And thats the reason were continuing to sell them. Hey, thanks for the follow-up. Were continuing to deliver that and investors continue to respond. Weston Tucker Head of Shareholder Relations. I didnt just do that as a throwaway line. I think in terms of the BPP incentive fees both currently and then next year, theyve spread across different vehicles and strategies. Good question. However, FRE will continue to provide meaningful ballast to earnings during this period. We also have structures here, again, that make sure we never have to be forced sellers. I would point out that we operate them with low leverage, in the case of BCRED is around one-to-one. So, Jon, maybe building on the retail theme a little bit more here, so you guys have provided a lot of data and evidence. Despite these hostile conditions Blackstone again delivered outstanding results for our investors. You have banks who at these moments sometimes have inventory that will take some time to move. Just how we should think. And I dont think theres reason to be, particularly concerned about the long term, because, in the long term, we also have an amazing group of people at the front. And many investors, one of the flip side positives, and this are why the firm having sort of the diversity we have is so important. And I appreciate the comments for one-to-one for BCRED and 40% for BREIT, but what type of flexibility do you have in each of these three vehicles to move leverage up, or down, especially considering the M&A pipeline at both BREIT and BPP? I think the key as you saw in the numbers here and the reaffirmation of our $150 billion target is that we are in a differentiated spot. And you also have the Life Sciences BPP vehicle that we created a couple of years ago that will have an anniversary in terms of its be next year, which will be meaningful. Announces Results of Operations for the Quarter and Six Months Ended June 30, 2022, San Francisco slow recovery from Covid is struggle for small business. And then when you add to that, the number of firms who can buy across the several thousand different managers out there, thats even more limited. And on retail, I do think theres an opportunity. I guess I just want to drill down on the concept that weve talked about in the past about higher rates. But again, its deployment-dependent. Then therell be people who need capital or want to sell the division, and then sort of private-to-private transactions will probably pick up over that time. So its a good time to be a lender. For the past 12 months, inflows reached $340 billion. Good day, everyone and welcome to the Blackstone second quarter 2022 investor call hosted by Weston Tucker, head of shareholder relations. With that, thank you for joining the call, and would like to open it up now for questions. Weve been very disciplined over time. Great. So weve seen these cycles over time. And I think overall if you look at the full year, the second half of the year, I think the rate of increase in opex, will decline as we roll over some lumpier first half comparisons. So were enthused about the opportunity to lend money to provide credit to borrowers. And so, what were seeing with us is we have this very broad platform, were in secondaries and credit, hedge funds, private equity, infrastructure, and Life Sciences. I think, we said a year ago it explained about 100 basis points or so of margin impact and thats exactly what happened. We can be patient. People find a sort of a moment sort of a floor, and then business builds back up. So that provides a lot of support. Thanks. And there could be more of that over time. Maybe 2018 since you updated some kind of growth target. My name is Ben and Im your event manager. You see in the public markets there could be people who face financial challenges and having a large-scale fund that doesnt require financing commitments allows us to do big things. Japan is a market that could have a real scale, I would say we are much closer to the beginning of this journey, not only with these initial products but also with future products. And how are those funds positioned to manage a period of redemptions beyond redemption limits, particularly if they exhaust cash and credit lines? We also have perpetual closed-end and co-investment vehicles, including Logicor Mileway in Europe, Stuytown in New York, Canadian Industrial, Japanese apartments, and more. Were going up in terms of our AUM, not like other things companies that seek to go down. And why thats not as bad as they think? And so Im curious if you can address the positioning of the portfolio and what types of companies, while rates were zero and spreads were so low for so long low with floating rate debt instead of locking in a fixed rate. I would also point out that on July 1st, which doesnt show up in the quarterly data, we had another $2.4 billion of inflows. BREIT perfectly exemplifies the strength of our concentrated strategy in these two areas. But also other insurers tied to alternative asset managers have private credit, which allows them to earn incremental yield without taking on incremental risk. In the case of BCRED, youve got floating rate debt. Net realization rose over two and a half fold to a record $1.3 billion. And we recently committed to buying last-mile logistics business and actually closed this week. Weve created these products recognizing you could go through a more challenging period of time. And then quickly, if I could, just on the FRE uplift from the fundraising. The next question comes from Patrick Davitt from Autonomous Research. It would be in a good environment, but to do it in an environment where markets are falling sharply is, especially impressive. When I look at the last few vintages of this product, the fund size is have stepped up quite meaningfully. And so in the BAM business, showing just how powerfully we can protect capital in an adverse environment, I think that will resonate. In the second quarter, for example, our flagship strategies again dramatically outperformed the relevant market industries, most notably real estate and our hedge fund solutions business. Thanks for Rob, its Michael. The vast majority of our AUM today is under long-term contracts or even perpetual structures, helping us to avoid the large decreases in AUM experienced by many other money managers. But again, were much more lowly leveraged than we were in the past. And this is where a firm like Blackstone really shines. You start within our two main asset classes here, residential and logistics, which record low vacancies, which is different typically than when youre going into a down cycle. But the backdrop is incredibly constructive. Yeah. Our model also provides us the advantage of patience to buy assets, and the flexibility to sell when the time is right. Were not I dont think in either of those conditions and were still seeing deals getting done. Thatll continue in the coming quarters, and then next year you have more of that. Turning to our four engines of growth, our customers continue to respond favorably to our performance and our drawdown fund business could not be in a stronger position today. The S&P fell 16% in the quarter and 20% in the first six months of the year, the largest first-half decline for US equities in over 50 years. Maybe we could just touch on the secondaries market briefly. And I was wondering whether the rise in interest rates and higher volatility have any impact on the appetite youre seeing for transactions? In terms of drivers in the business, theyre really outstanding. I know youre already very well penetrated in the wire-houses and I believe the private banks and maybe theres a lot more to go there? First of all, if you look at the data in the quarter overall in retail, we had $15.5 billion of inflows. Thanks. Do you see net redemptions as possible in the coming months? Glenn, please proceed. Thats $88 billion in inflows in a quarter in the midst of the market chaos, for the second-highest quarter ever. We launched fundraising for our new global real estate flagship in March, targeting $30.3 billion, which is 50% larger than its predecessor and would represent the largest private equity real estate private equity drawdown fund ever raised. This is a very advantageous position given the current environment. In the past 12 months alone, perpetual AUM more than doubled to $356 billion consisting of 21 strategies across 51 discrete vehicles with more in development. We dont have as broad a platform, maybe not the same track record, maybe not the same depth of relationships. Are you starting to see a shift may be in the pipeline of demand building there as it seems like were entering a longer-term period where that strategy should be more attractive? Thanks. Turning to the outlook. So my question is on BREIT, if I understand well, the biggest component of performance over the past six months, 12 months, has been rental growth. And so whats happening, of course, is youre seeing less new supply. In fixed income, our BXC, our credit business, and our BREDS real estate debt business are heavily oriented, virtually all to floating rate debt, obviously very important. I think in this environment until theres a little more confidence around the trajectory of inflation, I think well see slower volumes. As Steve noted, weve been preparing for an environment of rising rates and a normalization of the market. The way we positioned investor capital over the past several years is driving differentiated returns today. And people have been around the business, I think to understand that. But overall, we dont see that as being a major issue for our portfolio. So, yes, higher rates will impact the net cash flow you have to distribute and also, of course, has an impact on multiples and were seeing that in the marketplace. Thats what gives us confidence about the future. And what I would say is after these two quarters, I think clients are going to begin to recognize this. Thank you. Our next question comes from Adam Beatty from UBS. And, as you think about the more turbulent market conditions, what do you hear from some of the larger distribution partners, individual financial advisors, etc. We are a very well-capitalized business for any kind of environment. We continue to execute and of course, that turned over time the other direction. All of my friends are losing a fortune in the market, and Im making money. And even that, we felt like we were pretty much back to work a year ago. These conditions, of course, create significant uncertainty for markets. It allows you to be more selective on which types of credits. But the thing that gives us the greatest confidence is individual investors are continuing to allocate capital and the performance in the positioning is so strong. Driven by a 45% growth in fee-related earnings and record realizations. Thanks a lot, Weston. This is so amazing. We have smaller funds in infrastructure and real estate, but that is really a long-term growth engine for our firm. I dont know many asset classes that perform outperformed indexes by 3,000 basis points. Thats also low. All right. So my expectation is over time, I dont know when well come back and find other sizable clients and continue to grow this area. Good morning, everyone. Its particularly tough in North America, private equity with institutions. And so when you look at our portfolios, they dont necessarily reflect the market overall. We, fortunately, between our BXC business, our BREDS business, and our insurance business, we have a lot of scale in this area. I think individual investors, I dont know if itll go that far, but from the low single digits therein, I think it can move meaningfully. This is exactly what BAMs products are designed to do in down markets. And so people still have to live somewhere. Please go ahead. Youre starting to see those sort of cycle through, for a second and third time. Nowhere are the benefits of our somatic approach more apparent in our $320 billion real estate business, which just reported a record quarter, performance remains outstanding. So weve got 28% in private equity in travel, and energy thats different than the market. Turning to retail, sales in the channel were $15.5 billion in the quarter for our three perpetual products, BREIT, BCRED, and BEPIF sales totaled a robust $11 billion with an additional $2.4 billion monthly subscriptions on July 1st. And you mentioned the clear, obvious, its great to be a lender with lots of floating rates when rates are rising and so you benefit from that. Indeed, perpetual strategies now comprise 45% of the firms total performance revenue eligible AUM on the ground, or $219 billion, reflecting a model that is less and less dependent on asset sales. Moving to our next question from Finian OShea from Wells Fargo Securities. And I think over time well have more distribution partners and many more financial advisors and clients within these systems. Ive heard you that youre in good neighborhoods, etc. And so there still is activity. In the case of BREIT, I think as of the latest quarter, its right at or slightly below 40% leverage. Moving on to our next question from Brian Bedell from Deutsche Bank. As a reminder, we have four open-ended institutional BPP strategies focused on North America, Asia, Europe, and the Life Sciences sector that can continuously raise capital. And B, as you think about launching a lot of new products, you guys have a couple of things in Europe. But Ive been through this a lot of times, and at the end of the day, we prevail. In closing, we have both the staying power and firepower to thrive in this challenging environment, as we have for 36 years. But it does take a bit of time. Investors have a lot of confidence in us and its a similar story across our firm. The biggest one was, that I believe is Zendesk public to private in the software space. But youre making your fees on the gross return, I believe. Good morning, everyone. I would also point out as history, if you went back to the 1978 to 82 period, the last period of really high inflation in the US, CPI averaged 9% back then. Our second question is coming from the line of Ken Worthington from JPMorgan. Rufus Hone BMO Capital Markets Analyst. As a competitive thing. Yeah. I think youll continue to see it over time in our results. And with that, Ill turn it over to Jon. Rufus, please proceed. BCP has also been pretty disciplined in fixing its rate. If you look at the BREP global track record, its 17 net since inception. How can Blackstone generate these extraordinary results while most other money managers are suffering? Our final question comes from Brian Bedell from Deutsche Bank. Allow me to hand it back to Weston Tucker for closing remarks. We saw this, by the way, back in 2020. Thank you. A 20% increase from basically run rate FRE levels, which includes management fees and also fee-related performance revenues. But Ill just tell you a story, this to start out, I was someplace on Sunday and somebody walked up to me and he said, Im a BREIT investor. Looking forward, market conditions will remain challenging. We believe it is the power of our brand and our superior performance, which have enabled us to build unique relationships with our clients over decades. I would also say, as a final point in these vehicles, of course, beyond the enormous amounts of liquidity we run them with. Our private equity secondaries flagship is on track to reach its target of approximately $20 billion, the largest secondaries vehicle ever raised. Limited partners across customer channels rely on those to produce differentiated outcomes compared to what they can achieve in traditional asset classes. Thanks, Mike. We were about midway through the largest fundraising cycle in our history with enormous support from our limited partners, providing us with an unprecedented $170 billion of dry powdered capital. And in our US multifamily markets, rents grew 19%, based on the most recent data from May. Steve could comment on this, but we are now in a very different place today. I think you heard it right. Our next question is coming from Robert Lee from KBW. Just to reinforce that, Brian, so just stepping on BREIT, basically high single-digit gross appreciation, total return, and thats comprised of that 4.5% mid-single-digit cash yield and then appreciation. The other factor here that I would point to is weve got all this dry powder. So if they are redemptions, what are the main reasons? Combined with $347 million of fee-related performance revenues in the second quarter generated by a variety of professional vehicles. One of the positives here is the over-allocation to private equity that makes fundraising more challenging for many firms means that those same institutions are now thinking more and more about selling in secondaries. And the critical question is how much has already been incorporated in the broad-based declines that have occurred? I think there was some frequent vein data that was out this last week that showed private equity fundraising in the first half of the year was down 43%. Good morning. Now, because of our track record and confidence in the industry, investors recognize this is a compelling time to invest in this space. Thanks. I think we will grow, but it doesnt necessarily happen overnight. Capital markets activity, of course, slowed dramatically, including US IPOs down over 90% year-on-year. And Steve, I think you had some remarks you wanted to make. We also pursued attractive cyclical opportunities such as the travel recovery theme, and we did not lose our discipline even as we invested in faster-growing sectors, always keeping a sharp focus on profitability. It will be a difficult balancing act to combat inflation while trying to minimize the negative impact on economies. In addition to that, what youre seeing is particularly on the residential side, a pretty rapid slowing of new construction. Thanks, everyone, for joining us this morning, and look forward to following up after the call. Our next question is coming from Arnaud Giblat from BNP Exane. For 2022, we expect full year margin to be approximately in the same 55% area, reflecting the expansion of over 200 basis points in two years and 900 basis points in four years. Great. If you look at the default rates across the credit world, its still pretty low. And so I think we have a sense of the future that obviously isnt shared by the market today. That should power strong performance even as multiples come down, as cap rates move up, something weve already done materially at this point. OK. Hi, good morning. And I guess I would just say, there was weve talked generally about the environment and everybodys focused on this month quarter. Craig Siegenthaler Bank of America Merrill Lynch Analyst. Yeah, its a good question. So I just wanted to end on that because I realize there are a lot of individual questions, but when you step back and look at whats happening here, $88 billion in the quarter, I mean, there are giant mutual fund complexes that are hemorrhaging. Great. Our institutional real estate core plus strategy BPP is $74 billion across 25 different vehicles, including $8 billion of additional perpetual capital raised in the second quarter for the Mileway recapitalization. Next question please, Ben. And we see the marketplace, if you look at asset value growth in commercial real estate, I dont think weve grown faster than that on a relative basis. In terms of the financials, I dont know if theres anything you want to add, Michael. I was wondering if would be possible to maybe get a little bit more meat on the bone. About the non-comp expense growth going forward. Great. Can you talk about the market volatilitys expected impact on private deal activity? Mike, I referred to how the fundraising cycle, and there was sort of 20 or so discrete strategies that these vehicles have launched and will continue to launch over the course of the coming quarters depending on deployment. But the reason we have optimism, apparently thats broadly shared is that were providing enormous value to people who are investors who remember it, and they appreciate the firm that builds the brand that helps us raise money. In terms of our portfolio, it really varies. We closed on $3 billion for our new growth equity vehicle and expect to exceed the size of the prior fund here as well, and the list goes on. So a more challenging environment. And then I would say in our opportunistic real estate business, we have more floating rate debt. Please go ahead. While we were not immune to the market volatility, we saw a strong appreciation in our travel, leisure, and energy holdings. The index is down 17%, we were up 2.3%, and our opportunistic funds protected capital down only 1%. What drives our funds outperformance and allows us to sustain it over time. As, where, weve seen big growth, of course, has been in our perpetual products in core plus both institutionally and retail, which is an even larger market. For some time. But in Asia, the periodic reassertion of COVID remains a headwind to growth. We also run them with a significant amount of liquidity excess liquidity to meet our clients needs over time. And so we take a lot of pride in what we do, and we do it carefully, and we have really good results. Similar to the roadmap we provided four years ago. But maybe talk about that. Outperforming the S&P by 2,200 basis points for the six-month period and the hedge fund index by nearly 700 basis points. What sort of a magnitude of a drop-off we might see? Over the subsequent four years, our asset and earnings base and quality have expanded dramatically powered by these factors. And, I think thats a base that we will be building upon. The firms largest realizations in the quarter and among the largest in our history were the $23 billion recapitalization of last-mile logistics platform, Mileway, and the $5.7 billion sale of the Cosmopolitan Hotel in Las Vegas in two of our favorite secular neighborhoods. Powered by Mileway and the Cosmopolitan. Please go ahead. So can you help us reconcile this perception divide and what might seem intuitive and logical for investors about the flow-through of macro factors, through private markets investing? But the way it happens is things slow down. As we noted then, the COVID-related reduction, in T&E spending was a benefit that would eventually reverse. They like the performance of these products. Overall, our perpetual platform including both institutional and retail strategies has been a key driver of the firms evolution toward higher and more recurring earnings, a progression we expect to continue. And today institutions have 30% of their capital in private markets. I guess Id start with what, we think is a misperception about the business, and it may go back in time to the fact that these businesses used to have a narrower base, and were engaged in a relatively small number of activities, and had a small number of customers. We expect to raise a growth fund similarly, even larger than the last fund in previous cycles. We expect to launch the new $30 billion real estate flagship in early fall with an effective four-month fee holiday for first closers. In this environment, as weve all seen. In conclusion, despite the difficult conditions that come with every central bank tightening cycle. Michael, please proceed. And by the way, its not just us. Distributable earnings increased 86% year over year to $2.0 billion in the second quarter, or $1.49 per share, driven by strong growth in both FRE and net realizations. How far along do you think we are in terms of kind of post-pandemic uplift. Most of these vehicles generate recurring fee-related performance revenues and momentum in this high-quality earnings stream continues to build. My question is on the underlying leverage for BREIT, BPP, and BCRED. 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. And then, in terms of full fees from the broader sweep of those funds, much of that in 2024, we would expect. I guess I should just comment specifically the question was about redemption in those two vehicles. I was at one retail thing where we talked about this everybody put 100% of their portfolio in theory, theyd be the best performing broker in that large system. I think insurers are also seeing the strong performance of our insurance clients, we have three meaningful insurance clients. Please go ahead. fool.insertScript('twitter-wjs', '//platform.twitter.com/widgets.js', true); But the key long-term is that our investment performance for our three perpetual vehicles remains very strong, as does the positioning of their respective portfolios. Good morning. Were also working on some new products in that area that were not going to talk about today, but we think could help give some growth. So when we go through periods of dislocation, were able to ride through them. Patrick Davitt Autonomous Research Analyst. We are in discussions with multiple parties, as weve talked about over time. Patrick, please proceed. Conversely, market dislocation creates attractive opportunities to deploy in our enormous dry powder and long-duration fund structures. Weve been really focused on what we call good neighborhoods. At the same time, we have multiple engines of growth driving us forward and are putting in place the foundation for a material step up for FRE. And it speaks to the positioning and the geographic positioning as well. We raised a remarkable $88 billion of inflows. Driving a 38% increase in AUM. Rental housing and apartment rent grew it 9%. So we only performed by 16% for our customers over the index. But yes, you can be selective in who you choose, where you choose to deploy capital, and also get both favorable economic and contract terms in this kind of environment. Alternatives have gone from being sort of a niche business to something thats broadly accepted, that the performance has proven resilient and that has given customers more and more confidence. But I would just characterize it as quite significant. So, I guess what I would say is were very thoughtful in the size of the capital. Both BPP and our infrastructure platform continue to benefit from their focus on hard assets and great sectors where inflation is further limiting new supply. And so, we see strength there as well. For second quarter results reflected another definitive step on this journey. Thank you, Steve. Were still only with a minority, a small minority of the overall financial advisors in these systems. So, on the BREIT outlook, what I would say is it goes back to these really remarkable fundamentals, the best weve seen in logistics, in rental housing in our history. We bought a business at Brea, which is in the Life Science space, doing compliance testing. So those were very good results. On a year-to-date basis, the FRE margin was 55.1% in line with the prior comparable period, despite a significant step up in T&E expense from muted levels last year. We create value in our investments that are deep portfolio operations and asset management capabilities. As we saw in 2020, retail net flows are impacted by a volatile market environment. Good morning, everyone. Your email address will not be published. When we talk to our distribution partners, I think, about what they would say and what we see in our data and I mentioned most of the repurchases, as we call them, are coming from a smaller subset of our investors in Asia. Starting with results. But its grown from, I guess, low double digits just before the crisis the financial crisis. And so I think it speaks to there being significant opportunity, but obviously, were going to pick our spots. As they are thinking about both the growth sales and potential for larger redemptions from some of these vehicles? It is a more challenging environment, but I think it will hit some others probably in a more adverse way. We do offer limited repurchases within these vehicles, which increase in the quarter to $2.9 billion driven by Asia-based retail investors. And on the other hand, is there a potential offset from maybe pivoting to more rescue financing, the deal financing to offset that? So, because youre reporting from underlying managers as opposed to reporting directly from Blackstone, youve got a quarter or so lag. That being said, obviously, there has been a change in the market. In fact, its the biggest thing in my portfolio and I love you people. So so I think if you unbundle, what youre thinking and you step back and look at whats going to happen in our business over time, I think there is an enormous reason for optimism as to what we will be building at Blackstone and providing for all of our customers. I would say on the fundraising front it is getting harder out there. Sort of regardless of market movements, that wasnt really valued. The Blackstone Group Inc.(BX -3.19%)Q22022 Earnings CallJul 21, 2022, 9:00 a.m. Thanks. And when you look at some of the products pivoting to you specifically asked about BREIT and BCRED the fact that theyre designed for an inflationary environment gives us a lot of confidence. A question on expenses and margins, its probably for Michael. Our following question comes from Patrick Davitt from Autonomous Research. Our investment process is highly differentiated, including a rigorous focus when choosing the best sectors and assets, always with the priority of protecting capital. And so I would expect the back half of the year will be slower because I think itll take a little time and then things will pick back up. Please go ahead. There are some headlines in Asia, how are you thinking about scaling those products in a more challenging macro backdrop? Our business model is set up to provide extraordinary resiliency in difficult times, as shown throughout our history.