Q4 2024 Blackstone Inc Earnings Call
Great. Thanks, Katy and good morning, and welcome to Blackstone's fourth quarter conference call joining.
Joining me today are Steve Schwarzman, Chairman and CEO, Jon Gray, President and Chief operating Officer, and Michael J, Vice Chairman and Chief Financial Officer.
Earlier. This morning, we issued a press release, a slide presentation, which are available on our website. We expect to file our 10-K report later next month.
Like to remind you that today's call may include forward looking statements, which are uncertain and may differ from actual results materially.
We cannot undertake any duty to update these statements.
<unk> of some of the factors that could affect results. Please see the risk factors 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 solicitation of an offer to purchase an interest in any Blackstone funds. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent quickly.
Quickly on results, we reported GAAP net income for the quarter of $1 3 billion.
Distributable earnings were $2 2 billion or $1 69 per common share and we declared a dividend of $1 44 per share, which will be paid to holders of record as of February 10th.
Steve: With that I will turn the call over to Steve.
Steve: Thank you Ed and good morning, and thank you for joining our call.
Steve: Blackstone just reported one of the best quarters in our history.
Speaker Change: Distributable earnings increased 56% year over year to $2 $2 billion as Wes mentioned.
Steve: Underpinned by record FRE.
Steve: Limited partners and trusted us with $57 billion inflows just in the fourth quarter.
Steve: Hundred $71 billion for the year.
Steve: Reflecting strong momentum.
Steve: Institutional.
Steve: <unk> and private wealth channels.
Steve: Particular node.
Steve: We raised $28 billion and private wealth in 2020.
Steve: Including $23 billion in the perpetual strategies nearly doubled.
Steve: Feedback nearly double what we raised from individuals and these strategies in the prior year.
Steve: All signs point to further acceleration.
Steve: <unk> 2025.
Steve: After quarter end in January.
Steve: Raised an additional three 7 billion for our private wealth and <unk>.
Steve: Launch.
Steve: New infrastructure vehicles, representing and powerful affirmation of our unique position.
Steve: This channel.
Steve: We believe our 260 billion dollar private wealth business is multiples the size of our next largest competitor.
Steve: Largest single contributor to the firm's financial results in the fourth quarter was our dedicated infrastructure strategy VIP.
Which generated $1 2 billion fee revenues.
Steve: VIP has delivered remarkable investment performance since inception, only six years ago.
Steve: Adding 17% net returns annually.
Steve: Co mingled strategy.
Steve: This performance is fueled exceptional growth with AUM today of $55 billion.
Steve: Up 34%.
Steve: Just the past year alone.
Steve: VIP anchors a broader infrastructure plan.
Steve: Affirm that exceeds $120 billion across equity credit and secretary.
Steve: Relatively short period of time.
Steve: Stablish one of the world's largest infrastructure business.
Steve: Our success in this area.
Steve: Powerful illustration.
Steve: That we build an enduring.
During leading business at Blackstone.
Steve: It reflects the same blueprint.
Steve: Or how we've been able to grow $400000 in startup COVID-19.
85.
Steve: More than one one trillion.
Steve: AUM today.
Steve: The largest alternative asset manager in the world.
Steve: And why I believe we will continue to achieve strong growth in the future.
Joints with innovation is.
As a core competency of the firm.
Steve: As we're always working to identify the next paradigm shifts in the market.
Steve: We evaluate whether we can create something truly differentiated.
Steve: Our limited partners.
Steve: But the opportunity can be scaled significantly.
Steve: If we have the right team to lead it.
Steve: Drawing upon the firm's deep well of talent.
Steve: Importantly.
Steve: Any new area.
Steve: Also add to the firm's intellectual capital.
Steve: <unk> synergies with our other businesses make the rest of the firm better.
Steve: We've carefully considered infrastructures as standalone business for number of years.
Steve: <unk> been investing successfully in energy infrastructure projects for over a decade, both their private equity and credit funds, which along with our extraordinary real estate franchise.
Steve: Infrastructure.
Steve: Natural extension.
Steve: The new business model.
Steve: In 2017, we saw a historic investment opportunity emerging in the U S and around the world.
Steve: We made the decision to launch a dedicated strategy.
Speaker Change: We identified talented individuals in our private equity energy area, our partners Sean Zhang.
Steve: To lead the new business.
Steve: We began raising capital in 2018 supported by an anchor commitment.
Steve: From an important limited partner.
Steve: Today.
Steve: With $55 billion and outstanding investment performance VIP.
Steve: This exceeded our initial.
Steve: And predictably very high expectations.
Steve: The team has done an exceptional job portfolio construction.
Steve: Focused on compelling thematic areas.
Speaker Change: <unk> digital infrastructure.
Speaker Change: Energy empower included both transportation infrastructure.
Speaker Change: And we see enormous runway ahead.
Speaker Change: Massive funding needs.
Speaker Change: Projects globally.
Speaker Change: More opportunities and available capital.
Speaker Change: We envision a growth path for our infrastructure business, the parallel that our real estate business, including geographic.
Speaker Change: Expansion.
Speaker Change: New client channels.
Speaker Change: Moving across the capital structure and.
Speaker Change: And risk return spectrum.
Speaker Change: We started raising a European infrastructure perpetual vehicle last fall.
Speaker Change: And earlier this month as I mentioned.
Speaker Change: Launched a vehicle designed to give individual investors.
Speaker Change: As to the full breadth of our infrastructure platform.
Speaker Change: Over time, we also see opportunities in Asia and.
Speaker Change: And the potential for sector specific strategies.
Speaker Change: The growth of our infrastructure business was greatly helped by the other businesses at Blackstone.
Speaker Change: The firm's resources around the globe.
Speaker Change: These advantages include sourcing opportunities from an investing alongside our other funds for example.
Speaker Change: VIP joined our real estate team in 2021 to privatize the QTS data center business, which has become the largest.
Speaker Change: And fastest growing data center platform in the world.
And now our leadership position in data centers is creating additional synergies across the firm.
Speaker Change: Are you willing us to address many new opportunities and as VIP has continued to scale. It has in turn enhance the firm's intellectual capital relationships and deal flow.
Speaker Change: Supporting our growth in other areas, including our $90 billion infrastructure and asset base credit platform.
Speaker Change: Our infrastructure secondaries business, and our dedicated energy and energy transition focused funds.
Speaker Change: But I am pointing what I'm outlining this morning is just one compelling proof point.
Speaker Change: Of the power.
Speaker Change: The Blackstone platform.
Speaker Change: Designed the firm from the beginning to work this way.
Speaker Change: With each business, making the other stronger.
Speaker Change: This network effect sips Blackstone it apart.
Speaker Change: <unk> management area.
Speaker Change: Underpins the strength.
Speaker Change: Of our brand.
Speaker Change: <unk> is an accelerant to the firm's overall growth.
Speaker Change: Our clients have a positive experience in one area.
Speaker Change: They're much more likely to invest in additional Blackstone products and support our expansion.
Speaker Change: Building things organic.
Speaker Change: From the ground up this challenge.
Speaker Change: It takes time.
Speaker Change: Involves upfront costs.
Speaker Change: However.
Speaker Change: We think our approach ultimately creates a stronger.
Speaker Change: We're integrated firm.
Speaker Change: As well as significant economic benefits.
Speaker Change: As compared to our strategy.
Speaker Change: Bolt on acquisitions.
Speaker Change: And it preserves and perpetuates our unique culture.
Speaker Change: Which is foundational to the firm's success.
Speaker Change: As we head into the new year.
Speaker Change: We're moving into an environment, where we see consequential tailwind for our overall business.
Speaker Change: Market participants have been focus recently.
Speaker Change: The volatility in the U S treasury yields.
Speaker Change: Reflecting persistent inflation concerns in.
Speaker Change: In the context of resilient U S economic growth.
Speaker Change: As well as policy uncertainty.
Speaker Change: With respect to inflation.
Speaker Change: But we see based on our expansive portfolio.
Speaker Change: And our proprietary data.
Speaker Change: But the U S is continuing.
Speaker Change: Path of this inflation.
Speaker Change: Albeit at a more moderate pace than before.
Speaker Change: Policy.
Speaker Change: Are there different factors to consider.
Speaker Change: The direction of travel.
Speaker Change: <unk> towards the policies.
Speaker Change: <unk> growth.
Speaker Change: And pro deregulation.
Speaker Change: Johnson, <unk>, which should be quite positive.
Speaker Change: For our business.
Speaker Change: Closing.
Speaker Change: The power of Blackstone's platform will continue to drive us forward.
Speaker Change: Our positioning has never been stronger.
Speaker Change: Nor our prospects brighter.
Speaker Change: I couldnt be prouder of our people.
Speaker Change: And their dedication to serving our investors.
Speaker Change: You bet.
Speaker Change: But the ball over to John I will catch it. Thank you Steve and good morning, everyone. This was an outstanding quarter for Blackstone, Steve highlighted the power of our platform and I'll take you through three areas where that power was on full display first star large scale.
Speaker Change: Deployment secondly, our continued momentum in credit and insurance and third the acceleration in our funding rates, including both private wealth and the institutional channel.
Speaker Change: Starting with deployment over the past 12 months, we've been talking about a strengthening transaction environment and our desire to invest significant capital in anticipation of improving markets. We're pleased to say that we deployed $134 billion in 2024.
Speaker Change: 81% year over year planting the seeds of future value. What we believe is a favorable time.
Speaker Change: A combination of a healthy U S economy is.
Speaker Change: Shortly tight financing spreads greater debt available.
Speaker Change: The prospects of a more business friendly regulatory climate, and importantly, accelerating technological innovations have given us confidence to deploy capital at scale.
Speaker Change: We invested or committed $62 billion in Q4, our most active pace in two and a half years new commitments in the quarter included fast growing franchise business and very Tasty Jersey Mikes, the privatization of a grocery anchored retail REIT, our third take private in real estate.
Speaker Change: Late in 2024, and a luxury mixed huge complex in Tokyo, representing the largest ever real estate transaction in the country by a non Japanese investor.
Speaker Change: In credit we reported record deployment for both the quarter and full year, including a $3 5 billion financing for EQT Corp. One of the largest natural gas producers in the United States.
Speaker Change: This venture is an excellent illustration of the scale of what we're doing today in the investment grade private credit space and our position as a trusted solutions provider to many of the world's leading corporations, we leveraged the full breadth of our platform.
Speaker Change: To design, a custom solution across the capital structure for the borrower secured by the long term contractual cash flows of their critical pipeline infrastructure.
Speaker Change: For our clients, we provided access to our high quality directly originated investments and we executed the transaction as always without taking on balance sheet risk, we see a significant opportunity for more corporate partnerships over time, given the scale of our platform and.
Speaker Change: Our reputation.
Speaker Change: Stepping back our credit and insurance business continues to see huge momentum following a remarkable 2024.
Speaker Change: <unk> built a private credit juggernaut, and the largest third party business of its kind in the world with over 450 billion of total assets across corporate and real estate credit.
Speaker Change: Inflows through the combined platform exceeded $100 billion in 2024, comprising 60% of the firm's total inflows are non investment grade private credit and real estate credit drawdown strategies appreciated, 16% and 18% respectively for the.
Speaker Change: These are extraordinary results for performing credit underpinning robust investor interest in these areas. We're also seeing strong traction for our investment grade private credit offerings as I noted and now manage over $100 billion in that area.
Speaker Change: Nearly 40% year over year.
Speaker Change: Virtually all on behalf of insurance clients, but we are now seeing receptivity from pensions and other Lps as well.
Speaker Change: In the insurance channel specifically, our business has reached nearly $230 billion up 19% year over year.
Speaker Change: <unk> across.
Speaker Change: Private credit liquid credit and other strategies today, we have 23 SMA clients. In addition to our four large strategic relationships. We play store originated $46 billion of AA minus rated credits on average for our private focus clients in 2024.
Speaker Change: Up 38% year over year, which generated nearly 200 basis points of excess spread over comparably rated liquid credits. We've achieved these results while remaining true to our capital light brand heavy open architecture model designed to serve a multitude of ensure.
Speaker Change: Orange clients without taking on any liabilities.
Speaker Change: Resolution life, one of our four strategic relationships is a perfect validation of our model.
Speaker Change: Last month Nippon life, the largest Japanese life insurer and in existing resolution shareholder announced it would acquire the remainder of the company it didn't already own at a 10 $6 billion valuation black.
Speaker Change: Blackstone and taken a small 6% stake in resolution in 2023, alongside other limited partners in connection with becoming the company's asset manager for private and structured credit.
Speaker Change: Nip bonds investment will monetize our state delivering attractive gain to our limited partners and the firm.
Speaker Change: All while positioning resolution to accelerate growth under an extremely well capitalized and capable parent.
Speaker Change: Importantly, we will remain resolutions investment manager going forward and we are excited to partner with Nippon on this next stage of the company's development.
Speaker Change: Turning to private wealth, where our momentum accelerated significantly in 2020 for 2025 is also off to a terrific start.
Speaker Change: We are uniquely positioned in the wealth channel given the breadth of our product lineup, our performance and the power of our brand.
Speaker Change: Sales in the channel exceeded $28 billion in 2024 inch you'd noted.
Speaker Change: <unk> led the way raising over $12 billion for the year driving 36% year over year growth in NAV.
Speaker Change: Our private equity strategy DXP has already grown to over $8 billion in its first year, including January sales and for being weak flows trended favorably with net repurchase requests in December down 97% from the peak.
Speaker Change: We raised an additional $3 7 billion for the private wealth Perpetuals in January as Steve highlighted marking their best months of fund raising from individuals and over two five years. This included more than $1 billion, each from <unk>, DXP and our new infrastructure strategy for launch.
Speaker Change: The infrastructure strategy, Mark the largest ever first close for vehicle of its kind and was five to six times the size of competitors product launches.
Speaker Change: I'll give you the sense of the strength of our brand in this channel over 90% of advisors, who allocated to this strategy had previously allocated to another Blackstone perpetual vehicles.
Speaker Change: And over 50% allocated to all four of our perpetual flagships.
Speaker Change: <unk> exceptional performance nine 5% net annual returns since inception for its largest share class through a real estate Superstorm has helped US here a lot. We're now in the process of launching our multi asset credit product as discussed previously targeting the first half of this year.
Speaker Change: See enormous opportunity ahead, and the 85 trillion private wealth market.
Speaker Change: Our drawdown fund area is also benefiting from robust client engagement today with the tenor of discussions feeling far better than it has in several years, we held major closings in Q4 for our real estate credit flagship, bringing it to $7 $1 billion, so far European real estate, which is right.
Speaker Change: <unk> nine $5 billion to date, and our private equity energy transition strategy, which has raised $5 2 billion all of which will soon complete fund raising we raised additional capital for our opportunistic credit strategy bring year to over $4 billion.
Speaker Change: And held initial closings of one 6 billion for our new life Sciences flagship targeting at least the size of the prior $5 billion fund.
Speaker Change: We will also soon begin raising the new vintages of a number of other highly successful strategies, including private equity Asia for which we expect very significant closings in the coming months, along with private equity secondaries, GP stake and tactical opportunities overall the fund.
Speaker Change: <unk> outlook is quite positive for the firm.
Speaker Change: Investor affinity for Blackstone isn't as high today as ever and it all ties back to investment performance as Youll hear from Michael in a moment, we again reported strong returns across nearly every area of the firm in the fourth quarter. Our Lps have benefited significantly from the way we've positioned to permit and their capital.
Speaker Change: Including building the largest third party credit complex the largest datacenter business one of the largest energy infrastructure platforms, and a leading life science business and what we believe is the largest alternatives platform in India. These areas have continued to outperform and we believe will drive outstanding future result.
For our clients as well in.
Speaker Change: In real estate, however, our equity oriented funds were down in the fourth quarter as the portfolio absorbed the 80 basis point increase in the 10 year Treasury yield and our non U S. Holdings were also impacted by the stronger U S. Dollar.
Speaker Change: We wouldn't expect to see a move of this magnitude in treasury yields going forward, given the underlying inflation data and while disappointing in the near term our portfolio is in excellent shape with cash flow is growing solidly overall across virtually all our real estate strategies.
Speaker Change: One year ago, we said that real estate values were bottoming, but that the recovery would take time and was unlikely to BV shape. That's exactly what happened we remain firm believers that a sustained commercial real estate recovery is underway.
Speaker Change: Debt markets have vastly improved as borrowing spreads tightened by approximately 50% from the 2023, Wides and see MBS issuance was up nearly threefold in 2024 at the same time, new construction starts are down dramatically from virtually all types of real estate, including by two thirds from.
Speaker Change: 22 levels and U S logistics and apartments are largest sectors.
Speaker Change: Meanwhile, demand is resilient with the potential for acceleration in the context of a stronger U S economy, given our conviction, we deployed $25 billion in real estate in 2024 up nearly 70% year over year, and we expect to continue to deploy at scale.
Speaker Change: Real estate is a cyclical asset class that has been through a cyclical downturn and we believe Blackstone is the best positioned firm in the world to benefit from the recovery.
Michael J: In closing the firm is in terrific shape by any measure we expect to achieve great things on behalf of all of our investors and with that I will turn things over to Michael J, Thanks, John and good morning, everyone.
Speaker Change: Our fourth quarter results represented an exceptional finish to an outstanding year, and we enter 2025 and a position of significant strength.
Michael J: I'll first review financial results and will then discuss investment performance and the outlook starting.
Michael J: Starting with the results we reported the best quarter of fee related earnings in the firms history and one of the two best quarters of distributable earnings.
Michael J: We saw the full benefit of multiple drawdown funds that were activated throughout the year.
Michael J: Key perpetual strategies continue to scale significantly, including the very notable contribution from the VIP infrastructure business and.
Michael J: And we believe net realizations have begun to move off cyclical lows.
Michael J: First with respect to fee related earnings.
Michael J: In the fourth quarter FRE grew a remarkable 76% year over year to a record $1 8 billion.
Michael J: We're $1 50 per share.
Michael J: Management fees rose, 12% to a record $1 9 billion.
Michael J: Including the 60, <unk> straight quarter of year over year base management fee growth at the firm.
Michael J: We activated the investment periods for multiple major drawdown funds in 2024, which contributed full fees in Q4.
Michael J: Alongside that key perpetual strategies, VIP B credit and DXP continued to grow in scale and contribution to the firm's financials with their combined <unk> NAV up nearly 50% year over year.
Fee related performance revenues increased more than eightfold year over year in Q4 to $1 4 billion.
Michael J: Driven by Vips major scheduled crystallization event with respect to three years of substantial accrued games.
Michael J: <unk> first significant crystallization event with respect to full year 2024 games and the steadily growing contribution from <unk> in our direct lending platform overall with a 47% year over year increase in these revenues for the credit and insurance segment.
Michael J: In terms of distributable earnings grew 56% year over year to $2 2 billion in the fourth quarter were $1 69 per common share.
Michael J: In addition to the strong growth in FRE net realizations increased 42% year over year to $601 million the highest level in 10 quarters.
We executed a number of realizations across both the public and private portfolios in the quarter concentrated in corporate private equity.
Michael J: These included the sale of public energy positions, along with the IPO and sale of a portion of our stock in an India based company at a multiple of invested capital of over five times with the stock trading up further since then.
Michael J: In addition, our multi asset investing segment <unk> generated outstanding investment performance in 2024, including the best year for the absolute return composite in 15 years.
Michael J: <unk> crystallized incentive fees for most of its open ended strategies annually in Q4, and the segment's performance revenues increased 144% year over year to $338 million.
Michael J: Now turning to the full year the firm delivered strong results amid a complex external environment in 2024 with robust growth across all key financial and operating metrics.
Michael J: Distributable earnings grew 18% to $6 billion fee.
Michael J: The related earnings increased 21% to a full year record of $5 3 billion.
Michael J: Net realizations rose, 12% to $1 4 billion.
Michael J: Supported by the strong performance in <unk> and yet. Another example of the benefits of our diverse business mix.
Michael J: Firms expansive breadth of growth engines lifted total AUM up 8% to more than one one trillion dollars another record with $171 billion of inflows for the year.
Michael J: Inflows deployment and overall fund appreciation all accelerated meaningfully in 2020 for expanding the foundation of future value.
Speaker Change: We achieved these results against a backdrop, where the market for large scale realizations was very challenge for much of the year and the significant underlying earnings power of our real estate business has yet to reemerge, reflecting the breadth and power of our platform of Stephen John described.
Speaker Change: Moving to investment performance the firm delivered strong returns in almost every area in the fourth quarter.
Speaker Change: Corporate private equity funds appreciated four 9% and 17% for the full year, our operating companies overall reported stable mid single digit year over year revenue growth in the quarter along with continued notable margin strength, our infrastructure business reported four 8% appreciation in the fourth quarter and 21% for the year.
Speaker Change: <unk>.
Speaker Change: In credit our non investment grade private credit strategies generated a gross return of three 1% in the fourth quarter and 16% for 2024.
Speaker Change: We continue to see resilient fundamentals across the credit portfolio and the LTM default rate across our 2000, plus non investment grade credits remained under 50 basis points.
Speaker Change: <unk> reported a three 7% gross return for the absolute return composite the 19th consecutive quarter of positive performance and 13% for the year.
Speaker Change: <unk> has generated compelling all weather returns in liquid markets, helping to insulate our Lps from the volatility of the past several years indeed since the start of 2021.
Speaker Change: The estimated cumulative absolute return composites net of fees is 34% or nearly double the traditional 60 40 portfolio.
Speaker Change: In real estate, the opportunistic funds declined five 1% in the fourth quarter and 4% for the full year, while the core plus funds declined <unk>, 8% in the quarter and were stable for the year.
Speaker Change: As John discussed the fourth quarter was impacted by the sharp increase in treasury yields and a stronger U S. Dollar.
Speaker Change: Outside of our major reported business lines, the growth and performance of other key strategies further highlight the firm's ability to innovate and build businesses.
Speaker Change: Our dedicated life Sciences platform delivered standout performance in 2020 for with the funds appreciating 11, 3% in the fourth quarter and 33% for the full year driven by the achievement of positive milestones for multiple treatments under development.
Speaker Change: Our real estate credit high yield drawdown funds appreciated four 4% in Q4 and 18% for the year underpinned by resilient credit performance and its real estate loan portfolio.
Speaker Change: And our GP Stakes business appreciated four 1% in the fourth quarter and 28% for the year, reflecting its focus on top performing managers and private markets. The.
Speaker Change: The resiliency and strength of the firm's investment performance continues to power our growth.
Speaker Change: Turning to the outlook.
Speaker Change: Firm is advancing with strong momentum across multiple drivers.
Speaker Change: First in our drawdown fund area in 2025, we will see the full year benefit from funds that were activated throughout 2024.
Speaker Change: Second our platform of perpetual strategies has continued to expand overall now comprising 46% of the firm's fee, earning AUM setting a higher baseline for management fees as we enter 2025.
Speaker Change: In addition, DXP is now eligible to generate fee related performance revenues on a quarterly basis.
Speaker Change: Our infrastructure strategy for individual investors in its first year will be eligible in Q4 of 2025 with respect to full year 2025 games.
Speaker Change: And while Vips significant Q4 crystallization event will not recur in 2025, we do expect smaller crystals nations periodically starting in the second quarter of this year.
Speaker Change: Third there is significant underlying momentum in our credit insurance business as you've heard this morning.
Speaker Change: <unk> FRE and de grew 26% and 24% respectively in 2024.
Speaker Change: With robust inflows and record deployment the business is exceptionally well positioned to deliver strong financial performance again in 2025.
Speaker Change: Finally with respect to realizations.
Speaker Change: A much more constructive environment for realizations in 2025.
In the near term, we would expect disposition activity to be concentrated in our private equity strategies as real estate exit market strengthen over time.
Speaker Change: And for overall activity levels to be meaningfully higher in the second half of the year.
Speaker Change: Meanwhile, net accrued performance when they won the firm's balance sheet stood at $6 3 billion at year end was $5 14 per share and performance revenue eligible AUM in the ground reached a record 561 billion.
Speaker Change: These are strong indicators of our future realization potential.
Speaker Change: In closing we are highly confident in the multiyear picture of growth at Blackstone.
Speaker Change: The power of our platform is driven extraordinary results for investors and we believe it will continue to do so in the future.
Speaker Change: With that we thank you for joining the call I would like to open it up now for questions.
Speaker Change: Thank you as a reminder, please press star one to ask a question. We ask you limit yourself to one question to allow as many callers join the queue as possible. We will take our first question from Dan Fannon with Jefferies.
Dan Fannon: Thanks, Good morning.
Dan Fannon: John I was hoping you could expand on some of the fundamentals you're seeing in the real estate market that gives you the confidence on the recovery while the recovery has been slow as you highlighted in 2024, how do you see that ramping in terms of 2025.
Dan Fannon: Good question I would say when we think about the conditions for our real estate recovery you look for a number of things first you obviously want demand.
Dan Fannon: Which is tied to economic growth and we've got a pretty healthy U S economy, which leads to demand for logistics and in apartments and hotels. So I think if the economy accelerates further that's certainly a positive then of course supply, which I think is the key element here, we've seen a decline from <unk>.
Dan Fannon: <unk> plus percent new supply starch back in 2022, and logistics and rental housing our biggest areas. That's declined now two 1% show a two thirds decline, which is very helpful. So we think cash flows.
Dan Fannon: As we move over time will be pretty good they actually have been strong throughout this challenging period. The last few years, what's really hit real estate of course has been the cost of capital and near what we see is spreads have tightened quite a bit sort of overall borrowing costs have gone from say, 9% to 6%. That's obviously helpful.
Dan Fannon: And the availability of capital has improved so <unk> last year was up threefold.
Dan Fannon: And that's obviously very important for transaction activity in the near term that 80 basis point move as you saw in our numbers, obviously had a negative impact, but that's now been absorbed by the market and so I think the combination of favorable cash flows and probably a more stable rate environment going forward.
Dan Fannon: Forward gets us on this path ultimately hard assets have to revert to replacement cost with a growing economy, you need more real estate and so rents and ultimately values have to grow so the path of travel is clear the slope may be a little different but the reason we're leaning in is because we see that we're firmly on this recovery.
Dan Fannon: Path for real estate.
Dan Fannon: Thank you.
Speaker Change: We will take our next question from Craig Siegenthaler with Bank of America.
Dan Fannon: Okay.
Craig Siegenthaler: Good morning, Steve John Hope, you're both doing well.
Craig Siegenthaler: We wanted to circle back on Michael's monetization commentary the expected ramp in transaction activity Blackstone is still a net buyer of assets, but given the macro setup.
Craig Siegenthaler: With the high stock market valuations and anticipated ryzen Ipos when do you expect to inflect and be a net seller of assets in corporate private equity and then on Michaels prepared comments again, how far behind is the real estate cycle relative to private equity.
Craig Siegenthaler: So.
Craig Siegenthaler: Craig I think.
Craig Siegenthaler: Few things the environment is clearly here getting better.
Craig Siegenthaler: Again, the strength of the economy, the health of the equity market, the S&P being up 60% the IPO market. The pipeline for Ipos now is double where it was a year ago. Those are very constructive facts, we think large profitable companies can go public.
Craig Siegenthaler: The debt markets, improving certainly helpful. Both investment grade and high yield spreads are basically at record tight space rates are still a bit elevated but the debt market as very constructive we've got a regulatory climate for M&A that is.
Craig Siegenthaler: Far better for US strategics can now start to buy again and some of those dialogues are picking up.
Craig Siegenthaler: And then you do have this sort of desire for people to get transactions. After three years being on the sidelines. So we sort of see the ingredients for a very positive M&A cycle coming together, we did see a little bit of a slowdown in the fourth quarter, given the election and some volatility around rates, but I think it is going to build during.
Craig Siegenthaler: The year.
Speaker Change: To your question in Michael's comments private equity is definitely going to be stronger I think there we have a number of things, where we will see realizations earlier on real estate.
Speaker Change: We need this recovery to take a little more time. So we see that is more back half of the year certainly not at the beginning of the year just given the nature of that market sort of healing over time. So overall I think a better environment certainly in 'twenty five in 'twenty, four but more backend weighted and first half of the year.
Speaker Change: Definitely more private equity focus.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Michael Cyprus with Morgan Stanley.
Speaker Change: Great. Thanks, so much good morning, just a question on AI and data centers, just curious how youre thinking about the evolving an investment opportunity around AI, particularly in the infrastructure layer with data centers and power are we seeing a lot of capital flow into the space and you guys have Blackstone have been quite active in this space in particular, but just given some of the recent developments for example, like with deep.
Speaker Change: Seek over the weekend that suggests that AI models, maybe it could be a bit less capital and energy intensive just curious how attractive do you see the infrastructure layer here moving forward how much more capital investment do you guys see needed across the industry and how are you thinking about potential shifts for investment opportunities across into the application layer.
Speaker Change: So.
Speaker Change: Mike We've obviously been spending a lot of time to last week looking at the impact of deep seek.
Speaker Change: I'd start with our data center business, which is the largest in the world. We have $80 billion of lease data centers. The good news in that business is these are long term leased data centers with some of the biggest companies in the world and we do not build datacenters speculatively anywhere in the world. So we have a very prudent.
Speaker Change: Approach when we think about data centers. The real question in the heart of your question is what is demand going forward.
Speaker Change: And on that front.
Speaker Change: We would echo what you are hearing I think from a lot of commentators which is the cost of compute is coming down pretty dramatically, but at the same time, that's going to lead to more usage to more adoption.
Speaker Change: So what does that mean for the physical infrastructure side I would go to the calls last night for both meta and Microsoft They talked about the importance of physical infrastructure, Mark Zuckerberg said that he thought it was a strategic advantage for them, but they did acknowledge that some of this may need to be more fun.
Speaker Change: <unk>, maybe there is a little less training thats done as a result of less intensity, but at the same time theres more infringe maybe there is more cloud maybe theres more to do with enterprise. So we have a sense in talking to our clients also that there is a belief as usage goes up significantly there is still.
Speaker Change: A vital need for data centers the form of that use may change and related to that power usage. We think will continue because our lives are migrating online and all of these questions there'll be even more questions coming even if the the amount of power used on an individual question goes down so we still think there.
Speaker Change: As a vital need for physical infrastructure data centers and power some of it may change and the good news for our investors is we're not doing things speculatively, it's based on the demand signals from our tenants. That's when we go out and spend the big dollars to build these things. So we still think it's a very important segment in there.
Speaker Change: As a way to run, but obviously, we're watching what's happening very closely.
Speaker Change: Great. Thank you.
Speaker Change: We'll take our next question from Kyle Voigt with <unk> W.
Kyle Voigt: Hi, Good morning, everyone. Maybe a question on <unk>. The last few quarters have been in a healthy 1% to $2 billion zone in terms of quarterly fundraising.
Kyle Voigt: First can you remind us where you're at in terms of distribution of the product, whether that's number of platforms or international breadth and what the runway looks like to expand that.
Kyle Voigt: And then with respect to the one to 2 billion quarterly inflow range is that the pace that you are really comfortable growing the type of product or now with having some investment track record in entering the second year of the product is there a comfort and ramping the flows above that 1% to 2 billion quarterly pace. If there is demand.
Kyle Voigt: Well, we have been steadily building out our partnerships with distributors on DXP. This is always the way you start with a smaller number as you work your way through the first two or three years, you steadily expand within the United States and geographically.
Kyle Voigt: We're sort of on that path I don't know if we quote exactly how many distributors we use but the number continues to grow.
Kyle Voigt: We've had some good success in places like Canada recently.
Kyle Voigt: The key for these products is investment performance and DXP did a terrific job. The first share in the first share is the hardest share because you're just getting the product started you don't have existing assets.
Kyle Voigt: Sort of going from a standing start we delivered very strong performance and it really speaks to I think the unique scale. We have we have obviously large scale corporate private equity we do it in the U S Europe and Asia, We've got core private equity tactical opportunities. We've got growth. We've got life Sciences, we've got secondary the breadth of that plant.
Kyle Voigt: It has allowed us to deploy the capital real time in terms of where we go from here.
Kyle Voigt: We had a terrific month in terms of fund raising for DXP in January but I think it will be driven by performance, we have the capabilities to deploy more scale I feel great confidence at that I. Just think it's we deliver performance we deliver for the clients, they're going to get more and more comfortable we're going to open with <unk>.
Kyle Voigt: More distributors and the product will continue to grow we've done this in the past with both <unk> and <unk>. We think this is a similar model, but again, we've got to deliver for the customers. We've got to deploy the capital I've got a lot of confidence in those areas and given our strength in the channel and our brand strength, it's really powerful.
Kyle Voigt: The fact that 50% of our financial advisors, who invested in and <unk> are invested in all four of our products just speaks to that powerful network effect and financial advisors and their underlying clients know and trust. The Blackstone name and that is so important and so we're.
Kyle Voigt: Dedicated to delivering for them. If we do that this can grow a lot just like our other products in this space.
Kyle Voigt: Great. Thank you.
Bill Katz: We will go next to Bill Katz with TD Cowen.
Bill Katz: Okay. Thank you very much for the commentary.
Bill Katz: You didn't talk at all about retirement I noticed an area that the whole industry is sort of incrementally focused on but you did sort of mentioned the perhaps some more favorable regulatory backdrop, how do you sort of see the evolution of the commentary coming out of your conversations with the regulators is that sort of takes shape into 2025 of the Trump administration, what should we be looking for.
Bill Katz: For for that opportunity set to potentially open up.
Bill Katz: From a real estate perspective.
Bill Katz: Okay.
Bill Katz: Well I guess, where we start is.
Bill Katz: The way the defined contribution retirement.
Bill Katz: Our retirement business has evolved and I do think it's created a bit of a sort of halves have not environment. So if you think about it wealthy individuals are able to access our products through financial advisers and get the benefit of strong long term returns and compounding.
Bill Katz: If you are an employee at a major corporate sort of pre 2005, you probably have the benefit of.
Bill Katz: Our pension fund where people are working hard everyday to deliver these returns allocating two alternatives. If you work at a state pension fund today. You also are getting that same benefit but for the vast majority of private sector workers in the United States. They are given 401, K plan, where because of the litigation.
Bill Katz: <unk> environment.
Bill Katz: They basically focus on the lowest fees and it's not about long term performance and it would seem highly logical to us that at some point in for instance, target date funds with the right Gabe gatekeepers and controls picking the right managers that you would put private assets into this market.
Speaker Change: Place so individual investors all individual investors could get the benefit for retirement and when you think about who should be in a position to do that if the regulation changes Blackstone given our brand our performance the breadth of what we've done and the range of perpetual products. We've created we seem to be uniquely position. So.
Speaker Change: I think this will happen. It's a question of when and when it does as I said I think we'll be in a good spot. It certainly seems logical given the way the market has developed over time and we really wanted to democratize access to these products into higher returns. So people can generate more for their retirement.
Speaker Change: Thank you we'll take our next question from Glenn Schorr with Evercore ISI.
Speaker Change: Hi, this is kind of in filling in for Glenn Schorr.
Speaker Change: Some of the insurance companies seem to be looking to do more on their own in private markets.
Speaker Change: I'm just curious what you're seeing in your expectations for the growth assurance partnerships and also heard your comments about Nippon life, just one step more thoughts on the growth opportunities for insurance and credit in Asia, and what else are you doing in that region.
Speaker Change: Sure.
Speaker Change: Well I think the biggest change that we've seen in the insurance industry over the last few years is that.
Moving beyond just commercial mortgages into broader private investment grade credit has gone from something people saw a novelty to a necessity.
Speaker Change: And so I think now if you're competing in the annuity space certainly in the life space, even the P&C companies now are looking at this that if you can get comparably rated a minus credits and get 200 basis points higher spread that makes you more competitive with your <unk>.
Speaker Change: <unk> organization.
Speaker Change: And what we're seeing sort of across the landscape is an embracing of this model, where they move a greater percentage of their assets into private investment grade credits and for US. The reason were up nearly 20% we're at $230 billion and insurance is because of this.
Speaker Change: Dynamic and I would say the.
Number of conversations the scale of the conversations it seems to be accelerating and the other comment I would make is the fact that we have an open architecture model. We are not an insurance company ourselves with hundreds of billions of liabilities. We are not out there selling these products. We're just a third party manager the way the liquid managers.
Speaker Change: Used to manage liquid credit and still do on behalf of insurers.
Speaker Change: US as an attractive place to allocate capital with trusted and our scale is really important because no insurer wants too much concentration given there they are important risk aversion they need diversification. So what we're finding is there is desire to talk to us on a larger strategic basis, we've got.
Speaker Change: For those clients. We now have 23, SMA clients, which is up 3% from where we were at the end of last quarter. This feels like it's going to continue to grow. It's obviously started in the U S. You referenced sniff Nippon life, which is a terrific company.
Speaker Change: We are seeing Asian insurers, who are also open to this idea. So I think theres opportunity. There there are select opportunity in Europe as well. The key again is do we deliver performance can we deliver them higher returns at the same or lower risk. We believe we can and as we continue to scale up with our origination capabilities.
Speaker Change: Being able to speak for larger transactions like we did this $3 $5 billion EQT.
Speaker Change: Transaction in the midstream space, that's going to put us in a better and better spot. So I think you will see this business continue to grow in a material way and as an aside as I mentioned in the prepared remarks. We're also seeing interest in investment grade private credit now from some of our pension and <unk>.
Speaker Change: Silver and wealth funds, it's very early days, but it feels like that's going to grow in momentum, but overall insurance feels like an area, where we're going to see a lot of growth in the years ahead, particularly at Blackstone.
Speaker Change: Okay.
Speaker Change: Thank you we'll take our next question from Alex <unk> with Goldman Sachs.
Speaker Change: Hey, good morning, everybody. Thank you for the question just staying on credit for a second really strong fund raising across the platform and it was really well balanced which is obviously great to see as well can you give us a sense of the amount of capital that's sitting on the platform now that's not earning fees yet that will turn on upon deployment and I guess in that.
Speaker Change: Context can you talk a little bit about your expectations for credit deployment over over the next kind of 12 months or so and including maybe some of the partnerships. John and then you highlighted earlier I think you said that you've expanded or trying to expand more corporate partnerships in that part of the business.
Speaker Change: Well as the business grows and broadens as we.
Speaker Change: We continue to move beyond it started as you know more opportunistic direct lending, but as we move into this asset base area, where the penetration from us and the industry is very small we think this is going to grow a lot and.
Speaker Change: I think youll see us partnering more and more with banks.
Speaker Change: Oftentimes sort of on a white label basis, where there may not be a big announcement, but they want to move some things off their balance sheets as they want to try to drive higher Roe.
Speaker Change: We just see we see a lot of these sort of corporate solutions transactions like EQT I think we'll see more and more of those.
Speaker Change: Sure.
Speaker Change: I see.
Speaker Change: Investment pace growing basically with the capital that's coming in and it's not different than direct lending our opportunistic which is obviously very tied to transaction activity. What's nice about the private investment grade in the ABF. It's really just tied to the basic economy, it's tied to things like <unk>.
Speaker Change: Tumor finance and railcar finance and a bunch of fundamental things in commercial residential real estate and adjust the assets.
Speaker Change: The nuts and bolts of the U S economy. So as capital comes in I see this continuing to ramp up we're not going to put a percentage number but I would accept expect that it will keep up with the inflows. Michael you have this specifics yet Alex since Michael.
Speaker Change: Out of our own basically at $3 75, and <unk> totaled <unk> 65 fee, earning AUM about $40 billion is is not yet is eligible for management fees are not yet, earning it put it in perspective, and there is another $9 billion or so in the branch business within real estate.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Brian Bedell with Deutsche Bank.
Brian Bedell: Great. Thanks, Good morning folks thanks for taking my question.
Speaker Change: Maybe just to Michael on the FRE margin outlook for <unk>.
Brian Bedell: 95.
Speaker Change: You are highly likely to get back to solid double digit.
Speaker Change: Base fee growth not not even considering ferber.
Speaker Change: So just wondering.
Speaker Change: What your outlook for the FRE margin might be in 'twenty, five or even just not even considering <unk>.
Speaker Change: Fee related performance revenue and then I guess on top of that I mean that can certainly create.
Speaker Change: A lot of delta to the margin given the compensation on.
Speaker Change: On performance, if you're really at firms revenue.
Speaker Change: But then I guess.
Speaker Change: If that creates a lot of uncertainty into that outlook.
Speaker Change: To what extent is that compensation fungible across the firm. So that you can therefore scale that margin and improve it this year versus last year.
Brian Bedell: Hey, Brian.
Brian Bedell: Ill just step back on the call.
Brian Bedell: <unk> margins.
Brian Bedell: Or it would be around you this before but I'll say it again, it's early in the year. So we don't want get too granular and as always we encourage you to look at it on a full year basis, we did throughout the year last year and I think that.
Brian Bedell:
Brian Bedell: I think that approach hopefully.
Brian Bedell: Was validated when you looked at the full year performance there are different variables to consider you've touched on at least one but I'd just start by saying we continue to feel really good about our margin position fundamentally.
Brian Bedell: And again the idea of margin stability as a starting point at the beginning of the year.
Brian Bedell: A few items I'll just note in terms of those variables at first and you hit this on management fees and Opex in terms of the baseline so on management fees.
Brian Bedell: We have this embedded ramp.
Brian Bedell: The full year benefit 25 flagship vehicles activated in 2024.
Brian Bedell: That lifted our base management fees in the fourth quarter to 10% year over year after more like single digit growth throughout the course of the year and we consider that growth rate a reasonable starting point as we enter 2025 and at the same time on the Opex side.
Brian Bedell: We talked about this in prior quarters.
Brian Bedell: And we've talked about I think.
Brian Bedell: Third quarter, how we saw in the fourth quarter. It would come in in that low double digit area and that was a sort of a better run rate. We came in at 11% in the fourth quarter and again I would say that as a good starting point as we enter 2025% so to your point that relationship between.
Brian Bedell: Management fee growth stepping up from last year from 2024, and the Opex growth.
Brian Bedell: I think is a good thing.
Brian Bedell: Second as we've said before there is a level of sensitivity to fee related performance revenues as core plus and be repurposed as we call them generally carry higher incremental margin as those are direct lending platform. So that that is that as of note.
Brian Bedell: To your question, we do manage compensation ultimately holistically across the firm.
Brian Bedell: So thats in play, but I think it is worth noting that sensitivity.
Brian Bedell: And then third as you heard this morning, we continue to build out a number really significant new initiatives, which are in investment mode today, but will be meaningfully additive additive over time. So we are investing to grow in scale.
Brian Bedell: These new products and new platforms, two very significant ultimate profitability.
Brian Bedell: But we are investing to do that.
Brian Bedell: In real time, so I'd just say those are some of the ultimate pillars around this but again stepping back we've got a robust underlying margin position multiple engines of growth and ultimately high degree of control, we feel over our cost structure.
Brian Bedell: And this ability to scale products.
Brian Bedell: Is it just the key over time so.
Brian Bedell: Whether it's in the private wealth space or any other space.
Brian Bedell: Being sub scale does not lead to I think compelling profitability, but we approach it a little differently.
Brian Bedell: Great. Thank you.
Speaker Change: We will take our next question from Mike Brown with Wells Fargo Securities.
Brian Bedell: Okay great.
Mike Brown: Morning, everyone.
Speaker Change: But I wanted to ask on the new multi asset credit fund that is set to launch and I think you said in the first half of this year.
Speaker Change: But to compare and contrast that fund versus versus be Craig. So the new fund will invest across a variety of credit strategy. So it sounds like it's kind of like a broad exposure to your credit business.
Speaker Change: Curious how that will be marketed.
Speaker Change: Just to ensure it doesn't cannibalize be cracked and then given it's an interval fund does that mean.
Speaker Change: It has potential to be kind of distributed differently into a wider a wider array of distributors.
Speaker Change: Okay.
Speaker Change: Well Im looking at my General Counsel on how I can answer this question.
Speaker Change: What I would say is the.
Speaker Change: The product will have the breadth of what we do in credit as opposed to just direct lending and have a piece of that but a bunch of other things. We obviously do at this firm.
Speaker Change: Related to.
Speaker Change: Asset backed finance and real estate finance.
Speaker Change: Things on a global basis so.
Speaker Change: And it will be in a different structure that we believe will be more accessible.
Speaker Change: To investors, but I don't think there's much more I can say about this.
Speaker Change: Okay, well, thank you for that color.
Mike Brown: Thanks, Mike.
Speaker Change: We will take our next question from Brennan Hawken with UBS.
Brennan Hawken: Hi, good morning, Thanks for taking my question.
Brennan Hawken: I have a couple of questions on FRP or specifically within credit one on the fourth quarter and then one more forward looking.
Brennan Hawken: So a nice uplift here in the quarter.
Brennan Hawken: Is it possible to quantify what impact you saw from spread tightening working through the <unk> line here this quarter and then how should we think about the.
Brennan Hawken: On a forward looking basis, how should we think about the impact of lower base rates and tighter spreads on excess return and therefore FRP our generation going forward.
Brennan Hawken: I would just say.
Michael J: I'll leave Michael some of the technical answers here I would just say that there has been some of the excess spread coming out of the credit business really over the last 18 months.
Michael J: <unk> seen it broadly across investment grade non investment grade credit spreads have been tightening we've seen base rates come down, but our vehicles as you've seen in the numbers have continued to produce very strong results and I think the key thing to remember for our investors is yes.
Michael J: They may not be able to produce mid teens returns in private credit.
Michael J: On a go forward basis, but the relative returns in the spread premium to fixed income to liquid fixed income is continuing to endure and so that's what gives us a lot of confidence that we'll continue to generate favorable returns for our customers is that this farm to table model we have.
Where we bring investors right up to borrowers and avoid those origination distribution securitization costs, that's going to continue and that's why we think this private credit area has so much room to run both non investment grade and investment grade, but yes. The overall level of yields are coming down as spread.
Michael J: Or tightening, but I think the bigger trend is really the key to the growth of that business.
Michael J: Brendan.
Brendan: Matt I'll, just say that approximate math is across our current <unk> platform that a 50 basis point decline in base rates impacts our fee related performance revenues on a run rate basis by about 4%, it's like a low single digit number and we obviously absorb that and more in the last 12 months.
Brendan: Overall <unk> grew at 18% so through the NAV appreciation through the <unk>.
Brendan: Through the through the growth in inflows.
That's that's been the.
Brendan: The Netherlands.
Brendan: Great and spread tightening did that have an impact in <unk>.
Brendan: Spread tightening I mean, most of what we have is floating red right so spread tightening generally doesn't.
Brendan: Credit quality is frankly more important because you don't have a lot that trades above par. So I don't I don't think spread tightening was a big driver of what you're seeing.
Brendan: Great. Thanks for taking my question.
Brendan: Yes.
Speaker Change: We'll take our next question from Ken Worthington with Jpmorgan.
Ken Worthington: Hi, Good morning, I wanted to dig a bit deeper into the big four insurance relationships, if I could so maybe you're setting the stage of the $230 billion you called out a couple of times and insurance assets about how much come from the big four.
Speaker Change: As we think about 25.
Speaker Change: What are the contractual commitment obligations expected from the big four.
Speaker Change: And then lastly, given the acquisition of resolution by Nippon Life, You mentioned I think that the IMA remains intact does a transaction impact the remainder of the $60 billion of resolution of flows expected over the next few years.
Michael: Great tends Michael I'll start with your first question on the numbers we're.
Michael: At the end of 'twenty four across the Big four we had 156 billion of AUM.
Michael: And what I would say is I.
Michael: Think in virtually every one of our situations we've been allocated more capital than what was in there faster than what was in their contractually that our partner's share are extremely pleased with what we've been doing so the relationship with core bridge is rock solid with resolution.
Michael: With fidelity Guaranty.
Michael: And with ever like the former Allstate life and retirement business and what I think is interesting is by making these vehicles more competitive with our work theyre going to continue to grow and I think having.
Michael: Resolution now owned by Nippon with their capital and their expertise. This I think will be a very good development in terms of the future show.
Michael: We view these partnerships and our model is very powerful.
Michael: Youre seeing in resolution, we'll return that capital I think it's a good example of what we're doing we used capital at the beginning of these partnerships. We did back with fidelity <unk> Guaranty, we ultimately recycle that capital and we continue to stay with these partners long term as they grow their asset bases, and we make them more competitive and so.
Michael: We think this strategic partnership model is working extremely well, we see a bright future for it.
Michael: We are really will continue to be the dedicated asset manager for these folks and as we've talked about before we're not going to do it by taking on insurance liabilities and everything that comes with this.
Michael: For us our partners are greatly appreciative of what we're doing and I actually see accelerating growth with our strategic partners, given what we're delivering for them and their ambitions.
Michael: Okay, great. Thank you.
Speaker Change: We'll take our next question from Steven <unk> with Wolfe Research.
Speaker Change: Hi, good morning.
Speaker Change: So I wanted to I wanted.
Speaker Change: I wanted to ask a question on theory.
Speaker Change: The second derivative on <unk> gross to net flows appears to be improving now that being said given stickier rates at the long end just wanted to better understand the catalyst for retail allocations into be rate to increase from here, what the feedback from retail partners.
Speaker Change: And how do you see <unk> evolving over the medium term relative to history given your outlook.
Speaker Change: Look it's all tied to performance.
Speaker Change: I think we did an excellent job navigating a difficult period for real estate.
Speaker Change: <unk> liquidity customers.
We've been providing now full liquidity the last 11 months.
Speaker Change: We've seen this 97% decline in net redemptions and I think the key to your question is when does this turn on and become a growth vehicle and I would tied to performance.
Speaker Change: <unk> reached start showing good performance the customers have had a good experience and so what they're waiting to see is.
Speaker Change: A few months of positive NAV growth and a meaningful direction and I think if that happens then we'll begin to see as it may take a little bit of time, but we think it will build and when you look at what <unk>. The fact that it is got this terrific rental housing portfolio, where there's a structural shortage in the U S. It's got it.
Speaker Change: Terrific exposure to logistics, where of course the movement to E. Commerce continues and now Theres, we shoring underway and then the data centers, which have been very important in the last few years in terms of adding value to be re all of that and the geography in the south and southwest of the United States all of that gives us confidence.
Speaker Change: But I think from the Investor standpoint, they want to see a steady number of months of solid performance, we believe that as we get rates to settle in here.
Speaker Change: And we see the continued growth in cash flow Interestingly <unk> last year was up 4% and same store NOI as cash flow continues to grow rate settles out. There is this lack of new supply we think be rate will again at some point here become a growth vehicle and we've got to remember that customers have had a very good experience.
Speaker Change: Sure they have a lot of confidence in Blackstone and Blackstone real estate, but I do think youre going to need to see that before you really start to see an acceleration.
Thank you we'll take our next question from Ben <unk> with Barclays.
Speaker Change: Hi, good morning, and thank you for taking the question.
Speaker Change: Was wondering if you could talk a little bit more about the trajectory or the potential trajectory for bip fr PR.
Speaker Change: I understand you said that I think they should start to pick up in Q2, but as we sort of look back over the last several years, there's been a not insubstantial amount of fundraising quarterly since the beginning of 2022 I was just curious if there's any anything else you can share in terms of what the shape of <unk> looks like just given the size of that fundraising and the performance and any other nuances, we should be aware of around the <unk>.
Speaker Change: <unk> margin side, it seems like that came in maybe a little better than expected.
Speaker Change: It has to do perhaps with the timing of DXP. He I'm wondering if we could see something like that next year. This year in Q4.
Speaker Change: Yes, thank you very much.
Speaker Change: I would just say and then hand, it to Mike that the momentum in our VIP our infrastructure business is extraordinary when you deliver 17% net in an open ended format, where the capital is invested in the ground and you build up the kind of portfolio, they have and digital infrastructure and <unk>.
Speaker Change: Sure.
Speaker Change: Energy and transportation you have a lot of happy customers and show the fund raising momentum there continues to be quite strong exactly as Steve laid out in his remarks, Mike I'll hand, it to you and then on.
Speaker Change: On sort of.
Speaker Change: The sequencing of.
Speaker Change: Incentive fees from here as I mentioned in my remarks and Q2.
Will.
Speaker Change: Realized a more modest but.
Speaker Change: On a material amount of Av.
Speaker Change: Incentive fees and so you can expect in the next four quarters in 2025, you won't see infrastructure incentive fees and purpose in the first and fourth quarter, you'll see a modest amount in the second and third quarter.
Speaker Change: As we talked about margins on that sort of gives us a forward look last year that.
Speaker Change: Given the development mode. We are in on that the effective for margin for infrastructure.
Infrastructure would be.
Speaker Change: Bit lower than the overall firm and that that was the case.
Speaker Change: Obviously on very big dollars. So that was that was a happy of that.
Speaker Change: And I think in terms of.
Speaker Change: Yeah.
Speaker Change: Looking ahead to Q4 this year versus Q4 of this year and what was or wasn't anticipated not not a lot of color on it.
Understood. Thank you very much.
Patrick Davitt: Thank you we'll take our next question from Patrick Davitt with Autonomous research.
Patrick Davitt: Hey, good morning, everyone. Thank you.
I know, there's still a lot of uncertainty on the direction of the new administrations policies, but sure you guys have been running different scenarios internally like others have said they are so through that lens curious if you have any initial thoughts on how the end ground portfolio could be impacted either positively or negatively by more significant tariffs or trade war.
Patrick Davitt: And within that theme more specifically give us an update on the invested capital exposure to Europe Asia, and specifically China. Thank you.
Patrick Davitt: So what I'd say at the headline level. Patrick is we don't have a lot of businesses, who export physical goods at scale to the United States. So I think thats, obviously the area of most risk.
Patrick Davitt: The other thing I would say is.
Patrick Davitt: I think we got to wait and see where that settles clearly tariffs are going to be higher but.
Patrick Davitt: We don't know, which countries, which industries and what the level is and there seems to be a lot of negotiation. This tariff diplomacy as we saw in Colombia, a week ago can move pretty dramatically in a short period of time. So I think we have to wait and watch the good news overall for us is.
Patrick Davitt: Very few of our businesses are really reliant on exporting goods into the United States.
Patrick Davitt: The physical goods and so we just don't see it either in Europe, and Asia, having a major impact on our business and then just on the geographic dimension countries. If you step back at the whole firm. So these are sort of gross numbers, but.
Patrick Davitt: We have heavy concentration is international and global as we are in the U S about three quarters of our portfolio.
Patrick Davitt: As in the U S.
Patrick Davitt: And that is a pretty historical level about 15 or so percent in Europe.
Patrick Davitt: And then quite modest single digit amount.
Patrick Davitt: And agents.
Patrick Davitt: We're a global firm but.
Patrick Davitt: The nature of our business is that.
Patrick Davitt: Sort of more I think manageable exposure to non U S markets.
Patrick Davitt: Yeah.
Patrick Davitt: Thanks, Patrick.
Speaker Change: Thank you we'll take our next question from Christian Love with Piper Sandler.
Christian Love: Thank you and good morning, everyone can you just discuss your outlook on interest rates as Steve stated you are seeing this inflation based on your data data, but there are some worries more broadly on inflation just shown by Treasury yields recently would you would you expect more rate cuts than currently pricing or perhaps a rally in rates.
Christian Love: Just curious on how that could impact activity real estate performance in 2025, just based on here in house views. Thank you.
Christian Love: Always dangerous to predict interest rates, but what I would say is.
Christian Love: Our confidence comes from our portfolio on an inflation data. So we're obviously a very major owner of <unk>.
Christian Love: Housing and.
Christian Love: Shelters the biggest component of CPI, it's 36% today. The fed data is four 6% we would say what we're seeing is closer to 1% in that area and what we've seen steadily is the government data is catching up to what's happening sort of on the ground in the real world.
Christian Love: And so if you take a 36% weighting and you slowly bring that down I think thats going to give the fed some air cover the other thing we'd say right now is in the labor market, We survey, our Ceos and they would say.
Christian Love: Basically.
Christian Love: It's the easiest to higher that it's been since the post COVID-19 period wages for hourly workers are at the lowest level of three 7% now its possible things could change if we get a reassurance a resurgence in economic activity, but right now the labor market seems to be in balance and so that should be <unk>.
Christian Love: Full as well as to what the fed's going to do I think they have the luxury of being patient I think the fact that the economy is so strong they want to see what kind of policies are coming from this administration I think theyre going to wait and see but I do think the inflation data will generally be supportive.
Christian Love: Is showing gas inflation continues to come down although the pace of that disinflation is slower.
Speaker Change: Thank you we will take our final question from Arnaud Gavotte with BNP Paribas.
Speaker Change: Yes, good morning.
Christian Love: <unk>.
Christian Love: If you could look at.
Christian Love: Perpetual products, if we look five years out from now and assuming a continued acceleration in flows in these products in the U S. And then the global private wealth channels I'm, just wondering how we might see a distribution levels in other words, how much more you currently sit up to distribute today.
Christian Love: And does do you require a lot of investments in distribution.
Christian Love: Over the next 235 years I'm just wondering if that's okay. Thank you.
Christian Love: Well, it's clearly an area where.
Christian Love: Where we have a significant amount of optimism.
Christian Love: Thank you could see this grow quite substantially the good news is we've made an enormous investment in this area ahead of others really started on this now almost 15 years ago, we have teams around the globe more than 300 people dedicated to our private wealth.
Christian Love: Area. We built these products with track records, which is pretty differentiated we think the opportunity to distribute <unk> more broadly in different formats going to grow and this is really where the power of the Blackstone brand is show important sometimes it's hard to qualify to quantify when youre doing financial models.
Christian Love: But our ability to launch new products to sell to different distribution partners. The fact that we have a different differentiated brand that allows us to sell more.
Christian Love: To expand on a capital light basis, all of that is very favorable for our shareholders. We think it's early days and there's if you think about the big picture. We think there is close to 90 trillion of wealth of people, who have more than $1 million in savings around the world and we think it's allocated around one <unk>.
Christian Love: <unk> to private assets, if you think about our institutional partners, they're 30% allocated and so we've come out of a difficult period. The last two or three years with this cost of capital shock people are re emerging risk appetites going up.
Christian Love: Short term rates are going down so people are starting to think about moving out of deposits into other assets and at Blackstone given the breadth of what we've got and the track record and the investment we've made in people. We think we're really well positioned so I wouldn't be surprised if this is far larger than it is today five years from now.
Christian Love: Thank you with no additional questions in queue I'd like to turn the call back over to Mr. Tucker Western for any additional or closing remarks.
Christian Love: Alright, thanks, so much for joining us today and look forward to following up after the call.
Christian Love: Yeah.
Christian Love: [music].