Q2 2024 Blackstone Inc Earnings Call

Good day and welcome to the Blackstone second quarter 2024 investor call.

Operator: Investor Call. Today's call is being recorded. At this time, all participants are in a listen-only mode.

Today's call is being recorded.

Operator: If you require operator assistance at any time, please press star zero. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

At this time all participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead. Great. Thank you, and good morning, and welcome to Blackstone's second 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 these statements.

Weston M. Tucker: For a discussion of some of the factors that could affect results, please see the risk factor section of our 10-K. We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell 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.

Great, thank you, and good morning and welcome to Blackstone's second quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO , John Gray, President and Chief Operating Officer, and Michael Chae, Chief Financial Officer.

Speaker Change: 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 which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements.

Speaker Change: For a discussion of some of the factors that could affect results, please see the risk factors section of R10-K. We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website.

Speaker Change: 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.

Speaker Change: So quickly on results. We reported gap net income for the quarter of nine hundred and forty eight million dollars Distributable earnings were 1.3 billion dollars or ninety six cents per common share And we declared a dividend of eighty two cents, which will be paid to holders of record as of July 29th

Weston M. Tucker: So quickly on results, we reported a gap net income for the quarter of $948 million. Distributable earnings were $1.3 billion, or $0.96 per common share, and we declared a dividend of $0.82, which will be paid to holders of record as of July 29. With that, I'll turn the call over to Steve.

Stephen Allen Schwarzman: Good morning, and thank you for joining our call. On our last several earnings calls, we spent a good deal of time talking about how we saw inflation compared to many other market participants. We took a strong view that we were seeing different outcomes with inflation moderating more quickly, in part because of our unique position in the real estate area and our understanding of the shelter component of the consumer price index, as a result of our conviction.

Speaker Change: With that, I'll turn the call over to Steve.

Stephen Allen Schwarzman: Good morning, and thank you for joining our call.

Stephen Allen Schwarzman: On our last several earnings calls, we spent a good deal of time talking about how we saw inflation compared to many other market participants.

Stephen Allen Schwarzman: We took a strong view that we were seeing different outcomes, with inflation moderating more quickly, in part because of our unique position in the real estate area and our understanding of the shelter component of the Consumer Price Index.

Stephen Allen Schwarzman: We decided to adopt a more aggressive approach to new investment. I'm pleased to report that in the second quarter, we deployed $34 billion, the highest level in two years, and nearly $90 billion in the last three quarters since the 10-year Treasury yield peaked. With inflation continuing to recede, we expect the Fed to begin cutting interest rates later this year.

Stephen Allen Schwarzman: As a result of our convictions, we decided to adopt a more aggressive approach to new investments.

Stephen Allen Schwarzman: I'm pleased to report that in the second quarter, we deployed $34 billion, the highest level in two years.

Stephen Allen Schwarzman: and nearly $90 billion in the last three quarters since the 10-year Treasury yield peaked.

Stephen Allen Schwarzman: With inflation continuing to recede, we expect the Fed to begin cutting interest rates later this year.

Stephen Allen Schwarzman: This should be very positive for Blackstone's asset values and provide the foundation for a significant realization cycle over time. As the largest alternative firm in the world with nearly 1.1 trillion dollars of AUM, the real-time data collected across our global portfolio provides insights that help us decide in which areas to concentrate our investments. This data also alerts us to major paradigm shifts, which is essential for any top performing asset manager. Our firm has demonstrated this foresight repeatedly since our founding.

Stephen Allen Schwarzman: This should be very positive for Blackstone's asset values and provide the foundation for a significant realization cycle over time.

Stephen Allen Schwarzman: As the largest alternatives firm in the world, with nearly 1.1 trillion dollars of AUM.

Stephen Allen Schwarzman: The real-time data collected across our global portfolio provides insights that help us decide in which areas to concentrate our investments.

Stephen Allen Schwarzman: This data also alerts us

Stephen Allen Schwarzman: to major paradigm shifts, which is essential for any top-performing asset manager.

Stephen Allen Schwarzman: Our firm has demonstrated this foresight repeatedly since our founding.

Stephen Allen Schwarzman: [inaudible] The decision to extend our private equity business into real estate in 1991. When Values Collapsed Following the Savings and Loan Crisis, by significantly expanding our credit platform in 2008 in advance of the extraordinary investment opportunities that arose from the global financial crisis, being the first investment alternatives firm to start and develop a dedicated private wealth business in 2011, and introducing the first large-scale perpetual product for that channel in 2017, and our decision later that same year to create a perpetual infrastructure strategy for Institutional Invest, which now anchors an overall infrastructure platform This demonstrated ability to be in the right place at the right time continues on an accelerated basis today.

Stephen Allen Schwarzman: including the decision to extend our private equity business into real estate in 1991.

Stephen Allen Schwarzman: When Values Collapsed Following the Savings and Loan Crisis

Stephen Allen Schwarzman: By significantly expanding our credit platform in 2008 in advance of the extraordinary investment opportunities that arose from the global financial crisis.

Stephen Allen Schwarzman: being the first investment alternatives firm to start and develop a dedicated private wealth business in 2011.

Stephen Allen Schwarzman: and introducing the first large-scale perpetual product for that channel in 2017.

Stephen Allen Schwarzman: and our decision later the same year to create a perpetual infrastructure strategy for institutional investors.

Stephen Allen Schwarzman: which now anchors an overall infrastructure platform across Blackstone of over $100 billion.

Stephen Allen Schwarzman: This demonstrated ability to be in the right place at the right time continues on an accelerated basis today.

Stephen Allen Schwarzman: This includes our investments and innovation, and all types of private credit, which was one of the world's largest managers, in Global Logistics, as the largest private owner of warehouses in the world, in the energy transition field, where we own the largest private renewables developer in the United States, in India. We believe Blackstone is the largest alternative investor in what has become the fastest growing major economy. And, of course, in Data Center, where we own the fastest growing platform in the world.

Stephen Allen Schwarzman: This includes our investments and innovation.

Stephen Allen Schwarzman: and all types of private credit, where we're one of the world's largest managers.

Stephen Allen Schwarzman: in Global Logistics.

Stephen Allen Schwarzman: as the largest private owner of warehouses in the world.

Stephen Allen Schwarzman: in the energy transition field.

Stephen Allen Schwarzman: where we own the largest private renewables developer in the United States.

Stephen Allen Schwarzman: in India.

Stephen Allen Schwarzman: Well, we believe Blackstone is the largest alternatives investor in what has become the fastest growing major economy.

Stephen Allen Schwarzman: And, of course,

Stephen Allen Schwarzman: In data centers, where we own the fastest growing platform in the world.

Stephen Allen Schwarzman: I'd like to take a moment to discuss what Blackstone is doing today in artificial intelligence, specifically in data centers, which is an essential part of that breakthrough area. AI is widely acknowledged as having the potential to be one of the greatest drivers of transformation in a generation. I have personally been active in this field since 2015. I believe the consequences of A.I. are as profound as what occurred in 1880 when Thomas Edison patented the electric light bulb.

Stephen Allen Schwarzman: I'd like to take a moment to discuss what Blackstone is doing today in artificial intelligence, specifically in data centers, which is an essential part of that breakthrough area.

Stephen Allen Schwarzman: AI is widely acknowledged as having the potential to be one of the greatest drivers of transformation in a generation.

Stephen Allen Schwarzman: I have personally been active in this field since 2015.

Stephen Allen Schwarzman: I believe the consequences of AI are as profound as what occurred in 1880 when Thomas Edison patented the electric light bulb.

Stephen Allen Schwarzman: Well, it took years to develop commercially viable products. The subsequent buildout of the electric grid over the following decades has parallels to the creation of data centers today to power the AI revolution. Current expectations are that there will be approximately $1 trillion of capital expenditures in the United States over the next five years to build and facilitate new data centers, with another $1 trillion of capital expenditures outside the United States. And the need to provide power for these data centers is a major contributor to an expected 40% increase in electricity demand in the United States over the next decade, compared to minimal growth in the last decade.

Speaker Change: Well, it took years to develop commercially viable products.

Speaker Change: The subsequent build-out of the electric grid over the following decades has parallels to the creation of data centers today to power the AI revolution.

Speaker Change: Current expectations are that there will be approximately $1 trillion of capital expenditures in the United States over the next five years to build and facilitate new data centers.

Speaker Change: with another $1 trillion of capital expenditures outside the United States.

Speaker Change: And the need to provide power for these data centers is a major contributor to an expected 40% increase in electricity demand in the United States over the next decade, compared to minimal growth in the last decade.

Stephen Allen Schwarzman: We believe these explosive trends will lead to unprecedented investment opportunities for our firm. Blackstone is positioning itself to be the largest financial investor in AI infrastructure in the world as a result of our platform, capital, and expertise. Our portfolio today consists of $55 billion in data centers, including facilities under construction, along with over $70 billion in prospective pipeline development. Our largest data center portfolio company, QTS, has grown lease capacity seven times since we took it private in 2021. Through QTS and our other holdings, we have a robust, ongoing dialogue with the world's largest data center customers.

Speaker Change: We believe these explosive trends will lead to unprecedented investment opportunities for our firm.

Blackstone: Blackstone is positioning itself to be the largest financial investor in AI infrastructure in the world as a result of our platform, capital, and expertise.

Speaker Change: Our portfolio today consists of $55 billion of data centers, including facilities under construction.

Speaker Change: along with over 70 billion dollars in prospective pipeline development.

Speaker Change: Our largest data center portfolio company, QTS, has grown lease capacity seven times since we took it private in 2021.

Speaker Change: Through QTS and our other holdings, we have a robust, ongoing dialogue with the world's largest data center customers.

Stephen Allen Schwarzman: We're also providing equity and debt capital to other AI-related companies. For example, in the second quarter, we committed to provide AI-focused cloud service provider CoreWeave with $4.5 billion of a $7.5 billion financing package. The largest debt financing in our history, and we're now focusing on addressing the sector's power needs in many differentiated ways. With large-scale platforms in infrastructure, real estate, private credit, and renewable energy, we are extremely well positioned to be the partner of choice in this rapidly growing area.

Speaker Change: We're also providing equity and debt capital to other AI-related companies. For example,

Speaker Change: In the second quarter, we committed to provide AI-focused cloud service provider, CoreWeave, with $4.5 billion of a $7.5 billion financing package, the largest debt financing in our history.

Speaker Change: And we're now focusing on addressing the sector's power needs in many differentiated ways.

Speaker Change: With large-scale platforms in infrastructure, real estate, private credit, and renewable energy, we are extremely well positioned to be the partner of choice in this rapidly growing area.

Stephen Allen Schwarzman: And another important area where Blackstone once again has been in the right place at the right time is real estate. During the global financial crisis, most competitors were forced out of business for delivering mediocre results or, in fact, sometimes losing money for their customers, where Blackstone where our investors ultimately doubled their money. How did we do it?

Speaker Change: And another important area where Blackstone, once again, has been in the right place at the right time is real estate.

Speaker Change: During the global financial crisis, most competitors were forced out of business or delivered mediocre results.

Speaker Change: In fact, sometimes losing money for their customers.

Speaker Change: where Blackstone

Speaker Change: where our investors ultimately doubled their money.

Stephen Allen Schwarzman: We own the right assets, in the right sectors, with the right capital structures, enabling us to emerge from the crisis as the clear market leader. As a result, institutional limited partners, and subsequently individual investors, allocated significant capital to Blackstone Real Estate, in contrast to most other real estate managers. With that capital, we repositioned our portfolio over time by selling U.S. office buildings and instead bought warehouses, Rental Housing, and eventually Data Centers.

Speaker Change: How did we do it?

Speaker Change: We own the right assets in the right sectors with the right capital structures, enabling us to emerge from the crisis as the clear market leader.

Speaker Change: As a result, institutional limited partners and subsequently individual investors allocated significant capital to Blackstone Real Estate in contrast to most other real estate managers.

Speaker Change: With that capital, we repositioned our portfolio over time by selling U.S. office buildings and instead bought warehouses, rental housing, and eventually, data centers.

Stephen Allen Schwarzman: These three sectors comprise approximately 75% of our global real estate equity portfolio today, compared to 2% in 2007. This repositioning has driven the outperformance and extraordinary growth of our real estate business over the last decade and a half. Real estate markets, of course, are cyclical, and over the past two and a half years, the increase in interest rates and borrowing costs has created a more challenging environment. However, even through this period.

Speaker Change: These three sectors comprise approximately 75% of our global real estate equity portfolio today, compared to 2% in 2007.

Speaker Change: This repositioning drove the outperformance and extraordinary growth of our real estate business over the last decade and a half.

Speaker Change: Real estate markets, of course, are cyclical.

Speaker Change: And over the past two and a half years, the increase in interest rates and borrowing costs has created a more challenging environment.

Stephen Allen Schwarzman: Blackstone Real Estate has delivered differentiated performance. B-REIT, for example, has generated a cumulative return of 10% net in its largest share class since the beginning of 2022 and 10% plus net returns annually since inception seven and a half years ago, more than double the return of the public wheat market. Nearly 90% of BeReed's portfolio is in warehouses.

Speaker Change: Even through this period, Blackstone Real Estate has delivered differentiated performance.

Speaker Change: B-REIT, for example, has generated a cumulative return of 10% net in its largest share class since the beginning of 2022.

Speaker Change: and 10% plus net returns annually since inception seven and a half years ago.

Speaker Change: more than double the return of the public wheat market.

Speaker Change: Nearly 90% of BeReed's portfolio is in warehouse.

Stephen Allen Schwarzman: Rental Housing and Data Centers, with data centers alone contributing almost 500 basis points to returns in the last 12 months. The performance B-REED has achieved is the key reason it is three times larger today than the next five largest non-traded REITs combined.

Speaker Change: Rental Housing and Data Centers, with data centers alone contributing almost 500 basis points to returns in the last 12 months.

Speaker Change: The performance B-REED has achieved is the key reason it is three times larger today.

Speaker Change: than the next five largest non-traded REITs.

Stephen Allen Schwarzman: Now the cost of capital has begun to decline, which should be further helped by Fed cuts later this year, creating the basis for a new cycle of increasing values in real estate. At the same time, new construction for most types of real estate is declining dramatically, down 40 to 70% year over year, depending on the asset class.

Speaker Change: combined.

Speaker Change: Now the cost of capital has begun to decline, which should be further helped by Fed cuts later this year.

Speaker Change: We believe creating the basis for a new cycle of increasing values in real estate.

Speaker Change: At the same time, new construction for most types of real estate is declining dramatically, down 40 to 70 percent year over year, depending on the asset class.

Stephen Allen Schwarzman: Looking forward, we are confident the outcomes experienced by our investors in this cycle will further reinforce our leadership position and will result in higher allocations to Blackstone from both institutional and private wealth channels in the future. Real estate is one of the largest asset classes in the world, and having the largest business when the cycle is turning should be very advantageous for our shareholders. Blackstone is the reference firm in the alternative investments industry.

Speaker Change: Looking forward.

Speaker Change: We are confident the outcomes experienced by our investors in this cycle will further reinforce our leadership position.

Speaker Change: and will result in higher allocations to Blackstone from both institutional and private wealth channels in the future.

Speaker Change: Real estate is one of the largest asset classes in the world and having the largest business when the cycle is turning should be very advantageous for our shareholders.

Speaker Change: Blackstone is the reference firm in the alternatives industry.

Stephen Allen Schwarzman: And for nearly four decades, we've been an essential partner to our investors, helping them navigate a dynamic world. The Blackstone brand engenders deep trust with our clients, allowing us to innovate and build leading businesses across asset classes. We now have 75 individual investment strategies, and we are working on many more currently.

Speaker Change: And for nearly four decades, we've been an essential partner to our investors, helping them navigate a dynamic world.

Speaker Change: The Blackstone brand engenders deep trust with our clients, allowing us to innovate and build leading businesses across asset classes.

Speaker Change: We now have 75 individual investment strategies.

Stephen Allen Schwarzman: Our near-term plans include launching several new products in the private wealth channel; the global expansion of our Infrastructure Platform, further deepening our penetration of the private credit and insurance market; and expanding our business in Asia. Our firm is as innovative today as at any point in our history. Innovation in finance, done correctly, is essential to create the virtuous cycle that satisfies investors who provide more and more capital for future growth. I have great confidence that we are firmly on this path. And with that, I'd like to turn it over to John.

Speaker Change: We are working on many more currently.

Speaker Change: Our near-term plans include launching several new products in the Private Wealth Channel.

Speaker Change: The global expansion of our infrastructure platform.

Speaker Change: Further deepening our penetration.

Speaker Change: of the private credit and insurance markets and expanding our business in Asia.

Speaker Change: Our firm is as innovative today as any point in our history.

Speaker Change: Innovation in finance, done correctly.

Speaker Change: is essential to create the virtuous cycle of satisfied investors who provide more and more capital for future growth.

Speaker Change: I have great confidence that we are firmly on this path.

Jonathan D. Gray: Thank you, Steve, and good morning, everyone. In January, we highlighted three powerful dynamics emerging in our business. First, that investment activity was picking up meaningfully across the firm. Second, that commercial real estate values were bottoming.

Speaker Change: And with that, I'd like to turn it over to John .

Jonathan D. Gray: Thank You Steve and good morning everyone. In January we highlighted three powerful dynamics emerging in our business.

Jonathan D. Gray: And third, that our momentum in private wealth was accelerating. Since then, each of these dynamics has progressed in a very positive way, starting with investment activity. We deployed $34 billion in the second quarter, up 73% year over year, and committed an additional $19 billion to pending deals. Activity was broad-based across the firm. BXCI, our credit and insurance business, had one of its busiest quarters ever with $21 billion invested or committed, including in global direct lending, along with infrastructure and asset-based credit.

Jonathan D. Gray: First, that investment activity was picking up meaningfully across the firm. Second, that commercial real estate values were bottoming. And third, that our momentum in private wealth was accelerating.

Jonathan D. Gray: Since then, each of these dynamics has progressed in a very positive way.

Jonathan D. Gray: Starting with investment activity, we deployed $34 billion in the second quarter, up 73% year over year, and committed an additional $19 billion to pending deals.

Jonathan D. Gray: Activity was broad-based across the firm.

Jonathan D. Gray: BXCI, our credit and insurance business, had one of its busiest quarters ever, with $21 billion invested or committed, including in global direct lending, along with infrastructure and asset-based credit.

Jonathan D. Gray: In private equity, new commitments included two take-privates in Japan, a music royalties business in the UK, and a fast-growing insurance broker in India. Back in the U.S., we bought Tropical Smoothie, a franchisor of Fast Casual Cafes.

Jonathan D. Gray: In private equity, new commitments included two take privates in Japan, a music royalties business in the UK, and a fast-growing insurance broker in India.

Jonathan D. Gray: Back in the U.S., we bought Tropical Smoothie, a franchisor of Fast Casual Cafes. This acquisition launched the investment period for our corporate private equity flagship, for which we've raised more than $20 billion to date.

Jonathan D. Gray: This acquisition launched the investment period for our corporate private equity flagship, for which we've raised more than $20 billion to date. In real estate, as I said, we made the call in January that values were bottoming, and the pillars of recovery were coming into place. What did we do with our conviction? We deployed nearly $15 billion in the first six months of the year in real estate, approximately two and a half times the same period last year.

Jonathan D. Gray: In real estate, as I said, we made the call in January that values were bottoming and the pillars of recovery were coming into place.

Jonathan D. Gray: What did we do with our conviction? We deployed nearly $15 billion in the first six months of the year in real estate, approximately two and a half times the same period last year.

Jonathan D. Gray: Since January, Green Street's index of private real estate values has had six consecutive months of flat or increasing values for the first time in over two years. In our own portfolio, we're now seeing more bidders show up for sales processes for single assets, driving price improvements. Overall, the cost of capital has declined significantly, with borrowing spreads and base rates moving lower, while the availability of debt capital has increased significantly. However, at the same time, new construction starts are falling sharply and are at or near 10-year lows in the U.S. for both warehouses and apartment buildings, our two largest areas of concentration.

Green Street: Since January , Green Street's index of private real estate values has had six consecutive months of flat or increasing values for the first time in over two years.

Green Street: In our own portfolio, we're now seeing more bidders show up to sales processes for single assets, driving price improvement.

Green Street: Overall, the cost of capital has declined significantly, with borrowing spreads and base rates moving lower, while the availability of debt capital has increased significantly.

Green Street: At the same time, new construction starts are falling sharply and are at or near 10-year lows in the U.S. for both warehouses and apartment buildings, our two largest areas of concentration. For a market driven by supply and demand, this is very positive for long-term values.

Jonathan D. Gray: For a market driven by supply and demand, this is very positive for long-term value. Nevertheless, the office sector remains under substantial pressure with more troubled assets likely to emerge. For Blackstone, as we've discussed, we have minimal exposure to traditional U.S. office in our expansive equity portfolio.

Speaker Change: Nevertheless, the office sector remains under substantial pressure, with more troubled assets likely to emerge. For Blackstone, as we've discussed, we have minimal exposure to traditional U.S. office in our expansive equity portfolio.

Jonathan D. Gray: Exposure is higher in our public mortgage rate, creating some challenges, although its focus on senior loans has been an important factor in navigating the sector's dislocation. With the vast majority of our global real estate portfolio concentrated in logistics, rental housing, and data centers, Blackstone is in a very differentiated position. Moving to our private wealth business, where our momentum has been accelerated. We raised $7.5 billion in the channel overall in the second quarter.

Speaker Change: Exposure is higher in our public mortgage rate, creating some challenges, although its focus on senior loans has been an important factor in navigating the sector's dislocation.

Speaker Change: With the vast majority of our global real estate portfolio concentrated in logistics, rental housing, and data centers, Blackstone is in a very differentiated position.

Speaker Change: Moving to our private wealth business where our momentum has been accelerating.

Jonathan D. Gray: In the perpetual vehicles, we raised over $6 billion in the second quarter and nearly $13 billion in the first half of the year, already exceeding what we raised from individuals in all of 2023. BCRED led the way with $3.4 billion raised in the quarter, the highest level in two years. BXP raised $1.6 billion in the quarter, reaching $4.3 billion in its first month and six months.

Speaker Change: We raised $7.5 billion in the channel overall in the second quarter. In the perpetual vehicles, we raised over $6 billion in the second quarter and nearly $13 billion in the first half of the year, already exceeding what we raised from individuals in all of 2023.

Speaker Change: BCRED led the way with $3.4 billion raised in the quarter, the highest level in two years.

Speaker Change: BXPE raised $1.6 billion in the quarter, reaching $4.3 billion in its first six months.

Jonathan D. Gray: And BREEC is seeing encouraging signs on the new sales front, raising $900 million in Q2, the best quarter in over a year. The vehicle has delivered six straight months of positive performance and has fulfilled 100% of repurchase requests every month since February. However, requests in June were down 85 percent from the peak last year, down 50 percent from May, and have declined further month to date in July. As we've been saying for some time, we believe flows in the wealth channel ultimately follow performance. We built the leading platform in our industry with over $240 billion and three large-scale perpetual vehicles. We have more in development, including two we plan to bring to market by early next year.

Speaker Change: And Breit is seeing encouraging signs on the new sales front, raising $900 million in Q2, the best quarter in over a year. The vehicle has delivered six straight months of positive performance and has fulfilled 100% of repurchase requests every month since February .

Speaker Change: Requests in June were down 85% from the peak last year, down 50% from May, and have declined further month-to-date in July .

Speaker Change: As we've been saying for some time, we believe flows in the wealth channel ultimately follow performance.

Speaker Change: We built the leading platform in our industry with over 240 billion dollars and three large-scale perpetual vehicles.

Jonathan D. Gray: First, an infrastructure vehicle that will provide investors access to the full breadth of the firm's strategies in this area, including equity, secondaries, and credit, and second, a vehicle that will invest across our expansive credit platform. Our commitment to the $85 trillion private wealth market is stronger than ever. Multiple other areas of the firm are showing strong momentum today. Our credit and insurance business is thriving in an environment of higher interest rates and accelerating demand for both investment-grade and non-investment-grade strategies. Our performance has been outstanding, with minimal defaults of less than 40 basis points in the last 12 months in our non-investment grade portfolio.

Speaker Change: We have more in development, including two we plan to bring to market by early next year. First, an infrastructure vehicle that will provide investors access to the full breadth of the firm's strategies in this area, including equity, secondaries, and credit.

Speaker Change: And second, a vehicle that will invest across our expansive credit platform.

Speaker Change: Our commitment to the $85 trillion private wealth market is stronger than ever.

Speaker Change: Multiple other areas of the firm are showing strong momentum today. Our credit and insurance business is thriving in an environment of higher interest rates and accelerating demand for both investment-grade and non-investment-grade strategies.

Speaker Change: Our performance has been outstanding, with minimal defaults of less than 40 basis points over the last 12 months in our non-investment grade portfolio.

Jonathan D. Gray: Our scale allows us to focus on larger investments where competitive dynamics are more favorable and where the quality of borrowers and sponsors is higher. In our nearly $120 billion global direct lending business, our emphasis on senior secured positions with average loan to values of 44% provides significant equity cushion subordinate to our loans. We're the sole or lead lender in approximately 80% of our U.S. portfolio, helping us to drive, document negotiations, and control the dialogue with borrowers if any challenges arise.

Speaker Change: Our scale allows us to focus on larger investments where competitive dynamics are more favorable and where the quality of borrowers and sponsors is higher.

Speaker Change: In our nearly $120 billion global direct lending business, our emphasis on senior secured positions with average loan-to-values of 44% provides significant equity cushion subordinate to our loans.

Speaker Change: We are the sole or lead lender in approximately 80% of our U.S. portfolio, helping us to drive document negotiations and control the dialogue with borrowers if any challenges arise.

Speaker Change: We believe our scale, careful sector and asset selection, and deep experience will differentiate us in a world of greater performance, dispersion, and credit.

Jonathan D. Gray: We believe our scale, careful sector and asset selection, and deep experience will differentiate us in a world of greater performance, dispersion, and credit. In our investment grade-focused credit business, our goal is to deliver higher yields to clients, primarily insurers, by migrating a portion of their liquid portfolios to private credit. We placed or originated $24 billion of A-rated credits on average in the first half of 2024, up nearly 70% year over year, which generated approximately 185 basis points of excess spread versus comparably rated liquid credit.

Jonathan Gray: In our investment grade focus credit business, our goal is to deliver higher yields to clients from merely insurance by migrating a portion of their liquid portfolio to private credit. We place or originated $24 billion of the A-rated credit on average in the first half of 2024, up nearly 70% year over year, which generated approximately 185 basis points of excess spread versus uncomparably rated liquid credits. Our insurance AUM grew 21% year over year to $211 billion, driven by strong client interest in our asset-like, open architecture model.

Speaker Change: In our investment-grade focused credit business, our goal is to deliver higher yields to clients, primarily insurers, by migrating a portion of their liquid portfolios to private credit.

Speaker Change: We placed or originated $24 billion of A-rated credits on average in the first half of 2024 up nearly 70% year-over-year, which generated approximately 185 basis points of excess spread versus comparably rated liquid credits.

Jonathan D. Gray: Our insurance AUM grew 21% year over year to $211 billion, driven by strong client interest in our asset light, open architecture model. We have four large strategic relationships and 15 SMAs today, and we expect our business to grow significantly from here. Moving to infrastructure, our total platform across the firm now exceeds $100 billion, as Steve noted, including our perpetual VIP strategy, infrastructure secondaries, and other infrastructure, equity, and credit investments. We built this platform from the ground up to become one of the largest in the world.

Speaker Change: Our insurance AUM grew 21% year-over-year to $211 billion, driven by strong client interest in our asset-light, open architecture model.

Jonathan Gray: We have four large strategic relationships and 15 SMAs today, and we expect our business to grow significantly from here. Moving to infrastructure, our total platform across the firm now exceeds $100 billion, as Steve noted, including our perpetual VIP strategy, infrastructure secondaries, and other infrastructure equity and credit investments. We built this platform from the ground up to become one of the largest in the world. VIP specifically reached a $50 billion milestone, including July fundraising. Up 21% from year end 2023, performance has been exceptional, with the low-mingled VIP strategy generating 16% net returns annually since inception, beating the public infrastructure index by nearly 1,100 basis points per year.

Speaker Change: We have four large strategic relationships and 15 SMAs today, and we expect our business to grow significantly from here.

Speaker Change: Moving to infrastructure, our total platform across the firm now exceeds $100 billion, as Steve noted, including our perpetual BIP strategy, infrastructure secondaries, and other infrastructure, equity, and credit investments.

Stephen Allen Schwarzman: We built this platform from the ground up to become one of the largest in the world.

Jonathan D. Gray: BIP specifically reached the $50 billion milestone, including July fundraising, up 21 percent from year-end 2023. Performance has been exceptional, with the commingled BIP strategy generating 16 percent net returns annually since inception, beating the public infrastructure index by nearly 1,100 basis points per year. We are well positioned to address the massive funding needs for infrastructure projects globally, including digital and energy infrastructure. Just last week, we agreed to invest nearly $1 billion in a portfolio of solar and wind projects in the U.S. alongside NextEra, the largest public renewables developer in the country.

Stephen Allen Schwarzman: BIP specifically reached the $50 billion milestone, including July fundraising.

Stephen Allen Schwarzman: up 21% from year-end 2023.

Stephen Allen Schwarzman: Performance has been exceptional, with the co-mingled BIP strategy generating 16% net returns annually since inception.

Stephen Allen Schwarzman: Beating the Public Infrastructure Index by nearly 1,100 basis points per year. We are well positioned to address the massive funding needs for infrastructure projects globally, including digital and energy infrastructure.

Jonathan Gray: We are well positioned to address the massive funding needs for infrastructure projects globally, including digital and energy infrastructure. Just last week, we agreed to invest nearly $1 billion in a portfolio of solar and wind projects in the US alongside NextEra, the largest public renewables developer in the country.

Stephen Allen Schwarzman: Just last week, we agreed to invest nearly $1 billion in a portfolio of solar and wind projects in the U.S. alongside NextEra, the largest public renewables developer in the country.

Jonathan D. Gray: A final comment on our Drawdown Fund business, where there are a number of initiatives we're quite excited about. We've launched or expect to launch fundraising in the next few quarters for the new vintages of multiple strategies.

Jonathan Gray: A final comment on our drawdown fund business, where there are a number of initiatives we're quite excited about. We've launched our expect to launch fundraising in the next few quarters for the new vintage is multiple strategies. These include the successors to our $5 billion life sciences fund, $9 billion private credit opportunity, $22 billion private equity secondaries fund, and $6 billion private equity Asia fund. All have strong track records, and we expect the new vintage is to be at least as large as, and in most cases, hopefully larger than the current funds. While the fundraising environment has been challenging, we're seeing more connectivity from LPs today as markets improve.

Stephen Allen Schwarzman: A final comment on our Drawdown Fund business, where there are a number of initiatives we're quite excited about.

Stephen Allen Schwarzman: We've launched or expect to launch fundraising in the next few quarters for the new vintages of multiple strategies.

Jonathan D. Gray: These include the successors to our $5 billion Life Sciences Fund, $9 billion Private Credit Opportunistic Strategy, $22 billion Private Equity Secondaries Fund, and $6 billion Private Equity Asia Fund. All have strong track records, and we expect the new vintages to be at least as large as, and in most cases, hopefully larger than, the current fund. While the fundraising environment has been challenging, we're seeing more receptivity from LPs today as markets improve.

Stephen Allen Schwarzman: These include the successors to our $5 billion Life Sciences Fund, $9 billion Private Credit Opportunistic Strategy, $22 billion Private Equity Secondaries Fund, and $6 billion Private Equity Asia Fund.

Stephen Allen Schwarzman: All have strong track records, and we expect the new vintages to be at least as large as, and in most cases, hopefully larger than, the current funds.

Stephen Allen Schwarzman: While the fundraising environment has been challenging, we're seeing more receptivity from LPs today as markets improve. Importantly, when we meet with our clients around the world, what we consistently hear is that they are holding or increasing their allocations to alternatives and to Blackstone.

Jonathan D. Gray: Importantly, when we meet with our clients around the world, what we consistently hear is that they are holding or increasing their allocations to alternatives and to Blackstone. In closing, our firm is emerging from this multi-year period of higher cost of capital even stronger than before. And we're sticking with our model of being a third-party asset manager, relying on our track record, our people, and the power of our brand to grow. With that, I will turn things over to our very capable CFO, Mr. Chae.

Jonathan Gray: Importantly, when we meet with our clients around the world, what we consistently hear is that they are holding or increasing their allocations to alternatives and to Blackstone.

Jonathan Gray: In closing, our firm is emerging from this multi-year period of higher cost of capital even stronger than before. And we're sticking with our model of being a third-party asset manager, relying on our track record, our people, and the power of our brand to grow.

Stephen Allen Schwarzman: In closing, our firm is emerging from this multi-year period of higher cost of capital, even stronger than before. And we're sticking with our model of being a third-party asset manager, relying on our track record, our people, and the power of our brand to grow.

Chet: With that, I will turn things over to our very capable CFO, Mr. Chet. Thanks, John, and good morning, everyone. The firm delivered steady financial results in the second quarter, with positive momentum and fundraising and deployment, as you heard.

Chae: With that, I will turn things over to our very capable CFO , Mr. Chae. Thanks, John , and good morning, everyone. The firm delivered steady financial results in the second quarter, with positive momentum in fundraising and deployment, as you've heard today.

Michael S. Chae: The firm delivered steady financial results in the second quarter, with positive momentum in fundraising and deployment, as you've heard today. I will first review the results, and we'll then discuss investment performance and the outcome. Starting with results, the firm's expansive range of growth engines continues to power AUM to new record levels. Total AUM increased 7% year over year to $1.1 trillion, with inflows of $39 billion in the quarter and $151 billion over the last 12 months.

Michael S. Chae: I will first review results, and we'll then discuss investment performance and the outlook.

Chae: Starting with results, the firm's expansive range of growth engines continues to power AUM to new record levels.

Michael S. Chae: Total AUM increased 7% year-over-year to $1.1 trillion, with inflows of $39 billion in the quarter and $151 billion over the last 12 months.

Michael S. Chae: Earning inflows were also $151 billion for the LTM period, including $53 billion in the second quarter, the highest level in two and a half years, lifting fee-earning AUM by 11% to $809 billion. We activated the investment periods for our corporate private equity and PE energy transition flagships in the second quarter, which, along with BXPE and private wealth, were in fee holidays as of quarter end, representing $27 billion of fee AUM in aggregate.

Michael S. Chae: Fee-earning inflows were also $151 billion for the LTM period, including $53 billion in the second quarter, the highest level in two and a half years, lifting fee-earning AUM by 11% to $809 billion.

Michael S. Chae: We activated the investment periods for our corporate private equity and PE energy transition flagships in the second quarter, which, along with BXPE and private wealth, were in fee holidays as of quarter end, representing $27 billion of fee AUM in aggregate.

Michael S. Chae: Notwithstanding the temporary impact from these bee holidays, management fees increased 5% year-over-year to a record $1.8 billion in the second quarter. Additionally, Q2 represented the 58th consecutive quarter of year-over-year growth in base management fees at the firm. E-related earnings were $1.1 billion, or $0.91 per share.

Michael S. Chae: Notwithstanding the temporary impact from these bee holidays, management fees increased 5% year-over-year to a record $1.8 billion in the second quarter.

Michael S. Chae: Notably, Q2 represented the 58th consecutive quarter of year-over-year growth in base management fees at the firm.

Speaker Change: B-related earnings were $1.1 billion, or $0.91 per share.

Michael S. Chae: The comparison of FRA to prior periods was impacted by a decline in fee-related performance revenues in the real estate segment, including from BRE, as its positive year-to-date appreciation came in modestly below the required hurdle. These revenues carry favorable margins, and their decline impacted the firm's FRA margin in the second quarter. These factors are partly offset by the steadily growing contribution from our direct lending business, with fee-related performance revenues in the credit and insurance segment rising 24% year-over-year to $168 million. Distributable earnings were $1.3 billion in the second quarter, or $0.96 per share, up 3% year-over-year.

Speaker Change: The comparison of FRA to prior periods was impacted by a decline in fee-related performance revenues in the real estate segment, including from BREIT, as its positive year-to-date appreciation came in modestly below the required hurdle. These revenues carry favorable margins, and their decline impacted the firm's FRA margin in the second quarter.

Speaker Change: These factors are partly offset by the steadily growing contribution from our direct lending business, with fee-related performance revenues in the credit and insurance segment rising 24% year-over-year to $168 million.

Speaker Change: Distributable earnings were $1.3 billion in the second quarter, or $0.96 per share, up 3% year over year.

Michael S. Chae: DE was underpinned by the firm's steady baseline of fee-related earnings, with Q2 representing the 11th consecutive quarter of FRE over a billion dollars. Net realizations were $308 million in the second quarter, up year over year, but still reflective of a backdrop that is not yet robust as it relates to scale disposition. That said, we executed the sales of a number of public and private holdings in the second quarter, concentrated in our Asia private equity business, including a leading health care services company in Korea, the IPO and subsequent sale of stock of one of the largest housing finance platforms in India, and the sale of stock of an India-based technology company.

Speaker Change: DE was underpinned by the firm's steady baseline of fee-related earnings, with Q2 representing the 11th consecutive quarter of FRE over $1 billion.

Speaker Change: Net realizations were $308 million in the second quarter, up year over year, but still reflective of a backdrop that is not yet robust as it relates to scale dispositions.

Speaker Change: That said, we executed the sales of a number of public and private holdings in the second quarter.

Speaker Change: Concentrated in our Asia private equity business, including a leading healthcare services company in Korea, the IPO and subsequent sale of stock of one of the largest housing finance platforms in India, and the sale of stock of an India based technology company.

Michael S. Chae: Moving to investment, our funds generated healthy overall appreciation in the second quarter, led by strength in infrastructure, private credit, and life science. Infrastructure reported 6.3% appreciation in the quarter and 22% over the last 12 months, with broad gains across digital transportation and energy infrastructure.

Speaker Change: Moving to investment performance.

Speaker Change: Our funds generated healthy overall appreciation in the second quarter, led by strength in infrastructure, private credit, and life sciences.

Speaker Change: Infrastructure reported 6.3% appreciation in the quarter and 22% over the last 12 months with broad gains across digital transportation and energy infrastructure.

Michael S. Chae: Our data center platform was, again, the single largest driver of appreciation in our real estate and infrastructure businesses and for the firm overall in the second quarter. In credit, we reported another outstanding quarter against a continuing positive backdrop for private debt market fundamentals. The private credit strategies generated a growth return of 4.2% in the quarter and 18% for the LTM period. The default rate across our 2000 plus non-investment grade credits was less than 40 basis points over the last 12 months, as John noted, with no new defaults in private credit in the second quarter.

Speaker Change: Our data center platform was, again, the single largest driver of appreciation in our real estate and infrastructure businesses and for the firm overall in the second quarter.

Speaker Change: In credit, we reported another outstanding quarter against a continuing positive backdrop for private debt market fundamentals.

Speaker Change: The private credit strategy has generated a growth return of 4.2% in the quarter and 18% for the LTM period.

Speaker Change: The default rate across our 2000-plus non-investment grade credits was less than 40 basis points over the last 12 months, as John noted, with no new defaults in private credit in the second quarter.

Michael S. Chae: Our multi-asset investing platform, BXMA, reported a 2.1% gross return for the absolute return composite, its 17th consecutive quarter of positive performance, and 12% for the last 12 months. BXMA has done an extraordinary job delivering resilient all-weather returns over the past several years through volatile equity markets and the longest and deepest drawdown in bonds on record. Since the start of 2021, the absolute return composite net of fees is a cumulative 27%, or nearly double the traditional 60-40 portfolio. The corporate PE funds appreciated 2% in the second quarter and 11% for the LTM period.

Speaker Change: Our multi-asset investing platform, BXMA, reported a 2.1% gross return for the absolute return composite.

Speaker Change: The 17th consecutive quarter positive performance and 12% for the last 12 months.

Speaker Change: BXMA has done an extraordinary job delivering resilient, all-weather returns over the past several years through volatile equity markets and the longest and deepest drawdown in bonds on record.

Speaker Change: Since the start of 2021, the absolute return composite net of fees is a cumulative 27% or nearly double the traditional 60-40 portfolio.

Speaker Change: The corporate PE funds appreciated 2% in the second quarter and 11% for the LTM period. Our operating companies overall reported stable mid-single digit year-over-year revenue growth, along with continued margin strength.

Michael S. Chae: Our operating companies overall reported stable mid-single-digit year-over-year revenue growth along with continued margins, and Real Estate values were stable overall in the quarter, supported by strengthened data centers and global logistics. This was offset by declines in our office portfolio, including Life Sciences Office, and certain other factors. One final highlight on investment performance: our dedicated life sciences business delivered a standout second quarter. The funds appreciated 11.9% and a remarkable 33% for the LTM period after achieving positive milestones for multiple treatments under development, including for stroke prevention, cardiovascular disease, and rare forms of epilepsy in children. The growth and performance of this business is yet another example of the firm's ability over many years to innovate and translate megatrends into large-scale businesses for the benefit of our customers. Turning to the outline,

Speaker Change: In real estate, values were stable overall in the quarter, supported by strengthened data centers and global logistics.

Speaker Change: This was offset by declines in our office portfolio, including Life Sciences Office and certain other factors.

Speaker Change: One final highlight on investment performance. Our dedicated life sciences business delivered a standout second quarter.

Speaker Change: The funds appreciated 11.9% and a remarkable 33% for the LTM period after achieving positive milestones for multiple treatments under development, including for stroke prevention, cardiovascular disease, and rare forms of epilepsy in children.

Speaker Change: The growth and performance of this business is yet another example of the firm's ability, over many years, to innovate and translate megatrends into large-scale businesses for the benefit of our investors.

Michael S. Chae: We're putting in place the foundation for a favorable step-up in earnings power over time. First, in terms of net realization, we expect a near-term lag between improving markets and a pickup in these revenues, as we stated previously. In the meantime, the firm's underlying performance revenue potential has continued to build with performance revenue eligible AUM in the ground, reaching a record $531 billion at quarter end. Meanwhile, net accrued performance revenue on the balance sheet, the firm's store of value, grew sequentially to $6.2 billion, or $5.08 per share.

Speaker Change: Turning to the Outlook.

Speaker Change: We're putting in place the foundation for a favorable step up in earnings power over time. First, in terms of net realizations.

Speaker Change: We expect a near-term lag between improving markets and a pickup in these revenues, as we stated previously.

Speaker Change: In the meantime, the firm's underlying performance revenue potential has continued to build, with performance revenue-eligible AUM in the ground, reaching a record $531 billion a quarter end.

Speaker Change: Meanwhile, net accrued performance revenue on the balance sheet, the firm's store of value, grew sequentially to $6.2 billion, or $5.08 per share.

Michael S. Chae: As markets heal and liquidity improves, we are well positioned for a significant acceleration in net realizations over time. In terms of FRE, we anticipate a material step-up in FRE in the fourth quarter, with multiple drivers. First, with respect to management fee holidays. The corporate PE and energy transition flagships will end their respective fee holidays in the coming months and will generate full management fees in Q4. BXP exited its bee holiday this second in terms of fee-related performance revenue.

Speaker Change: As markets heal and liquidity improves, we are well positioned for a significant acceleration in net realizations over time.

Speaker Change: In terms of FRE, we anticipate a material step-up in FRE in the fourth quarter with multiple drivers of note.

Speaker Change: First, with respect to management fee holidays.

Speaker Change: The corporate PE and energy transition flagships will exit their respective fee holidays in the coming months and will generate full management fees in Q4.

Speaker Change: The XP exited its bee holiday this month.

Michael S. Chae: Q4 includes a scheduled crystallization for the co-mingled BIP infrastructure strategy with respect to three years of significant accrued gain, as well as BXP's first crystallization event with respect to the full year 2024. Looking forward to 2025, we will see the full year benefit of the flagship vehicles that were activated in 2024. We also expect to raise multiple other flagships throughout the course of 2025, including life sciences, private equity secondaries, private equity Asia, and other major strategies.

Speaker Change: second in terms of fee-related performance revenues

Speaker Change: Q4 includes a scheduled crystallization for the co-mingled BIP infrastructure strategy with respect to three years of significant accrued gains.

Speaker Change: as well as BXP's first crystallization event with respect to full year 2024 games.

Speaker Change: Looking forward to 2025, we will see the full year benefit of the flagship vehicles that were activated in 2024. We also expect to raise multiple other flagships throughout the course of 2025, including life sciences, private equity secondaries, private equity Asia, and other major strategies.

Michael S. Chae: In addition, we expect the continued expansion of our platform of perpetual strategies, which has grown by two and a half times in the past three years. Importantly, our credit insurance business is on a strong positive trajectory, with Segment FRE increasing nearly 30% year-over-year in the second quarter. The dual engines of performance and innovation at Blackstone continue to drive the firm forward.

Speaker Change: In addition, we expect the continued expansion of our platform of perpetual strategies, which has grown by two and a half times in the past three years.

Speaker Change: And importantly, our credit insurance business is on a strong positive trajectory, with Segment FRE increasing nearly 30% year-over-year in the second quarter.

Speaker Change: The dual engines of performance and innovation at Blackstone continue to drive the firm forward.

Michael S. Chae: In closing, the firm is exceptionally well positioned against today's evolving backdrop with powerful structural tailwinds and multiple engines of growth. Our long-term capital provides the flexibility and firepower to invest and the patience to sell assets when the time is right. We are very optimistic about the future of black people. With that, we thank you for joining the call, and I would like to open it up now. Thank you. As a reminder, please press star 1 to ask a question.

Speaker Change: In closing, the firm is exceptionally well-positioned against today's evolving backdrop, with powerful structural tailwinds and multiple engines of growth.

Speaker Change: Our long-term capital provides the flexibility and firepower to invest and the patience to sell assets when the time is right. We are very optimistic about the future of Blackstone.

Speaker Change: With that, we thank you for joining the call and would like to open it up now for questions.

Speaker Change: Thank you. As a reminder, please press star 1 to ask a question. We ask you limit yourself to one question to allow as many callers as possible to ask questions.

Operator: We ask you to limit yourself to one question to allow as many callers as possible to ask. We'll go first to Craig Siegenthaler with Bank of America. Good morning, everyone. So my question is on investing. It was nice to see the sharp pickup in both deployments and commitments in the quarter. And with the credit piece more steady, we wanted to get your perspective on the two equity businesses, real estate and private equity.

Speaker Change: We'll go first to Craig Siegenthaler with Bank of America.

Operator: So do you think we'll likely see further progress in the second half? Or is a $24 billion deployment and $19 billion commitment on rates, driven by upticks in P and real estate, a really good run rate going forward, just given the stronger activity levels that you already achieved this quarter? Craig, it's a good question. I think it's hard to put an exact number, but there are some, I think, very positive signs.

Craig William Siegenthaler: Good morning everyone. So my question is on investing.

Speaker Change: It was nice to see the sharp pickup in both deployments and commitments in the quarter.

Speaker Change: and with the credit piece more steady.

Speaker Change: We wanted to get your perspective on the two equity businesses, real estate and private equity. So do you think we'll likely see further progress in the second half, or is a $24 billion deployment and $19 billion commitment on rates

Speaker Change: driven by upticks in P and real estate, really good run rate going forward, just given the stronger activity levels that you already achieved this quarter.

Speaker Change: So, Craig, it's a good question. I think it's hard to put an exact number.

Jonathan D. Gray: The fact that we have $19 billion committed at the end of the quarter is a good forward indicator of a lot of activity. I would say that just the volume of what we're seeing across our business, our equity strategies, is picking up. We did our first growth deal in a while, buying an ERP software business in Israel. We're seeing good activity in our secondaries business. That has clearly picked up year on year, and I think double the activity level over last year's level. Infrastructure is quite busy.

Craig William Siegenthaler: But there are some, I think, very positive signs. The fact that we have $19 billion committed at the end of the quarter is a good forward indicator of a lot of activity. I would say that just the volume of what we're seeing across our business, our equity strategies, is picking up.

Craig William Siegenthaler: You know, we did this last quarter our first growth deal in a while, buying an ERP software business in Israel. We're seeing good activity in our secondaries business. That has clearly picked up.

Jonathan D. Gray: Real estate, a little more episodic, but we are definitely leaning in, as we've talked about. Then private equity, broad-based, global. We bought a couple companies in Japan. We bought an insurance brokerage in India. We bought some software and online platforms in Europe. We bought a fast food business here in the United States.

Craig William Siegenthaler: Year-on-year, I think double the activity over last year's level.

Craig William Siegenthaler: Infrastructure, quite busy. Real estate, a little more episodic, but we are definitely leaning in as we've talked about. And then private equity, broad-based, global. We bought a couple of companies in Japan.

Craig William Siegenthaler: We bought an insurance brokerage in India, we bought some software and online platforms in Europe , we bought a fast food business here in the United States.

Jonathan D. Gray: I would say, by virtue, and I said it last quarter, my briefcase indicator continues to be getting full, and indicates that there should be increasing levels of solid transaction activity. I think the fact that we're seeing rates coming down, the markets being more conducive, more people are thinking about selling assets, and I think as the IPO market reopens, we should see more. It's hard to say it's a straight line, but the overall trend lines on investing are positive. Thank you, John. We'll go next to Michael Cyprys with Morgan Stamps.

Craig William Siegenthaler: And I would say, by virtue, and I said it last quarter, sort of my briefcase indicator continues to be getting...

Craig William Siegenthaler: Full.

Craig William Siegenthaler: and indicates that there should be, you know, increasing solid levels of transaction activity. So, I think the fact that we're seeing, you know, rates coming down, the markets being more conducive, more people are thinking about selling assets, I think as the IPO market reopens, we should see more. It's hard to say it's a straight line, but the overall trend lines on investing are positive.

Jon: Thank you, John .

Jon: We'll go next to Michael Cyprys with Morgan Stanley .

Operator: Morning, Mike. Mike, are you with us? Please check your mute function.

Mike: Morning, Mike.

Operator: We're unable to hear you. Let's move on into Q&A. Thank you. We'll go next to Alex Blostein with Goldman Sachs. Hey, good morning, everybody.

Speaker Change: Mike, are you with us?

Speaker Change: Please check your mute function. We're unable to hear you.

Speaker Change: Let's move on into the Q&A.

Speaker Change: Thank you. We'll go next to Alex Blostein with Goldman Sachs.

Jonathan D. Gray: Hey, Jon, maybe just building on your point about deployment activity picking up, I was hoping we could fill in on what that could mean for real estate fundraising. Obviously, it's been an area of somewhat of a challenge. But as deployment ramps up, and you guys are making nice progress on PREP 10, I believe, and other areas as well, what areas do you think will be the soonest to come back when it comes to real estate fundraising?

Alexander Blostein: Hey, good morning everybody. Hey Jon, so maybe just building on your point around deployment activity picking up, I was hoping we could go in on what that could mean.

Speaker Change: For real estate fundraising, obviously it's been an area of somewhat of a challenge, but as deployment ramps, and you guys are making nice progress on BREP 10, I believe, and other areas as well.

Speaker Change: What areas do you think will be the soonest to come back when it comes to real estate fundraising and your broader outlook there over the next 12 to 18 months?

Jonathan D. Gray: And you brought our outlook there over the next 12 days. Well, you know, obviously, the sentiment for investors in real estate has been pretty negative given what's happened in much of their portfolios. But we have been an outlier.

Speaker Change: Well, you know, obviously the sentiment for investors on real estate has been pretty negative given what's happened in in much of their portfolios We we have been an outlier. We've raised over eight billion dollars for our latest Opportunistic European fund we've raised now a little over five billion dollars for our latest real estate debt fund

Jonathan D. Gray: We've raised over $8 billion for our latest opportunistic European fund. We've raised now a little over $5 billion for our latest real estate debt fund. You know, I think they're going to be a little more cautious going into open-ended funds till they see more of a pickup. I think it is an area that's probably a little more muted for a period of time just because of investor caution, but we've seen this before.

Speaker Change: You know, I think they're going to be a little more cautious going into open-ended funds until they see more of a pickup.

Speaker Change: I think it is an area that's probably a little more muted for a period of time, just because of investor caution. But we've seen this before, if you went back to the financial crisis.

Jonathan D. Gray: If you go back to the financial crisis, people wait for, you know, the numbers to get better, to feel better about a sector, and then they start to jump in. I will say the tenor of the conversations around real estate has improved.

Speaker Change: You know, people wait for, you know, the numbers to get better, to feel better about a sector, and then they start to jump in. I will say the tenor of the conversations around real estate have improved. I think people are recognizing that prices have reset and that it's an interesting time to get back in. And I think one of the really important things, and Steve pointed this out in his remarks, is the differentiation of our performance. The fact that we're three quarters allocated to logistics, rental housing, and data centers, which looks very different than other investors. And I think, like the financial crisis, it may take a bit of time, but when people see the dispersion in performance and how we've done, I think we'll see significant capital moving in our direction. So...

Jonathan D. Gray: I think people are recognizing that prices have reset and that it's an interesting time to get back in, and I think one of the really important things, and Steve pointed this out in his remarks, is the differentiation of our performance. The fact that we're three-quarters allocated to logistics, rental housing, and data centers, which looks very different from other investors, and I think, like the financial crisis, it may take a bit of time, but when people see the dispersion in performance and how we've done, I think we'll see significant capital moving in our direction.

Speaker Change: The path of travel here I think for us is good, but in real estate I think it'll take a little bit of time just because of the experience investors have had in the sector.

Jonathan D. Gray: So, the path of travel here, I think, for us, is good, but in real estate, I think it'll take a little bit of time just because of the experience investors have had in the sector. And I'd just add, Alex, this is Michael. In terms of the breadth of the drawdown area, obviously, I think our timing was fortuitous in terms of being able to raise those funds over the last two or three years and now being in a really amazing position with $60 billion of dry powder. And so, we're in a good position where, subject to finishing your drawdown fundraise, we have a lot of dry powder from those opportunities. Yep, thanks so much.

Michael: And I'd just add, Alex, as Michael, in terms of the breadth drawdown area, obviously, I think our timing was fortuitous in terms of being able to raise those funds over the last two or three years and now being in a really amazing position with $60 billion of dry powder.

Speaker Change: And so, we're in a good position where, you know, subject to finishing the ERP drawdown fund raise, you know, we have a lot of drive pattern events from those opportunistic vehicles.

Jonathan D. Gray: Thank you. We'll go next to Glenn Schorr with Evercore ISD. Hello, there. Good morning.

Alexander Blostein: Yep, thanks so much.

Speaker Change: Thank you. We'll go next to Glenn Schorr with Evercore ISI.

Jonathan D. Gray: I'm curious if we get a little update on bank partnerships and asset-backed finance. There was another deal announced today outside of you guys, but there's been a tremendous amount of news flow in that space, and the asset-backed opportunity might be multiples larger than what we've seen in middle market lending. So I wonder if you could help frame the opportunity and remind us what you have on the ground already. Well, I think it is a big area of opportunity because I think you can offer clients higher returns on investment grade private credit, particularly in the asset-backed sector, because you're able to take out a lot of the distribution costs in an ABS transaction.

Glenn Paul Schorr: Hello there. Good morning.

Glenn Paul Schorr: Curious if we get a little update on

Glenn Paul Schorr: Bank Partnerships and Asset Backed Finance. There was another deal announced today outside of you guys, but there's been a tremendous amount of news flow in that space.

Speaker Change: And the asset back opportunity might be multiples larger than what we've seen in middle market lending. So I wonder if you could help frame the opportunity and remind us what you have on the ground already.

Speaker Change: Well, I think it is a big area of opportunity because I think you can offer clients higher returns.

Speaker Change: in investment-grade private credit, particularly in the asset-backed sector, because you're able to take out a lot of the distribution costs in an ABS.

Jonathan D. Gray: And so we've seen a tremendous amount of interest in this area. In fact, you know, we talk about 15 SMAs with insurance companies away from the big four strategic partnerships, and virtually all of those have some piece of asset-backed finance.

Speaker Change: We've seen a tremendous amount of interest in this area. In fact, we talk about 15 SMAs with insurance companies away from the big four strategic partnerships, and virtually all of those have some piece of asset-backed finance.

Jonathan D. Gray: It could be fund finance, it could be transportation, digital, it could be green energy, it could be residential. We're just seeing a tremendous amount of interest in this area. We've been building up the number of platforms; we have partnerships, flow agreements with banks. You know, we've been making some smaller strategic investments from our partners. As you know, we have a balance sheet light approach to this. But I think that market is something like a $5 trillion market, and the penetration remains very low. And we have seen a big pickup in terms of our volumes in this area. And I would expect you'll see more.

Speaker Change: It could be fund finance, it could be transportation, digital, it could be green energy, it could be residential. We're just seeing a tremendous amount of interest in this area. We've been building up the number of platforms. We have partnerships, flow agreements with banks.

Speaker Change: You know, we've been making some smaller strategic investments from our partners, as you know, we have a balance sheet light approach to this.

Speaker Change: But I think that market is something like a $5 trillion market, and the penetration remains very low.

Speaker Change: And we have seen a big pickup in terms of our volumes in this area, and I would expect you'll see more. I would also point out...

Jonathan D. Gray: I would also point out that the build out of the AI infrastructure, which Steve dwelled on and I think is really important, much of that will be asset-backed finance. And so if you think about financing data centers and financing the power that's going to support that, it will be ABS. And the fact that we have an enormous equity business that invests in scale in both of these areas and has a lot of expertise makes credit investors and insurance companies, particularly, want to allocate more capital.

Speaker Change: that the build-out of the AI infrastructure, which Steve dwelled on and I think is really important, much of that will be in asset-backed finance. And so if you think about...

Stephen Allen Schwarzman: financing data centers and financing the power that's going to support that.

Speaker Change: It will be ABF and the fact that we have an enormous equity business that invests in scale in both of these areas and have a lot of expertise makes credit investors and insurance companies particularly want to allocate more capital. So it feels to us like a very big market.

Jonathan D. Gray: So it feels to us like a very big market, early days in terms of penetration. And because these are long-duration assets, I think the holders really appreciate additional spread. And the dialogue in this area is as good as anywhere at the firm today. Thanks, John. Thank you. We'll go next to Crispin Love with Piper Stanley.

Speaker Change: Early days in terms of penetration, and because these are long-duration assets, I think the holders really appreciate additional spread, and the dialogue in this area is as good as anywhere at the firm today.

Jonathan D. Gray: Thanks, John.

Jonathan D. Gray: Thanks. Good morning, everyone. Appreciate you taking my question. Just a big picture question on the election, with the U.S. election rapidly approaching. Can you speak to what you expect to be the biggest impacts prior to the election, and then how that could impact near-term deployment and realizations? And then how you would also expect the differences between former President Trump and President Biden, or perhaps another Democrat occupying the White House, to impact Blackstone and the environment over the intermediate term and beyond, and how that could change your activity, just depending on what we see in November.

Speaker Change: Thank you. We'll go next to Crispin Love with Piper Sandler.

Crispin Elliot Love: Thanks. Good morning, everyone. I appreciate you taking my question. Just a big picture question on the election, just with the U.S. election rapidly approaching, can you speak to what you expect to be the biggest impact due prior to the election, and then how that could impact near-term deployment and realizations, and then how you would also expect the differences between former President Trump or President Biden or perhaps another Democrat occupying the White House?

Crispin Elliot Love: to impact Blackstone and the environment over the intermediate term and beyond and how that could change your activity just depending on what we see in November .

Jonathan D. Gray: You know, on the pre-election side, I think investors are, frankly, more focused on what's happening with the economy and, in particular, inflation. I know there will be a lot of press coverage, of course, rightfully, on how the Democrats and Republicans are doing, and how things look.

Speaker Change: You know, I think on the pre-election side,

Speaker Change: I think investors, frankly, are more focused on what's happening with the economy and, in particular, with inflation. I know there will be a lot of press coverage, of course, rightfully, on how the Democrats, Republicans are doing, how things look.

Jonathan D. Gray: But I think if we get good inflation prints that give the Fed more air cover to cut rates, that will be more decisive in how markets perform. So I think that is really the key thing to keep your eye on, even though there will be a lot of press focus on the election itself. I think post-election, you could see some very different policies.

Speaker Change: But I think if we get good prints on inflation that gives the Fed more air cover to cut rates, that will be more determinative of how markets perform. So I think that is...

Speaker Change: Really the key thing to keep your eye on, even though there will be a lot of press focus on the election itself. I think post-election, you could see some very different policies. I would just back up and say, you know, look, we've operated in blue environments, in red and purple environments, and the constant for us is delivering great returns for our customers, and that's what we focus on. And we focus on a lot of these long-term trends.

Jonathan D. Gray: I would just back up and say, you know, look, we've operated in blue environments and red and purple environments, and the constant for us is delivering great returns for our customers. And that's what we focus on. And we focus on a lot of these long-term trends that we've talked about, what's happening in digitalization, what's happening in power, life sciences, the growth of alternative business, and private credit. We think those are the long-term determinants of value.

Speaker Change: that we've talked about. What's happening in digitalization, what's happening in power, life sciences, the growth of the alternatives business, private credit, we think those are the long-term determinants of value.

Jonathan D. Gray: That being said, you know, what happens here, there will be differences. There will be differences on the regulatory front. Certainly, if you had a Republican administration in areas like antitrust, you would see a different posture, I believe. On energy, you could see, obviously, a different approach on hydrocarbons versus renewables, and you have to factor that into investing. And you could see a very different policy in terms of tariffs broadening out and maybe being certainly higher.

Speaker Change: That being said, you know, what happens here, there will be difference.

Speaker Change: There will be differences in the regulatory front.

Speaker Change: Certainly, if you had a Republican administration in areas like antitrust, you would see a different posture, I would believe.

Speaker Change: On energy, you could see, obviously, a different approach on hydrocarbons versus renewables, and you have to factor that into investing, and you could see a very different policy in terms of tariffs broadening out and maybe being certainly higher, and you have to think about that in terms of manufacturing businesses. So the good news is I think we have a pretty good sense of what that may look like, and we're really focused on the long term in some of these big sectors where we think there are huge opportunities, and regardless of which side wins, I think those things will be really the critical item in terms of driving higher returns.

Jonathan D. Gray: And you have to think about that in terms of manufacturing businesses. So the good news is, I think we have a pretty good sense of what that may look like. We're really focused on the long term in some of these big sectors where we think there are huge opportunities. And regardless of which side wins, I think those things will be really the critical item in terms of driving higher returns. Thank you, John.

Jonathan D. Gray: Thank you. We'll go next to Brian Bedell with Deutsche Bank. All right, great.

Jonathan D. Gray: Thank you, John .

Speaker Change: Thank you. We'll go next to Brian Bedell with Deutsche Bank.

Michael S. Chae: Thanks. Good morning, folks. Maybe a question for Michael on FRE margin. Obviously, as you're scaling or I should say as you're building the base management fees with the funds coming off holiday and these new funds coming into market in 2025 and obviously on the deployment on the credit side, as you think about 2025 from an FRE margin perspective, I know, Michael, you've said you certainly want to scale the FRE margin over time, but should we be set up for a step up in the FRE margin in 2025, excluding the impact of whatever happens with fee-related performance fees?

Brian Bertram Bedell: All right, great. Thanks. Good morning, folks.

Brian Bertram Bedell: Maybe a question for Michael on FRE margin, obviously as you're scaling, or I should say as you're building the base management fees with the funds coming off holiday and new funds coming into market in 2025 and obviously on the deployment on the credit side. As you think about 2025 from an FRE margin perspective, I know Michael, you've said

Speaker Change: You certainly want to scale the FRE margin over time, but should we be set up for a step up in the FRE margin in 2025?

Speaker Change: Excluding the impact of whatever happens with fee-related performance fees. And if you could just remind us of what you think the comp ratio overall on FERPA is. Maybe that depends by product.

Speaker Change: There's a few questions in there, but basically, FRE margin, you know, X for BRRRR is the base question.

Michael S. Chae: And then if you could just remind us of what you think the comp ratio overall on FERPA is. Maybe that depends by product, but there are a few questions in there, but basically, FRE margin, ex-FERPA is the base question. Sure. Hey, Brian.

Speaker Change: Sure. Hey, Brian . Look, I think the underlying sort of trajectory and baseline for margins

Michael S. Chae: Look, I think the underlying sort of trajectory and baseline for margins, certainly for X-Purpose, is one of stability in the near term and operating leverage over the long term. I think you know correctly the two sort of key variables in the near term, fee holidays and that level of sensitivity to fee-related farm revenues on fee holidays, private equity energy transition, both activated in this quarter. As I mentioned, we'll have some other funds that'll be in holiday proportions in the second half.

Speaker Change: on

Speaker Change: Certainly X-Fur-Burst.

Speaker Change: is one of stability in the near term, and

Speaker Change: and we think operating leverage over the long term.

Speaker Change: I think you know correctly the two sort of key variables in the nearer term, fee holidays and that level of sensitivity to fee-related farms revenues on fee holidays.

Speaker Change: We'll have some other funds that will be in holiday proportions in the second half, so we'll come through that.

Michael S. Chae: So we'll come through that in the latter part of the year and into next year. And then second, that level of sensitivity to fee-related farm revenues. So core plus fee-related farm revenues do carry, you know, higher incremental margins generally as do direct lending incentive fees. And on the other side, for infrastructure, Q4 represents its first large crystallization.

Speaker Change: in the latter part of the year and into next year.

Speaker Change: and then second, that level of sensitivity if you're related to performance revenue, so core plus.

Speaker Change: Fee-related performance revenues do carry higher incremental margins, generally, as do direct lending incentive fees.

Speaker Change: And on the other side for infrastructure.

Michael S. Chae: And as we've been building and scaling out that business, it carries with it a modestly lower effective margin at this stage of its development. But, of course, it's been performing extraordinarily well, and that's very positive for FRE on an absolute dollar basis. So overall, in the near term, we'd expect full-year margins to be sort of in a reasonable range relative to last year, where it falls within that function of the factors I mentioned that you cited. And then, longer term, that sort of picture of stability and, over time, operating leverage. So I think you framed the picture right.

Speaker Change: Q4 represents its first large crystallization. As we've been building and scaling out that business, it carries with it a modestly lower effective margin at this stage of its development.

Speaker Change: Of course, it's been performing extraordinarily well, and that's very positive for FRE on an absolute dollar basis. So overall, in the near term, we'd expect full-year margins to be sort of in a reasonable range relative to last year.

Speaker Change: where it falls within that function of the factors I mentioned that you cited. And then longer term, that sort of picture of stability and over time of operating leverage. So I think you framed the picture right. I think you alluded to the right couple of variables and both the near term and into 2025.

Michael S. Chae: I think you alluded to the right couple of variables in both the near term and into 2025. And obviously, on a long-term basis, we're very comfortable and optimistic. Thanks Brian. Thank you.

Speaker Change: And obviously, on a long-term basis, we're very comfortable and optimistic about it.

Speaker Change: Thanks, Brian . Thank you. We'll go next to Ken Worthington with J.P. Morgan.

Jonathan D. Gray: Good morning. Thanks for taking the question. In terms of the secondary business, there's been an overwhelmingly positive stream of commentary from the industry at large. Two things.

Kenneth Brooks Worthington: Hi. Good morning. Thanks for taking the question.

Speaker Change: In terms of the secondary business, there's been an overwhelmingly positive course of commentary from the industry at large.

Jonathan D. Gray: Maybe you could talk about deployment opportunities and the competitiveness of private equity secondaries these days? And then your secondary returns in your investment performance table have trailed private equity and other asset classes in recent years. I think in 23% up 2.5% and in 24% up 3% to date. As you go into flagship secondary fundraising, what anchors your confidence in being able to raise more money in the next vintage? And are returns a factor here? So a couple things on the secondary business.

Speaker Change: Two things, maybe can you talk about deployment opportunities and the competitiveness.

Speaker Change: of private equity, equity secondaries these days.

Speaker Change: And then your secondary returns in your investment performance table.

Speaker Change: has trailed private equity and other asset classes in recent years, I think in 23% up 2.5% and in 24% up 3% to date.

Speaker Change: As you go into flagship secondary fundraising, what anchors your confidence in being able to raise more money in the next vintage, and are returns a factor here?

Speaker Change: So a couple things on the secondaries business. One I would say is

Jonathan D. Gray: One thing I would say is that if you just look at what's happening in alternatives, the growth in alternatives, which has been a double-digit grower now for a long period of time, what we've seen is the need for liquidity as an asset class grows. And so that's why Secondary's business continues to grow. And our business, which we started 10 years ago with $10 billion, has grown eightfold. And so there's a need for liquidity. And even today, if you look at the volume of Secondaries that trade, it's 1% to 2% of the underlying NAV of funds, which is very low for most asset classes in terms of liquidity.

Speaker Change: that if you just look at what's happening in alternatives.

Speaker Change: The Growth and Alternatives, which has been a double-digit grower now for a long period of time.

Speaker Change: What we've seen is the need for liquidity as an asset class grows.

Speaker Change: And so that's why Secondary's business continues to grow, and our business...

Speaker Change: which we started with 10 years ago and $10 billion has grown eightfold.

Speaker Change: And so there's a need for liquidity, and even today, if you look at the volume of secondaries that trade, it's 1-2% of the underlying NAV in funds.

Jonathan D. Gray: So there is, as alternatives grow, the fact that this sector, there's not enough liquidity today in the sector, and the sector is growing, it creates a secular opportunity. And also, as you know, in the institutional market, what we've seen is a bunch of clients are over their targets, and that's creating a deployment opportunity. So I think we, as the largest player in the space, feel very good.

Speaker Change: which is very low for most asset classes in terms of liquidity. So there is, as alternatives grow, the fact that this sector, there's not enough liquidity today in the sector.

Speaker Change: That creates, and the sector is growing, it creates a secular opportunity, and also, as you know, in the institutional market, what we've seen is a bunch of clients are over their targets, and that's creating a deployment opportunity.

Jonathan D. Gray: When you comment on returns, if you look at those overall, they've been remarkably strong. Yes, in recent quarters, not as strong, but since inception, mid-teens or higher returns, latest funds, high-teens net returns. So when we think about going back out to raise our next flagship fund, our confidence level is extremely high. Our last vintage, I think, was $22 billion for our private equity Secondaries business. The team there, Vern Perry, has done an incredible job.

Speaker Change: I think we as the largest player in the space feel very good. When you comment on returns, if you look at those overall, they've been remarkably strong. Yes, in recent quarters, not as strong, but since inception, mid-teens are higher returns, latest funds, high-teens net returns. So when we think about going back out to raise our next flagship fund, our confidence level is extremely high. Our last vintage, I think, was $22 billion for our private equity secondaries business.

Vern Perry: The team there, Vern Perry, has done an incredible job. Our expectation is we would raise something larger. So it feels like a segment that is well-positioned, that there is a bit of structural inefficiency that's allowed you to generate attractive returns.

Jonathan D. Gray: Our expectation is that we would raise something larger. So it feels like a segment that is well-positioned, that there is a bit of structural inefficiency that's allowed you to generate attractive returns. Clients are beginning to really recognize that the risk return is favorable, and we think it can continue to be a real growth driver here at Blackstone. Just to add on to and reinforce John's point, first of all, on the long-term track record, as John said, you can see in the investment record, 14% across the business.

Vern Perry: Clients are beginning to really recognize that the risk return is favorable, and we think it can continue to be a real growth driver here at Blackstone.

Speaker Change: Just to add on to and reinforce John's point, first of all, on the long-term track record, as John said, you can see in the investment record, 14 percent across the business and in the two most recent sort of invested funds.

Jonathan D. Gray: And in the two most recent sorts of invested funds, 24% and 21% net. I would say in the last year or so, you noted the return versus private equity. First of all, there is, as you know, a lag on the reporting of Secondaries business relative to the underlying GPs.

Speaker Change: 24% and 21% net. I would say in the last year or so, you know, the return versus private equity, first of all, there is, as you know, a lag on the reporting of secondary business relative to the underlying GPs.

Michael S. Chae: Moreover, I'd say the nature of the Secondaries business is portfolios that tend to have more mature investments. And so I think in terms of the cyclical rebound in returns, that will also lag and be more muted to some degree than the overall market and what you'll see in our own private equity business. There's also a variable around the level of deal flow a year ago and the benefit that comes from buying those funds at a discount to fund returns in the short term. But long-term, overall, it is an outstanding track record. Great, thank you. We'll go next to Dan Fannon with Jeff.

Speaker Change: Moreover, I'd say the nature of the secondaries business is portfolios that tend to have more mature investments, and so I think in terms of the cyclical rebound in returns, that will also lag and be more muted to some degree than the overall market and what you'll see in our own private equity business.

Speaker Change: There's also a variable around the level of deal flow a year ago and the benefit that comes from buying those funds at a discount to the fund returns in the short term. But long term overall, it is an outstanding track record.

Speaker Change: Great, thank you.

Speaker Change: We'll go next to Dan Fannon with Jeffreys.

Jonathan D. Gray: Thanks. Good morning. Jon, I was hoping you could expand a bit more on the fundamentals you're seeing in real estate, which is obviously fueling some of the confidence around your accelerating deployment. I think you mentioned more buyers out in the market, but I was hoping to get a little more context around the broader real estate environment. So what we said about real estate, and you guys know because we've been talking about it for some time, is, you know, there are a couple of, I'd say, very positive signs that are emerging.

Daniel Thomas Fannon: Thanks, good morning. Jon, I was hoping you could expand a bit more on the fundamentals you're seeing in real estate and just obviously fueling some of the confidence around your accelerating deployment. I think you mentioned more buyers out in the market but hoping to get a little more context around the broader real estate environment.

Speaker Change: So, what we said on real estate, and you guys know because we've been certainly talking about it for some time, is...

Speaker Change: You know, there are a couple of...

Jonathan D. Gray: In the overall real estate picture, office, as we've said, is more challenged. Vacancy rates in office today are, you know, sort of the mid-20s, and it's going to take a while to work through that. In the other sectors, the fundamentals are better. If you think about apartments and logistics in the U.S., you know, 5-6% vacancy.

Speaker Change: I'd say very positive signs that are emerging.

Speaker Change: In the overall real estate picture, office, as we've said, is more challenged. Vacancy rates in office today.

Speaker Change: are you know sort of mid-20s and it's going to take a while to work through that.

Jonathan D. Gray: Demand has softened a bit, but pretty steady, I'd say, in both of those areas. Very positively, supply has come down 50-ish percent in multifamily starts, 75% from the peaks in warehouse starts. So that's very good long-term. But the near-term thing that has really impacted price and transaction volume has been cost and availability of capital. So if you went back to the fall, the 10-year was, you know, 80 basis points higher than it is today.

Speaker Change: In the other sectors, the fundamentals are better if you think about apartments and logistics in the U.S.

Speaker Change: You know, 5-6% vacancy. Demand has softened a bit.

Speaker Change: But pretty steady, I'd say, in both of those areas. Very positively, supply has come down 50-ish percent in multifamily.

Speaker Change: So that's very good long-term, but the near-term thing that has really impacted price and transaction volume has been cost and availability of capital.

Jonathan D. Gray: Spreads were probably 100 or more basis points wider, and the CMBS market was basically closed. That's changed pretty significantly, and the result of that is, in those sectors where we have our greatest exposure, which would be logistics and rental housing, we see two, three times more bidders showing up to buy assets. So I think that is clearly a positive.

Speaker Change: So, if you went back to the fall, the 10-year was, you know, 80 basis points higher than it is today. Spreads were probably 100 or more basis points wider, and the CMBS market was basically closed.

Speaker Change: That's changed pretty significantly, and the result of that is in those sectors where we have our greatest exposure, which would be logistics and rental housing, we see two, three times more bidders showing up to buy assets. So I think that is...

Jonathan D. Gray: We have said we don't see some sort of rocket ship, V-shaped recovery here, but we definitely have seen, if you look at the Green Street Property Report, six quarters, as I noted, where things have been flat and rising, and the sentiment's improving. So you've got a better cost of capital environment. You've got decent fundamentals, and that sets the groundwork.

Speaker Change: Clearly a positive. We have said we don't see some sort of rocket ship, V-shaped recovery here. But we definitely have seen, if you look at the Green Street Property Report,

Speaker Change: Six quarters, as I noted, where things have been flat and rising and the sentiment's improving. So you've got a better cost of capital environment.

Jonathan D. Gray: And if you go back to the financial crisis, of course, you know, we started deploying in the summer of 2009. There were still plenty of negative headlines from troubled deals for the next couple of years, and it was a great deployment period for us. And there are some similarities we're seeing today.

Speaker Change: you've got decent fundamentals and that sends the groundwork and if you went back

Speaker Change: to the financial crisis, of course.

Speaker Change: You know, we started deploying in the summer of 2009, there were still plenty of negative headlines from troubled deals for the next couple of years, and it was a great deployment period for us.

Jonathan D. Gray: The sentiment, we think, will stay negative because there will still be some troubled assets to work through the system. But on the ground, prices have cleared, and some of these headwinds have gone away, and that creates a favorable environment. And what we're doing now is seed planting for the future. And so these huge public-to-private transactions we've done in the U.S., the big push in European logistics, we think this will pay real dividends for our investors over time. Great, thank you.

Speaker Change: And there's some similarities we're seeing today. The sentiment, we think, will stay negative because there still will be some troubled assets to work through the system. But on the ground, prices have cleared, and some of these headwinds have gone away. And that creates a favorable environment, and what we're doing now is seed planting for the future. And so these huge public-to-privates we've done in the U.S., the big push in European logistics, we think this will pay real dividends for our investors over time.

Jonathan D. Gray: We'll go next to Benjamin Budish with Barclays. Hi, good morning, and thanks for taking the question. I wanted to ask maybe a specific one about BPP.

Speaker Change: Great, thank you.

Speaker Change: We'll go next to Benjamin Budish with Barclays.

Jonathan D. Gray: If you could give an update on sort of what's happening there with the redemption queue, and then it sounds like, based on your optimism around real estate performance and inflows potentially picking up over the near to medium term, how should we think about the sort of inflows and outflows of that fund evolving over the next, say, 6 to 12 months? Yeah, in our core plus institutional business, we've seen a little bit of a pick-up. It's still single digits in terms of the redemption queue across our BPP product line.

Benjamin Elliot Budish: Hi, good morning, and thanks for taking the question. I wanted to ask maybe a specific one on BPP. If you could give an update on sort of what's happening there with the redemption queue, and then it sounds like, you know, based on your optimism around, you know, real estate performance and inflows potentially picking up over the near to medium term, you know, how should we think about the sort of inflows and outflows of that fund evolving over the next, say, 6 to 12 months? Thank you.

Speaker Change: Yeah, in our core plus institutional business, we've seen a little bit of a pickup. It's still single digit in terms of the redemption queue across our BPP.

Jonathan D. Gray: I think, as you know, this is different than what we have in our individual investor vehicle, that it's based on new capital coming in, in terms of providing liquidity over time. And the institutional investors have a recognition that it takes time in a period of life like this to get liquidity. As I said earlier on fundraising, my expectation would be open-ended funds will take some time before investors feel a little more confident. We're starting to see some interest, particularly folks thinking about whether they could buy in at a little bit of a discount and so forth. But I think it's a question of working our way through the cycle.

Speaker Change: product line. I think...

Speaker Change: As you know in this, different than what we have in our individual investor vehicle, that it's based on new capital coming in, in terms of providing liquidity over time. And the institutional investors have a recognition that it takes time in a period of like this to get liquidity.

Speaker Change: As I said earlier on fundraising, my expectation would be open-ended funds will take some time before investors.

Speaker Change: feel a little more confident. We're starting to see some interest, particularly folks thinking about could they buy in at a little bit of a discount and so forth. But I think it's a question of working our way through the cycle. Again, here, I think we've done a very nice job on how we've set these portfolios up for success over time in terms of the portfolio positioning. But I would say my expectations on inflows here would be a little bit muted over the near term. But as fundamentals, certainly as real estate starts to deliver more positive performance, we can see this shift. And that's exactly what happened if you went back to the post-financial crisis period. Interestingly, what you see in that case is people want to get deployed and then they pull their redemption.

Jonathan D. Gray: Again, here, I think we've done a very nice job of setting these portfolios up for success over time in terms of portfolio positioning. But I would say my expectations for inflows here would be a little bit muted over the near term. But as fundamentals, certainly as real estate starts to deliver more positive performance, we can see this shift. And that's exactly what happened if you went back to the post-financial crisis period.

Jonathan D. Gray: Interestingly, what you see in that case is people want to get deployed, and then they pull their redemptions from the queue. So in many cases, they get in the queue thinking about, well, maybe I want liquidity. Then, when the world turns, they pull that back. So I think that could happen over time as well. And it is obviously a tie here to what happens in the cycle. Got it. Thank you, Jon. You will go next to Brennan Hawken with UB.

Speaker Change: [inaudible]

Speaker Change: Got it. Thank you, John .

Speaker Change: Thank you. We'll go next to Brennan Hawken with UBS.

Jonathan D. Gray: Good morning. Thanks for taking my questions. So, I was curious, given the tightening of redemption limits that we saw at SREIT during the quarter, can you speak to the impact that you saw in the wealth market on the back of that? I mean, I totally appreciate that BREIT is dramatically better positioned and you all actually allowed for more redemptions that went above the limit, which is a clear sign of strength.

Brennan Hawken: Good morning, thanks for taking my questions. So I was curious, given the tightening of redemption limits that we saw at ESSREET,

Brennan Hawken: during the quarter. Can you speak to the impact that you saw in the wealth market on the back of that? I totally appreciate that B Read is dramatically better positioned.

Brennan Hawken: And you all actually allowed for, you know, more redemptions, went above the limit, and a clear sign of strength. So it's not really about B-REIT specifically, but more about what S-REIT, that impact that had on that market and maybe risk appetites.

Jonathan D. Gray: So, this is not really about SREIT specifically, but more about what SREIT, that impact that it had on that market and maybe risk appetite. As you noted, there was a short-term impact in May on BREIT specifically as investors got nervous. We were able to assure investors that we managed the liquidity in a very differentiated way. And then we saw in June that redemption specifically in BREIT come down pretty sharply, 50% from May levels. And as I noted in my remarks, month-to-date so far, they've come down additionally. We have not seen a dramatic change, or, frankly, much of a change in terms of sentiment and what's happening in the private wealth channel.

Brennan Hawken: Thanks.

Speaker Change: As you noted, there was a short-term impact in May, in BREIT specifically, as investors got nervous. We were able to assure investors that we managed the liquidity in a very differentiated way, and then we saw in June redemption specifically in BREIT come down pretty sharply, 50 percent from May levels.

Speaker Change: And as I noted in my remarks, month-to-date so far, they've come down additionally.

Speaker Change: We have not seen a dramatic change or, frankly, much of a change in terms of sentiment or what's happening in the private wealth channel.

Jonathan D. Gray: I think in real estate specifically, investors are still waiting and seeing a bit, although we pointed out in the quarter we had our best inflows into BREIT in a year. BCRED had its best quarter in two years in terms of fundraising, and BXP has continued to raise significant money. And that has been a very successful launch in the first six months. Ultimately, this is about performance. That's what matters.

Speaker Change: I think in real estate specifically, investors are still waiting and seeing here a bit, although we pointed out in the quarter we had our best inflows in BREIT in a year. BCRED had its best quarter.

Speaker Change: In two years in fundraising, and BXP has continued to raise significant money, and that has been a very successful launch in the first six months. Ultimately, this is about performance.

Jonathan D. Gray: That's what drives things. It's the same story as our institutional business. We are relentless in focusing on where we invest capital, how we manage the assets, and how we deliver returns. And if you look at BREIT since inception, remarkable double-digit net returns over seven and a half years, more than double the public REIT index. You look at the double-digit net returns in BCRED and the strong start for BXPE. This is what ultimately matters to our underlying clients. And this is what we've got to do.

Speaker Change: That's what matters. That's what drives things. It's the same story as our institutional business.

Speaker Change: And if you look at B-REITs since inception, remarkable double-digit net returns over seven and a half years, more than double the public REIT index.

Speaker Change: You look at the double-digit net returns in BCRED, the strong start for BXPE. This is what ultimately matters to our underlying clients.

Jonathan D. Gray: And I think, frankly, getting through this downturn period and people seeing the semi-liquid structure work will give additional confidence. So as long as we continue to execute, I think that's the key in this private wealth channel. And I feel good about our ability to do that. So our confidence in the channel remains extremely high. Thanks for that, fellas. Thank you.

Speaker Change: And this is what we've got to do. And I think, frankly, getting through this downturn period and people seeing the semi-liquid structure work, I think will give additional confidence. So as long as we continue to execute, I think that's the key in this private wealth channel. And I feel good about our ability to do that. So our confidence in the channel remains extremely high.

Speaker Change: Great, thanks for that, fellas.

Speaker Change: Thank you. We'll go next to Bill Katz with T.D. Cowan.

Jonathan D. Gray: Okay, thank you very much. Maybe to pick up on the retail discussion, you were obviously very early and very prescient in terms of building the platform. However, the last number of years has seen a very big pickup in focus and new players into that. So I was wondering, as you look ahead, how you sort of see the evolution of the wealth management opportunity, certainly a big denominator, but how do you think the competition shakes out and how are the conversations with the financial advisors and intermediaries playing out in terms of how they're allocating to the bigger branch? Thank you. Thanks, Bill.

William Raymond Katz: Okay, thank you very much. Maybe to pick up on the retail discussion, you were obviously very early.

Speaker Change: and very prescient in terms of building the platform.

William Raymond Katz: However, the last number of years, there's been a very big pickup of focus and new players into that. So I was wondering, as you look ahead...

Speaker Change: How you sort of see the evolution of the wealth management opportunity.

Speaker Change: Certainly a big denominator, but how do you think the competition shakes out, and how are the conversations with the financial advisors and intermediaries playing out in terms of how they're allocating to the bigger brands? Thank you.

Jonathan D. Gray: It's definitely an area of large-scale opportunity, and everybody in the industry is recognizing this now. I think credit to our firm to get into this well before other people, to focus on financial advisors and their underlying clients, to build out now a 300-plus person global team led by Joan Solitar that's focused on serving individual investors and also innovating, creating these perpetual products that brought costs down very significantly from what had existed historically in non-traded REITs, non-traded BDCs, and really innovating to create things that would work from a cost structure, tax standpoint, liquidity standpoint.

Speaker Change: Thanks, Bill. It's definitely an area of large-scale opportunity, and everybody in the industry is recognizing this now. I think credit to our firm to get into this well before other people, to focus on financial advisors and their underlying clients.

Speaker Change: to build out now a 300 plus person global team.

Joan Solitar: Led by Joan Solitar that's focused on serving individual investors and also innovating, creating these perpetual products that brought costs down very significantly from what had existed historically in non-traded REITs, non-traded BDCs.

Joan Solitar: and really innovating to create things that would work from a cost perspective.

Jonathan D. Gray: And so I think we will see more competitors move into the space. The advantage we have is our brand. I touched on it at the end of my remarks, but I think that is perhaps the most powerful asset of our firm, along with our people. Investors know us, and trust us, because we've done such a great job investing capital for four decades.

Joan Solitar: structure, tax standpoint, liquidity standpoint. And so I think we will see more competitors move into the space.

Speaker Change: The advantage we have is our brand. I touched on it at the end of my remarks, but I think that is...

Speaker Change: Perhaps the most powerful asset of our firm, along with our people. Investors know us, trust us.

Joan Solitar: Because we've done such a great job investing capital for four decades.

Jonathan D. Gray: And the relationship and reservoir of goodwill we have with individual investors in the products, in the results we've delivered in BREIT and BCRED and in the drawdown funds that we have sold into the channel have built up a lot of positive feelings. So I think others will follow, but we're continuing to innovate here. We talked about in the remarks new products in infrastructure and multi-asset credit. I think the one advantage I'd say in this market versus the institutional market is that there you can have thousands and thousands of individual private equity firms or real estate firms, and credit firms.

Joan Solitar: and the relationship and reservoir of goodwill we have with individual investors in the products.

Joan Solitar: In the results we've delivered in BeRead and BeCred, and in the drawdown funds that we have sold into the channel, have built up a lot of positive feelings. So, I think others will show.

Joan Solitar: But we're continuing to innovate here. We talked about in the remarks new products in infrastructure and

Joan Solitar: multi-asset credit.

Joan Solitar: I think, you know, the one advantage, I'd say, in this market versus the institutional market, there you can have thousands and thousands of...

Joan Solitar: You know, individual private equity firms, real estate firms, credit firms, I think when you get to private wealth.

Jonathan D. Gray: I think when you get to private wealth, the brands are going to matter, the scale, the ability to service. And I think there'll be a smaller number of players in that segment. It'll grow over time, but it requires something different.

Joan Solitar: The brands are going to matter, the scale, the ability to service.

Joan Solitar: And I think it'll be a smaller number of players in that segment. It'll grow over time, but it requires something different. And we have a pretty meaningful first-mover advantage, $240 billion of total assets.

Jonathan D. Gray: And we have a pretty meaningful first mover advantage, 240 billion in total assets. And we are absolutely committed to delivering great performance and great service to the underlying customer. So we recognize it's going to be more competitive. Others will try to do things in the marketplace. We respect them, but we really like our first mover position in this very large and growing market. Thank you. We'll go ahead with Patrick Davitt on Autonomy. Hey, good morning, everyone. Most of mine have already been asked.

Joan Solitar: and we are absolutely committed to delivering great performance and great service to the underlying customer. So we recognize it's going to be more competitive. Others will try to do things in the marketplace. We respect them, but we really like our first mover position in this very large and growing market.

Joan Solitar: Thank you. We'll go next to Patrick Davitt with Autonomous.

Michael S. Chae: The growth to net flow gap in AUM was fairly dramatic for a low realization quarter. So to what extent is that a result of the assets moving between strategies and or funds? And if so, could you give the volume of that rotation that was included in gross flows, if any?

Joan Solitar: Thank you for your attention. Thank you.

Patrick Davitt: Hey, good morning, everyone. Most of mine have been asked. The growth to net flow gap in AUM was

Patrick Davitt: Fairly dramatic for a low-realization quarter.

Patrick Davitt: So, to what extent is that a result of the assets moving between strategies and or funds, and if so, could you give the volume of that rotation that was included in gross flows, if any? And then taking a step back, is this a trend we should expect more of on a go-forward basis, or do you think 2Q was uniquely large? Thanks.

Michael S. Chae: And then taking a step back, is this a trend we should expect more of on a going forward basis, or do you think 2Q was uniquely large? Thanks. Yeah, I think, Patrick, there has been, over time, a bit more of a dynamic that involves, to some degree, the open-ended funds and the nature of how those work. And there have been some shifts in terms of the allocation of capital, you know, between businesses that cross segments, and also, you know we had in the second quarter the move of a couple of businesses from a reporting standpoint. I think it's not going to be dramatically different over time. Thank you. Thank you. We'll take our last question from the line of Arnaud Giblat with BNP. Good morning.

Speaker Change: Yeah, I think, Patrick, it's, there has been over time a bit more of that dynamic that involves, to some degree, the open-ended funds and the nature of how those work. And there have been some shifts in terms of allocation of capital, you know, between businesses that cross segments.

Speaker Change: And also, you know, we had in the second quarter that the move of, from a reporting standpoint, a couple businesses between.

Speaker Change: Credit, and BXMA. So that's been the nature of the business involves more of that but it's not I think it's not going to be dramatically different over time.

Speaker Change: Thank you.

Speaker Change: Thank you. We'll take our last question from the line of Arnaud Giblat with BNP.

Jonathan D. Gray: A quick question on the Wealth Channel. I'm just wondering if you could share with us why you think the European semi-liquid products lag so much versus the U.S. products. And do you think that a refresh of the rules with the new LTIF 2.0 rules is likely to offer a material opportunity to grow the European Wealth Channel? So, we love Europe. I'll be there next week.

Arnaud Maurice Andre Giblat: Good morning. A quick question on the Wealth Channel. I'm just wondering if you could share with us why you think the European semi-liquid products lag so much.

Arnaud Maurice Andre Giblat: Do you think that a refresh of the rules with the new LTIF 2.0 rules are likely to offer material opportunity to grow in the European World Channel?

Jonathan D. Gray: But it is harder on the regulatory front. If you look at the European Union, you have a completely different set of rules for private wealth products almost by country. And some of the rules, I do believe, need to be updated. For example, the definition of who can invest and the term professional investor, which is technical. There are a lot of limitations by country, and the structures you can use are very different. So, you have to attack Italy differently than Switzerland and Spain or Germany.

Speaker Change: So we love Europe . I'll be there next week but it is harder on the regulatory front. If you look at the European Union

Arnaud Maurice Andre Giblat: You know, you have a completely different set of rules for private wealth products almost by country.

Arnaud Maurice Andre Giblat: And some of the rules, I do believe, need to be updated.

Arnaud Maurice Andre Giblat: The definitions of who can invest, the term professional investor, which is technical. There are a lot of limitations by country.

Arnaud Maurice Andre Giblat: And the structures you can use are very different. So you have to attack Italy different than Switzerland, than Spain, or Germany.

Jonathan D. Gray: We've built up a lot of capabilities. We're having some success today with our European direct lending platform, although it's still small. I think European investors will ultimately want the same thing as U.S. investors. They tend to be a little more risk averse, as you know, but I think their desire for strong returns in a product that's designed and works for them will be high. And we're a persistent bunch.

Arnaud Maurice Andre Giblat: We built up a lot of capabilities. We're having some success today with our European direct lending platform, although it's

Arnaud Maurice Andre Giblat: Still small.

Arnaud Maurice Andre Giblat: I think European investors ultimately will want the same thing as U.S. investors. They tend to be a little more risk-averse, as you know.

Arnaud Maurice Andre Giblat: But I think their desire...

Arnaud Maurice Andre Giblat: for strong returns in a product that's designed and works for them will be high.

Arnaud Maurice Andre Giblat: And we're just, you know, we're a persistent bunch, we're going to stick at it in Europe . We do want to work with the regulators to try to make this a little bit more of a user friendly environment. And the distributors, the big financial institutions recognize this as well. So I think it's a long term process.

Jonathan D. Gray: We're going to stick with it in Europe. We do want to work with the regulators to try to make this a little bit more of a user-friendly environment. And the distributors, the big financial institutions, recognize this as well. So, I think it's a long-term process. I think it can change. We've seen some changes in places like Japan that are conducive to selling some of these private wealth products. And I think we will, over time, hopefully, see changes in Europe because I think the products make a lot of sense for customers.

Arnaud Maurice Andre Giblat: I think it can change. We've seen some changes in places like Japan that were conducive to selling some of these private wealth products. And I think we will, over time, hopefully see changes in Europe because I think the products make a lot of sense for customers. So we'll stick at it, and it's probably going to take some time.

Weston M. Tucker: So, we'll stick at it, and it's probably going to take some time. Thank you. That will conclude our question and answer session. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks. Thank you everyone for joining us today and look forward to following up after the call. Have a great day.

Arnaud Maurice Andre Giblat: Thank you. That will conclude our question and answer session. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks.

Weston M. Tucker: Thank you everyone for joining us today and look forward to following up after the call. Have a great day.

Weston M. Tucker: [inaudible]