2018 Blackstone Investor Day

ladies and gentlemen welcome to the 2018 Blackstone investor day at this time I would like to welcome Weston Tucker to the stage Head of Investor Relations for Blackstone thank you and good morning welcome to Blackstone's Investor day we're happy you could join us today both here in the room as well as those on the webcast we have a great mix of attendees in the room here investors analysts that know our firm well as well as brand new interest so to everyone thanks for tuning in and to our shareholders in particular thanks for your continued support now before going any further I have an important responsibility to summarize for you what's on the screen here and that is the today's presentations include forward-looking statements that may differ from actual results materially and we do not undertake any duty to update please see our 10k risk factors for risks that could affect results non-gaap reconciliations are available in the full presentation which could be found in the shareholders page of our website today's presentations do not constitute an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund moving on so the theme of today's event is performance and innovation it's been four years since our last investor day and looking back over that time the firm has continued to grow and evolve significantly including into many areas that weren't even on people's radars in 2014 over that time Blackstone is delivered for our shareholders with over $10 per share paid out in distribution since our last investor day helping generate a 50 percent total return on the stock but instead of looking back Blackstone is looking forward our goal today is for you to come away with a better understanding of what differentiates the firm and our performance and innovation continue to drive Blackstone forward we plan to keep today's program to about four hours followed by an informal lunch in the room next door the program is divided into sections we'll start with remarks from our Chairman CEO and co-founder Steve Schwarzman our president and CEO John Gray and our chief financial officer Michael che in the second section we'll hear from our four largest business lines real estate corporate private equity credit and hedge fund solutions each of which has established a leading position in the market and although they've grown a lot still have a compelling path forward we'll take a short break and then we'll move into our third section of the day emerging leaders these are businesses we built to real scale but have the potential for transformative growth ahead in turn cluding a significant potential impact on the firm's earnings profile and the last presentation of the day will be from our executive vice chairman Tony James will discuss Blackstone's future leaders new initiatives both in terms of businesses and distribution that can help sustain the firm strong rate of growth for the next decade and beyond we'll end the day with a Q&A panel and we asked just to keep the day moving if you could please hold your questions until the end we have a great program in store for you today thanks again for joining us and it look forward to catching up with you at the lunch thanks again and with that I'll turn things over to Steve Schwarzman right after a short video how do you meet the needs of investors as they seek smarter ways to protect their capital at Blackstone we focus on solutions it starts with performance outperforming benchmarks through market cycles replicating success and unlocking growth making us the leading alternative asset manager and earning the trust of our investors we turn their trust into innovation launching new strategies that build on our expertise and bring our networks data and scale to bear [Music] so we can find opportunities and transform potential until long-term value building lasting leading businesses [Applause] [Music] every innovation expands our potential and creates a new advantage making us smarter decision-makers and better partners turning possibility into performance innovation into growth [Music] ladies and gentlemen please welcome to the stage Steve Schwarzman chairman CEO and co-founder of Blackstone and a good morning and thanks for being here so early you get a special award welcome to black stones investor day our fifth as Weston mentioned since our last investor day four years ago Blackstone has grown assets under management by a hundred and sixty eight billion dollars or over sixty percent we've expanded our existing businesses into new geographies and new product areas and also added several completely new business lines Blackstone is constantly innovating and I think today's terrific lineup of speakers will illustrate that I expect that you'll come away from today's presentations with a better understanding of why Blackstone is the clear leader in the alternative asset space and why I personally believe the best is yet to come the short video we just saw highlighted two attributes that Weston mentioned performance and innovation which along with integrity teamwork and hard work form the foundation of our firm and our culture they are the raw materials for the growth we've been able to achieve and when we do well for our investors in each of our different businesses they entrust us with more of their capital including supporting our expansion into new areas and their behalf our model is really very simple it's a virtuous circle that begins and ends with investment performance on the overhead screen you'll see the performance of Blackstone's funds from the inception of our different businesses from our first private equity fund in 1987 we've delivered returns to our limited partners of 15 percent per year net of all fees in real estate 16 percent annually since 1990 one net of all fees these funds have beaten the relevant public market indices by seven to nine percent on average that 700 basis points to 900 basis points on average with an exceptionally low rate of realized losses in total across the firm we've created approximately 200 billion dollars of gains since inception for our investors and their beneficiaries our performance over 33 years is what sustains us as a firm over this long time frame we've established powerful recognition globally with our LPS a deep bond of trust and an enduring sense of partnership that is continually reinforced through market cycles we create a unique proposition for our LPS by offering more investment products than any of our peers this makes it easier for large institutions and individuals to invest more under one umbrella creating certain economies of scale for them and an easier yes to Blackstone our firm has become the go-to alternative manager for investors around the world and our share of wallet for these rapidly growing pools of capital is by far the largest our extensive array of alternative products combined with the Blackstone brand creates a huge moat around our franchise and that's why we've been able to take $400,000 of startup capital in 1985 and turn it into four hundred and thirty nine billion dollars of assets we managed today that's a compound rate of growth for those who care of fifty two percent a year for 33 years of course we're in the innovation business because we have unrivaled access to intellectual capital at the firm due to our broad range of activities in global scale we are uniquely successful at launching and scaling new businesses we have an annual strategic planning process which occurred two weeks ago that challenges each of our businesses to create one to three new product ideas per year our ability to aggregate intellectual capital enables us to better evaluate each of these ideas because we want them to be successful the firm's decision to move forward with the new business of ideas based on three principles first there has to be a substantial opportunity in the market to create something special for our investors and to generate outsized risk-adjusted returns secondly we have to identify the right leader we only attack new initiatives with absolutely first-class people and we do attack them and third any new business has to further increase the firm's intellectual capital so that the entire organization can benefit our goal is always to become number one in the space and move the new business rapidly to profitability on a standalone basis we're also risk-averse an approach every day believing that were only as good as our last investment decision and our latest fund we find it a good long-term strategy to not lose our customers money this blueprint has guided the firm's evolution since 1985 in 2007 our IPO at a jet fuel - this process ensuring our position as the leading an institution in our field with additional financial resources and a new tool to attract and retain the best talent by using our stock our IPO in the capital we raise before the financial crisis helped us not only survive thrive and gave us the opportunity to extend our leadership position in basically every area at the time of our IPO we had four primary businesses and 88 billion dollars of AUM corporate private equity consisted of one actively investing opportunistic fund real estate had two opportunistic funds one focused on North America and the other on Europe our credit business was primarily comprised of cielos and a mezzanine fund while in hedge funds we were evolving from co-manage products to a greater focused on customized solutions fast forward to today and we've created something unique in virtually every area adding dozens of new product areas and several altogether new business lines the firm is five times larger today than it was at our IPO at a time when most financial institutions were shrinking and more diverse than any of our peers our real estate business is one of the largest private owners of real estate in the world with negligible realized losses on our investment to date since 1991 in corporate private equity we've added energy investing longer-dated core investing and a dedicated Asia fund our credit business has exploded with new product offerings and has become one of the largest alternative credit platforms in the world and our hedge fund solutions business BAM is the largest investor in hedge funds in the world we've also added world-class businesses in tactical opportunities secondaries and infrastructure and our distribution capabilities have moved far beyond the traditional institutional Channel to also encompass the vast and under penetrated retail and insurance channels and you'll as you'll heal today we have much more that we're going to talk about in aggregate Blackstone's global portfolio now consists of a hundred and eighty companies where we hold control or meaningful influence with combined enterprise value of over four hundred and sixty billion dollars these companies employ approximately five hundred and twenty thousand people around the world making Blackstone one of the largest US base employers and one of the largest employers anywhere in the world we oversee this expansive portfolio with 1,100 investment professionals across 15 countries plus all of our company management teams and operating partners there are many advantages to this type of scale but most important is Blackstone's ability to integrate all this information and create real knowledge to share across the firm we convert this intellectual capital into conviction around our ideas ultimately driving better investment decisions and as Blackstone grows larger our access to information increases and our returns further benefit this remarkable knowledge base our track record and our capability to invest basically anywhere in the world what give us such great confidence that our LPS will keep entrusting us with more of their capital eleven years ago when we went public few people would have believed we would grow five times into the teeth of a financial crisis but that's what we did in today's presentations you're going to learn on a granule basis about where we expect the firm to grow in the future just as a reference point if we grow at a low double-digit rate which is slower than our growth rate of the past several years we would reach one trillion dollars of AUM comfortably within the next decade I think that would be a remarkable achievement for a business that started with $400,000 of capital today the leaders of each of our different businesses will provide a roadmap for how we can achieve that some of our presenters today may be new faces to you all they're not new to me and to Blackstone having worked at the firm in leadership positions for many years as the firm grows we often move our senior leaders to run different areas which at the same time creates opportunities for others to advance in their careers this is all part of our careful talent management and succession planning which a black stone has always been seamless and organic preserving and perpetuating our unique culture black stones defining characteristic is our culture and our people and reputation are the firm's most important assets our professionals are highly talented and motivated everyone at Blackstone James shares the same core values and embodies our common mission to be the best in the world at what we do on behalf of our investors you have to love what you do to work at Blackstone and constantly strive to do it better our next presenter John Gray exemplifies the firm's values and passion for excellence we hired John from Wharton in 1992 and he rose to run our real estate business in 2005 before succeeding Tony James in February this year as the firm's president and chief offeree operating officer tony nicely engineered that transition and is now our executive vice chairman working just as hard just happens to have a different title it just got back from running around to Australia and all over Asia and for somebody who's changed position it's really sort of seamless John is a homegrown talent like most people at Blackstone and a true culture carrier of the firm I couldn't have more confidence in anyone's ability to lead Blackstone for the next 20 years or more closing despite Blackstone's growth we still feel like the same small firm with the same values our principles have not changed excellence integrity teamwork entrepreneurship and protection of capital these principles are the same today as they were three decades ago and as long as we remain true to them and continue to have excellent performance Blackstone and its investors and you our shareholders will continue to prosper thank you for joining us today even though it's early and I look forward to answering your questions at the end of the day and with that I'll turn things over to John ladies and gentlemen please welcome to the stage John Gray president and chief operating officer for Blackstone good morning everybody welcome again to investor day it has been four plus years since we've gotten together and a lot of things have changed at this firm one thing though has not changed and that is Steve's passion for our firm in his unbelievable faith in our potential which is why I think it was hard for him to give that opening and not reference to share price one time so what do I want to talk about this morning what I want to talk about is why we think this firm is so special and why we're so optimistic about the future and I want to start by thinking about what makes a truly great company what defines great business it's fast growing it's got limited need for capital so it grows without capital it's a magnet for talent it produces high margins despite the fact that it's got great talent it's anchored by a recurring revenue base which gives it protection in a downside environment it generates significant free cash flow to share with its shareholders it has loyal customer it's got a global franchise and it has a real moat around its business generally associated with scale and really importantly invaluable brand equity that attracts people and customers and allows it to grow of course I'm gonna tell you and argue today that these are the attributes of Blackstone let's start with growth Steve touched on this but we've grown from eighty eight billion dollars to four hundred and thirty nine billion dollars since our IPO the only thing I'd add to this is that we did that despite sending two hundred and sixty billion dollars back to our investors through our close then funds when we complete the buy it fix it sell admission so in tremendous inflows into our company now to give you a sense of this let's look at us relative to our competition we have tremendous competitors in our space and yet we've raised nearly as much money as the three largest competitors over the last five years that gives you a sense of the breadth and depth of our firm and the confidence global investors have in Blackstone a question maybe is that growth slowing down and I would tell you the answer to that is no we've had a hundred and twenty billion dollars of inflows in the last one year alone the most in our history and as you'll hear when we look forward we've got the best pipeline in our history as well so in terms of growth we think we can check the box now do we need capital to produce this growth the answer to that no this stat shows you four hundred and thirty nine billion dollars of AUM and just two billion of that comes off our balance sheet that means there's lots of capital to pay out to shareholders somebody may ask but do you eat your own cooking do you believe in what you do the answer is yes our employees have six billion dollars invested in our funds but as it relates to shareholders we don't need to tie up capital in the firm in our invest where else do you see that we don't use a lot of capital we have more cash than debt a billion dollars billion seven more cash than debt we have an A+ rating reflecting the strength of this balance sheet and then you may ask but do you issue a lot of equity to grow and the answer to that is no zero point seven percent annual growth and our share count since the IPO and we anticipate that's going to be meaningfully lower going forward as a result of our newly announced buyback program now switching to Talent this is my favorite slide of the day as the newly minted president of Blackstone 2018 analyst class at Blackstone nearly fifteen thousand applicants to come and work at Blackstone young kids in their 20s only 86 of them ended up getting jobs that's a 0.6% admin rate that's more that's lower than the most exclusive universities in the world and what it says about the firm one is that we have an incredible brand that people want to be associated with this firm and to when you think about the future the kind of talent that's coming through the doors is incredible some of us were joking earlier thank goodness Blackstone didn't look like this when we came to get jobs now it's not just about attracting talent it's about retaining that talent our management committee 11 of us average 10 year of 18 years it doesn't mean there aren't things that happen in life and people move on but it shows that great talent wants to stay at the firm of our 147 partners they've been there on average 10 years and then my favorite stat on this today you're gonna hear from five of us myself and Ken Kaplan David Blitzer Joe Bereta Michael che who all started at the firm in our early 20s going back to Steve's comment about homegrown talent now despite attracting and keeping this great talent we still have very impressive margins a typical S&P 500 company 13% pre-tax margins I looked at Preeti because obviously we have a very tax efficient structure I didn't want the numbers distorted Blackstone over the last 12 months has a 52 percent margin now the average of the SP forward or the multiple on 2018 earnings is 18 times we at Blackstone today even with a little run-up in our stock or trading at 12 times despite powerful statistics like this another great factor about this business is the firm is built on stable long duration third party capital what does that mean well a typical asset manager the money can leave generally on a monthly basis in our case only 10% of our capital can leave within a year 90% of it is tied up in long duration closed-end vehicles or what we call perpetual capital that I'll talk about in a moment in a moment why does this matter it matters in tough environments because we can hold on to capital it doesn't leave us and we have the dry powder to take advantage of things so today we have 88 billion dollars of dry powder if markets dislocate the money doesn't leave we can deploy that capital it is a powerful business model now I mentioned perpetual capital this is one of the key takeaways from the day which is the way our firm is changing if you went back five years ago we had nine billion dollars of this capital its capital with indefinite term with no forced redemptions today now it's grown to 64 billion dollars why is it growing so rapidly this is why we have 13 vehicles today we've got an infrastructure fund that had its first close this year of five billion dollars we've got a core plus real estate business that has tremendous growth three open-ended institutional funds and the different geographies around the world a private REIT here in the US for retail customers that's it four billion dollars today in less than two years just last month it raised three hundred plus million dollars with a public mortgage REIT Blackstone mortgage trust four billion dollars of capital we've got a three and a half billion dollar GP stakes business and bam a whole series of funds in GSO and we're rebuilding our BDC we had a joint venture we now control our BDC we're rebuilding it with better economics and then insurance which Tony will touch on later today another area where we think there's tremendous growth but this perpetual capital is very important to this firm and how you think about it going forward not surprisingly a business like this produces a lot of free cash flow so a few stats on this we paid out six dollars and 84 cents in the last three years over ten dollars since our last investor day that gives us the highest dividend yield of any of the hundred and fifty largest companies in the United States now interestingly the other big companies that have given dan yields close to us are in the tobacco business or utilities or telecom sectors all which face pretty significant headwinds we feel obviously different about our business and what's happening in the alternative space and now we've added this new share buyback program to again not have the organic share count grow going forward so when you think about this how have we produced this what is the foundation of this success and I'd say and Steve touched on it what we'll call the Blackstone virtuous circle here it starts and really ends with remarkable investment performance that is the key you cannot forget that we must deliver for our limited partners nothing else really matters we've got to do that and operate with integrity as well when we do that we build investor confidence they trust us we've been doing it now for thirty plus years and then that confidence gives us the power to innovate to create new products to serve them in new ways and continue turning this wheel that's what we do so let's start with investment performance Steve touched on this but it's worth reiterating in opportunistic real estate since 1991 we've produced 16% net returns more than dove double the private real estate index here in the US again in the last year significant outperformance same story in corporate private equity since 1987 15% net versus 9% for the S&P and even bigger outperformance in the last year gso its flagship mezzanine vehicle 15% net returns verse 8% for the cs high-yield index and amazing out performance over the last 12 months and in our hedge fund solutions area 6% net over 18 years verse 3% verse in the relevant benchmark this is the reason why BAM has grown to be so much larger than any of its competitors and again out performance over the year this page is what's driving the inflows you see what does this result in one of the nice things financially is those performance revenues which people often are questioning whether they'll occur we actually looked at the data and we said going back over 30 years what about these performance revenues well 99% of our funds with performance revenues paid them out yes there is some uncertainty as the timing markets go down there's a recession things may get pushed out but what we've seen looking backwards is a pretty high degree of certainty about earning this cash flow over time we think the stock market discounts these revenues too much so what's driven the investment performance I'm gonna give you six factors the first are people you'll see them in action today but it doesn't matter if it's our energy credit team in Houston our private equity group in London a real estate team in Japan amazingly talented and committed individuals it's our process our investment committee process I get the luxury I would say of sitting on many of these investment committees seeing what's happening around the world and the focus on the downside how do you think about rising US wages how do you think about rising interest rates what do you think about technological disintermediation these are the things we evaluate in our investment committee process the rigor it is one of the reasons why we've been so successful thirdly scale this is critical to our business in almost every area we're the leading player or one of the leading players why does it matter well in public markets if you want to buy a million dollars of stock and I want to buy a billion dollars of stock you actually have a competitive advantage because I'll move the market but in private markets it's the opposite so if Thomson Reuters wants to do a 20 billion dollar transaction on their data analytics business or General Electric wants to sell 20 billion dollars of real estate we end up in bilateral negotiations one-on-one because of the size and complexity of the transaction that again and again has been a huge competitive advantage for all of our Blackstone businesses next up integration we are one global firm I think that's really important to to think about and one of the powerful things I'd say there are lots of reasons why that's helpful but the data we're getting from our companies from our insights and acquisitions and markets and our ability to share that's critical we built a data analytics team today that has seven people on its way to 10 and we're trying to create something that is a really powerful competitive advantage fifth value creation the myth of private equity or real estate private equity is we buy businesses we use some leverage we sort of hope things work out exhibit a disproving that would be Hilton Worldwide a transaction we did in our private equity in real estate area in October of 2007 we could not have picked worse timing to do an investment and yet we ended up making 14 billion dollars how did that happen what we brought in a terrific management team we really accelerated the growth of a sleepy Beverly Hills company we did everything possible to maximize value in that company and that's what we try to do across every investment we make that's part of the special sauce that's why you see that out performance over time finally entrepreneurial spirit you can see it in Steve and throughout our firm this is not a place where we sit around and sort of say we're really happy with the status quo we are focused on how we can drive more do better for our customers innovate that's what drives this firm and our limited partners recognize this difference they see us as unique in our space and as I said hopefully at some point the public markets will as well one of the nice advantages of doing this of innovating and delivering for our customers is that they want to do more with us if you went back to investor day four plus years ago and you looked at our 25 largest customers they were invested in four Blackstone strategies today short time later they're invested in nine they have a good experience in one area in gso credit they go to secondaries they go to BAM or real estate wherever it is tactical opportunities this is a very important source of growth for us going forward so what does this mean this is a shout out to the graphics department here this is what Blackstone private equity real estate credit hedge fund solutions they all started basically with one line of business and yet by delivering and then innovating these businesses have grown to fill in and this is what we're focused on doing continuing to build this ecosystem each and every day and it is very powerful so where do we go from here well I'm gonna start by actually going backwards to the last investor day back then we had a um of 272 billion dollars it's up 62 percent our deployment which leads to more performance revenues up amazingly a hundred and sixty nine percent our fre are recurring earnings fee related earnings up 33 percent and we think about to take a step function up as Michael will talk about our distributable earnings fee related plus performance revenues up 56 percent there's only one thing that hasn't really moved much and that's our share price of nine percent now we have paid out more than ten dollars of dividends so the total returns been pretty good but the enterprise is valued at a lower multiple pretty much across the board versus when we met four years ago and you might say why is that the case generally that's cuz you think the prospects for a business are getting worse and that is definitely not what we think with our most active fundraising pipeline in our history more than a hundred and fifty billion dollars of capital we think we're gonna raise that we have line of sight on closed end traditional episodic vehicles as well as more and more of these perpetual capital vehicles this is why we feel so good going forward now you may ask can you still raise this kind of money you have a lot three hundred and thirty billion in institution all in fifty-eight and retail 47 billion insurance have you tapped out are you hitting some ceiling the answer to that is a definitive no our market penetration is still tiny in each of these markets and so the opportunity to grow to better serve our customers is quite significant so what are we going to talk about today well you're gonna get to listen to amazingly talented people I get to work with every day starting with the heads of our four large verticals then jumping into our emerging leaders in strategic partners real estate core plus TAC ops retail Private Wealth where we're now seeing tremendous growth but also a real impact on the bottom line and then Tony as you heard will wrap us up talking about Future Leaders infrastructure life sciences insurance what may happen in the 401 K area areas that can add more to the firm over time so near-term long-term the prospects here are very positive finally what are the key messages I want to leave you with I'll give you a couple the first is that we have high visibility into accelerating earnings growth and significantly improving earnings quality why do we feel that way well one we have line of sight on these big fund raises in corporate private equity secondaries opportunistic real estate and to our core plus real estate business has tremendous momentum Ken's gonna talk about the fact that that business could go from 250 million of revenues today to a billion in the next few years so we feel very good about the future of the earnings and the mix shift more to this recurring fee related which we think has the opportunity to rewrite this stock Steve touched on it but new initiatives driving our AUM to over a trillion dollars by continuing to execute the way we have and finally the firm itself has never been stronger our performance for our investors continues unabated it is the hyper focus of us each and every day and with that the innovation the focus on how we can serve our customers better create new products for them and deliver for them and as long as we continue to do both it should be terrific for our firm for our limited partners and for our public shareholders and with that I'm gonna hand it over to our very capable CFO Michael che thank you all again for coming out ladies and gentlemen please welcome to the stage Michael che chief financial officer for Blackstone Thank You John and good morning everyone it's terrific to be with you here today so I'm going to take the baton from John in this Blackstone team relay and both reinforce and build on a number of themes you just heard from him and from Steve and do so with a focus on what it means for the firm and for you from a financial and shareholder value creation point of view so let's start with my key messages for all of you today first that the power of our model drives extraordinary financial performance both historically and into the future second that we expect an acceleration of growth concentrated in the highest quality earnings as Jon just said what do we mean by that we have high visibility into a powerful near-term step-up in fear related earnings which I will talk about specifically we see a clear path to over 50% growth in fre over the next two years and to $2 per share in fre in the next several years and we see long-term performance revenue momentum driven by growing store of value in the ground and by our 30 year record of sustained investment out performance an our third and final message we think the upside potential in our stock is substantial and we believe there is a compelling case for a $50 or better stock price in the near term so let's turn to the power of our model and our financial performance past and present I will cover a number of slides in fairly rapid succession and in doing so you'll hear me echo some of John's points but also highlight some key trends and draw out what in our view makes for such a unique and powerful economic machine so what are the financial characteristics of this powerful business model first growth our fearing AUM has grown every year in our history and has essentially doubled every five years since our IPO we are proud of this chart you see here and we would put it up against that of any company out there long-term locked up capital as you know and as John mentioned this is the key to our long term value creation model the average remaining contractual life of our locked up capital has lengthened from 8 to 12 years since our last investor day the differentiation versus the traditional asset management model could not be more fundamental in that same vein in contrast to traditional asset managers our pricing has been stable overall in the years after the crisis we did hear concerns from some including some of you about the threat of industry pricing pressure I think this picture on the right speaks for itself this is not what one would want to see in an echocardiogram but for an investment business it is a beautiful sight our average base management fee rate remained within a basis point one basis point of its average five years ago even as we have rapidly grown and diversified it speaks to our value proposition and value creation for our clients as John alluded to we have a robust margin structure that would be the envy of most businesses in the world our fre margins have expanded 1,100 basis points since our IPO and have expanded significantly in every one of our business segments we believe not just in growth but high-quality growth and highly profitable growth for each of our businesses and for the firm overall at all out of all of this has come sustained long-term growth in our earnings with respect to fre we have delivered 15% compounded annual growth over the last decade in one of the highest quality earning streams and financial services and in de our average annual distribute innings has gone from 600 million in the 2008 to 2010 time period to 1.7 billion in the 2011 to 2014 period to 3.2 billion average annual since 2015 an increase in our earnings power of five times over that time period finally our balance sheet and liquidity position provides us with great financial flexibility and strategic freedom we have ample liquidity 5.2 billion dollars in total cash and Treasury assets we have a very long live capital structure our average debt maturity is fourteen and a half years versus ten years last investor day with a 3.3 percent average cost on fixed-rate long dated debt our last four bond issuances over the last few years were executed at an average cost of 1.9 percent we are proud that we are one of the two highest rated asset managers traditional or alternative so we consider this our own version of a fortress balance sheet that not only protects ferm if the environment around us is rougher but supports the firm to seize opportunities in all weather so whether it's seeding new strategies where we see out sized returns on fairly modest amounts of capital from creating new businesses our highly selective and historically highly successful approach to M&A for the firm with a track record of nine transaction since the IPO our recent share repurchases and special dividend programs or our own capital markets activities in our pursuit of driving shareholder value we feel you're amply resourced and well positioned so now let's look forward to the future which we believe is very bright let's start with the long view and and how about we start with an image not quite as imaginative or eco-friendly and image as John's trees I admit but an image to help you visualize what we see and what we see is being on a road on a pretty clear day at a nice speed and on our way to pass map markers of rising AUM milestones ultimately to a trillion dollars in beyond with commensurate elevation and earnings power and earnings quality each step of the way so with that longer views of the backdrop let's turn back to the nearer term financial implications let's break it apart between fre and performance revenues so first F re again we have clear visibility into a powerful near-term step-up in fre why do we believe that the first key driver is ongoing and near-term fundraising John discussed earlier this 150 billion dollar pipeline now from just five flagship funds on this list that you see in blue that we currently have or soon will have in the market global private equity global and European opportunistic real estate global private equity secondaries and our GP stakes fund in BAM we anticipate approximately a 20% uplift from our current levels of fre again just from these five funds when they are up and running at the same time and alongside that as John discussed our pipeline includes a significant increase in perpetual capital vehicles including our array of real estate core plus platforms and I'd like to spend a moment highlighting the unique power and importance of this capital our perpetual capital strategies will increasingly Drive more and more of our revenues and earnings and that is a very good thing because these are arguably our highest-quality revenues in several key respects first the capital effectively has indefinite term with no forced redemptions it is therefore the stickiest compounding capital with fees paid on nav as it builds over time second for most of those that have them performance revenues are paid on a recurring basis and a stated contractual timetable and third they're paid based on nav and therefore without having to sell underlying assets in other words the performance revenues are calculated like the nav based management fees of say a long only or hedge fund vehicle and on a similarly known schedule only the capital is perpetual and not redeemable and typically invested in stable cash yielding underlying assets the financial result from mr. Blackstone we believe is stable recurring and predictable earnings of very high quality by their nature they align with our conception of fre as well as elements of the fre definition of the number of our peers and so we will include perpetual capital net performance revenues in our fre beginning in the third quarter as you can see for the most recent LTM period that would have increased fre by seven cents the combination of the fundraising so-called super cycle and the growth of core plus real estate drives a dramatic and highly visible step-up in fre in the next two to three years we are targeting 75% Plus growth to around $2 fre per share in approximately three years just a couple years ago we were asked frequently by many of you when would we reach that sort of magic level of $1 of fre per share and now we have excellent line-of-sight on $2 per share inside of that we see a clear path to a better than 50% increase in the next two years with approximately 80% of this increase from those five flagship funds currently being raised that I mentioned and from real estate core plus management fees and the scheduled crystallization of a number of existing investments from recent vintages so again high visibility and a bridge to achieve this target that we believe is relatively straightforward now let's turn to performance fees where we think it comes down to this equation a growing store of investment value in the ground plus the consistency of our fund performance demonstrated over our history equals long-term performance revenue momentum you just need to connect three dots to understand how and why the store value has grown first the dramatic expansion in the numbered diversity and scale of investment strategies is conveyed here at the bottom of the chart from 8 in 2008 to 17 last investor day 233 strategies today this then drove a dramatic increase in aggregate deployment levels across the firm as you see in the blue bars from 7 billion annual investment pace in 2008 to 18 billion in 2014 to 49 billion dollars in the latest 12 months which in turn has led to a four times increase in performance revenue eligible value in the ground over the last decade despite the magnitude of realizations return to LPS over the same time period but most important of all is this slide the consistency and persistency of Blackstone investment out performance over our history over 30 years and through many cycles we've consistently more than doubled our investments on a gross realized basis that's through three decades six US presidents three recessions for bear markets and a surplus of geopolitical turbulence and change in aggregate since inception we have delivered 2.2 times realized gross multiple invested capital or Mike in our private equity opportunistic funds and 2.2 times Mike in our real estate opportunistic funds and if you want to see what happens under stress if you were to look to our so-called late cycle investments those made in 2005 2006 and 2007 across private equity and real estate they delivered 2.1 times Mike only with longer longer hold periods let's stay with this point and focus on the most recent four year period and the story remains the same at our last investor day the net accrued unrealized performance revenue balance was 3.5 billion marked at 1.6 times Mike since then we have delivered 8.1 billion dollars in realized net performance revenue at you got it 2.2 times Mike looking forward here's some illustrative symmetrical math if past is prologue again our current accrued balance is 3.9 billion dollars marked at one point four times unrealized Mike and at 2.2 times realized Mike one point four times unrealized Mike and at 2.2 times realized Mike this would imply 10 billion dollars a future realized net performance revenues just on this existing unrealized portfolio alone so let's go back to where we started with the longer view of the path we believe we're on here's the big picture we see an acceleration of growth concentrated in the highest quality earnings we see ourselves on a longer-term path to $6 of de per share and Beyond and importantly see the mix of fre shifting from one third last year to less than half today to eventually in the area of 2/3 and what that means is a firm and a stock with higher earnings higher quality of earnings greater resiliency of earnings and greater predictability for you as investors and as we head down that path in the near term a highly visible ramp in fre and now let's bring it back to value simply put we are enormous ly focused on driving shareholder value we believe there is no company in the world with a more shareholder friendly approach to returning capital to investors our 85 percent distribution policy 16 dollars and 49 cents per share and value distributed since our IPO helping drive a 140 percent total return matching the S&P in that timeframe six percent dividend yield which is John said ranks us number one among 150 largest US companies by market cap I know John said that but I just had to repeat it and even further enhanced by our 1 billion dollar share repurchase program on top of an already highly disciplined historical management of share account dilution now in the context of our focus on driving shareholder value we are actively considering our structure we continue to be impressed by the market response to actions by our peers this year and as we have said it's a decision you only make once and we have the benefit of time and various inputs and being able to learn from responses to the actions of others key factors we are taken to account include sustained market and stock price response expansion and rotation of mutual fund ownership index inclusion activity and developments we will keep you up to date so on a fundamental basis what's it all worth we are confident that rising near-term earnings power and quality should command a higher valuation how do we think about it like many we think of some of the parts approach makes sense so let's start with fre we think a range of 23 to 26 times after tax fre is fair on a cash earning stream that is high-growth and derives from AUM that is substantially locked-in by contract for 12 years an earning stream that is as high-quality as any in financial services or other industries this range afford multiples is at a discount to the average of high quality financials which are at 28 times on average even with our fre having grown faster than that group over the long term 15% versus 10% with our growth rate accelerating in the future this multiple range implies a three and a half percent after-tax cash yield based on our distribution policy which would rank in the top quartile for the S&P 500 just on our fre when you apply this range the fre we think we can meet or exceed in two years after tax you get a range of 41 to 47 billion dollars or $35 to $39 per share in other words we believe believe fre alone fairly valued would essentially support the current stock price we believe our four billion dollar net balance sheet should be valued at least at par or $3 per share and finally we apply a DCF approach to our performance related net revenues on a conservative basis we first assume a material discount historical investment performance at the low end of this range we utilized approximately a 20% discount to the average gross realized gain we have consistently delivered in our history as I discussed earlier second we do not incorporate future new growth initiatives which frankly based on our history is not just conservative it's unrealistic and finally we assume a 3% perpetuity growth rate and a 15% discount rate which we think is appropriate based on the consistency of performance over 30 years and through cycles the result is a range of 15 to 18 billion dollars or 13 to 15 dollars per share on that DCF so what's it all worth in sum a range of $50 to $58 per share in the near term we believe in the next year or so on a forward basis with visibility that is clear and we expect will become even clearer in short order that our stock deserves to pass into this range of value based on fundamentals what that would mean of course is the potential for outsized investor returns from here so in closing let me recap and leave you with these key simple messages the power of Blackstone's model drives extraordinary financial performance we expect acceleration of growth concentrated in the highest quality earnings and the potential for outside shareholder returns is significant I look forward to your questions in conversation later and I thank you very much for being with us today [Music] [Music] ladies gentlemen welcome please kathleen mccarthy global co-head of real estate good morning maybe it's time for some calisthenics here we built Blackstone real estate on the foundation of tremendous performance for nearly three decades our opportunistic rep funds have generated a 16 percent net IRR with a very simple strategy buy it fix it and sell it we look for good quality assets and good locations typically at a discount of physical replacement cost if we're able to buy something and Brep though something is broken sometimes it needs a new leasing strategy or new management capital expenditure or a new capital structure and oftentimes it needs all of the above once we've implemented that fix it our work is done and it's time to sell the asset and return capital to our investors in 2008 we leveraged our success and real estate expertise to start a debt strategies business we started in liquid securities and moved into mezzanine debt where we make loans to collect interest and be paid off the fact that we understand the real estate and are positioned extremely well in the market means that we can identify attractive risk-adjusted opportunities in the public and private markets we're very proud that through a variety of market conditions over the last decade we have continued to be able to generate equity like returns while taking debt like risk today we are a full-service solution provider to our borrowers thanks to be xmt our publicly traded mortgage REIT the XM t makes floating-rate senior mortgage loans on real estate when we started the company had a 40 million dollar equity market cap today it is over four billion dollars the xmt like our entire debt business capitalizes on the very strong real-estate equity franchise when sourcing underwriting and financing its transactions most recently we recognized that we were missing opportunities in stable real estate in Gateway markets furthermore our clients were asking us to bring the Blackstone magic to safer assets where they could compound value over long periods of time my partner Ken Kaplan will discuss our core Plus business in much more detail later this morning I will just highlight that we have been able to attract over 30 billion dollars of capital to this strategy in less than five years because we are bringing our expertise with large complicated transactions and our sophisticated high conviction investment strategy to the core plus real estate space today we manage a hundred and nineteen billion dollars of capital around the world across the risk spectrum and in all asset classes this gives us perspective and access that others simply don't have I can't remember a meeting where we didn't show this slide CIOs are captivated by it it shows every dollar we have ever invested in our Brep funds seventy eight billion dollars of capital over 27 years it demonstrates that in every cycle in every market condition and anywhere around the world we are able to produce excellent performance for our limited partners Steve likes to remind us that rule number one is don't lose money our consistent discipline has resulted in almost no realized losses over our history but great discipline doesn't have to mean no humm returns our investors compare us to an index but since 1991 has produced a 7 percent IRR our 16 percent net is more than double that so if you're wondering why our clients keep it giving us more and more capital in more new strategies it's because we have been able to deliver almost 900 basis points about performance relative to their benchmark when young people or my relatives ask what I do I say that our job is to take a dollar of capital from our investors and try to send back to we have met or exceeded this goal with remarkable consistency over our history you can't eat IRR so it really matters that we've sent back over a hundred billion dollars of our capital of capital to our limited partners an eighty billion dollars in the last four years alone as Michael highlighted we are most proud of what we accomplished in the zone in the gray box when other firms struggled to return capital to investors on deals made in two thousand five six and seven we more than doubled our investors equity great performance allows us to grow and innovate if you go back eleven years to the Blackstone IPO in real estate we managed only twenty three billion dollars of capital and we were essentially a u.s. opportunistic fund business our business today is over five times the size and is radically different we are more global more diversified and more stable than we ever have been 25% of our AUM is managed through five perpetual capital vehicles and as Ken will illuminate Core Plus is a very powerful growth engine it has an even broader set of fundraising and investment opportunities than our flagship rep funds we wanted to illustrate how we grow and scale our business efficiently and fortunately for you I abandoned a bunch of attempts to use a very bad real estate analogy we have a single platform that can support larger funds and new strategies we started with the Brep global funds layered on or Europe and Asia funds and then the debt the bread's business in the draw down funds new funds pick up where the last one left off and each grow modestly over time the transformational growth comes through the formation of sexual capital vehicles first was bxm team but now core plus these funds grow in perpetuity with a long-term investment horizon no caps on how much capital we can raise and no capital leaving the system the power of our model is in a one team approach so as we grow our funds and add new strategies we don't need to add new investment teams we have generated great performance and built a scalable business by hanging on to what made us special in the first place we operate one globally integrated business we do things basically the same way we always have we're all investment decisions flow through a single global investment committee process and we have a high degree of continuity among our leadership team scale is one of our greatest strengths but it's a multi-dimensional asset it's it's not just about our fund size we have four hundred and seventy three people in 13 offices around the globe that means we can mobilize teams simultaneously to pursue opportunities wherever they are it's the envy of the industry our global portfolio gives us access to information other people don't have and we've built a network of relationships that's unparalleled by doing what we said we were going to do for over 27 years of course our capital is pretty special to real estate investors are always looking for niche managers so I just tell them that our niche is our size I think you see the word largest seven or eight times on this page the power of this capital is that it allows us to concentrate on large complicated situations where there is much less competition you see the power of this team and our information access and our capital in our investment activity John mentioned it in 2015 when GE was looking to liquidate its real estate business it made one phone call to us you know currently it seems like every investor in the world is trying to get their hands on warehouse assets we were able to tie up 80 million square feet of us logistics that's this summer because we were the only group who could give the GPT Gramercy property trust board speed and certainty of execution on an eight billion dollar take private I think our most underappreciated skill is our ability to create value in any environment John covered Hilton biomed is the largest investment in breath eight and its best performer three years ago we had conviction that office assets that cater to life science tenants would outperform the broader office market so in signature fashion we did not buy one asset we took private a nine billion dollar company since then we've concentrated and grown the portfolio in the top five research hubs around the world and we've watched as life science rents have grown two times as much as traditional office rents at the Cosmopolitan Hotel in Las Vegas we have more than doubled EBIT da by bringing in a world-class management team and select a selectively investing capital our team turned a money-losing casino it's possible into a profitable business we built high-roller Suites on vacant floors and we have created the coolest food and beverage destination in Las Vegas I love food and when I am at the Cosmo it is like a crisis to decide where to eat finally our investment activity is not random we are high conviction somatic investors we outperform by concentrating our capital in our best ideas today we are focused on four areas that we think will generate the strongest growth first is logistics e-commerce is transforming demand for warehouses and we have bought more than 600 million square feet of warehouses since 2010 innovation cities is a very fancy way to describe places like Seattle and San Francisco Stockholm or Sydney this is where young highly educated often tech or creative minds want to live and so companies need to be there in order to attract and retain talent it has a very powerful force on office fundamentals in those markets in rental housing we have been able to identify short falls between household formation and new supply it's been most notable in the US and Spain we are most attracted to assets where we can improve operations and also invest capital to upgrade units so that our tenants have a high-quality housing experience but at a more affordable price point the new build has to charge finally global travel demand is powering some late cycle strength in the hospitality market business confidence and capital spending means that more business travelers are on the road and at the same time the consumer is more mobile and looking to spend on experiences rather than stuff this is benefiting hospitality assets particularly in the most supply constrained markets like the west coast of the United States and Hawaii the questions our investors pose probably match yours first is it just too late we still see opportunity values certainly feel full in most places and it's not easy to find great deals but we feel that economic growth is strong and when we look at the supply market and debt capital markets it certainly doesn't feel like 2007 I'd also remind you that our scale means that we don't have to play on the most crowded fields the second question is what about rising rates what does it mean for the existing portfolio and opportunities going forward we acknowledge that rising rates should dampen value appreciation and real estate but to address this I would just point you back to the four themes I just mentioned we're trying to go into the asset classes and into the geographies that we think are going to produce the greatest growth that will now allow us to position our portfolio to withstand higher rates Steve and John talked about the virtuous circle and here is what it looks like for real estate for 27 years we've been powering over to a circle where great performance leads to larger capital commitments from our investors and it also means big new commitments for our new products our scale allows us to deploy capital in a differentiated set of opportunities and that means better returns and more cash back to our limited partners we are three decades into this and we think we are just at the beginning of what the virtuous circle in real estate can produce for Blackstone thank you [Applause] [Music] [Applause] [Music] [Applause] [Music] [Applause] [Music] ladies and gentlemen please welcome joe bharata global head of private equity good morning everybody my name is Joe Bharata and I lead our private akar corporate private equity business I've had the very good fortune to work in this business for 21 years almost and it's amazing how the business has developed in that time today we manage our corporate private equity business as a single global business one deal in portfolio operations team one management structure one single investment committee we have complementary funds in energy and Asia as you see in the pie that invest alongside the flagship global fund but make no mistake this is an integrated single business the core private equity fund which is our long-dated fund structure is invested by this same team that I manage which reduces internal competition and deal sourcing conflicts and provides our deal teams with an additional powerful weapon which I'll talk about later the benefits of this structure are many it allows us to maintain our investment culture and discipline which is the most important thing in an investment organization it ensures consistent standards of diligence and risk management and mental models for valuation through cycles it enables us to project our sector expertise Talent Network portfolio operations capability globally it ensures every investment benefits from our operating platform our intellectual property and every investment is held to the same to the same standard we're able to allocate capital to the best opportunities we see globally this structure and the single global fund allows us to do fewer larger scale acquisitions compared to our closest competitors we can remain selective at scale we have a large global portfolio as you see of high quality businesses across the key sectors of the economy our nearly 100 companies employ more than 50,000 people this portfolio gives us insight into key industries and economic trends that informs our investment decisions it's a very powerful tool that we have and were set up to mine it with our centralized structure we're constantly looking for ways to leverage this large portfolio to help inform decisions often it gives us an edge or an angle on new opportunities and the management structure we have helps facilitate this the broader Blackstone family also helps us in investment theme development we've worked in partnership with our real estate team and our tactical opportunities team on three of our most recent investments giving us insights that we wouldn't have otherwise had and that others in the market certainly didn't have the integration of our broad firm makes us better private equity investors for sure this integrated global private equity platform has generated consistent net returns to our investors through very many cycles this is the oldest investment business at the firm and we've managed through much turmoil through the years we've produced fifteen and a half percent net IRR since then since inception taking 67 billion dollars of invested capital and turning it into a hundred and twenty five billion and growing as much of this is still in the portfolio unrealized our two most recent funds BCP six and seven are producing returns at or in excess of these historical IRR s our funds have consistently produced as you've heard several times today over two times the money through many cycles consistently producing carried interest for the general partner even in previous late cycle funds like BC P 5 we have been excellent preservers of capital with only 4% realized losses throughout our history despite investing in often volatile leveraged companies the private equity industry is ever-changing what works in one part of the cycle rarely persists one needs multi sector expertise and a global approach you have to stay nimble to unearth the best investment opportunities through the cycle our significant scale robust platform and reputation has enabled us to do this consistently over the last five years we've seen the bulk of incremental capital that's been allocated to the corporate private equity universe occur in the middle and upper middle markets there are also many new entrants in that part of the market lp's themselves smaller firms that have scaled up family offices larger firms that have redefined their strategies posed to the financial crisis at the large end of the market where we thrive and we are best positioned however we have the same small handful of very high-quality disciplined competitors and those competitors are investing out of funds that are similar in size to the ones they operated a decade ago we're seeing better less competitive opportunities at the large end of the market that I define over a billion dollars of committed capital and often at lower creation multiples then what we'd see in the upper middle market maybe for the first time in my career in private equity we're particularly well positioned to manufacture these large-scale opportunities given the scale of capital we have the ability to bring four billion dollars of equity capital to bear at the signing of the thomson reuters transaction we have a large origination platform and a reputation as a very good corporate steward a great governor of assets post acquisition and as a reliable counterparty for sellers of assets and corporate partners b c p7 as you see on the right this capital deployment shows this strategy at work we've executed a number of the largest deals in the market with the likes of the thomson reuters transaction paysafe which was a UK public company we took private and team health half-hour deals in the BC p7 fund have required equity accounts over 1 billion dollars 80% of the transactions are primary in nature the is a big departure from the rest of the market which is over half secondary transactions which means private equity firms buying and selling things to each other and 75% of the deals have been negotiated bilaterally us against the seller without an auction I talked about our single global team which enables us to enforce a consistent single standard for our investment decision making this is what has enabled us through cycles thick and thin to ensure consistent returns the organizational structure enables us to ensure we're using our intellectual capital talent Network and portfolio operations platform globally and consistently consistently there's no difference in how we intervene in a in an Indian investment than in a large-scale US investment each investment we make has to have a specific operating intervention plan to meaningfully improve the earnings and growth trajectory of the business we believe this is table stakes to continue to produce good returns in today's private equity industry and not everybody has built the capability we have invested significantly in our capabilities in this area and as you can see the investment is paid off these are some fun statistics over time we've saved our companies an aggregate of a billion - in costs from our global group purchasing procurement business and as we get bigger the benefits to scale are obvious the more companies the more we're purchasing the more effective we are in doing it and we saved a further seven hundred and fifty million dollars across our US portfolio from our health care benefits procurement group our BCP seven portfolio is in the process of experience experiencing a nearly 200 basis point margin improvement from our operating intervention plan every investment we make has some sort of angle in this regard we believe this operating expertise which we've invested in significantly over the last 15 years is critical to ensuring we maintain our strong performance this group we believe is the best in class in the industry and it differs from many of our competitors we don't have a generalist approach we're not putting X consultants on boards we employ 36 full-time Blackstone professionals and another 35 advisors and sector advisers that are focused on seven key functional areas that touch every one of our portfolio companies leadership and talent recruitment probably the most important thing we do is ensure we have the best possible executive management at our companies it's liberating for a business to have an enthusiastic high quality leader group purchasing across the entire portfolio which I've mentioned healthcare benefit design and procurement across the u.s. portfolio sustainability and energy efficiency deployed globally making sure we're reducing our power consumption lean manufacturing and process transformation ensuring all of our companies employ the best lean techniques Enterprise Systems we buy a lot of public company corporate carve-outs we need to stand up systems we have experts in this area marshalling third party resources and our newest initiatives that I think John mentioned in data science we're ensuring that our portfolio companies are using the data is that the data that they capture and and publicly available data sources to drive the operating improvement plans that I mentioned so since 2007 this business that I manage has had 32 billion dollars of capital we've more than doubled our AUM and what is a mature business corporate private equity this doesn't include David Blitzers TAC ops business or Verne's secondaries business where Shaun's infrastructure business this is our sleepy old private equity business that's doubled in the last decade this growth has been driven by innovation and leveraging our strengths in origination and portfolio operations capabilities which I mentioned the flagship funds AUM BCP is up 22 billion as we've been able to increase our investment pace we've leveraged our very strong energy investing capability to raise dedicated energy funds that invest alongside the Global Fund we've also raised a similarly structured dedicated Asia fund which invests with the main fund and importantly we did pioneer we were the first long-dated fund structure we call it core private equity which creates a more permanent structure to hold the highest quality lowest volatility investments we see for a long period of time it's a 20-year fund structure and we've done this importantly without meaningfully growing our direct headcount we have found innovative ways to leverage the in-place infrastructure of our corporate private equity business and we will continue to grow this business by continuing to scale our flagship global funds where we occupy I think a unique place the large end of the market man you've consistently manufacturing unique investment opportunities for our largest LPS we're developing a life sciences investing capability at scale which Tony James will talk about later and will continue to grow the long duration fund platform core private equity that could that could grow quite significantly in fact and will continue to ramp up our investment pace in Asia our growth our growth in AUM as of course meaningfully increased our base management fee revenue nearly doubling this increases outpace significantly the increase in our direct headcount so we're leveraging the margin structure of this business the investments we have made in our team both geographically and sector wise and our portfolio operations capability has enabled us to meaningfully increase our average annual capital deployment pace which is doubled in this last fund cycle we're now investing roughly six and a half billion dollars a year and therefore our annualized potential carry generation has doubled this is a business that should generate roughly 1 billion dollars of annualized carry and that ought to grow so what we asked is it too late in a cycle we are in the late cycle it requires more discipline and selectivity the operating intervention capability I talked about is essential to continue delivering returns economic context is strong and the future recession will be less severe so if we do our job right and find great businesses to buy and finance them appropriately we will weather any storm and compound through a cycle is there too much dry powder well I talked about less no more dry powder at the at the large end of the market no more competitors at the large end of the market and we have and the people we compete against are high-quality and disciplined and really what drives valuations I think across the whole of the market is the stock market the alternative bid not how much on drawn private equity capital there is and our leverage levels too high we are beginning to see preferred and mezzanine structures and some larger buyouts being employed to eke out more return in a base case we don't really finance our buyouts that way with higher cost junior capital because we think about our returns in the first instance on an unlevered basis leverage does not drive the purchase price we pay so we don't need or want to take excessive leverage and expensive junior debt capital to generate returns in our deals so I think our mental model for valuation prevents us from excessively leveraging our companies so with that I'll end I thank you for your support of our firm and I hope you share my optimism for the future of our private equity business thank you [Applause] [Music] ladies and gentlemen please welcome Dwight Scott president of GSL well good morning everyone happy to be here you're getting ready to notice that there's some consistency in these presentations you're starting it's starting to occur to you by now and you'll see it in ours for background I became president of gso mid last year I had been part of the firm since the very beginning and running our energy business so I could not be more thrilled to be involved with Bennett Goodman and the rest of our team and what we believe is the best credit platform in the world and I hope you'll feel that way after this presentation with over a hundred billion of AUM today we have grown our portfolio quite rapidly over the last 13 years a very similar story to Blackstone we did the transaction with Blackstone in 2008 so we've been part of the business for 10 years now for a little bit over a decade we started originally with four billion dollars of assets under management 2 billion in a CLO and 2 billion in an alternative hedge fund today we are the largest CLO manager in the world and last year we traded over 40 billion dollars of leveraged loans in our business so we have scaled that business tremendously over those over those years our alternative business that one hedge fund has grown into the market leading mez business the market leading distressed business the market leading energy credit business our European business is driving our visit our origination today and we bought an MLP business that we think is going to grow tremendously over the next few years so we have seen a lot of growth that wouldn't happen without an exceptional and cohesive team we have 350 employees worldwide today it's our business is run by 24 senior partners 21 of us who have been with the business since before Blackstone we did I deal with Blackstone over kay to go the continuity has allowed us to grow while doing the one thing that's most important credit it may be important in real estate it is critical in credit which is we protect our capital from loss we've kept to our knitting in this regard that cohesive team has allowed us to do that we've avoided big losses across our funds and we've worked to maximize returns where there has been a hiccup in the portfolio and that's a key part of our business as you can see here these are on our private originated deals we have less than 1% loss annually historically these are in transit these are in funds that are trying to generate mid-teens returns so a very low loss rate given the return profile we're trying to achieve well you have a good team you have a broad platform and that allows you and you have good credit process that allows you to have exceptional returns and we've done that across our platform we could not be more proud of this this is the underpinning of our business Steve referenced it in his presentation you'll hear it from every single person at Blackstone today it drives our business and we know that it is why our third mess fund is three times more than three times larger than our first mess fund it's why we can go into the market and raise five billion dollars on our initial energy fund and in 2005 in the middle of a downturn that's what this is what allows that to happen we're fortunate because we've had all this performance we've had this growth at a time where the institutional market and the retail market is turning its attention to credit particularly alternative credit there are lots of reasons for that illiquid investments continue to drive higher returns and and continue to outperform investment grade returns have been low pushing capital into non-investment grade bank dissing disintermediation continues capital markets want larger and larger deal sizes leaving the direct lending market to people like us our leveraged loan business in a terrible downturn in 2008-2009 performed exceptionally well and had low low losses all those things driving capital to our business we see no change we will raise as much we'll raise more capital this year than we've ever raised in the history of GSO so we built a differentiated business the next few pages talk about how we believe we differentiate gso so scale you've heard scale you're going to continue to hear about scale and credit scale is key we have to be able to we have to have the knowledge we have to have the products and we have to have the capital to solve problems we need to be important for instance in the CLO markets to get the biggest allocations in the most attractive deals we have to have the lowest cost of capital so our cielos outperform the market that's scaled on our origination business we have to be able to answer the key question in any of our origination discussions which is can you make this happen we have to have the ability to say yes not only have to have scale we have to have the team we think if we get that call we're going to win the business more times than not on these five deals by the way we committed over three billion dollars of aggregate capital to these five deals alone each of which was over 600 million dollars of a single transaction scale only goes so far though if your reputation is not strong our brand our reputation and our approach to the market are the result of a thoughtful process that Bennett and the team put in place in the very beginning we want to be the partner of choice in credit we believe once again that allows us to get the call which allows us to win the deal which allows us to outperform and put capital to work our London team I talked about this has has done that it's exceptionally well over time you see this middle transactions company called Laird public company a private equity firm called Advent was trying to take that company private we got the call we had done transactions with Advent and had a good good good experience they needed us to commit quickly and they needed to know that we were going to be there and they needed a partner that looked good to the market all those things work well a very attractive transaction for Advent and importantly we will get the next call from Advent and they they they will they will look to us again so in credit is a little different from a lot of the things you're going to hear about today credit can be very tactical in other words if you sat in on our investment committee you would hear us talking about things like senior debt versus what's the security package where are the attachment points what kind of collateral do we have what kind of covenants do we have all very tactical things but to really outperform you have to find unique opportunities by having thematic investing strategies and we've done that well our energy team has done that over time we've got a number of transactions there that is seen tremendous growth within our business our liquid credit team did that coming out of the 2008-2009 downturn looking at home builders home builders had been significantly impacted by the downturn it was a very difficult place lots of money lost in that period and the market had turned away from home builders we had a different thing we believe that the home builders were getting better faster than the market saw we happen to have this partner in our firm that is the biggest and most successful real estate business in the world if you can call them and ask them what they're seeing how much of a strong position does that put you in in the liquid markets we were able to do that and we made a very very good investment our European franchise is really an example of what happens when you invest in your business we believe that in order for us to continue to make good investments to continue to grow our business we have to invest in it we invested in our European team in business early early in our business and it was a tough place for a long time the European markets were a hard place to do business on the credit side the banks were exceptionally aggressive come all of a sudden the downturn comes the bank's pull out and this investment that we have put into the business is paying off in spades today we are something seeing some of the best deals and the largest volume of deals of any part of our business out of our European partners and you can see here a number of transactions we've done in just the last year and a half we joke about this but with scale with an exceptional brand with the ability to understand sectors uniquely and with the willingness with the ability to have franchises that are unique in the market you still get the question from your from your partner what else can you do for me and what we what we believe we can do uniquely is five years ago we realized that we sat inside a black stone and that we had we're in a position in a large control oriented firm that had an exceptional track record of improving businesses outcomes and we wanted to offer that to dead investors could we bring that to dead investors and the answer is we could and we have it has been a very successful program for us if you see here that hundred million dollars of cost savings that's a billion dollars of enterprise value created for our partners not for us we're dead investors in those companies created for our partners but what that means is they'll come back to us it means they'll call us on the next deal it means we can get a little better pricing a little better structure very important in credit investing we get a lot of questions that are similar to the questions I think these are almost the same questions that Kathleen raised are we too late in the cycle our rates going to cause credit to to trade off on the one hand we certainly share that caution like Joe said it's late in the cycle and credit is a tough place to be sometimes when you have rising rates a tightening fed a late cycle late economic cycle and you have this disruption that's happening in many other parts of the market and we've reacted to that so today less than 5% of our portfolio is invested in traditional high-yield fixed income assets a very small part of what we do today is in that part that is most exposed in our mind to this late cycle risk instead over half of our portfolio is in is in leveraged loans which are senior secured floating rate low duration and they generally are financing a transaction with fresh equity coming in behind us the other parts of our portfolio our direct lending portfolio in both the US and Europe have similar defensive characteristics and our traditional alternative businesses mez distressed and energy have a very different profile return profile and are not as exposed to rates however on the other hand we sit around impatiently waiting for exactly what this is worried about we like disrupted markets we have draw down funds that can take advantage of those disrupted markets and today we have over 20 billion twenty billion dollars of dry powder to take advantage of a correction in 2011 when the US was downgraded the bond of the bond market just high-yield spreads gaped out to over 800 basis points the US equity markets fell almost 20 percent in that period of time in a quarter and a half we invested two and a half billion dollars in our meds and distressed strategies those two strategies by the way came into that year with 5.25 billion of total available capital so we invested over almost half of our total available capital with 20 billion a dry powder today we would get to work if the market gives us that opportunity I'll finish with a reminder of how we've grown our business we start at the top with flagship funds that's a simple process we wanted those funds to perform well and to grow fund after fund after fun and that's what they have done our mez business our distressed business they have consistently grown from vintage to vintage we add our industry and geography focused funds so energy Europe and you can see as they grow into fund one from into fun too from fund one they become effectively flagship strategies for us and move up into that category and then we add in then we add the leadership we have in our long only business so that's adding new funds that are additional strategies in high-yield while we're not allocated now when that correction comes we want to be able to allocate more and more capital that CLO securities and numerous other products to support Blackstone's insurance business importantly as as as John pointed out a lot of those strategies are permanent capital oriented so we shift we shift capital away from a CLO business and shift it more and more into permanent capital vehicles and then last year we acquired we use the balance sheet to grow we acquired the harvest business as we expanded into really an equity oriented investment but it has characteristics that felt very traditional to us yield oriented asset value growth oriented those things that feel like they're consistent with how we have built our business in addition the harvest team fit our culture quite well and strangely enough they started in 2005 just as GSO I'm going to end with one story about the top right box it's called the new direct landing strategies I think this defines GSO today as well as anything we've done we've been an active and successful participant in the direct lending business for nearly a decade now we really were one of the leaders in that industry early on however we as John mentioned we initially built the business with a partner and decided late last year to transition away from that partner to a strategy it was fully controlled by us that that was while we received a payment from the partner for that transition it was a hard transition to make we lost twenty billion dollars in AUM and management fees related to that not many firms can make that aggressive decision in in the middle of growing the rest of the business but what happened is the strength of our overall business allowed us to look forward three or four years and say we will have a stronger business we will control it it will be permanent capital it will be something that we can continue to build for decades and decades so we made a hard decision inside of our business to do that just to give you an update on where we are by the time we get to you're in the second half of this year alone we will have originated over two billion dollars a product into our new strategy for direct lending and by the time we finish our fund raise in the summer of 2019 we expect to have over 10 billion dollars to invest in this strategy so from a dead start in March to today we really have started the process of rebuilding that business and it will be a better business in the future so with that I thank you for being here and I hope you see why I am so excited about GSL [Applause] [Music] please welcome John McCormack president and CEO of BAM good morning I'm John McCormack president and CEO of Blackstone hedge funds solutions or BAM as we like to call it for short at seventy seven billion dollars in assets under management we are a trusted partner to global institutions around the world and what you see on the screen here are our four main investment platforms the largest and the one that you're most familiar with is principal solutions this is where we're building custom portfolios of hedge fund exposures for institutions the other three platforms may be less familiar Direct Investing GP stakes and registered funds but in aggregate these three newer platforms have been growing at a 30% AUM kegger for the last five years and they now constitute 30% of Bam's overall AUM in aggregate these platforms have higher effective management fees than our traditional principal solutions business they have more stable longer duration capital and are lengthening the duration of our overall capital base and they give us exposure to new client segments and new markets as potential sources of future growth most importantly they are delivering great results for investors as I go through the presentation I will point out in each of these four platforms why we have deep sources of sustainable competitive advantage that will drive the growth of BAM for the next several years principal solutions has outperformed its competition by between 250 and 300 basis points per year for the last 18 years it has done it with lower beta to equity markets and with less volatility resulting in the high quality Sharpe ratio that you see there on the screen so we're not just producing higher returns we're producing higher-quality returns for our institutional investors net of all fees we've also outperformed the hedge fund industry as a whole so what is it about the principal solutions business that gives it a sustainable competitive advantage well if you look through the business first of all 50 percent of the capacity is closed to new investment it can't be replicated as you see here on the screen almost 80 percent of the capacity and principal solutions is capacity that we've created for ourselves where we've partnered with a hedge fund to focus on some particular talent that they have or some particular opportunity set and we've extracted it especially for our investors and then we've used our scale to invest in it at lower fees than anybody else can get so the ability to extract special exposures and to do it at lower fees these are sources of sustainable competitive advantage that somebody doing this on a direct basis or with somebody else simply can't replicate that's why we've seen 7 billion dollars of gross inflows over the last 12 months into our principal solutions business and that's why as CIOs start to think about diversification in the midst of an equity market bull run this business will thrive going forward now some of you have commented that effective management fees and principal solutions have declined over the last several years and that's true but it's important to understand the context first of all our largest investors keep giving us more capital to manage because they like the experience they're having in fact 70% of our gross inflows in the last three years have come from existing investors who are having a terrific experience 32 of our investors have entrusted us with more than half a billion dollars of capital to manage so as these investors grow in size with us they have SMAS with tiered fee structures and their fees are averaged down if that's a problem it's a really high-class problem when your biggest investors want you to manage more money for them and it's the problem we're happy to have we've also entered new market segments like regulated bank balance sheets and insurance company general accounts and those tend to have lower fee structures but again the ability to open new markets is important and finally some investors have expressed a preference for more incentive fee oriented compensation versus fixed management fees we don't believe when we restructure mandates in this way that we're reducing the earnings power of the business although it is more performance oriented so overall this modest decline in fees is a sign of a healthy growing thriving business that's attracting more capital from its largest investors and the really great news is that those fast-growing new platforms that I talked about all have higher effective management fees and as our business mix shifts in this direction we're going to see the benefits direct investing in GP stakes in particular in addition to having higher effective management fees have incentive fee structures that give a significant upside I mentioned lengthening the duration of our capital base direct investing in GP stakes are also driving longer-term capital in our business about 11% of our capital five years ago was in longer duration structures today that number is 17% and we are highly confident that number will be above 20% as we grow these platforms over the next several years and by long-term I mean anywhere from four years in Direct Investing to forever in GP stakes where we're raising perpetual capital our investor base has never been more secure now we need this capital in lower duration format to execute on the mandate but we think the recipe of rapidly growing platforms with higher effective management fees in longer term structures is really constructive for investors @bx now you don't get to raise perpetual capital unless you have performed for investors and that's why investors continue to trust us we raise three point three billion dollars of capital and our first GP stakes fund it's two thirds invested and during that period when most private equity funds would be in what they call the J curve we have generated an 11% cash yield net of all the fees we've sent 11% year in and year out of the invested capital back to our investors that's exactly what they wanted when they entrusted us with this long-term capital and you can see the momentum in the business as a result of this very strong performance now I said I touched on sources of competitive advantage why should BAM have a competitive advantage in the GP stakes business it's because Blackstone is the most credible strategic purchaser of GP stakes of anyone in this business today if you're selling a GP stake in a firm that you have carefully crafted over 20 years you're gonna sell a 10 percent stake what matters most to you it's not extracting the last dollar of value from the 10 percent you're selling it's maximizing the value of the 90 percent you own the day after the transaction and if that's not your objective then you're probably not a counterparty for us but for a private probably a middle-market private equity firm think about the power of being able to take all your portfolio companies and tap into the global purchasing organization that Joe talked about a few minutes ago and get the benefit of Blackstone size and scale think about the opportunity to talk to the Blackstone people in this room about how to institutionalize an alternative investment firm or how to enter new geographies or how to exploit adjacencies think about which brand you want to be affiliated with very often when we're bidding on private equity stakes at auction we are winning the auctions without providing the highest bid that's a sustainable competitive advantage our direct investing business is also taking off you can see here we've been painstakingly building this business for seven years and over the last five years we've gone from three billion to nine billion dollars of capital we have a team of 16 people sourcing direct investments we're investing in securities we're structuring and hedging them ourselves why should ban be good at this what's the source of competitive advantage its sourcing when you are the largest allocator to hedge funds in the world and they're figuring out who to partner with they come to their largest investor and when they know we have flexible capital they realize it's going to help them do what they want to do if you're not if you don't have capital from Bam and you want to start a partnership what better way than to bring us a great idea over seven years we have looked at 1,500 potential investments in this space our sourcing engine is unmatched two years ago we started to launch separately managed accounts for our institutional investors indirect investing and you can see what they've done over this relatively short time period a 10% annualized return net of all fees the platform's done 9% that's over a period of time when multi-strategy hedge funds have annualized at only 4% this business has terrific momentum based on terrific performance individuals increasingly want the same great risk-adjusted returns that we have generated for institutions we've gone from almost nothing in daily liquidity registered vehicles five years ago to nine billion dollars today but the trick here isn't raising capital the trick here is generating performance why are we advantaged in doing that because of our experience in working with managers to extract different value propositions we have the ability to take their 3 C 7 exposures and to outperform others by translating them into liquid solutions I'm really pleased to report that of our 10 largest institutional relationships and principal solutions six of those hedge fund managers have created liquid solutions for us in our registered funds business it's still very early days in this business and we are putting significant manufacturing resources behind creating even better exposures for our retail investors I've already talked about what differentiates us in each business but let me just step back and tell you how I think about this 14 years ago when I joined BAM the big banks all had prop desks special situations groups and they were terrific because they saw everything everybody traded with them they had the ability to create solutions for their corporate and government clients they were in a privileged position with regulation today most of them are out of those businesses and most of that dynamism and most of that creativity in public markets has moved into hedge funds and I would submit that we sit in an analogous position today where the largest investor in that space we are a counterparty to all of these hedge funds and we are seeing the information flow and we are seeing the opportunities again it's early days but our mission is to maximize the potential of our privilege in the industry I've talked about the benefits of scale and the benefits of working with my partners at Blackstone as we become more direct we find that some of the opportunities that our friends across the hall are seeing in their businesses are appropriate for our business in Direct Investing we have Co underwritten and Co invested in ten different trades with the rest of the Blackstone Group and our global purchasing operation and our know-how is a huge advantage in GP stakes finally innovation most people don't fully understand innovation they think it's all about the creativity and the entrepreneurial culture inside your four walls and that's table stakes you have to have that to innovate but it's also about a supportive value chain we're so fortunate to have 68% of our largest investors who've invested with us in more than one platform they trust us they support our innovation and we couldn't do it without their capital and their trust 5858 hedge fund and other alternatives managers have partnered with us in these new platforms to create solutions this supportive value chain is very difficult to replicate and it has to be built up over years of trusted partnerships we're three times larger than we were ten years ago but Bam's best days are ahead of it we have a moat around our principal solutions business and we have three rapidly growing platforms with more attractive economics and sustainable competitive modes I talked about the evolution of these businesses let me just touch on the two on the bottom indirect investing sometimes you find a great trade and that's terrific you put it on and you make money sometimes you find a repeatable trade it comes more than once and sometimes those repeatable trades are actually long-term platforms and potential new businesses we're working on some very interesting things in Direct Investing that will take some time but we will exploit more adjacencies in this area in registered funds liquid capital will propel us into new markets I hope I've already addressed most of your questions in a hedge fund industry that's had some headwinds we're manufacturing different differentiated capacity and using our scale to differentiate ourselves and we have three terrific growth platforms in addition to principal solutions we're expanding into adjacent activities and we're penetrating new client segments most importantly we are generating great performance for LPS through customer centric innovation that's what we're all about thank you very much [Applause] [Music] strategic partners was acquired by Blackstone in 2013 and with all of the help the resources and relationships that Blackstone has we really grew our business tremendously before Blackstone we executed a deal on average one every six days in 2017 we closed a deal every three calendar days it's unheard of its unparalleled as we grew the business we saw opportunities in other asset classes namely real estate and real assets and we expand it into those sectors as well we're in 33 hundred plus funds across 1200 different ups no one else looks like us since 2005 our business has grown from around five billion of assets to over a hundred billion of assets today we're one of the market leaders in the non investment grade credit market and we're across the board in that business so not only are we a very large and the CLO business we're also one of the largest mez lenders in the market today we're one of the largest distressed investors in the market today what we in fact have done is scaled to larger and larger and different strategies and stayed in our core focus which is corporate credit for non-investment great companies one of the benefits of our large portfolio of funds is we can be a problem solver for our clients when they have a need we can find a source of capital to solve that problem that's been a big part of our growth [Music] in logistics we saw a sector that was being transformed by e-commerce we just took a view earlier than others that demand for logistics was a lot stronger than what other people saw and we saw opportunities to move and quickly do large transactions we're one of the largest owners of logistics in the United States Europe and in Asia for the last decade our scale is really unique it's our greatest differentiator the ability to operate on a global basis to share ideas across markets and to buy 600 million square feet of logistics which is our highest conviction theme is really unique and powerful for us and our investors India is all about the micro that's where the profits are made it's not the macro in 2011 we identified five sectors where we have the domain expertise the idea beings big themes big dollars we are the largest owner of commercial real estate in India and in private equity we are a large owner of corporate assets combined we are the largest firm in India the idea is to bring a global Blackstone wisdom to Indian enterprises we act like one Blackstone one integrated global enterprise it does not matter whether a business is in California in New York in London Shanghai or Mumbai it is the same investment committee process it's the same due diligence rigor it's the same process across the globe you [Music] [Applause] [Music] please welcome fern Perry global co-head strategic partners good morning today I have the pleasure of presenting the overview of strategic partners which is Blackstone secondary's business which was acquired in August of 2013 now while I'm the newest hire that you'll hear from today I've been with strategic partners since inception in 2004 teej ik Partners is by far the most active most experienced secondary's manager in the world having completed over 1100 transactions since 2000 that's over 2 times our closest competitor in terms of deals closed we closed a deal on average every 4 days it's unheard of in private equity is unheard of in secondaries as well we have a portfolio of over 1200 distinct GP relationships and we own LP interest in over 3400 distinct private equity funds 3400 if you think about the database that we have if you think about the insights that we have on on the market in general its unique but above all its powerful in addition to our database those 3400 funds that we own there are roughly 800 to 1000 funds that we don't yet own it's interesting about our business you learn a lot from the deals you do you learn a lot from the deals you don't do we have a team of 61 professionals globally if you look at our investment committee we've been with the team on average 16 years today we manage 22 billion dollars across private equity real assets and real estate secondaries we also have a primary advisory business and we do Cohen vestments since inception we've generated 17 percent net IR ours we did that by acquiring 25 billion of exposure on the secondary market and what may surprise you is we did that with an average deal size of 23 million dollars that's quite small what will shock you though is that our median Deal size is four million dollars most of our competitors in fact the ones that are close to our size the larger competitors won't return your call if you have a twenty three million dollar deal and certainly not a four million dollar deal we can do the largest deals in fact we hold the record for the largest secondary ever completed and I would argue that we probably hold the record for the smallest ever completed we can do everything in between we can do deals from a million dollars to three billion dollars but we tend to focus on smaller deals why it's less competitive it's less efficient and by the way our competitors that are large they don't avoid small deals because they don't like them or they can't make money they avoid them because they simply cannot do them they don't have the resources the bandwidth or the Intel to get those deals done we do I mentioned earlier that we do a deal every four days in 2017 we closed a deal on average every three days if you look from 2002 now the velocity of our deal closings is actually increased and it's increased significantly since we joined Blackstone if you look around Blackstone everyone's working hard and when we join we figured we better pick up the pace and so we did that last year a deal every three years or every three days so we're quite busy and we're in the market constantly we know what's trading so what is it that we do when I travel and people want to know what is a secondary and what are the advantages of secondaries we present this chart and what we did here is simply is compare the secondary market to the primary market and I'll go across across a couple stats first assets acquired on the secondary basis we're typically buying identified pools on average 85 percent funded or above as you know on the primary market it's all blind pool we want to do fundamental Bottoms Up analysis on everything that we're buying we want to craft our own portfolios and with all due respect to some really smart GPS we take all of their assumptions and throw them out the window we do our own homework you have to we have a database literally of 15,000 plus unique companies we can do our own analysis next year of acquisition on a primary basis is inception for us is typically years four through ten the sweet spot is year seven through ten why is that important it reduces risk by the time we buy into a portfolio the winners have revealed themselves more importantly the losers have revealed themselves now while I joined in August of 2013 before our entire team joint we all knew steve's rule you don't lose money and so one of the ways we avoid that is by avoiding losers and so typically within the first three or four years losers reveal themselves we buy in at a discount for the winners we avoid the losers we price them to zero we're looking to generate asymmetric returns cost basis on the secondary market it's typically a discount although it's a discount to an nav that is on average six to twelve months old there's a huge arbitrage there and the knowledge that we have is powerful return of capital typically for a primary investment is five through ten for secondary investments years zero through six is where you get most of your capital if you look at strategic partners all of our funds start making distributions from the third quarter of operations and many from the first quarter of operations literally we start a fund and that quarter we send back a distribution and finally we're highly diversified this market is growing these bars represent primary dollars committed to private equity funds from 2001 to 2017 the red line along the bottom represents the dollar value of secondary deals executed in the market now why you can't tell order of magnitude by that line I'll share with you between 2001 and 2017 the dollar volume of secondary deals executed increased thirty fold it's not just strong growth its exponential growth it's 3,000 percent and so if you look at that just 2017 year-over-year growth in the market in terms of deals execute it was 57 percent that's good but I think what's most telling on this page is the top right 2.5 percent turnover or what we call a penetration rate what that means is if you look at all unrealized private equity dollars in funds unreal eyes that trade on the secondary market in any given year today it's 2.5 percent back in 2001 it was 1/2 of 1% so it's grown significantly but I would argue 2.5 percent is tiny it's really small there's tremendous amount of room for growth where it ultimately goes unclear what's very clear is that it's going up so we feel very good about the up about the opportunity for this market to grow but this isn't the only reason let's took that let's look at another reason why this this market will likely grow and should grow this is a statistic that most people have not focused on but if you look at the active limited partners making commitments to private equity funds it's increased 300% since 2008 so if you're a private equity manager I'd feel really good about this this bodes well new entrants the existing entrants are increasing their dollars they're dollar investments so again if you're a GP and a private equity fund I'd feel really good about this I'd really feel good if I'm a high-quality strong performing GP and as a secondary manager we feel good because if you look at those new interests if you look at the 7063 unique active limited partners in this market some of them and a fair amount of them will access the secondary market to sell what's otherwise an illiquid long term asset class so that gives us lots of optimism for growth in the future that begs the question why would someone why would someone sell anything on the secondary market why do people do that there are three broad categories today the first is active portfolio management and I won't go through all of these but I want to give you a couple examples first it could be a GP it could be a pension plan that's consolidating GPS locking in gains it could be a team that's relatively small and they have 400 relationships can't keep all of them so in order to decrease the administrative and monitoring burden they sell off assets it happens all the time they started happening in 2006 it's only accelerated this is actually driving the market and there are a lot of sellers that should sell that have not yet sold but I would argue that they will shut sell soon next telling funds are fun to funds if you're a 2005 vintage primary fund of funds you're 13 years old LPS are getting impatient they don't want any more ke ones no more homework no more financials and so they take out all the remaining assets in that portfolio and they sell them to groups like us and they're done they lock it up fully liquidate the portfolio and then finally frictional displacement a kibbeh organizational change like a new CIO selling off names they don't know or don't like a regulatory change or distress the two takeaways I want you to take away from this slide one there's a misperception that if you're selling on the secondary market you're distressed it's absolutely not true less than 5% of all sellers in this market or distress second this is not a point in time strategy if it were we would only be busy in 2002 and 2009 we're always busy literally always and so the reason we're always busy is because if you look at all the other reasons people are selling is because it has nothing to do with distress or dislocation in the market I like to share with you key ingredients for a scalable business and a business that can drive a um growth and I consider this a key ingredient or key ingredients for a successful secondary's business and frankly any private equity business starts with the franchise the people we have a great team we've been together 16 years when the investment committee more broadly a permanent team ten years and we're at Blackstone now while I'd like to take credit for a lot of what we've done in this group and our team is special we're really smart we would not be where we are today without Blackstone all the people you've heard from today and all of the groups have sourced us opportunities actionable opportunities and in this setting I want to thank all of those all of those people and all of our colleagues across the firm second sourcing we source more deals than anyone we're not lazy we don't wait for someone to call us and invite us to an option good news you've been invited bad news so I have 30 other bidders it's not interesting second pricing and execution our database gives us unparalleled leverage and ability to price and a third the time and close enough there at the time and then finally performance if you have strong franchise a strong franchise and strong people great sourcing strong execution you should have strong performance and we do and that's what's driven our AUM growth from 9 billion in August of 2013 to 22 billion today just a couple things on that we've grown from 9 billion of 22 billion in spite of distributing over 10 billion dollars to our LPS during that same period of time just to delve in on the AUM growth pre BX we raised eleven billion dollars over 13 years when we came over we had nine billion of AUM since we joined Blackstone a little over five years ago we've raised twenty billion dollars and we have an AUM of twenty two billion when we before we joined Blackstone we only focus on private equity in real estate since we joined Blackstone we significantly grew private equity real estate we expand into infrastructure and primaries and co-investments and then going forward there's some really interesting opportunities and spaces that are contiguous to secondaries for example ESG or impact investing or GP GP solutions which are fund restructurings or GP LED recaps for funds so with that in closing our team has never been stronger the SP strategic partners Flint franchise has never been stronger and we're both excited and engage and enthused by all the opportunities you see in the market we hope you are as well thank you [Applause] [Music] [Music] please welcome Ken Kaplan global co-head of real estate good morning everybody so earlier Kathleen gave an overview of our global real estate business and as part of that she touched on the growth of our business not just in terms of overall scale but in scope and what we do I'm not going to talk more about one element of that growth which is core plus real estate and we've chosen a highlight core plus real estate for a couple of reasons first this is a part of our business that was just getting going when we had our last Investor day very small part of our business today while it's still in the early stages of growth it's over 30 billion dollars of assets under management within our real estate business that's significant and growing strongly it's also a very good example as other speakers here today are talking about of the power of Blackstone and the power of the growth potential within the firm to build on the businesses that we already have to grow into new areas to provide solutions for our limited partners and because of the significance of this business and the significance that growth opportunity we thought we would talk to you more about what this business is why and how we're doing it and what it means for Blackstone and for our shareholders so with that backdrop you know what is core plus real estate in our core plus real estate strategy we're targeting high quality substantially stabilized properties these are assets where we still have the ability to improve cash flows through value creation and our asset management expertise but we have a stability from in place cash flows already it's a lower leveraged longer-term hold strategy and because of that we've set up this strategy with perpetual capital vehicles we're looking to drive returns through a combination of cash flows and appreciation in terms of why we are doing this you can see this continuum of real estate investing from core to opportunistic at the top of the slide you know we built a track record over 27 years as opportunistic investors you know delivering that 16% net if that business has now grown to over seventy billion dollars of assets under management but that opportunistic part of the investing universe for real estate represents only a small part of real estate investing about ten percent of a typical real estate allocation and our investors were increasingly asking us you know you do a great job here in the opportunistic space but can you help us more broadly with our real estate investing with our real estate allocations and we felt that with the business that we had built we could do a great job more broadly and we chose this core plus space because it's very distinct and complimentary to are opportunistic business and solve the need for our limited partners and it worth noting also this core space multiples larger in terms of opportunities set than the opportunistic business that we have grown over many many years so you say that's great big market opportunity you know but why are you suited to do this you know aren't you opportunistic investors isn't that a different mindset well it's the same advantages that we have and that we've developed in our opportunistic business over many years are also applicable to our core plus business you've heard this from just about everyone that's talked today you know starting with Steve and John there's a lot of repetition but I think that repetition is purposeful means how the business is growing not just in real estate but across the firm you know the real power of the scale and how we approach our business is one globally integrated business taking advantage of the collective knowledge that we have the proprietary data from all the real estate that we own our relationships our experience our team of 470 professionals within real estate and the 2,000 plus professionals across the firm and we operate with the same team and the same process across all of our real estate investing with the same approach to high conviction investing you heard Kathleen talk about the different areas we're excited about investing we're investing in those same areas here in our core Plus business where we see the best fundamentals and the greatest opportunities and our ability to execute with complexity and in scale and the best way to emphasize this is with an example you know in Kew Stuyvesant Town right here in New York this is an asset on 80 acres 11,000 plus units a very special property that we acquired in Arcore plus business at the end of 2015 it was a complex transaction between the seller and the existing debt and the city of New York and the tenants there's also a large transaction over five billion dollars and our ability to execute in that sale and with that scale and complexity we're able to make a very attractive investment and not just on the pricing of the acquisition but also the opportunities once we own the asset to draw on our experience in the multifamily space and actually across the real-estate spectrum bringing some of the lodging expertise we had on the service side as well and we brought that experience to bear investing capital into the property providing operational enhancements and creating a better environment for our tenants and a great investment for our core Plus investors and an investment that we believe will continue to grow and appreciate for many many years to come and it's not just Stuyvesant Town across our core plus real estate business we've made 80 investments globally includes three take private transactions fifteen recapitalizations and an average equity investment of over 300 million dollars per investment that very distinct and differentiated from the course pace in terms of putting some numbers to this business or this part of our business again this is a segment of real estate that we started five years ago with one investment and this in this demand from our investors this desire for investors to help them in this area and it's grown from that one investment to a series of investment vehicles here in the US Europe and Asia and a private read I'll talk more about those in a second but we've grown it all all organically without purchasing any type of outside management fees or existing businesses and as really this growth is based on delivering returns you know 12% net return across our global corporate global core plus business and it's his virtuous cycle again delivering returns resonating with investors and in growing and accelerating in terms of the capital that we're raising and as you can note of that 32 billion more than half of that capital having been raised in the past two years in terms of how we set up the business and we didn't only have the benefit of the acquisitions team and ask the management team but throughout the whole business we're able to use the blueprint for how we set up our opportunistic business over many years and copy that here in core plus and here you can see regional funds in the US Europe and Asia as well as in the bottom right be read our private read and this private read is focused more on individual investors which you've heard a bit about you'll hear more about later today oriented more towards current cash flow and we continue to get very strong investor interest raising over three hundred million dollars in August alone and across these vehicles where you can see strong and consistent returns once again drop driving that interest in driving that growth in this business in terms of how this each of these vehicles is structured once again perpetual capital you know very powerful for the firm for our shareholders also management fees that are based on nav as we grow assets under management we capture these fees based on value and appreciation and recurring realized performance revenue that gets generated without selling assets without dispositions this is distinct from our opportunistic business where it's a bi fixed cell and we're earning those performance revenues when we sell assets here the recurring and they're based on net asset value and this is again very powerful for our Blackstone shareholders and our investors and then finally never being forced to sell assets you know very important for our limited partners our investors in each of these vehicles in terms of what this means in terms of size of business and in terms of revenues for the firm you know we visibility today to getting two sixty billion dollars of AUM and a billion dollars of cash revenue over the next two to three years on the AUM side you can see that growing from the thirty two billion dollars today to sixty billion really as a result of the pace of investing in the pace of capital raising that we're now seeing in the business in terms of cash revenue growth you can see four times growth from about two hundred fifty nine million dollars over the last twelve months to a billion dollars over the next two to three years now this outsized revenue growth is not just from a um growth but it's also the result of how you this businesses and the delay between when he initially raised the capital and when those recurring performance revenues start to kick in the bulk of which have not kicked in yet so as those kick in accelerated revenue growth for our business in fact 75% of that billion dollars is from capital it's already been raised and invested so hopefully that gives you a sense of better understanding and appreciation of this core Plus segment of a real estate business hopefully you now understand why we're very excited about it or very focused on it as a component of our real estate business it's really great for our team it's great for our overall business it makes our business even stronger and better great for our limited partners and of course great for our shareholders so with that I'm gonna hand it over to David Blitzer who's going to talk about our tactical opportunities business thank you very much [Applause] [Music] please welcome David Blitzer global head tactical opportunities good morning ladies and gentlemen it is a real pleasure to be here today and be able to speak to you about our tactical opportunities business we started what we call TAC ops in 2012 to really address two trends which were driving a very severe supply-demand imbalance of capital on the demand side of the equation institutional investors were becoming more sophisticated and they were increasingly seeking to find differentiated strategies they were looking to take advantage of market dislocations that occurred often times during short periods of time and to create a variety of opportunistic investment strategies similarly at this time we at Blackstone were sourcing and uncovering a significant number of opportunities that were extremely interesting to us from a value on an investment standpoint but they actually did not fit our existing mandates oftentimes that was due to size governance and assets versus companies on the supply side of the equation global regulation was changing dramatically and in particular the Volcker Rule was eliminating the ability of regulated financial institutions to make investments using their balance sheet the vast majority of capital in these opportunistic areas had historically been coming from these financial institutions and they were suddenly completely out of the market place consistent with what you've heard from a lot of my colleagues or all of my colleagues about our culture of innovation we set out to create a new investment business to take advantage of this severe supply demand and balance of capital in the market place what we now call Blackstone tactical opportunities was created to address this market dislocation and our goal was obviously developed the leading global private opportunistic platform the good news is if I could get this to work the good news is that our investors really believed in the strategy and the demand from our investors was fantastic they embraced a product that literally did not exist in the marketplace so as you can see we started the business in 2012 with about a billion seven of capital and we've grown it over the six years that we've been in business to to a business that now has over twenty four billion dollars of AUM it's a lot of investments so as you can imagine we've we've been working really hard and I think we've been prolific in building a world-class team everything that you see at Blackstone is absolutely world-class and our focus on to our people and on our culture is on its unmatched by anybody in the marketplace so we've built that world-class team that now has 97 dedicated professionals we've obviously raised a significant amount of capital and most importantly we've been investing that capital in very attractive investments we are seeking for our portfolios in our our clients to build a diversified portfolio we'll talk more about this but also a non-correlated portfolio across the entire alternative landscape that don't fit into any of the traditional buckets of real assets credit private equity etc just to give you a sense of these differentiated investment opportunities about 20% of them are in credit oriented investments about 30% of them are in real asset investments and about 50% are in equity oriented investments however out of that 50% in equity oriented investments the vast majority of those are equity investments in financial assets as well as structured equity solutions so we're quite proud of our performance to date the reality is is we're seeking to generate low-teens net returns for our investors with significant downside protection and lower risk than many of their traditional alternative products we have delivered that since inception and I realized IRS of obviously materially or outperformed and luckily to date we have zero realized losses which I'll come back to the portfolio still need to mature but we have significantly outperformed most of the equity and credit indices around the globe so we have a very simple first principle you've heard this from I think all of my colleagues but I'm gonna try to bring it a little bit more real for you we don't lose money so I don't know if any of you have ever had the chance to be sitting in a room with Steve Schwarzman after losing capital I assure you it is a life altering experience having been at the firm for 27 years I have had to sit across the table from Steve after losing some money I can't do it again so focusing on downside protection is the key tenant to our business when you look at a large distribution of outcomes which is something we do on every transaction what we are obviously trying to do is to cut out as much of the left tail as possible and of course retain as much of the right tail as possible and that is how we look at all of our investments everything is about the risk adjusted return on any given day at our investment committee meeting we might have a 14% deal and we might also have a 21% in terms of base case expected deal and we might like the 14% deal more than the 21% base case transaction obviously based on the inherent risk within the transaction so I really like to slide another another benefit of our strategy is really the lack of correlation to other asset classes by focusing on niche strategies value plays asset class dislocations etc we can avoid any reliance on the overall market direction to generate our returns as you can see on this slide we have never had a negative return quarter and we've had little to no correlation to other asset classes so we obviously have a few key principles the first pillar of our strategy and one of our obvious competitive advantages is unconstrained capital tech ops can invest across the entire alternative investment landscape all asset classes sub asset classes industries geographies and up and down the capital structure we're always looking for that sweet spot in the capital structure where we think there's the most attractive risk-adjusted return the only thing that we don't pursue are investments that would otherwise fit an existing Blackstone fund this is highly relevant as you can imagine as these asset classes these industries are constantly evolving and their level of attractiveness at any given point in time is constantly changing an area that might be really fascinating or where we think there's you know significant value in one particular quarter might be totally unattractive you know weeks or months later and we're consistently shifting our focus to the most attractive opportunities available in the marketplace we have invested in 20 industries across 21 countries I had to count those last night by the way and in over 40 different structures so we have a pretty interesting business if you come to our investment committee the second and most important so I don't know why we put it second but pillar to our strategy is to leverage Blackstone and I really mean this this is the special sauce of TAC ops and more broadly I think it's the special sauce of our entire investing business at the firm think about the incredible industry expertise portfolio management sourcing value add that we bring to bear on our investment portfolio think about the massive amount of data relationships knowledge industry specific asset class specific that we have at Blackstone and you've heard this before but I'll repeat it again that we broadly call our intellectual capital and then think about the tactical opportunities business as really a joint venture within Blackstone that takes advantage of all this intellectual capital with which to create differentiated views and to create off market opportunistic investments about 22% of our investments are coming directly from other business groups see how much fun it is that I get to receive calls from all of my partners across you know the other business groups and geographies at Blackstone with the my favorite line hey blitz I have a really interesting deal for you and this happens literally every week on multiple occasions and again these are situations that didn't fit with their particular mandate but they've met a management team or seen some data coming out of their portfolio company around an industry or an asset class and they're looking to create an investment opportunity for the firm which is how we think about it how do we create the best investment opportunities across the firm we also harness this unique advantage to our investment committee and governance structure we're nine of Blackstone's business heads actually sit on our investment committee so imagine an IC which meets every single Monday it consists of Steve John Tony and our other group heads it's a lot of firepower in the room and clearly you can imagine how much fun it is for my team to get approvals every Monday on transactions and then the final pillar of our strategy is nimble execution you can see some of the windows of opportunity and obviously we're looking for more dislocation out there in the various markets and asset classes and we frankly haven't had a ton of it over the last five years but you can see in certain areas how we've captured those pockets on periods of dislocation within tech ops we were very large buyers of us non-performing loans as we started the business in 2012 in 2013 however a lot of competitors and a lot of capital came into that market really starting in late 13 into 2014 going forward we did very nicely in the space we saw that supply-demand imbalance move the other way from short capital to long capital and we just moved on to other opportunities similarly when we saw the energy markets gap out in late 2015 and early 2016 we made a number of opportunistic investments in the space before that market came roaring back over the course of the second quarter of 2016 the reason we were able to do that is back to this intellectual capital Blackstone our views on the u.s. non-performing loans were informed by a real estate group our real estate group happened to be the largest owner of single-family homes in the country so you can imagine when we're bidding on non-performing loans think about the data we have off of every single home we owned within Blackstone's real estate portfolio and aggregating that data and creating differentiated views from what anybody else in the market might have market by market zip code by zip code that is extremely powerful advantage in the marketplace and similarly our energy complex at Blackstone through the private equity business and gso in particular is unmatched in marketplace so for TAC ops our ability to tap into that knowledge when there's a pocket of dislocation allowed us to be ahead of the game as it came to making some really attractive investments and I'm over my time which I usually am but let me conclude by saying that we truly have a unique strategy in the marketplace there are many folks out there with what they call special situations funds but those are effectively credit and distressed businesses in order to effectuate the strategy within tech ops there needs to be real expertise across the entire alternative landscape no one else in the market has this there is no competitor with the depth of Blackstone sure we have a little bit of competition in some of the sub areas with which we invest no doubt but certainly not across the broader spectrum we truly believe that this intellectual capital that we helped move around the firm and that collaboration that I described with the rest of Blackstone I could go on and on which I won't do about all the time we spend with the different groups of Blackstone it's not replicable at all I'd love my job as you can tell think about running a business that can literally invest in effectively anything that it finds interesting that's a pretty fun way to go to work every day thanks very much for your time [Applause] [Music] [Applause] [Music] she's welcome joan solodar head of private wealth solutions good morning so I am really excited to share with you what we see as the enormous need and consequently a really massive opportunity in retail and how we're attacking that opportunity our proof of concept and why it would be difficult if not impossible for anyone to replicate and catch up to where we are so a few points on the massive market opportunity today private wealth sits at 70 trillion dollars which is bigger than even the institutional market and until recently retail really hasn't had much access to really great product and if you look at the penetration rates today they sit below 5% when we entered this market they were about one or two percent and I would say they're still well below that five percent number and if you want to put some numbers behind the growth opportunity private wealth and aggregate is expected to compound at about a six percent growth rate if the roughly three percent number moves to six percent it's effectively tripling that addressable market and the kegger at that points in the very high teens and as John showed the penetration rate is quite small so there are several reasons why penetrations been so small one because there really wasn't an abundance of great product or accessible structures and two as a consequence of that advisors really were unfamiliar with alts they didn't know how it fit into their portfolios how to transact and many of the firm's frankly just weren't set up to seamlessly process the funds regardless so what's changed and is changing is that we and others are launching funds with structures that are far more user-friendly and at the same time the technology behind transacting and integrating alts into practice is actually getting better so we've invested substantial dollars and sweat equity to build a global scale and a scalable business by delivering not just good returns in retail friendly structures but also providing excellent service end to end to our wealth management partners we made a strong commitment to this channel almost a decade ago we've never wavered from it and will continue to increase resources dedicated to this high growth and high value market segment our value proposition is that we provide institutional quality product at institutional pricing often in bespoke structures across all the alternative asset classes we begin with good performance across our funds and we're innovators around client solutions there is no other firm that either does or can do this we've built a completely unique education and marketing platform our robust advisor education program begins with Blackstone University what we call bxu which we launched in 2011 to date we've had thousands of advisors from all of the major wealth management firms spend two days learning about Blackstone we do deep dive on every asset class we take them through investment case studies we talk about how alternatives sit alongside liquids in their client portfolios in essence we're sharing the intellectual capital that resides in our firm to make the advisors smarter around alternatives with several years of data as our proof of concept we see that most advisors who go through bxu and putting Blackstone funds in their client accounts within the following year and essentially we've created this echo chamber because we now have thousands of Blackstone advocates who take that knowledge and that enthusiasm home to their branches and in doing so double or triple the impact this year we've increased our addressable market by about 50% when we enter the IBD RA a channel with a full wholesaling and desk sales force we're adapting our model to extend our reach to tens of thousands of additional advisors and we're delivering that same educational experience to them beyond bxu we're launching a first of its kind alternatives digital platform which will allow advisers and investors worldwide to engage with us across investing insights product information and practice management support as with the rest of Blackstone we're able to attract really top talent and today we've hired about a hundred and thirty people globally and we've Blackstone trained more than 60 channelized salespeople which means that they're bespoke for a particular channel whether it's a CIO and a family office a private bank or wire house advisor or independent broker-dealer our ia our critical mass of perpetually offered funds coupled with such a broad array of episodic raises means that we're front and center every day we get to know the individual advisers needs and we build deep relationships over years which creates a virtuous cycle where the advisor has a good client experience and wants to entrust us with more of their client assets advisers in large quantities are now significant allocators of capital across numerous Blackstone funds and yet we are simply scratching the surface over several years we've developed a huge proprietary database extending to more than 250,000 financial advisors to better drive marketing and sales we want to work with the best quality advisors so we use data analytics and an opportunity ranking model that we created to drive better outcomes this is part of Blackstone's broader and significant effort to integrate data science within our investing processes and portfolio companies and we'll continue to invest heavily in this competitive advantage in our earlier days we sold slices of draw down funds that already existed like global real estate but really the biggest growth engine is the structures that are more bespoke to retail and are perpetual a word I think you heard a lot today creating value for both investors and the firm and by extension shareholders we're able to access all of our investing areas which has resulted in about 10 funds that our retail specific like the non traded read our multi asset drawdown fund or recently launched perpetually offered floating rate income fund in most cases these new structures reach a much bigger audience with lower eligibility requirements than a traditional p/e product so that it's the sweet spot of the very large untapped five hundred thousand to five million dollar market if you can imagine being an advisor presented with all of this the performance the access the education all that's encompassed in the Blackstone brand so trusted and so powerful in the retail space you understand and rely on the value that we bring to your practice and it's this message that we hear all around the globe and why we have such optimism that our platform will enable accelerated growth so we've grown quite a bit since our beginnings in 2011 in that year we had 15 people in the US we distributed one product at one firm and we raised 200 million dollars we were developing relationships with advisors and in that year a hundred and eighty of them sold our one fund and by the way this one fund one firm model is where by and large our competitors remain today we've now have the accumulated wisdom of seven years to understand what our partner firms and their advisers want and need and it's informed what we've built to be able to scale and deliver the highest quality Blackstone experience so today we have more than 60 global channelized salespeople we're raising assets across 30 Blackstone funds 10 of those bespoke for retail we're deeply engaged with dozens of the world's largest private banks and hundreds of independent Wealth Advisors and we have more than 15,000 advisors placing their clients capital and Blackstone product this year alone which is about five times what it was just four years ago four thousand advisors will be new to Blackstone this year and we're still seeing an acceleration so the growth has been staggering but we intest anticipate far more knowing that the enormous momentum created every quarter and every year so I'm going to take you briefly through a case study on our non-traded read be read because I really think it'll provide good insight into how in many ways we are shaping the industry so we knew we could develop something really special that leverage the investment capabilities of our leading real estate platform but tailored specifically for the retail investor filling an important client portfolio gap so we designed something that uses the same teams to source and analyze investments as the global Brep funds so institutional quality but with a better fee structure than competing retail funds and in short order it was just it was like lightning in a bottle so we're less than two years in we've already grown the non-traded read to four billion dollars of highly profitable and perpetual capital and it's accounted for about two-thirds of all non-traded REITs sales raised in industry about a third of the advisors accessing it in client portfolios had never before sold any alternative product and so in many ways it became a gateway and for almost 3,000 advisors be read is the first Blackstone product that they've sold for the third time you'll hear we raised over 300 million dollars in August so that's our highest month ever and it was August and we're just seeing the momentum bill our non traded Reid is now just finding its way into new Private Wealth networks several of them and gaining ground where it already exists prior to be Reid individual investors had never been able to access broad institutional commercial real estate below the wealthiest bracket so it's been a real game-changer so yes we're putting a two hundred and fifty billion dollar number out there and what's the path to reach it we are today in a dominant position relative to any competitor and as I mentioned there are really three ways we'll grow and we're attacking all three new wealth management partners deeper advisor relationships and new product we went from one private wealth partner to hundreds today and we're still growing including outside of the US and many many firms are relatively new to us just this year and will develop and deepen those partnerships typically returning advisers sell two to three times the amount of new advisors because the good experience in one fund drives them to either seek out other Blackstone products or put more clients into the same fund it's exactly what we see on the institutional side essentially the more they do the more they do so deepening those relationships is key which is why having an army of top quality salespeople and a robust servicing platform is critical B reads the case study that is repeatable within Blackstone today we have around ten bespoke retail products some are newly launched and we have a path to new strategies that are already under development that stretch across every segment of our business and will serve investors below the qualified purchaser level to be more accessible and have broader market reach with a globally extended distribution channel deepening relationships and an ever rising number of advisors added perpetual product and growing AUM we've established ourselves as the clear reference institution in alts in the retail channel and it's this blueprint the massive investment in capital and people and innovation wrapped in Blackstone performance and brand that gives us confidence that 250 billion is an attainable goal thank you [Applause] ladies and gentlemen please welcome to the stage Tony James executive vice chairman for Blackstone well we'll wrap up here this is the last presentation you'll be happy to hear and I want to say I'm so proud of all the people you've heard from today I've watched all of them mature in their roles and become in my opinion the best in the world leaders in their seats I put them up against anyone and I know them all and they're young but it is characteristic of Blackstone never to be satisfied we always strive for more excellence we're flawless in our attention to detail and we always want to learn learn learn and of course we love new initiatives it improves our businesses we reinvent ourselves and we grow these new initiatives in my time here at Blackstone have allowed Steve and I to grow our business 20 times in the last 15 years 20 times in the last 50 years and we've done that with no increase in returns whatsoever that growth continues today since the last investor conference new initiatives have accounted for one half of our asset growth now not all our new initiatives are successful but I have to say the hit ratio is high Steve got into some of this but we are very disciplined and we stick to the criteria that are listed here we want only talent driven businesses Navy SEAL businesses not US Infantry businesses and we want cultures and people who fit into the way we do things believe in the firm believe in each other and our team players we only want businesses where we can achieve industry-leading investment performance and maintain it and do that in real size and we like things if it's acquisitions that are not fully developed so we can inject Blackstone into them and watch them grow and of course all of our initiatives have to have a high return on capital but also a high return on time and a high return on brand if you will that might not sound very specific this list but very very few opportunities make it through the screen we prefer to start things ourselves and we've had a remarkable leap record of entering businesses and creating leaders as shown on this slide this is really a unique aspect of Blackstone many many firms have tried this for decades when I was a young investment banker I would bump into people all over and they'd say my aspiration is to be just like Blackstone they've been saying that as long as I've been Wall Street and guess what no one has succeeded yet it's easy to think about on paper you can show a lot of white space you can show a lot of stuff you don't do it's very hard to execute well and for us it drives continued long term growth now acquisitions are a part of our mix they're not our preferred approach but where we don't have the skills or we really want to accelerate growth into leadership and we see an opportunity they are there are an important tool and what we find when we acquire good companies with strong leaders put them in put them under our brand and put them through our distribution network we can accelerate growth dramatically and Verne Perry's presentation and on strategic partners is a classic it's a classic example the overall resort the results are sown shown here every acquisition is successful and we've tripled the AUM in this short period of time and it's been very valuable ders I would ask you to compare that to any other firm any other firm in our industry no one can match it now when you're building new businesses it really helps to have the wind at your back and the shift to alternatives is our megatrend that helps us in all our endeavors public markets most prognost estate prognosticator say will return three to four percent in debt and five to six percent in equity no matter how you mix those in a portfolio it's not going to be enough return to make people happy alternatives can not only increase the return but they're uncorrelated if you've heard many times from the group's today and this decreases portfolio risk so what a magic product you can increase return and decrease your risk simultaneously with the most sophisticated investors who figured this out early like like Swenson at Yale they're up over 50% allocation to alts so what you can see with the penetration of alts in the segment's here first how low the penetration is in many places and secondly just how big at the bottom of the page the assets are that we have to target now I'm going to talk about a few specific initiatives that we are rolling out now first is infrastructure our goal is to build the largest infrastructure business in the world we started with a core plus infrastructure fund but we see multiple infrastructure fund strategies developing over the years the need for infrastructure spending in the United States and across the world is obvious any capital short sector provides a favorable trip backdrop for us to enter a new business and that's been a consistent theme that we've looked for over the years now building infrastructure is a natural step out for us it was already one of our most successful investment areas we've invested in tens of billion dollars of transactions over 14 years and delivered a 36 percent return in other words we have the skills we have the record we have the limited partner relationships to hit the ground running now you all are very impatient people building businesses takes time but we think we're off to an excellent start here we have a fantastic team that just joined us literally earlier this year within a few months of their joining us we closed on a five billion dollar first close one of the biggest first closes of any fund ever and the biggest first close of any infrastructure fund ever infrastructure as you've heard today just like core plus real estate is a permanent capital open-end fund that means that we have stable asset values long term growth of fees and are in our incentive fees are a lot like or our fee related earnings unlike draw down funds which start with a big headline raise and then you have to give the money back in a few years permanent capital vehicle starts smaller and you continue to raise money on an ongoing basis as we deploy the assets this allows us to grow steadily from both portfolio company appreciation and new acquisitions with seventeen and a half billion dollars remaining of the first twenty billion dollar anchor order we got we're really well situated to execute large transactions which are much less competitive again another theme you've heard from from Kathleen from can and from Joe we really think we can scale this business over time and it will be one of our largest segments another new business is life sciences that may surprise you because it's at the opposite end of the spectrum of most Blackstone businesses its venture and growth and it reflects a move broader move of the firm that you'll see over the next five years and I believe towards earlier stage and more technology driven investing this is another mega another situation where the mega trend is in our favor I think life sciences will be the next great revolution in the world in your lifetimes the advances in biology genetics chemistry are making unprecedented leaps and our ability to cure disease add in big data in AI and it's it's gasoline on the flames there's a tidal wave of new opportunities coming at the same time big pharma is in full retreat and they are traditionally the major funders of R&D in this sector they are facing collapsing stock prices and chattin growth challenges and are maniacally focused now on short-term profitability this is squeezing R&D budgets and moving them much more towards development and away from research the combination of these two forces is causing a mushrooming funding gap and that adjust at the time when the opportunities are most exciting and that of course is our opportunity as well now filling that opportunity is not easy it requires an unusual combination of scientific skills and operating skills we need longer duration vehicles we're putting things in human beings you can't create a new drug in a couple of years like you can a new Internet company you need to be able to feed these ideas feed these companies for quite a long time so you need a different kind of fun structure one that's flexible enough to do early and late stage and and long enough in duration to stick with a company all the way from discovery to commercialization this business model required to do this well does not exist today anywhere and we can do it I think if we do we will create a very very special business that will not be easily replicated by any of our competitors we have enough experiences in other businesses that we have most the elements we need today and under the guidance of Kevin share our Kerman of this group who was once CEO of Amgen we are assembling a world-class team of deep scientists with with with long records of investment success again hard unicorns define and I think what we'll be able to do here is offer our you our LPS and a unique ability to invest in scale in venture an area where they are all very under weighted another big opportunity is managing insurance assets and this has the clear potential to be our single largest business group in AUM let's start with the insurance industry it's huge they're facing increasing regulatory capital requirements and zero interest rates are squeezing severely their ability to grow they have no choice but but move it to move into alternative assets and into private credit where they can get more yield for the same risk they are also being forced to sell books of business and redeploy the balance sheets into areas where they can grow obviously we're ideally positioned to help with the alternatives piece of this as the largest and broadest provider but those very alternative activities that we're so good at will also make us the largest originator of credit assets in the world today and we don't have any pocket for those alternatives we're creating valuable merchandise with nowhere to put it so I believe we are uniquely situated again to manage third-party assets for insurance companies and we already have 50 billion of it so you can be sure we have established credibility with with the clients but there's a whole other dimension to this these companies as I mentioned are selling mature books of business they have to do this to conserve capital we have the opportunity to raise third-party money in in permanent capital vehicles and buy these blocks of business it's more complex because we have to manage the liabilities as well as the assets but then if we do we get the whole balance sheet in perpetuity and we can make money both managing that balance sheet and the assets on that balance sheet as well as managing the equity owning these books of business this is fundamentally a larger and more profitable business than simply having accounts to manage for insurance companies and let rest assured there's huge volumes of business there's hundreds of billions of dollars of insurance assets being sold as we speak finally another huge opportunity for us is defined contribution plans some countries most notably Australia have defined contribution plans that are heavily invested in alternatives in fact it is not only the key driver of returns it's a key competitive differentiation in that market amongst managers here DC plans are effectively barred from investing in alternatives we believe this cannot last retirement savings in America are woefully inadequate not just a little short it's an embarrassment one in three baby boomers retiring in the next ten years will be in poverty or near poverty this is obviously an untenable situation the least painful in some ways easiest place to start closing that gap is simply to invest the money better 401 KS in America have historically earned about 3% pensions have earned over 7% why the difference is alternatives pensions are heavily invested in alternatives as you could see from some of the prior slides whereas 401ks must invest in we traded instantly liquid dateable stocks and bonds where the returns as as we mentioned before will be will be much lower as we speak these regulations are being looked at and we believe they have to change access to alternatives needs to be democratized individuals should have the same access as institutions even if these products are invested in other funds like target-date funds but they need access to them one way or another the massive scale of retail money means that a small shift of assets into alternatives is a huge opportunity for our industry but who benefits most one would think that the firm of the biggest brand the broadest product line and the most developed retail investor infrastructure would be the biggest beneficiary well at least that's what we think and of course we have more we have more and it's already underway not just gaps and things we do but but new things in process coupled with double-digit organic growth we think we have clear line-of-sight as you've heard to not only a trillion dollars of AUM but to double the firm again in terms of profit and distribute distributable earnings thank you thank you for coming today thank you for your attention we're gonna reset the table up here and then Steve John and Michael are gonna come up and I will come up and answer your questions [Applause] thanks very much pill cast from City thanks for a great presentation today so Michael in your presentation over inside outside in your presentation you laid out a path to $6 of distributor earnings when do you think you get there and then as part of some of the parts commentary use the 23 to 25 multiple when you're applying that to the fre what structure were you considering when you did that math oh we love your questions always and we're doing it face to face even better on the second one in it was 12 23 to 26 bill not 25 we're assuming the status quo structure and on your first question about $6 of d per share you know we look at this this modeling the modeling that went into this session that we do all the time we look at things on a five-year basis on a 10-year basis and in terms of when we could cross over to that point we can't pin it down to a single year we called it longer-term certainly in that second half of a 10-year sort of planning horizon that's where we think we we can cross over into that level Craig here thank you good morning so what is your appetite to expand your capital markets business and is there any potential conflicts of interest like you saw with the pjt spin which is one of those reasons you spun that out and also I know Blackstone likes being capital light you know it's a nice old are closer oh sorry so I can repeat it too but what is your appetite to expand the capital markets business maybe talk about conflicts of interests and also your desire to be capital light so I'd say we really tony referenced it on its slide we'd like to or the capital markets business we want to do it in a more capital light way but there's more we can do and one of the things you see happening with our firm is we touch so much you know historically we would do a private equity transaction we would finance it and we would just focus on the equity part of the capital structure and yet all that debt we essentially gave to the street and didn't think much about it today we have all sorts of clients who are saying hey I love access to that deal flow you know we're not just this high octane business people would like private credit as well and so I think for us it's more about focusing on this putting the right resources against it I think the opportunity for Capital Markets could grow to be substantial but again we are going to be mindful on how we do it we'll manage how much exposure we have from a balance sheet standpoint Thanks it's a mic carrier a PFA it's a two-part question first Michael just on the growth and earnings I think you mentioned that fre mix you know improving over the next few years just in terms of the nav versus maybe commitment like how do you think that's going to shift you know given some of the new businesses and then the second part is just in terms of the growth opportunities that are ahead of you what investments are being made maybe on like the infrastructure you mean just to manage you know the significant growth opportunities versus things that could you know go wrong on the first part Mike and I can hear you but I can't see you the the nav based structure is aligns very closely with our open-ended perpetual capital structures so core Plus which we talked about our infrastructures open-ended fund and so and and obviously in general those of certain characteristics very attractive risk-adjusted returns longer duration longer hold periods a component of yield so the structure is not divorced from the underlying assets and the strategy they're they're aligned kind of in the eyes of clients and eyes of us and so it's a natural act of that then as an ad based fee structure and and it leads to our sort of definition of perpetual capital and how we think about that with a question around infrastructure to support the business yeah so I would say if you looked at our headcount the three fastest growing areas are compliance technology and our communications function and that's reflecting the way the firm's growing which obviously given the proliferation of products we need to be able to make sure everything we're doing conforms that's very important obviously from a legal standpoint technology as the firm grows and particularly as we widen out in terms of who we touch what Joan was talking about technology becomes really important as you go from a couple thousand LPS to maybe ten twenty thirty thousand who knows what the number will be over time and then communications because we're obviously touching a broader audience so I think it's one of the advantages we have as a firm is we can afford to make those investments given the scale of our business and in fact just add to that just in general I think we're taking our skate leveraging our scale and the maturity not not from a growth standpoint but of the infrastructure of our business and obviously trying to drive economies trying to do more centralization which leads to automation greater efficiency and greater effectiveness and all those functions so we're trying to execute on that and we're sort of going function by function I've certainly done that in finance to drive to those to create value in those functions in that regard Thanks Devin Ryan J and P securities so can you maybe talk a little more about the life sciences initiative I thought that was interesting and maybe just the the scaling of that what that looks like and then just life sciences as an industry seems to be a little more volatile than some of the areas within Blackstone so just how should we think about that is that correct and will it be more of a Bob told but maybe a cite opportunity for you well there's certainly aspects of it that are volatile because their earlier stage but there are certain they're on eclis the biggest capital invested in that sector right now is sort of later stage royalties and stuff like that which are not volatile when we see this ranging all the way from venture through growth equity royalties buyouts life sciences credit so as a mix I don't think it's going to look terribly volatile to to to to the to our shareholders or our LPS in terms of scale like any new business it's gonna start reasonably small we'll start with a few billion dollars of of total AUM probably but I think that could scale up into into the tens of billions Brian Bedell - what you think may be a similar question on the insurance side in terms of initiatives can you guys give us a little bit more detail on the structures that that you intend on raising and the blocks of business that you alluded to in terms of buying and insurance just sort of constructional II how that would work and then the sort of the tempo of the opportunity as you sort of both near-term as you mentioned there's a lot of blocks of business going on right now and then in this march towards one trillion in assets is that included in that or is this potentially add on to that okay well so the structures there'll be a lot of different structures I would say the simplest is simply getting an account in managing assets for an insurance company when they a big how many causes we want to invest in your private equity fund we want you to manage a private credit sleeve for something that's the simplest and it runs all the way to buying the whole company and the vehicle but not on our own balance sheet the vehicle through which we do that would be some sort of fund either either a drawdown fund as we've done with fidelity guarantee or a permanent capital vehicle could be a SPAC could be other things so vehicles we're agnostic I'm on that we'll probably use a lot of different ones and it'll vary some between the US and Europe I think is how we approach things we're still in the building motifs terms of people but I'll let Michael comment on on the the trillion dollars well in terms of how we if the question is sort of the big drivers to get to a trillion oh no no it's insurance it's an important component of getting to a trillion let me just put it that way I thought you wanted to say broad but I thought you're broadening the question in our ask town I was going to answer that too so yeah okay thanks Alex blossom golden Saxon so sticking I guess with with some of the newer growth initiatives the foreign key and the DC channel as a whole something we've talked about for a while you know it sounds like things are starting to move a little bit so maybe Tony give us an update on sort of what's going on from a regulatory perspective you're seeing within that channel and whether or not that's something you guys think could materialize over the next you know two or three years well well I mean there wasn't there was a an arat or an editorial in today's Wall Street Journal you probably probably didn't notice it where they're talking about even the SEC talking about it's important that we open private assets to retail investors the the lack of return is affecting everyone and people in Washington are hearing that we're having conversations with with with with both legislators and with people in the administration about this issue and we're getting a lot of interested positive response but I don't really want to go further too much further right now put anyone on the spot I will say that this problem can be solved pretty much within the administration with simple rule change you don't need major legislation or anything like that hi Patrick davit autonomous you mentioned a couple of times the recurring performance fee aspect of some of the newer businesses core Plus and infrastructure and I think your previous guidance was that that would really start to kick in soon is there a plan to kind of separate that out from your traditional carry disclosure so that we can start to think about that maybe is a different value than then the way the markets currently treating carry well I think you're you're basically echoing what I in my presentation which is starting in this quarter we are going to take a large subset of the perpetual capital realized net performance revenues that fit the characteristics I mentioned and those will be counted as as fre for the reasons I mentioned we think they line very naturally and from a sort of itemization standpoint you you will be able to see those relative to management fee driven fever later earnings so I think you'll you look at exactly what you're looking for Mike Cypress from Warren ceiling two questions if I may first question for Tony is opening up the alts industry to the DC marketplace a double-edged sword and by that I mean if you speak about democratizing access to alternatives the floodgates open up money comes pouring in are there enough investment opportunities to put all that money to work and how do you think about the impact that all that money could have on returns investment returns across the alternative landscape well we could talk about that for a long time so far as our funds have gotten bigger and bigger we're not seeing any shortage of opportunities in fact lately I think despite high values and whatnot I think our last few years is the highest for example in private equity with a trillion dollar tracing deals that you read about a highest highest investment rate we've ever had so I and you've got fewer and fewer companies that are that are public I mean look at look at what soft banks doing with a hundred billion dollar fund in private companies so I think I think there'll be plenty to do and frankly if the returns are down a little bit I would say just because of interest rates so maybe a flooded we'll put some pressure on that dimension but the same time I think as as interest rates go back up and and generally the return spectrum goes back up that'll that'll that'll offset it so I expect we'll be able to put a lot of you know the the bigger the bigger effect on our P&L will be more capital than any change in returns great and just second question on the investment process maybe you could talk a little about what's changed the most with your investment process say over the past 3 or 5 years how is that evolving today maybe you could talk a little bit how you're using technology and data analytics and if you look out say three to five years what do you envision will be most different with your investment process looking at three to five years thank you I would say our investment process is remarkably unchanged you know generally on Fridays by 5:00 p.m. that it would be by 5:00 p.m. people in the front rows will laugh these big memos come out and that has been the process not just for three or five years but for 25 or 30 years and so the way we look at things we've added probably more layers over time as we've gotten bigger in terms of heads up committees and review committees before we get to final investment memos but basically that process underlying things is the same I do think the data is changing things we now have this data team a couple of us talked about that we're bringing them on the front end of deals looking for information inside our portfolio companies but also as we think about deploying capital you know if you're thinking a real estate context in the old days you'd get data from the Bureau of Labor Statistics today maybe you can get interesting stuff off the LinkedIn site in terms of job openings on a certain geographic area so we think again because of the scale of our business we can afford to invest in a data team that can give us a competitive advantage and if we play it forward as you were asking I would expect we'll do more that will be more analytical we'll figure out how to harvest more data and that'll give us a competitive edge and I think that in the private markets will become increasingly important I might add that I think another slight change that the Jonas is is gonna further I'm sure is more of the investment committees include for more cross-functional people so we have some businesses I think David blister talked about his but an infrastructure again it's a lot of different groups with with John becoming president now he's a lot more than just real estate Michael who was once in private equity sits on a lot of the investment committees so more and more we have that cross fertilization the top of the firm so we get the benefits of intellectual sharing hi it's Glenn Shore Evercore si Michael earlier you showed that eleven hundred basis points of fre margin expansion over the last ten years I use as you scaled you obviously have a few things going on so I know it's complex but as you scale towards the Chilean as you scale towards that hopeful six dollars of D how should we be thinking about either ferry margins on the endgame or the incremental margins along the way sure that you mentioned the eleven hundred basis points over the last ten years a lot of that's come in the last six or seven years so really we've been expanding our effort margins on average 100 to 200 basis points a year and that's based on the structure of our firm and our and on how we grow businesses so I see in the in the medium term and and the longer term it's certainly the medium term we have good visibility a continued path along there it may not be as you know 200 a year every year it may be closer to the lower end of that range there may be years or periods where that doesn't happen but I think for the foreseeable future we should continue to have that leverage in our business hi my name is Colin ducharme with sterling capital and I had two questions first for Tony I'm glad you mentioned that vision fund I was curious just to ask a little bit more about the prospects for Blackstone with a similar fund I mean if you believe that we are currently in a fourth Industrial Revolution big data AI you know Blackstone could be uniquely positioned to have a vehicle similar to that and that quantum of capital I recall being met with and maybe some incredulity at the time it was announced yet it has been deployed with a plum so I'm just curious if you've looked at that I didn't see that at the you know in the new initiatives you know could it could it be on the radar and then secondarily for John or really for anyone else separately an infrastructure that's been a theme we've heard a lot about for a decade or more yet I think deployment has come a bit slower and I'm just curious as to your view being in the business as to why and how we surmount those challenges going forward Thanks okay well I guess no we haven't really thought about a vision fund I think our ability to replicate that it would be very hard to do so however I'll let John talk about this but I think you will see the firm leaning into technology and so when he answers the infrastructure question he might comment about that yeah I would say generally Tony touched on it that a push towards more growth orientation at the firm I think is really important over time life sciences is one of those legs I do think we have to do more in growth equity we've done some of that in tactical opportunities we've done some of that with Joe and private equity but I think having more dedicated capital in that areas good actually think Asia where we just raised two large funds is another area where there's more growth so growth overall I think is important in the world as investors as it relates to infrastructure you know the challenges in the US it's interesting we have a free market in many things but not when it comes to public infrastructure and so Europe and Canada and Australia are much more open to private ownership of public assets some of that may be changing as a result of needs but there are also other things like capital needs of utilities with the shale revolutions creating in terms of needs for midstream assets so when you look at and Tony had good stats on this just the aggregate needs of several trillion dollars of infrastructure in the United States I think that's gonna fall this market open and we've begun looking at investments we've got some interesting pipeline some interesting larger opportunities so our confidence about deploying the capital over time is pretty big great thanks Gerry O'Hara Jefferies just drilling down on the GSO business for a moment direct lending and private debt are increasingly in demand and as a result attracting clearly more competitors can you talk about how you're positioning for this demand and perhaps any differentiate approach you're taking within the private debt segment thank you where's the questioner okay yeah I was just yeah I was you it's hard cuz of the mic I was just gonna say that I think the biggest advantage Jaso hasn't white touched on it is just scale that as the market gets more crowded the ability of gso to show up and write 750 billion and a half two billion dollar checks is a huge competitive advantage and the ability to understand complexity and go into markets where you need real expertise energy is a great example of that what we do in Europe I think is another great example of that I think the the domain expertise we have within gso and then again across the broader firm huge competitive advantage and then the scale we operate at so yes we're seeing more competitors but the deal flow we've been seeing I would say over the last three or six months is probably as good as we've seen in a long time yeah I would just add a couple of things first of all don't forget we built the largest BDC in the world which which we sold but but that was that was that was that was we that built that and we're confident we can rebuild that I would also say that historically we have not had a place for kind of investment grade private credit that are originated in that same process by GSO now with insurance and with the Direct Investing part of BAM that John talked about we will have a POC we will have pockets actually large pockets for that kind of paper too so we can be an omnibus solution that really no one else is situated to be thanks its prime adult or check again a question on financial reporting is we think about the measures of economic net income which you guys obviously stirred up back in 2007 versus distributable earnings obviously which is much more durable and meaningful metric um how do you think about the future of that Eni reporting you see KKR discarded obviously and seems to be working for them do you see yourself also substantially de-emphasizing that to the point where a consensus would really be refocused on distributable earnings I'll take that I mean to today our goal just stepping back is obviously to provide as much information and transparency to understand what's happening our business and I think in that spirit Eni and de in our view I guess we did author these these metrics do tell you different things in sort of the short to medium term ultimately over time they should converge but in the short and medium term Eni is a predictor of obviously what's changing in terms of the value of what you own realized or unrealized if you like the carry receivable you know metric is sort of a true north of what our marks are and I obviously basically measures the change between them so they're sort of I think no getting rid of them they're both I think very meaningful there's a question of emphasis or D emphasis the idea of sort of simplification of our metrics for easier consumption by markets is a something we are obviously open-minded about and think is a good thing balanced against giving real information to all of you I also think different companies are differently situated some might be you know bit a bit more volatile from any and I standpoint because of the structure their business and their balance sheet exposure etcetera so different people make different choices we're open-minded for now we're gonna stick with with giving you both as well as other metrics yeah I was just gonna add to that that if you eliminated Eni as a metric and I think de shows our cash generative abilities so obviously very important and we put a little more emphasis on it but if a deal closes one order a day later on October 1st versus said you know September 30th the D looks dramatically different so I think you need that e and I is another tool to understand what's happening and then just follow up from a segment reporting perspective right now they're they're organized by investment type if we think about obviously you're in a lot of different distribution areas with a lot of different opportunities if we think about a potential new segment I guess on the lines of infrastructure do you ever see that becoming so large that it's its own independent business segment from a reporting we certainly would hope so you know for us it's a function of how these businesses grow over time and our is what's happening within that business sort of masked by the way things are reported so I think it's a function of scale ok bill kassig on the off side um just coming back to the growth opportunity you had spent a lot of time today on the de novo opportunity for the franchise but you also spent some time on acquisitions Tony talked about your successful track record on that where if any are all the gaps that you looking strategically from an acquisition perspective on the blackstone balance sheet if you will and then how does retail fit into that since you're focused incrementally on the form 1 Cayne DC side do you need a larger manufacturer or that distribution footprint to help hit your goals well also guard maybe I don't think we have any gaps that need filling we might find some opportunities that we fill but we're not you know we don't feel like I mean that we need to be in places we're not retail distribution like like a like a securities firm or something like that we don't feel we need that at all we don't feel we need to be in the long only business frankly there may be some niche lung only businesses we'd like I suppose you could argue that harvest is one of them but they they're there's sort of hybrid businesses but we don't feel like we need to be there and I don't think we need to be in places we're not like commodities so we've looked at all these things over the years I think we have a very robust product set and there will be other opportunities but they're more optimal positive opportunities than nedra and I was just gonna add that small acquisitions the best model for us bill is to buy something relatively small like SP was at the time frankly gso was and then put it in the Blackstone system our distribution our brand and then the business grows really large for us to go out and pay for lots of AUM which we can manufacture ourselves at a much lower cost doesn't make sense so we will do I think small tuck-in acquisitions as Tony describes but will be I think reluctant to do bigger things Mike Cyprus more instantly just to follow-up question here actually two quick ones stone capital allocation policy just curious latest thoughts around that maybe it's more optics but right now you pay out of eighty five percent is there any thinking around just maybe paying out a fixed component of distribution and then have some sort of arable component on top maybe that's more optics and then second question maybe more from Michael just in terms of the little bit of a nuance change in that Ferrari with that sort of added piece and just gives you could talk a little about any new disclosure that may come alongside with that well I think on the change of this references I think the prior question in terms of disclosure you'll see what I would call fee related perpetual capital net performance fee revenue that you know that qualifies under the criteria mentioned move into fre and it will be distinguished for management fee revenues in me in the non-gaap P&L so you'll have that that clarity I think on capital allocation the short answer is today where we like and we're committed to our distribution policy hi Rob Lee KBW thanks for taking my questions everyone's questions first question on TAC ops so as as the firm has you know done a very successful job of creating new product lines new categories of different return profiles to what extent do you actually run the risk of crowding out TAC ops as there's more overlap potentially with different strategies and different phone in different places and how do you kind of manage that that risk well I would say and David did a good job describing it it's a big investment world and there so often things that just don't fit in other parts of the firm so some of these preferreds and companies that have participations a sponsor wants to do a recap wants to keep the upside can't borrow enough needs to get something between debt and equity TAC ops is perfectly positioned for that there's a bunch of legacy structured finance specialty finance businesses that don't necessarily fit in gso or private equity again TAC ops is perfect for that so we haven't found today that it's been a problem if anything what comes off the rest of the investment businesses creates a lot of opportunity and as a firm the real thing that's changed is before we were just in these high-octane opportunistic real estate private equity business and so much of the investment world we didn't look at now when somebody comes in we can talk to them about a range of everything we can talk about senior debt junior debt preferred participating preferred control equity blitzen TAC ops does some minority private equity which we wouldn't do elsewhere in the firm so we're not finding a crowding out if anything we're finding a benefited synergy of having these different investment vehicles and they can also play in non securities they can buy ships and spectrum and insurance policies and royalties on patents and things like that so there's a lot of non security stuff that no other fun is gonna touch thank you maybe question for Steve and required up there so far so I'm just kind of curious and given your view of the world did you look at obviously whether it's potential trade war with China whatever it may be you know what do you see is the major or are there anything out there that keeps you awake at night in terms of the rail this over the next you know couple of years well I was up at 4:30 morning so obviously things do keep me up at night yeah or at least wake me up early that I wanted to say before I answer that just thank you for everyone being here today and you know investing with us or analyzing us and it's it's it's it's privilege to have you here but but for me just sort of watching my partners and colleagues perform it's an astonishing experience such gifted people such well conceived businesses such enthusiasm such integrity such intelligence such remarkable people six tenths of one percent joining the firm you can't imagine that I mean Harvard's five five and most people think it's hard to get into Harvard I didn't do it what are the Charlotte scholars swordsmen scholars you're 35 you know but you know it's it's amazing what we've done and I'm in awe of the people who work at the firm and what we did I think this is the quietest I've ever been in my life other than being on a boat alone so so you know but it's fun for me to listen whether it's Michael John Toni everyone who's presented it's it's an astonishing life's work if you will it's pretty amazing in terms of what keeps me up I I think the global economy is quite good led by the United States we're the whole decontrol deregulation trend as opposed to the previous trend is a really good one the tax reform is is a bit front-end loaded but it's paying real dividends and you know if you look at unemployment being at record lows confidence being at record highs you know really it's sort of easy to have a very positive conclusion you know but but there is like all times in the world there's always odd stuff going on you know whether its geopolitical stuff is what worries me the most you know you look at odd things like Turkey you know sort of blowing a part over one person you know you've got some really bad outcomes there and and even though you have a wonderful government and in Argentina with president Macri you know they're they're really going through a you know sort of suffering there despite the fact that they've improved their deficits but but on a broader sense you know sort of the nationalism tribalism the the breaking to to either the right or the left in the developed world is is concerning as a trend there there used to be centers in almost every democratic country and now the concept of the center is really being tested and and as things lurch from right to left populism grows you could end up not particularly for Blackstone but but more for business communities in the broadest sense with some outcomes that that aren't as expected not as predictable and and so this area rather than the the laws of normal supply and demand I think are the biggest biggest risks that that we face and and we we spend time I spend personal time on these because I like to flow to where I see you know sort of the stuff that can affect us you know the firm and as as a country and and I think these are these are big trends and you know almost every country's dealing with it and you can go over in Europe and every other place and and you know US has its own version but you know I think one of the challenges for for people of you know sort of the next generation if you will and our generation in the business community is find a way to have some normalization it's it's going the wrong way I think and and you know leave aside all the good metrics and good metrics are here for the moment and they'll stay for a while and I think we've got forward momentum in the United States you know certainly for the next few years III don't know when that game ends it usually ends with some event that you didn't plan on you knows you can you can have a normal business cycle or you can have other things that that interrupt it and so we're you know we got some frame for for geopolitical reasons that that you know hasn't yet been reflected in in the numbers and I think we're gonna have to find a way to move that back you know anyhow that's probably a longer answer than you wanted about what what concerns me thank you ladies and gentlemen that concludes our question and answer session

Channel: Blackstone

Views: 37,019

Rating: 4.7964072 out of 5

Keywords: blackstone, investors, investment, private equity, real estate, private credit, credit, private real estate, schwarzman, jon gray, steve schwarzman, stocks, finance, hedge fund, hedge funds, mccormick, john mccormick, dwight scott, kathleen mccarthy, ken caplan, capital markets, tony james, life sciences, infrastructure, insurance, institutions, institutional investors, private wealth, investment returns, alternative assets, asset management, emerging markets

Id: HtraTO0Xhaw

Length: 227min 17sec (13637 seconds)

Published: Tue Oct 02 2018