent, first of all, in terms of the actual result, as you noted in the first quarter, quite stable, quite consistent, quite in line with both the first quarter a year ago and the full year 2023. I think, as always, we guide people to look not at individual quarters but at sort of a full year basis. And I think on that basis, we would, again, encourage people to think about this as reinforced margin stability as a guidepost.
Daniel Thomas Fannon: Thanks, Dan.
Speaker Change: My message is.
Speaker Change: Consistent first of all in terms of the actual result, as you noted in the first quarter.
Quite stable quite consistent quite in line with both the first quarter a year ago and the full year 2023.
Speaker Change: I think as always we.
Speaker Change: Guide people to look not in individual quarters, but that's sort of the on a full year basis.
Speaker Change: And I think on that basis, we would again.
Encourage people to think about this reinforced margin stability as a guidepost.
Michael S. Chae: And then, again, consistent with our message for a long time, on a longer term basis, we do think there's operating leverage built into our model. We obviously actively manage our cost structure, and we think, long term, it's a robust margin position that will scale and leverage over time. So back to where we started, I would reinforce margin stability as the message and, over the long term, feel optimistic about the ability to improve.
Speaker Change: And then again consistent with our message over a long time on a longer term.
Speaker Change: We do think Theres operating leverage built into our into our model.
Speaker Change: We actively manage our cost structure and we think long term there is a robust margin position that will that will scale and leverage over time. So.
Speaker Change: Back to where we started.
Speaker Change: I would reinforce margin stability is the message.
Speaker Change: And over the long term feel optimistic about the ability to increase that.
Operator: Thank you. We'll go next to Glenn Schorr with Evercore ISI.
Speaker Change: Thank you and we'll go next to Glenn Schorr with Evercore ISI.
Operator: So I got a question to peel back the onion a little bit on this commentary on bank partnerships. So when we watch you do something like Barclays, where you take in a credit card book and give it to your insurance clients, that makes sense to us. That's like a cash transaction that is tangible. So we read a little more about the rising of synthetic risk transfer trends, and I'm just curious. That's something that's obviously harder for us to follow, gives us shivers, and reminds us about 16 years ago. Curious to hear your thoughts on how much SRT is going on in the industry, how much you do, and maybe you can talk about what type of partnerships you anticipate going forward. Thanks.
Speaker Change: Okay.
Glenn Paul Schorr: Hello there.
Glenn Paul Schorr: Got a question to Peel back the onion, a little bit on this.
Glenn Paul Schorr: Commentary on bank partnerships, so what when we watched you do something like Barclays, where you've taken the credit card book and get it to your insurance clients that makes sense to us thats like a cash transactions tangible.
Glenn Paul Schorr: So we read a little more about the rising of synthetic risk transfer trends and I'm just curious if thats something thats, obviously harder for us to follow gives us shivers reminds us about 16 years ago.
Glenn Paul Schorr: Curious your thoughts on how much how much src is going on in the industry how much you do.
Glenn Paul Schorr: Maybe you can talk about what type of partnerships you envision going forward. Thanks.
Jonathan D. Gray: Thanks, Glenn. SRTs are an area we're very active in. I think we're the market leader today in terms of working with our bank partners. For them, these are capital relief transactions, as you know, where you're sharing in or taking first loss positions. We've been doing this with a variety of banks who are highly creditworthy institutions. One of the advantages we have is the strength we have across asset ownership and also corporate and real estate credit.
Speaker Change: Thanks Glenn.
Glenn Paul Schorr: <unk> are an area. We're very active I think we're the market leader today in terms of working with our bank partners for them. These are capital relief transactions as you know.
Glenn Paul Schorr: Where you're sharing in or taking first loss positions.
Glenn Paul Schorr: We've been doing this with a variety of banks sure highly credit worthy institutions.
Glenn Paul Schorr: One of the advantages we have is the strength, we have across asset ownership and and also corporate and real estate credit. So if we do these with bank partners. We can go through them in detail. The most active area has been subscription lines to date, which as you probably note subscription.
Jonathan D. Gray: So if we do these with bank partners, we can go through them in detail. The most active area has been subscription lines to date, which, as you probably know, subscription lines to private equity firms have had virtually no defaults over the last 30, 40 years. So we like that area.
Glenn Paul Schorr: Lines to private equity firms have had virtually no defaults over the last 30 40 years. So we like that area when we work in investment grade.
Jonathan D. Gray: When we work in investment grade or non-investment grade, much of it is around revolvers, which historically have had much lower loss ratios. And we are able to go through these portfolios and look at the risks we're taking. We do this, of course, not as Blackstone but on behalf of our investors and various vehicles and funds. The returns We've been doing this, by the way, for a number of years. And I just think our ability to look at the underlying credits, as opposed to just make a macro call, is our competitive advantage and our ability to do this on scale with the banks.
Glenn Paul Schorr: Our non investment grade much of it's been around revolvers, which historically have had much lower loss ratios.
Glenn Paul Schorr: And we are able to go through these portfolios and looking to credits were taking.
We do this of course, not as Blackstone, but on behalf of our investors in various vehicles and funds.
Glenn Paul Schorr: The returns we've been doing this by the way for a number of years and I just think our ability to look at the underlying credits as opposed to just make a macro call is our competitive advantage in our ability to do this in scale with the banks. So I see this as a win win it helps banks with some of the Basel pressure.
Jonathan D. Gray: So I see this as a win-win. It helps banks with some of the Basel pressure, and balance sheet pressures they have, and we're able to generate favorable returns. So I think this is a very good thing for the system overall. I think we're doing it in quite a responsible way. Our team is very experienced in how they execute these transactions. Thank you. We'll go next to Crispin Love with Piper. Thanks. Good morning. So in recent weeks, there's definitely been a shift in the rate outlook.
Glenn Paul Schorr: Balance sheet pressures, they have and we're able to generate favorable returns. So I think this is a very good thing for the system. Overall I think we're doing it in a quite responsible way our team is very experienced and how they execute these transactions.
Glenn Paul Schorr: Thank you we'll go next to Crispin Love with Piper Sandler.
Crispin Elliot Love: Thanks, Good morning.
Crispin Elliot Love: In recent weeks there has definitely been a shift in the rate outlook as were likely in a higher for longer scenario, which is very different than than just three months ago. So can you just talk a little bit about how that might impact your outlook for investment activity and putting dry powder to work going forward and just how it might shift the areas where you are most excited about deploying capital.
Operator: Thank you. We'll go next to Crispin Love with Piper Sandler. Thanks, good morning.
Jonathan D. Gray: Well, I do think it extends the investment window a bit for our $191 billion of dry powder. I think, you know, as people were getting closer to anticipating rate cuts, we saw big rallies in both equity and debt markets. And that can make it a little bit tougher to deploy capital. In some ways, it's helpful for financing, but it can also drive prices up. From our perspective, because we're buying assets so often for longer periods of time, the fact that a rate cut may happen 90 days or 180 days later is not really a long-term negative and, if anything, allows us to get into some assets at more favorable prices.
Crispin Love: <unk>.
Crispin Love: Well I do think it extends the investment window a bit for our $191 billion of dry powder I think.
Crispin Love: As people were getting closer to anticipating rate cuts you saw big rallies.
Crispin Love: And both equity and debt markets.
Crispin Love: And that can make it a little bit tougher to deploy capital in some ways. It's helpful for financings, but it also can drive prices up.
Crispin Love: From our perspective, because we're buying assets so often for longer periods of time. The fact that a rate cut may happen 90 days or 180 days later is not really a long term negative and if anything it allows us to get into some assets at more favorable pricing. So the way I would think about it as it extends.
Jonathan D. Gray: So the way I would think about it is that it extends out to the deployment period. It may slow some of the realizations and push them out a bit as well. But when we think about delivering value for our customers, we see it as a positive. Obviously, for businesses like our credit business, which is mostly floating rate, it enhances returns for our underlying customers.
Crispin Love: How to deployment period, it may slow some of the realizations and push them out a bit as well.
But when we think about delivering value for our customers, we see it as a positive obviously for our businesses like our credit business, which is mostly floating rate. It enhances returns for our underlying customers I do think it's important to note that unlike October and the end of the summer when rates moved in spreads really gapped out we haven't seen that accompanying.
Jonathan D. Gray: I do think it's important to note that unlike October and the end of the summer when rates moved and spreads really gapped out, we haven't seen that accompanying change. So markets seem to be in a much healthier spot, but I do think it probably prolongs the investment window here. And as we keep saying, we're not going to wait for the all-clear sign.
Crispin Love: Change so market seem to be in a much healthier spot, but I do think it probably prolongs the investment window here and as we keep saying, we're not going to wait for the all clear sign you saw a big ramp up we had 25 billion of deployment in the quarter and I think in terms of commitments and then as of quarter end plus beyond.
Jonathan D. Gray: You saw a big ramp up. We had $25 billion in deployment in the quarter. And I think in terms of commitments and then, beyond the quarter end, we have another $15 billion that's committed. So you're seeing us move. We did our first deal in growth for quite some time. Real estate, we've talked about; we've obviously accelerated there. In our secondaries business, the pipeline of deals we're looking at is about 2x where it was 90 days ago, so we're seeing a pickup in activity. It won't be everywhere, but I do think it creates more of a chance for us to deploy capital at prices we find attractive.
Crispin Love: The quarter end, we have another $15 billion sets committed so you're seeing US move we did our first deal in growth in quite some time real estate, we've talked about we've obviously accelerated there and our secondaries business. The pipeline of deals. We're looking at is about.
Crispin Love: <unk>, where it was 90 days ago. So we're seeing a pickup in activity and won't be everywhere, but I do think it creates more of a chance for us to deploy capital at prices, we find attractive.
Operator: Thank you. Thank you. We'll go next to Brian Bedell with Deutsche Bank.
Crispin Love: Thank you. Thank you we will go next to Brian Bedell with Deutsche Bank.
Operator: Great. Thanks. Good morning, folks.
Brian Bertram Bedell: Great. Thanks, Good morning folks maybe just to.
Jonathan D. Gray: Maybe just to add to that question on the pace of deployment in two specific areas, real estate and credit, just going back to the comment you just made, John, about extending the period, but does that make you sort of more excited about potential opportunities given that an extension of the period that could depress prices in real estate? And with the massive dry powder, especially in real estate, could that bring that level of deployment back up to sort of prior year levels in the mid to high $40 billion ranges?
Brian Bertram Bedell: Add on to that question on the pace of deployment in two specific areas real estate and credit.
Brian Bertram Bedell: Just going back to the comment you just made John about extending the period, but does that make you sort of more excited about potential opportunities given that.
Brian Bertram Bedell: <unk> of the period that could depress prices in real estate in.
Brian Bertram Bedell: With massive dry powder, especially in real estate.
Brian Bertram Bedell: Could that bring that level of deployment back up to sort of prior year levels.
Brian Bertram Bedell: A high mid to high 40 billion dollar ranges and then just secondarily in private credit a little a little different dynamic.
Jonathan D. Gray: And then just secondarily in private credit, a little different dynamic with less dry powder but more fundraising. So I guess the same question there. Or do you think you can get back up to sort of similar types of record levels in the mid to high $40 billion and, like, say for 2024 for deployment?
Brian Bertram Bedell: West dry powder, but more fundraising so I.
Brian Bertram Bedell: I guess same question there or do you think you can get back up to sort of similar types of record levels in the mid to high 48 billions in them like on let's say for 2024 for the appointment.
Jonathan D. Gray: Brian, it's hard to put numbers on things. I'll talk about it directionally. I do think when rates go up, the public markets tend to move much more than what we see in the private market. So for real estate, I do think that creates more opportunity for scalable deployment as some of those stocks move off, particularly if the debt market hangs in there. And so that disconnect can create opportunity. We've seen a pickup in Europe in real estate as well. Some of that is relating to distress.
Brian Bertram Bedell: Brian it's hard to put numbers on things I'll talk about it Directionally I do think when rates go up but the market tends to public markets tend to move much more than what we see in the private market. So for real estate I do think that creates more opportunity for scalable deployment.
Brian Bertram Bedell: Some of those stocks move off, particularly if the debt market hangs in there and so that gets connect can create opportunity.
Brian Bertram Bedell: We've seen a pickup in Europe in real estate as well some of that relating to distress and theres very negative sentiment, even though the fundamentals on the ground are actually pretty good in our chosen sectors.
Jonathan D. Gray: And there's very negative sentiment, even though the fundamentals on the ground are actually pretty good in our chosen sectors. And we're seeing overall in Europe, I think there we'll see rates come down more quickly than the U.S., which is helpful. So short answer, yes, it should help real estate deployment. On private credit, we've got a lot of momentum, particularly in the investment grade and asset-based, asset-backed areas. That's where we're probably most active right now. The need for capital around digital and energy infrastructure is enormous. The needs for power tied to digital infrastructure but also electrification of vehicles, and reshoring are very significant.
Brian Bertram Bedell: And we're seeing overall in Europe, I think there we will see rates come down more quickly than the U S, which is which is helpful. So short answer yes. It should help real estate deployment on private credit we've got a lot of momentum, particularly in the investment grade and asset base.
Brian Bertram Bedell: <unk> asset backed area, that's where we're probably most active right now the need for capital around digital and energy infrastructure enormous needs for power.
Brian Bertram Bedell: Tied to digital infrastructure, but also electrification of vehicles.
Brian Bertram Bedell: Re shoring very significant and theres going to be a huge need for capital. So we see that almost regardless of the interest rate environment I do think on the direct lending side, we've seen some spread tightening.
Jonathan D. Gray: And there's going to be a huge need for capital, so we see that almost regardless of the interest rate environment. I do think on the direct lending side, we've seen some spread tightening. Rates coming down will be helpful to see deal activity. And I think at that point, we'll see a pickup. But regardless, our pipeline for credit, both on the investment grade and non-investment grade side, is accelerated. So it's hard to say exactly how this will happen, but we feel good about the momentum in deployment.
Brian Bertram Bedell: Grades coming down will be helpful to see deal activity and I think at that point, we will see a pickup, but regardless our pipeline and credit both on the investment grade and non investment grade side has accelerated so it's hard to say exactly how this happens.
Brian Bertram Bedell: But we feel good about the momentum in deployment and I use my very scientific briefcase indicator, how many investment memos I'm, taking home over a weekend and it has definitely been trending up so I think that bodes well, it's hard to predict exactly how it manifests itself, but it feels like certainly this will be a more active year than last share for.
Jonathan D. Gray: And I use my very scientific briefcase indicator, how many investment memos I'm taking home over a weekend, and it has definitely been trending upward. So I think that bodes well. It's hard to predict exactly how it will manifest itself, but it feels like this will certainly be a more active year than last year for deployment.
Jonathan D. Gray: Okay, that's helpful. Thank you. Thank you. We'll go next to Ken Worthington with J.P. Morgan. Hi, good morning. Looking into BPP, net accrued performance revenue $73 million, I assume down on this quarter's crystallizations.
Brian Bertram Bedell: <unk> deployment.
Speaker Change: Okay. That's helpful. Thank you.
Thank you we'll go next to Ken Worthington with JP Morgan.
Kenneth Brooks Worthington: Hi, good morning.
Kenneth Brooks Worthington: Looking into PPP net accrued performance revenue $73 million I assume down on this quarter's crystallization.
Operator: Thank you. We'll go next to Ken Worthington with J.P. Morgan. Hi, good morning.
Kenneth Brooks Worthington: But irr's are down to 6%, which I think is below the hurdle rate. There I know PPP is collection of front end investments like buy them at a mile away what needs to happen here for returns to recover and accrued performance fees to build into what I think are big crystallization anticipated for next year.
Jonathan D. Gray: So, Ken, you pointed it out correctly, it's a bunch of different vehicles with different hurdle rates and different performance, some of which obviously are at higher levels, some at lower levels. You know, it feels to us as we've been talking about that, you know, real estate has moved towards this lower ebb, and it's fortunately a cyclical business, right? You know, when you stop building new supply, as the cost of capital comes down, you get a recovery, and you can look back over time to the early 1990s after the 2001 downturn, certainly after the GFC. The great thing is these are long-duration vehicles.
So Ken you pointed out correctly, it's a bunch of different vehicles with different hurdle rates and different performance.
Kenneth Brooks Worthington: Some of which obviously are at higher level some at lower levels.
Kenneth Brooks Worthington: It feels to us as we've been talking about that real estate.
Kenneth Brooks Worthington: Move towards this lower AD and it's Fortunately a cyclical business right.
Kenneth Brooks Worthington: When you stop building new supply as the cost of capital comes down you get a recovery and you can look back over time to the early nineties.
Kenneth Brooks Worthington: After 2001 downturn certainly after the GSC. The great thing is these are long duration vehicles. The capital is going to stick with us for quite some time and ultimately we'll get other opportunities when these crystal.
Operator: The capital is going to stick with us for quite some time, and ultimately, we'll get other opportunities when these crystallization events come up, and so I would say the fact that we think we're positioned in some really good sectors, really good geographies, we have big exposure to logistics in Europe, in particular. We've got some really high-quality data centers in some of our investment vehicles here as well. I would say overall, it's a combination of the quality of what we own and the sentiment in the sector improving, and when that happens, we'll get these unrealized performance fees that happen on a regular basis, so to me, it's a matter of time.
Kenneth Brooks Worthington: Crystallization events come up and so I would say of the <unk>.
Kenneth Brooks Worthington: Fact that we think we're positioned in some really good sectors really good geographies, we have big exposure to logistics.
Kenneth Brooks Worthington: Europe in particular.
Kenneth Brooks Worthington: We've got some really high quality of data centers in some of our.
Kenneth Brooks Worthington: Investment vehicles here as well I would say overall, it's a combination of the quality of what we own and the sentiment in the sector improving and when that happens we will get these.
Kenneth Brooks Worthington: Unrealized performance fees that happen on a regular basis. So to me. It's a matter of time. It goes to the larger issue of a large portion of our earnings in hibernation. The fact that we're still able to earn 98 <unk> incentive fees are well off what we think their long term potential our realizations in our opportunistic funds.
Operator: It goes to the larger issue of a large portion of our earnings in hibernation. The fact that we're still able to earn $0.98 even though incentive fees are well off what we think their long-term potential are, realizations in our opportunistic funds and private equity funds below potential, I think there's a lot of embedded upside in this firm, and you pointed out to one area, BPP, it's hard to put an exact date because it's going to be a function of the pace of the recovery, but we're pretty confident that commercial real estate over time recovers, and that foundation is starting to come into play.
Kenneth Brooks Worthington: And private equity funds below potential I think theres a lot of embedded upside in this firm and you pointed out one area of PPP, it's hard to put an exact date, because it's going to be a function of sort of the pace.
Kenneth Brooks Worthington: Of the recovery, but we're pretty confident at commercial real estate over time recovers and that foundation is starting to come into place.
Operator: Thank you very much. We'll go next to Ben Budish with Barclays. Hi, good morning and thanks for taking the question. I wanted to follow up on, I think Dan's question earlier on the margins, just a couple of kind of housekeeping items, maybe for Michael.
Speaker Change: Great. Thank you very much.
Speaker Change: We'll go next to Bangladesh with Barclays.
Bangladesh: Hi, good morning, and thanks for taking the question I wanted to follow up on Dan's question earlier on the margins just a couple of kind of housekeeping items, maybe for Michael on the fee related performance comp ratio. It looks like that has been sort of trending it was a bit lower in the quarter than we expected and it looks like it's been a little bit volatile over the last year or so.
Operator: We'll go next to Ben Budish with Barclays. Hi, good morning.
Michael S. Chae: Sure, Ben. I think on the margins on the fee-related performance revenues, there is variability over time, but I think it's important to point out, you know, as a practical matter, we think about sort of fee revenues and comp holistically on a business-by-business basis. And so that gives us the ability, I think, to manage that thoughtfully over time. So you'll see variability over the long run for margins, you know, or some are aligned with the firm margin overall.
Michael S. Chae: So it's sort of 40% range, we tend to expect so any any color there and then sort of on the same lines.
Michael S. Chae: Stock based comp stepped up a little bit in the quarter. Just curious how we should be thinking about that trending throughout the rest of the year. Thank you very much.
Speaker Change: Sure Dan I think on the.
Speaker Change: Margins on the fee related performance revenues, there is variability over time and I think it's important to point out as a practical matter, we think about sort of fee revenues and comp holistically on a business by business basis, So and that gives us the ability I think to manage that.
Michael S. Chae: But in the near term, you will see that move around based on the fact that we manage things holistically, I think, for the benefit of the firm and shareholders. On equity-based comp, I think when you step back, there is seasonality in the first quarter around that line item, and sort of movements between, say, Q4 of last year and Q1 are affected by that, as well as other puts and takes.
Speaker Change: Thoughtfully over time, so you will see variability over the long run.
Speaker Change: <unk> margins.
Speaker Change: Some are aligned with the margin.
Speaker Change: Margin overall.
Speaker Change: But in the near term you will see that move around based on the fact that we manage things Holistically I think for the benefits of the firm and shareholders.
Michael S. Chae: But if you sort of step back and look at the kind of growth trajectory in Q1, it grew about 19% year-over-year. That's lower than the 2023 overall growth rate, which was 23%. That, in turn, was about half the growth rate of 2022 overall. And so we do expect you are seeing this move lower over time, given sort of stable grant levels. And we think that's positive.
Speaker Change: On equity based comp.
Speaker Change: I think when you step back there is seasonality in the first quarter around.
Speaker Change: That line item.
Speaker Change: And sort of movements between say Q4 of last year and Q1 are affected by that as well as other puts and takes but if you sort of step back and look at the kind of growth trajectory.
Speaker Change: In Q1, it grew about 19% year over year, that's lower than the 2023 overall growth rate, which was 23% that in turn was about half the growth rate of 2022 overall and so we do expect you are seeing this move lower over time.
Operator: Got it. Thank you very much. Thank you. We'll go next to Steve Chubak with Wolf Research. Hi, good morning. So it was encouraging to hear the positive commentary on private credit deployment despite the reopening of public or syndicated markets.
Speaker Change: Given sort of stable grant levels, and we think Thats a positive.
Speaker Change: Got it thank you very much.
Operator: Thank you. We'll go next to Steve Chubak with Wolf Research. Hi, good morning. It was encouraging to hear the positive commentary on private credit deployment despite the reopening of the public or syndicated market. But given the increased competition for deals, you know that credit spreads are tightening, and high levels of credit dry powder, I'm curious if you're seeing any tangible signs or evidence of credit underwriting standards potentially growing more lax, and how that could dampen the pace of deployment across the credit platform. Please stand by as we reconnect our speakers.
Speaker Change: Thank you we'll go next to Steve <unk> with Wolfe Research.
Steve: Hi, good morning.
Steve: So it was encouraging.
Steve: You hear the positive commentary on private credit deployment, despite the reopening of public or syndicated markets, but given the increased competition for deals you noted credit spreads are tightening.
Steve: High levels of credit dry powder curious, if youre seeing any tangible signs or evidence of credit underwriting standards potentially growing more lax and how that could dampen the pace of deployment across the credit platform.
Steve: Good.
Speaker Change: Please standby as we reconnect our speakers.
Jonathan D. Gray: and obviously at very high multiples. Today, in the first quarter of our direct lending, the average loan-to-value was 44%. And part of that, of course, is driven by the fact that interest costs to have coverage given high base rates, there's only so much debt you can bear. So we're definitely not seeing, you know, reckless levels in any way in terms of what we've seen in terms of loan-to-value. Spreads have come down, but on direct lending today, they are probably 500 basis points over, still pretty good by historic standards. Interestingly, liquid markets have tightened far further.
Speaker Change: Hello.
Speaker Change: And obviously at very high multiples.
Speaker Change: Today.
Speaker Change: The first quarter on our direct lending the average loan to value was 44%.
Speaker Change: And now part of that of course is driven by the fact that interest cost to have coverage given the high base rates theres only so much that you can bear so we're definitely not seeing.
Speaker Change: Reckless levels in any way in terms of what we've seen terms of loan to value spreads have come down but on direct lending today are probably 500 over still pretty good by historic standards Interestingly liquid markets have tightened far for further so if you look at investment grade or high <unk>.
Jonathan D. Gray: So if you look at investment grade or high yield, we've seen much more movement there. But we still see this as a sector where the risk return for lending money is quite favorable. You know, if you're earning 500 over a base rate today, that's five and a half plus upfront fees, you're earning, you know, 11 and a half percent on an unleveraged basis. If you put in a little leverage better than that,
Speaker Change: Yield we've seen much more movement. There. So we still see this as a sector where the risk return for lending money is quite favorable.
Speaker Change: Earning 500 over a base rate today, that's five five plus upfront fees you're earning.
Speaker Change: 11, 5% on an unleveraged basis, if you put a little leverage better than that so the risk returned to us still feels compelling.
Jonathan D. Gray: So the risk return to us still feels compelling. You know, some sponsors, or risk for the common equity, not the capital structure. So overall, we have not seen signs of excess. And there's pretty good discipline in the market. And that gives us a lot of confidence. John, I just want to chime in.
Speaker Change: Some sponsors.
Speaker Change: Our risk for the common equity not to capital structure. So overall, we have not seen signs of access and there's pretty good discipline in the market and that gives us a lot of confidence John I'd just chime in on that two things one to put a fine point on John's point.
Jonathan D. Gray: John, I'd just chime in on that. Two things.
Michael S. Chae: One, to put a fine point on John's point about 44 percent loan to values, what that obviously means is, because these are mostly sponsor transactions with new equity being invested, that 56 percent of the capital structure on a new deal is being put up with cash equity junior to this debt from high-quality sponsors. So that is sort of another dimension, too, that we think the risk-reward here is. And then on default rates, as I mentioned in my remarks, less than 40 basis points for our business in the first quarter.
Speaker Change: About 44% loans to loan to values would that obviously means is big.
Speaker Change: Because these are mostly sponsored transactions with new equity being invest about 56% of the capital structure on a new deal is being put up with cash equity junior to this debt.
Speaker Change: From high quality sponsors so that is sort of another dimension to that we think the risk reward here and then on default rates as I mentioned in my remarks, less than 40 basis points for our business.
Michael S. Chae: We are demonstrating, because I think a couple of years ago there was some concern in the marketplace about what would happen with default rates for folks like us. There is differentiation. There is outperformance, depending on the borrower selection and the individual private credit player. And so we're operating at a fraction, I think, of the overall market default rate, which is normalizing. And that's while being a leader in deploying capital in private
Speaker Change: In the first quarter. There is we are demonstrating because I think a couple of years ago. There were some concern in the marketplace about what would happen with default rates for folks like US. There is differentiation there is outperformance depending on the borrower selection in the individual private credit player and so we're operating it.
Speaker Change: A fraction I think of the overall market default rate, which is normalizing so.
Speaker Change: I think we feel really and thats, while being a leader in deploying capital in private credit.
Operator: Thank you. We'll go next to Brennan Hawken with UBS.
Speaker Change: Great color. Thanks for taking my question.
Speaker Change: Thank you we'll go next to Brennan Hawken with UBS.
Operator: Good morning. Thanks for taking my question. Just two on real estate. One on housekeeping and one sort of more forward-looking.
Brennan Hawken: Good morning, Thanks for taking my question just two on real.
Brennan Hawken: Our real estate.
Brennan Hawken: One housekeeping and one so we look forward looking could you touch on the impact of the rate hedging be read in the first quarter and April to date, and then more on forward looking side I appreciate the comments on supply in real estate.
Operator: Could you touch on the impact of the rate hedge in BEREIT in the first quarter of April to date? And then, more on the forward-looking side, appreciate the comments on supply and real estate, but given that rates have actually started to back up, and sure, long rates are a little off the peak, but not by much, you know, what drives the confidence in real estate bottoming? Wouldn't we need the cap rates to move up as much as base rates or close to as much as base rates move up in order to draw that demand into the market?
Brennan Hawken: But given that rates have actually started a backup and ensure long rates are a little off the peak, but not by much what drives that confidence and real estate bottoming wouldn't we need the cap rates to move up.
Brennan Hawken: As base rates are close to.
Brennan Hawken: As much as base rates have moved up in order to draw that demand into the market.
Jonathan D. Gray: Brian, first, just on the data question, in terms of the impact of the swaps, it was about a point out of the 1.8% net performance. And then I'm
Speaker Change: Hey, Brian first just on the data question in terms of the impact of the swaps. It was about a point out of the one 8% net performance.
Jonathan D. Gray: And then on costs of capital, certainly a rising 10-year is not helpful, but I think it's important to put it into context. As you noted, it's lower than it was in October, but debt capital is so important. So if you went back to October, it was extremely difficult to borrow money. Spreads were much wider, and banks were very reluctant to lend in the space.
Brian Bertram Bedell: Performance for period.
Brian Bertram Bedell: And then on cost of capital certainly a rising tenure not helpful. But I think it's important to put it into context as you noted it's lower than it was in October but also debt capital being so important. So if you went back to October it was extremely different difficult to borrow money.
Brian Bertram Bedell: Spreads were much wider and <unk>.
Brian Bertram Bedell: Banks were very reluctant to lend in the space.
Jonathan D. Gray: In the first quarter, as I noted, we saw a five-fold increase in CMBS issuance. So the fact that debt capital is more available and the cost is meaningfully lower because of the spreads, not as much because of the base rates, that's a helpful sign. So it is more positive than it was six months ago. Backing up the 10-year treasury, as I noted, is not helpful. But the fact that overall, it does feel to us that at some point here, the Fed's gonna bring rates down, and there will be some downward pressure.
Brian Bertram Bedell: In the first quarter as I noted, we've seen a fivefold increase in the <unk> issuance. So the fact that that capital is more available and the cost is meaningfully lower because of the spreads not as much the base rates. That's a helpful sign. So it is more positive than it was six months ago backing up.
10 year Treasury as I noted not helpful. But the fact that overall it does feel to us at some point here. The fed is going to bring rates down there will be some downward pressure.
Jonathan D. Gray: That should be helpful. But the cost of capital overall coming down is helpful. That's why we're seeing, even today, despite the backlash in rates, more folks showing up to buy assets than we certainly did six months ago.
Brian Bertram Bedell: That should be helpful, but the cost of capital overall coming down is helpful and that's why we're seeing even today. Despite the backup in rates more folks showing up to buy assets than certainly we saw six months ago.
Operator: Thanks for that call. Thank you. We'll go next to Bill Katz with Kitty Callan. Okay, thank you very much for taking the question. Just coming back to the opportunity.
Speaker Change: Thanks for that color.
Speaker Change: Thank you we'll go next to Bill Katz with TD Cowen.
William Raymond Katz: Okay. Thank you very much for taking the question just coming back to the opportunity in global wealth management I was wondering if you could talk a little bit about where youre seeing the volume coming from to the extent you get that kind of granularity from the distributors and then secondly, just given the tremendous focus on many of your peers.
Operator: Thank you. We'll go next to Bill Katz with Katie Cowan. Okay, thank you very much.
William Raymond Katz: Into the spaces. So I'm wondering how you sort of see the competitive environment unfolding as we look ahead. Thank you.
Jonathan D. Gray: So, Bill, we see demand pretty broad-based. Obviously, we have a lot of strength in the U.S. with the biggest distribution partners. We've been at this, as a reminder, for a very long time.
William Raymond Katz: Yeah.
Speaker Change: So bill we see demand pretty broad based.
Speaker Change: Obviously, we have a lot of strength in the U S with the biggest distribution partners we have.
Speaker Change: And at this as a reminder, for a very long time.
Jonathan D. Gray: We've got a lot of relationships with financial advisors and their underlying customers. The performance of our drawdown funds, the performance of BREIT, and BCRED has created a lot of goodwill that we're able to tap into. And so I would say it's broad-based in the U.S. We are seeing strength overseas as well. Japan is a market where we certainly have seen more openness to our products, and we've had success there. Historically, some of the markets more tied to China, Hong Kong, and Singapore are a little slower today, but we've had strength in those markets over time also.
Speaker Change: We've got a lot of relationships with financial and our financial advisors and their underlying customers. The performance of our drawdown funds. The performance of be read be Craig has created a lot of goodwill that we are able to tap into.
Speaker Change: And so I would say, it's broad based in the U S. We are seeing strength overseas as well, Japan is a market, where we certainly have seen more openness to our products and we've had success there historically.
Speaker Change: Historically.
Some of the market is more tied to China, Hong Kong, Singapore, a little slower today, but we've had strength in those markets over time also in Europe, I'd say is an emerging market as its Canada. So I think it is a global story, it's still primarily U S, but it's growing and within the U S. What's interesting is we're still if you look at the pet.
Jonathan D. Gray: And Europe, I'd say, is an emerging market, as is Canada. So I think it's a global story. It's still primarily U.S., but it's growing. And within the U.S., what's interesting is we're still, if you look at the penetration of financial advisors, still in the very early days; really, a small percentage are allocating to alternatives.
Speaker Change: <unk> financial advisers are still in the very early days really a small percentage are allocating to alternatives.
Operator: And we think that could broaden quite significantly as these products deliver for clients as they begin to recognize the benefit of alternatives, trading some liquidity for higher returns. So we think there's a lot of room to grow, and the fact that we have 300-plus people on Joan Solitar's team, we've got this very powerful brand, we've had strong performance, all of that, I think, bodes well for us and makes us a differentiated player in this space.
Speaker Change: And we think that can brought in quite significantly as these products deliver for clients as they begin to recognize the benefit of alternatives trading some liquidity for higher returns. So we think theres a lot of room to grow and the fact that we have 300 plus people on jone solar towers team. We've got this very powerful brand.
Speaker Change: We've had strong performance all of that I think bodes well for us and makes us a differentiated player in this space.
Speaker Change: Thank you we'll go next to Brian Mckenna with citizens JMP.
Operator: Thank you. We'll go next to Brian McKenna with Citizens JMS. Great, thanks. Good morning, everyone. I believe you've recently hired a senior data exec to leverage AI across your private equity portfolios. So can you talk about that?
Brian J. McKenna: Great. Thanks, Good morning, everyone. I believe you recently hired a senior data exact to leverage AI across your private equity portfolios. So can you talk about your approach to leveraging data and AI across your portfolios and what that might mean for additional value creation over time.
Brian J. McKenna: And then can you also talk about how you leverage data on the deployment front I'm, assuming a lot of the data you have across the entire platform gives us gives you insight into emerging trends globally and so how does all of this translate into.
Operator: Thank you. We'll go next to Brian McKenna with Citizens JMP.
Jonathan D. Gray: So AI is obviously hugely important for our business, for the global economy. I would just frame this by saying we set up our data science business back in 2015. We've got more than 50 people on that team today.
Brian J. McKenna: Where you ultimately invest.
Brian J. McKenna: So AI is obviously hugely important for our business for the global economy I would just frame this by saying.
Brian J. McKenna: We set up our data science business back in 2015, we've got more than 50 people on that team today. We are focused historically on predictive AI, which is basically numbers in numbers out. So you could look at our company.
Jonathan D. Gray: We have historically focused on predictive AI, which is basically numbers in, numbers out. So you could look at a company, and you could look at their pricing history, and you could do much more sophisticated revenue management than human beings could do. Similarly, in terms of staffing, we've been using that as a tool for investing for quite some time now, and we'll continue to do so. And we've been pushing it out to some of our portfolio companies.
Brian J. McKenna: And you could look at there.
Brian J. McKenna: Pricing history, and you can do much more sophisticated revenue management than human beings could do similarly in terms of staffing and we've been using that as a tool for investing for quite some time now and we will continue to do this and we've been pushing it out to some of our portfolio companies I would point out also that Steve personally with his invest.
Jonathan D. Gray: I would point out also that Steve personally, with his investments at MIT and Oxford, has been a leader thinking about AI. And that has, I think, pushed the firm to try to do more in this space because we had more recognition that something profound was happening here. I would say on the generative AI front, it's still very early days, in terms of applications.
Brian J. McKenna: <unk>, Oxford has been a leader thinking about AI and that is I think pushed the firm to try to do more in this space because we had more recognition something profound what's happening here I would say on the January front, it's still very early days.
Brian J. McKenna: In terms of applications the ability to take language and put that into the machine produce language or videos I think it will have a powerful impact, but but that's going to take a bit of time and what I think it will do most is impact customer engagement for many of our companies I think.
Jonathan D. Gray: The ability to take language and put that into the machine, produce language or videos, I think it will have a powerful impact, but that's going to take a bit of time. And what I think it'll do most is impact customer engagement for many of our companies. I think it'll also, on the content side, help in software development and media development. And we're working on it by hiring data scientists to work with our teams. We hired a senior executive recently, but I'd still say on the generative side, it's early days.
Brian J. McKenna: I'll also on the content side, helping software development and media development and we're working by hiring data scientists working with our teams we hired a senior executive recently, but I'd still say on the generative side. It's early days now on the investing overall, what we've tried to do is focus on.
Operator: Now on the investing overall, what we've tried to do is focus on the infrastructure around AI, and that is primarily data centers. And by going out there and investing in 50 billion data centers that we own or have under construction and another 50 billion in the development pipeline globally, which Steve talked about, that really is the infrastructure. We're also spending a lot of time on power, which is a key necessity to build these data centers.
Brian J. McKenna: On the infrastructure around AI and that is primarily data centers and by going out there and investing in $50 billion of data centers that we own or have under construction and another 50 billion development pipeline globally, which Steve talked about that really is the infrastructure. We're also spending a lot of <unk>.
Brian J. McKenna: <unk> power, which is a key necessity to build these data centers and then we've made a number of investments around cloud companies.
Operator: And then we've made a number of investments around cloud companies, contractors building these, the whole ecosystem. So as a firm, we're trying to spend a lot of time. It's early days. For us, the biggest impact has been on the infrastructure, but we're working hard to find ways to help our companies be more competitive. And we're certainly trying to make our investment process better. So it's an area definitely worth focusing on. Thank you. We'll go next to Patrick Davitt with Autonomous Research. Hey, good morning, everyone. Thanks. So there's an increasing regulatory focus on the more illiquid...
Brian J. McKenna: Contractors' building these the whole ecosystem. So as a firm we are trying to spend a lot of time. Its early days for us the biggest impact has been around the infrastructure, but we're working hard to find ways to help our companies be more competitive and we're certainly trying to make our investment process better so an area definitely worth focusing on.
Brian J. McKenna: Yeah.
Speaker Change: Thank you John.
Speaker Change: Thank you we'll go next to Patrick Davitt with Autonomous research.
Patrick Davitt: Hey, good morning, everyone. Thanks.
Patrick Davitt: So there is an increasing regulatory focus on the more illiquid stuff. The ABS that you and others are originating for insurance balance sheets.
Operator: Thank you. We'll go next to Patrick Davitt with Autonomous Research. Hey, good morning, everyone. Thanks.
Patrick Davitt: And to what extent those should have a higher risk weighting I know insurance regulators work very slow, but what are you hearing from your 18 big ex shirts clients on that issue and are you seeing this concern factor into new business conversations with that channel at all thank you.
Jonathan D. Gray: So I think there's a lot of discussion around these areas. A lot of the focus has been on securitizations or synthetic securitizations, which create different ratings than a direct rating. A lot of the activities that we've been talking about here have been literally doing private assets investment grade, and very similar to what insurance companies have been doing in commercial mortgages and private placement debt for decades. What we're really doing is taking that model of senior, what we believe is safe debt on average A-rated in infrastructure, in all forms of asset-based finance, in residential finance, and putting that directly on the insurance company balance sheet.
So I think there's a lot of discussion around these areas a lot of the.
Patrick Davitt: The focus has been around securitization or synthetics securitization, creating different ratings and a direct rating.
Patrick Davitt: Lot of the activities, though that we've been talking about here have been literally doing private assets investment grade and very similar to what insurance companies have been doing in commercial mortgages and private placement debt for decades, what we're really doing is taking that model of senior what we believe.
Patrick Davitt: Safe that on average a rated in.
Patrick Davitt: Infrastructure.
Patrick Davitt: All forms of asset based finance in residential finance and putting that directly on insurance company balance sheets, and I think regulators and participants see that as generally a good thing because it's generating higher returns.
Jonathan D. Gray: And I think regulators and participants see that as generally a good thing because it's generating higher returns. There's a little less liquidity, although I would point out when you look at things like ABS bonds, there's not a lot of liquidity as it is, but there is a little less liquidity.
Theres, a little less liquidity, although I would point out when you look at.
Patrick Davitt: Things like ABS bonds, there's not a lot of liquidity as it is but there is a little less liquidity, but the risk profile of the assets is very much in line, if not safer than what our clients have done historically, so I think theres going to be more scrutiny as you know in the insurance space. We made a conscious choice we're not an insurance company, we really see our.
Jonathan D. Gray: But the risk profile of the assets is very much in line, if not safer than what our clients have done historically. So I think there's going to be more scrutiny, as you know, in the insurance space. We made a conscious choice. We're not an insurance company. We really see ourselves more like BlackRock or PIMCO. What they do is for liquid assets for insurance companies; we're doing a similar dynamic for insurance companies and private assets.
Patrick Davitt: Sells more like Blackrock pimco, what they do it for liquid assets for insurance companies, we're doing a similar dynamic for insurance companies and private assets and we think what we're doing is very sound. It's safe. It generates on average 200 basis points of higher return than comparably rated liquid assets. We think this is a good thing for policy.
Jonathan D. Gray: And we think what we're doing is very sound, it's safe, and it generates on average 200 basis points of higher return than comparably rated liquid assets. We think this is a good thing for policyholders. So we think there will be a lot of dialogue with regulators, but the activities we're focused on, we think will go well.
Patrick Davitt: Holders. So we think that will be a lot of dialogue with regulators, but the activities. We're focused on we think will be well received over time.
Operator: Great. Thank you. Thank you. Thank you. I apologize; I'd like to turn the call back over to Weston Tucker for any additional closed room comments.
Patrick Davitt: Okay.
Speaker Change: Alright. Thank you. Thank you thanks, everyone.
Speaker Change: I apologize I'd like to turn the call back over to Andrew Tucker for any additional closing comments.
Weston M. Tucker: Thanks, everyone, for joining us today. I look forward to following up after the call.
Weston M. Tucker: Thanks, everyone for joining us today and look forward to following up after the call.
Andrew Tucker: Yeah.
Andrew Tucker: [music].
Andrew Tucker: Yeah.