Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blackstone Inc (BX, Financial) reported GAAP net income of $948 million for the quarter.
- Distributable earnings were $1.3 billion or $0.96 per common share.
- The company deployed $34 billion in the second quarter, the highest level in two years.
- Blackstone Inc (BX) has nearly $1.1 trillion of assets under management (AUM).
- The firm is positioning itself to be the largest financial investor in AI infrastructure globally.
Negative Points
- The office sector remains under substantial pressure with more troubled assets likely to emerge.
- Fee-related performance revenues in the real estate segment declined, impacting the firm's FRE margin.
- The fundraising environment has been challenging, particularly for real estate.
- The redemption queue for the core plus institutional business has seen a slight pickup.
- The European market for private wealth products is more challenging due to regulatory constraints.
Q & A Highlights
Q: It was nice to see the sharp pickup in both deployments and commitments in the quarter. Do you think we'll likely see further progress in the second half, or is the current run rate sustainable?
A: Jonathan Gray, President and COO: It's hard to put an exact number, but there are positive signs. We have $19 billion committed at the end of the quarter, indicating a lot of activity. Our equity strategies are picking up, and we are seeing good activity across various sectors globally. The overall trend lines on investing are positive.
Q: What areas do you think will be the soonest to come back when it comes to real estate fundraising, and what is your broader outlook over the next 12 to 18 months?
A: Jonathan Gray, President and COO: Sentiment for real estate has been negative, but we've raised significant funds for our latest opportunistic European and Real Estate Debt Funds. Investors are cautious, but the tenor of conversations is improving. Differentiation in performance will drive significant capital towards us over time.
Q: Can you frame the opportunity in asset-backed finance and remind us what you have on the ground already?
A: Jonathan Gray, President and COO: Asset-backed finance offers higher returns in investment-grade private credit by eliminating distribution costs. We have partnerships and flow agreements with banks and are seeing a big pickup in volumes. The build-out of AI infrastructure will also be a significant area for asset-backed finance.
Q: With the US election approaching, what do you expect to be the biggest impacts on Blackstone, and how could different outcomes affect the environment?
A: Jonathan Gray, President and COO: Investors are more focused on the economy and inflation. Post-election, there could be differences in regulatory policies, energy approaches, and tariffs. However, we focus on long-term trends and delivering great returns for our customers, regardless of the political environment.
Q: Should we expect a step-up in the FRE margin in 2025, excluding the impact of fee-related performance fees?
A: Michael Chae, CFO: The underlying trajectory for margins is stability in the near term and operating leverage over the long term. Key variables include fee holidays and fee-related performance revenues. We expect full-year margins to be stable relative to last year, with potential for operating leverage over time.
Q: Can you talk about deployment opportunities and competitiveness in private equity secondaries?
A: Jonathan Gray, President and COO: The need for liquidity in alternatives is growing, creating a secular opportunity. Our secondaries business has grown significantly, and we feel confident about raising our next flagship fund. The long-term track record is strong, and we expect continued growth in this segment.
Q: Can you expand on the fundamentals you're seeing in real estate and the broader environment?
A: Jonathan Gray, President and COO: Fundamentals in apartments and logistics are strong, with low vacancy rates and declining supply. The cost and availability of capital have improved, leading to more bidders and price stabilization. We see this as a favorable environment for deployment and future growth.
Q: What's happening with the redemption queue in BPP, and how do you see inflows and outflows evolving over the next 6 to 12 months?
A: Jonathan Gray, President and COO: We've seen a slight pickup in the redemption queue, but it's still single-digit. Inflows may be muted in the near term, but as real estate performance improves, we expect sentiment to shift positively. Over time, we believe investors will recognize the value in our portfolios.
Q: How do you see the evolution of the wealth management opportunity given increased competition?
A: Jonathan Gray, President and COO: The wealth management market is large and growing. Our brand, scale, and first-mover advantage position us well. We continue to innovate and deliver great performance and service. While competition will increase, we believe our established presence and commitment will drive continued success.
Q: Can you explain the gross to net flow gap in AUM and whether this is a trend we should expect more of?
A: Michael Chae, CFO: There has been some shift in capital allocation between businesses and segments, but it's not expected to be dramatically different over time. The nature of the business involves some movement, but the overall trend should remain stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
