Blackstone Group L.P. Aktie

All right. Well, good morning, everyone. Welcome to our fireside chat here, keynote fireside. I am Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And we're excited to have with us Jon Gray, Blackstone's President and Chief Operating Officer for our keynote here this morning. As many of you know, Blackstone is one of the world's leading investment firms with over $1.3 trillion of assets under management. Jon, thanks so much for joining us and back at our conference.

Mike, I am excited to be here. .

Great. Well, why don't we open with the macro. I'd love to get your thoughts there. The first half of the year has seen a lot of volatility and uncertainty from AI disruption concerns to private credit fears, all while the conflict in the Middle East continues here. So what's Blackstone's house view on the state of the economy?

The economy has been much more resilient than people expected. And this really goes back over time. If you went back to 2020, we obviously had COVID. We subsequently, the following year had the Russia-Ukraine invasion. We had the Silicon Valley Bank shock, which was more relevant to the folks in this room than the broader economy.

We had Liberation Day last year. This year, the Iran war. And each time the global economy, particularly the U.S. economy, has powered through and the year ended more in a better spot than people expected. And I think the same thing will happen here. I think there'll be some sort of resolution and the underlying strength of the economy will stick.

And we said it in our first quarter call, but our private equity companies had 10% revenue growth in the quarter, which is remarkable. It's definitely weaker in Europe, but I would say, overall, the picture is quite good on that front. On the inflation front, obviously, we've got near-term headwinds from energy prices, still some lingering impact from tariffs.

But if you look at shelter costs, which are the biggest component of CPI, I would say they're running in the low 1s versus government data in the low 3s, and that will be helpful to the new Central Bank chair, particularly after the wars in the rearview mirror. And wages for us have gone from, call it, 5% in the U.S. 2 years ago to 3%. So again, that's helpful. I think the picture after the war ends will be better than I think most people realize.

So I think that's another positive. But the big thing is this massive CapEx boom that's going on. Five companies spending $800 billion and then obviously, companies like ourselves spending enormous amounts of money on both digital and energy infrastructure. And that's just going to create a lot of jobs. I mean I really believe there is a blue-collar job boom ahead here. And we see at our company, QTS, which a little over a year ago, had 10,000 people working on its job sites on its data centers.

And we think by the end of this year, we'll have over 40,000. And so I think that is obviously a real positive for the economy. And then the next thing that I think is going to come is a productivity boom on the back of this super intelligence starting to get diffused into the broader economy. We got a taste of this, obviously, back in the 1990s when we all went online. I think this is going to be much bigger, much broader. So it's overall, I would say, a more constructive picture than I think what you read in the headlines.

The asterisk I'd put against this is there is going to be significant disruption and change across a wide range of industries. And obviously, it's going to impact professional services, information services, software. It will roll into, I think, the automotive industry with autonomous vehicles. And so as an investor, it is harder to deploy capital because you have to think about a world that may look very different than the one we see today. But the overall picture collectively, I think, is more positive. And again, after the war settles, I think people will begin to focus more on that.

It's interesting. You mentioned disruption change, harder to sort of I guess, for folks to underwrite to invest with confidence as we go from here, which is a kind of a good segue. I hope you could touch upon that as well. But just given your macro view, how is that translating to deployment here? Where is Blackstone leading in? How are your deployment pipeline shaping up here in the second half? But then how are you incorporating and reflecting upon these sort of disruptions?

I think you have to incorporate it. I mean we had a busy, I think, first quarter, $36 billion that we deployed in the quarter. If you say the areas we're focused on, it will not surprise people, AI infrastructure is the top of the list. I mean AI for us is all about infrastructure. Those are what the initial say. And for us these days, I mean, if you think about it, it starts with the energy where there's just enormous demand.

Today, obviously, it's data centers over time, autonomous vehicles, robotics. And so we're across that whole value chain. What does that mean for us? It means renewables, it means pipelines, it means LNG, utilities, electrical equipment, utility services, what had not been the most exciting businesses have become very exciting for us. So that whole area, I think, we'll continue to see a lot of capital deployment for us.

And then, of course, the data centers, where we have become the biggest investor in data centers in the world. Today, we have, I think, $160 billion of either standing or leased and under construction data centers and a pipeline that's basically equal in that in size. And there, we think we're doing it in an incredibly responsible way where the capital is going in the ground for the vast majority of the capital when you have long-term leases, and we think that's going to pay huge dividends for our clients. I'd say beyond AI infrastructure, a number of other areas.

Secondaries for us, a business that crossed over $100 billion in AUM in the first quarter. There are LPs out there who would like to see more liquidity, particularly some of these areas where it's harder to get liquidity like software, I think will motivate some more sales -- the market anticipation is there'll be $250 billion, a record year in secondaries.

And so we continue to like that business given the scale of our platform. I would say on the credit side today, on the investment-grade credit side, there is a ton of activity, a lot of it tied to, again, the AI infrastructure. We announced this morning a big transaction with Broadcom and Apollo and a potential to do much more. This was a $35 billion transaction, and they said it could be up to 20 gigawatts over time, what they want to do.

Huge capital needs in that area, particularly investment-grade private credit, but there's often a junior piece associated with it as well. We're doing a lot around pipelines and LNG in that area. And then I would say globally, I think Japan, where I was last week, very exciting. India, although some headwinds in IT services is a country working off a very low base GDP per capita and embracing capitalism. We have a leading position there. So we're excited about that.

Life sciences is an area. We announced a big transaction a couple of weeks ago with Apogee. We have a bit of a unique platform in that space. And then the sleeper here, I would say, real estate, where after four pretty tough years, we're getting closer to the turn. And so you're seeing us deploy capital there in what I think will be a sector that over time here over the next year or two will surprise people. So lots of interesting places, I would say, to deploy capital and the near-term dislocation because of the war, the uncertainty, that is creating some more opportunities.

So you mentioned a number of themes, and we'll come back and dig into a number of them. But first, I think you had called this the year of the IPO. Do you still believe that to be the case? And beyond IPOs, how are you thinking about exit opportunities here? Do you see yourself as more of a buyer or a seller over the next 12 months?

Well, I would say on the IPO market, the overall picture is pretty good. It may not when the war started. And obviously, the war is a huge humanitarian challenge, and we'd love to see that resolved as quickly as possible. But what I would say is the IPO market has really found its footing. I mean we've got three of the biggest companies, private companies in the world likely to go public now. We fortunately own stakes in all three through our private wealth vehicle, one of our private wealth vehicles.

I would say, in addition to that, we're seeing real receptivity. We had our third IPO of the year we did last week with Liftoff, a company in the mobile advertising business. We have seven more IPOs on file globally in the U.S., Europe and India. And we would expect, hopefully, many, if not all of those will get done. And I -- the one caveat I'd put around it is I think you have to break up the market into three component parts. I think the first part of this are AI winners.

That's obviously a part of the market where you're in that value chain where there's a lot of interest and getting an IPO done, I think, is fairly easy. The middle part, I would say, is AI unaffected businesses where as we get the equity markets stay healthy, I think there's real openness to medical supply businesses. We took Medline public, fast food companies, businesses perceived as not impacted by the change that's coming.

I think the third area, which I'll call sort of the white collar world, information, professional services, software, that's probably a little bit harder. And there, I think you'll see less IPO activity. I would say, overall, on the realization front, we had a very strong first quarter. I think net realizations were up something like 26%. We said on our call, obviously, the war slowed things down near term. But when we look out over the back half of the year, again, particularly if the war moves to the rearview mirror here, I feel pretty good, given the quality of the businesses and some of the areas we've really leaned into. And I think we will, over time here, generate what I think are very attractive, both performance fees and realizations for our shareholders.

So maybe more of a buyer near term, but next 12 months, maybe more of a...

I think it's a bit of both. I mean, in our business, there's always a bit of both. There's just -- what happens when you have a moment of dislocation, it slows things down. And then you go back, you restart that IPO pipeline, you restart the marketing process. It just takes a little bit of time to work through the system. I think the key thing is that the underlying fundamentals, the 10% revenue growth I pointed out is that the businesses for the most part, are performing very well. And then our concentration in what I think are the most important sectors has been very good. So I just have a -- I have a view that over time, we will see this acceleration in realizations. And that definitely gives me a bit of confidence. And I would say the strength of the IPO market is definitely reassuring in that direction.

Great. Why don't we shift and talk about fundraising. Blackstone has a number of flagship funds in the market or that are coming to the market. So how is fundraising shaping up so far this year? And what are you seeing incrementally -- where are you seeing incrementally greater client demand?

Yes. So we have three channels, R3Is, Institutions, Insurance companies and Individual investors. And we see pretty good strength across all 3. We raised about $70 billion in the first quarter. On the institutional side, where there's often a lot of press that there's some sort of pullback, that is definitely not what we've seen.

Year-to-date, we've announced 3 funds that exceeded their caps in high-yield private credit, in life sciences and in Asia private equity. And these 3 funds had something like $30 billion of investable capital and demand was in excess of those fundraises.

We have a number of other vehicles out there in secondaries, energy transition. We continue to see real receptivity from clients on the institutional side, pension funds, sovereign wealth funds. Obviously, you have to deliver strong performance, but we're seeing that area as an area of continued strength. It represented half of our fundraising or inflows in the first quarter.

We think it will continue to be a source of strength for our business broadly across our platform. I would say on the insurance side, there, it still feels like early days. Our AUM in Q1 was up 18% year-on-year. And given that insurance assets because they're credit assets virtually entirely don't appreciate, that's really just organic inflows into the business. And there, again, as you know, Mike, we're not issuing annuities.

We're not doing anything taking on liabilities. This is just a third-party investment management business. And the clients are responding to this open architecture model. They think that it works. It definitely works for us as a firm. It works for them as clients. The scale we're able to produce and the premium returns at the same or higher ratings has really benefited them.

Last week, when I was in Japan, we announced a $9.5 billion partnership with Nippon Life, who is the largest insurance company in Japan, something like $600 billion of assets. They serve 15% of the population. That's a partnership that's grown through Corebridge and Resolution, and we've been building over years. And I think it just speaks to how this investment-grade private credit is expanding in Asia, in Europe, in the United States. Today, we have something like 35 different clients in that space. And it still feels like early days, particularly when the liquid corporate market is so tight when you can earn less than 100 basis points on a BBB corporate.

And so the premium we're able to deliver in the private market on rated debt is meaningful to these clients. It's something 170-plus basis points to them over the last year. So we think that's got a long way to go. And then on the individual investor side, remarkable resilience. We had a strong first quarter.

We then had the war and all the noise on private credit, which was obviously very loud. As you've seen in our filings, things in the April and May period, April 1, May 1, we saw a slowdown. And yet by June 1, we were up 50% back to the levels we were in the first quarter. And we -- now it looks different because we have lower flows in credit right now, given the noise.

But when you look in private equity, June 1, we had the great -- the best inflows we had since we launched the product. And I just think there's an underestimation of the power of this wealth franchise we're building. The breadth of it across real estate and private equity, credit, infrastructure, the return premium it's generated for customers and the way these structures have worked well.

We saw it through the BREIT period where there was a lot of negative press and yet we delivered this incredible premium now 40-plus percent annually for nearly a decade to customers. I just think there's a lot of focus on what's happening in one particular product at one particular moment. We're looking at the entire thing and the power of our brand in that channel and the power of the relationships we have. So I would say we have significant confidence in where that can grow from the $310 billion we have today.

And we'll come back to private wealth in a moment. But first, AI, which AI-driven compute has become a major investment theme across the private markets. You mentioned your large data center business, which is the largest in the world. It seems like you're leaning in even more to AI, the overall ecosystem following some of the announcements over the past few days and weeks, including with Google and [indiscernible]. So talk about broadly how you're positioning Blackstone across this broader theme. And at what point does your exposure become too large?

Yes. Well, I think if you buy into the idea that super intelligence at low cost, broadly available to every consumer and business in the world is going to have a powerful impact. The way electricity, automobiles, the Internet will profoundly change our lives, then you want to have significant exposure to this.

And we have made a strategic decision to invest broadly against this space. But doing it, I would say, with significant discipline. If you look at the vast majority of the dollars we're putting in the ground, to your question, Mike, we are focused on long-term contracts with some of the biggest companies in the world.

So these data center leases are 15-plus years in length, similar with many of the energy projects we're doing, often with the same hyperscalers as counterparties. Some of the electrical equipment is obviously a picks and shovels play. You're not necessarily picking the winners and losers. But we do have -- we have made investments in the large language models.

We are investing in application software companies. We just have a fundamental view that for our clients, we want to get more exposure. So all in on electricity and the need for turning molecules into electrons, all in on the data centers, but doing it in a very disciplined way and then going further now with neocloud. So this partnership with Google, we think, is remarkable.

We're putting $5 billion across a variety of Blackstone funds to accelerate their deployment here with technical expertise and financial capabilities really to create something that looks like CoreWeave, who's been and will continue to be a great partner of ours in the GPU world, but to do something here in the TPU world with Google's chip, we're playing across the space.

We think that is very interesting. We also think it says a lot about how we're seen by the hyperscalers that Google chose us to be the partner there. We took public a data center business, blind pool fund to own stabilized data centers. There are now going to be hundreds of billions. My gut is trillions of dollars of these, and there's not a natural home. We were able to get that done in the public markets, and we're enthused about what can be done there.

We, as I said, are investing in some of the promising technology companies, although it's smaller scale, some of our growth in our private equity wealth vehicle. And then finally, with Anthropic, again, we created a partnership with them. I think given our scale, the number of companies we own that we're going to try to bring their incredible large language model technology to our companies.

And the biggest challenge today beyond coding is how do you change business processes and use this technology to become much more efficient. And so partnering with Anthropic, we believe will accelerate it for our companies. We also think it will be a good investment as well. But when you look across this, I think what you see is a firm that's made a strategic decision.

And by the way, on the credit side, look at the Broadcom announcement today, look at all the things we're doing in energy, data centers, GPU financings, it's pretty massive as well. What you see here is a firm who's made a very significant strategic decision. I think what you're going to see over time is very strong performance as a result for our clients, which, of course, leads to performance revenues, realizations and more inflows.

And when I think about Blackstone, we're probably the least expensive way in the world to play what is happening in AI today. And again, I think people are going to be surprised by the dividends this is going to pay for our investors and our shareholders.

So let's turn to AI at Blackstone and the portfolio companies. You were an early mover in implementing an in-house team of data scientists. I think that was maybe even 10 -- over 10 years ago. Can you talk about the AI use cases at Blackstone today and how it's contributing in-house and across your portfolio companies?

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Well, look, this is top of the list for us. We have an operating committee offsite coming up, and this is what we're focused on. It's at multiple levels. At the portfolio company level, how do you make the companies better, what we're talking about, what we're building with Anthropic, but then individual businesses, how do we make the customer experience in ancestry much more dynamic where you get your family history, not just in letters, but in a video and music, how do you do grading diamonds using this technology or with Chamberlain, our garage door business, how do you identify the right people, the Amazon person to drop the stuff inside of your garage?

How do you take an accounting firm and transform what they do in accounting and tax. So lots of focus there. At the Blackstone level, obviously, coding, we've seen a bunch of pickup there, but it's also how do we do things like compliance. We invested in an exciting company called Norm AI to try to do our marketing compliance using these tools to be better, more efficient. How do we gather information off our portfolio companies. We have all these board packages and data feeds.

How do we use the fact that we own more businesses, real estate than anybody else to be even better investors and have more real-time data. We're also -- before we're doing investment committees, frankly, early on in the diligence process, we're dropping the information into AI, getting a bunch of questions generated. I myself on the weekends when I read my investment committee memo, very exciting weekends.

What I do now before I send out the 7 or 8 questions, I'll drop them into the Copilot and just say, "Hey, is there -- is the answer already here?" and I'll end up cutting 1 or 2 of the questions off because it is embedded somewhere in the memo. And so I would say it is a mentality at the firm that we have to get better.

And I wouldn't say we're best-in-class, we're leading the way, but I would say the focus at every level is there. And then super importantly, thinking about businesses we're looking at buying. Is this business on the right side of history? Is it on the wrong side of history? Maybe it's a business that is done in sort of an analog way, and it's got to move to AI, but it has super valuable incumbency.

And I think you'll see that with some of the software companies, but they need to transform. And do we have the right leader and strategy to do that? Are there other businesses that can be huge beneficiaries of the tailwinds that people don't see because it's 1 or 2 derivatives off. We've been buying lots of real estate in San Francisco. Obviously, that is a very interesting way to play what is happening in AI, 1 or 2 derivatives off. So I think it's mission-critical for us as a firm to get this right, and we are focused on it, but it is still a work in progress.

Great. Why don't we shift and talk about private credit, which continues to be an area of focus for the investor community and the press after a number of widely reported credit events over the last 9 months and then concerns around AI disrupting software companies and then evergreen direct lending funds prorating investor redemptions. So how are your direct lending funds navigating this backdrop? And how do you see the opportunity set evolving from here?

Well, I think the town cryers of private credit doom are going to be disappointed. Had they come out and said base rates have come down. These are floating rate products, and there have been some spread compression, some older vintage deals, particularly for '21, there'll be some losses.

And yes, there's going to be disruption in some of these businesses, which may create some incremental challenges. And as a result, the returns from these products are going to come down a bit versus what you'd achieved. That would have been totally credible. But the idea that these products, which if we use our BCRED as an example, which is less than 1x leverage versus a bank that's 13x leverage that made 40-ish percent loan-to-value loans that had 700 different borrowers, where EBITDA at the companies, its borrowers was up double digits. Debt service coverage ratios have gone up 20% and we're in a healthy economy, the idea that we're going to see some sort of massive financial crisis coming from that, that just doesn't add up.

And what they basically did was go out there and tell everybody, look at this, this is going to be a crisis, and they've driven redemptions higher in the near term. And obviously, some of these are financial institutions. Some of these are long-only fixed income managers. They don't love the development that's happening. But at the end of the day, what is private credit in the non-investment-grade world, true in the investment-grade world, we're essentially taking investors and just bringing them right up to borrowers.

Like Amazon does with your goods, we're knocking out a bunch of origination, financing, CLO costs and the end consumer here, the investor gets a higher return. And the borrowers, in most cases, get more certainty because you're in the storage business, you're not in the moving business. And the system gets a huge benefit because it's done on a much less leverage basis, particularly around noninvestment-grade credit. So this is a very sound thing that's happened.

It will continue. Interestingly, with our institutional clients, we said this on our first quarter call, we continue to see a lot of demand for these products for investment in private credit. And then I would say on the investment-grade side, to me, that's an area that still has significant potential. And again, the clients want to get higher returns at the same or higher credit ratings. So I think we'll look back at this over time and say, that was an interesting moment in time. There was -- the level of hype relative to the reality were very different.

Great. Why don't we shift and talk about private wealth, dig in there. It remains a major strategic focus for the industry for Blackstone, particularly through your series of evergreen vehicles from BREIT to BXP and many others. How do you anticipate flows trending across the wealth channel as you look out over the next 12 months? You already suggested the recovery in June, which is quite encouraging. How do you think about the flow dynamic over the next 12 months versus next 5 years? And what products or innovations could be very meaningful as you think about driving that next leg of growth, maybe even transformative in terms of meaningfully expanding penetration?

I think the key thing here is that individual investors look and feel in a lot of ways like institutions. They have long-term time horizons, and they can afford to trade away some level of liquidity for higher returns and the benefits of diversification. They get access to some of the fastest-growing private companies in the world that they otherwise couldn't touch.

They get access to much of the real estate and infrastructure that's not in the public markets. They get that premium in credit -- returns and credit relative to liquid leveraged loans. And so it's a logical thing for them to do. And so we have been at this now for almost a quarter century. We have $310 billion, which I think is multiples of our nearest competitor. We have a brand that is highly respected amongst financial advisers and their end customers.

And most importantly, we have delivered exceptional performance to our clients. I talked about it in the context of BREIT, the similar story with BCRED, 60% premium over 5.5 years to leverage loans, similar story with our other products in private equity and infrastructure, which are younger, we're delivering very strong performance, and that's what matters.

And so when I look at this and I see how low the level of penetration is, our institutional clients are, call it, 1/3 allocated to privates and individual investors is $140 trillion of wealth is something like 1-ish percent allocated. And so the fact that we are the market leader in this space and that the space is so early in its evolution. To me, that's very promising. Now we're going to continue to grow our institutional business in a big way, but this is early days.

And again, we're doing it on a capital-light basis as an investment manager based on our brand. And what we love about these products is the money stays in and it compounds. And what's important is we've now been through -- we went through the full real estate sort of shock back 3, 4 years ago. We're now through -- we're not done yet, but we're going through this credit cycle.

And I think actually, these shocks are important because they show the world that the products fundamentally work. That over long periods of time, you get your capital either monthly or quarterly when you want it. And then for some short period of time, a year or so, you may be in a period where it takes you a longer period. It takes 4 months, 6 months, 9 months, whatever that is. And in exchange for that, you get a meaningfully higher return.

And if financial advisors see that over and over again over time, it gives people more confidence. So as painful as it is to go through these experiences, I think it's healthy for the system. It ultimately leads to some shakeout. And for us, again and again, delivering performance for our clients, which we have done, builds the foundation for our future growth. It's the story with institutions, insurance companies, and it's definitely the story for wealth as well.

So bullish on the multiyear outlook for wealth given the under allocations and the performance you've outlined. Are there particular innovations or products or areas that you think could be most meaningful in driving that next level of growth? And maybe you could also touch upon models to what extent tokenization might help unlock this movement here or even the DC?

Yes. I think there's a lot of white space here. You start with the fact. We still haven't brought our whole platform online. We will have a hedge fund absolute return product. We will also create products here that have multiple Blackstone vehicles. So I think of it as sort of Blackstone in a box. We've announced this collaboration with outstanding firms, Wellington and Vanguard in the liquid space, where we bring private and liquid products together with a one-stop solution.

Ultimately, over time, we think retirement accounts as we move from a country that was primarily DB to DC, why should we exclude individuals from these products if it's done in the right way, ERISA compliance, a minority of their assets, all sorts of fiduciaries involved, making sure that this is done in the right way. And we would think a firm like Blackstone would be uniquely positioned. So to me, you will see us continue to expand and then there's geographies.

So I mentioned I was in Japan. I think there's a lot of opportunity there. Canada, Australia, Asia, the rest of Europe, certainly in the United States. It feels to us like very early days. And so again, if we can deliver a premium experience for the customer, we can offer it in a variety of ways.

And I think just like you went back in time with institutions and when we did private equity 30 years ago, it was this exotic thing, small club with a small number of people, I think private assets have the same opportunity over time. Again, you've got to operate in the right way with transparency, valuations, performance, all that matters. But if you do that and you have a brand like ours, I think the potential is quite significant.

Why don't we shift gears and talk about real estate, which is a large business for Blackstone. How is the higher rate environment impacting the recovery in real estate? And as you look out, how active might Blackstone be on both the deployment and the exit side?

So there's no question that the sharp upward movement in rates hurt the real estate business. COVID also hurt the office part of the business significantly, where we were less active. But that's had a broad-based impact. I would say the last 2 years with Liberation Day and the war has kept rates more elevated than I think they otherwise would have been.

But ultimately, it's a cyclical business, and it's not going away. And so to me, it's just a question of when, not if. We're beginning to see the sort of pillars of the recovery come together in real estate. What you're seeing here now is new supply down by 2/3 from the peak in many of the sectors in places like the U.S. and U.K. and that is starting to show up in fundamentals.

I would say logistics, the warehouse business is probably best positioned away from just data centers because of that sharp decline in supply, reindustrialization, all the building that's happening and then the movement to e-commerce. So that's our largest asset class in real estate.

I feel very good about that. We've seen credit spreads tighten, and I think investors will increasingly go back to real estate credit as they look for Terra Firma as an asset class that can offer a premium return, and they feel good about the long-term durability of real estate. Base rates coming down would help and they'd accelerate things. I think it will happen. It's not happening, obviously, in the near term. But at some point, this is coming back.

And I would say the other thing is in our conversations with investors, they're looking for something that is value and real estate is probably the least bubbly asset class because it's been out of favor for 4 years. And they're also looking for things that in the new world will exist. People will still live in homes.

They'll still go to beachfront resorts. They'll still buy their physical goods through warehouses. So I think this is a sector that's coming. Obviously, the recovery has been elongated. And for us, continue to look to invest in asset classes we like. And as the market normalizes, and we're seeing some early signs in smaller transactions, then try to move more and more towards realizations.

Great. Why don't we wrap up here, a final question on your stock. Blackstone and peers have faced some sustained pressure despite solid operating performance, and you mentioned the strength in first quarter numbers. recovery. You mentioned improvement in the June retail flows here. So what do you think the market is missing today? And why should investors have confidence in the long-term value creation from here?

Well, investors are definitely looking at our industry and us with a glass half full or glass half empty, I should say, approach. I might even say 3 quarters empty. They're obviously focused on the near-term flows in direct lending and private wealth. They're focused on a little delay in realizations here. They're focused on, let's say, an elongated real estate recovery.

I'd say our focus is that the business has shown remarkable resiliency despite those challenges. Our distributable earnings per share were up 25% in the first quarter. Our AUM has been compounding, I think, at 15% a year. Some of those things that are headwinds can become tailwinds. And then we have -- over the interim, longer term, we have just some very powerful engines.

I think this AI world and our strategic position in that world is going to, as I say, pay very significant dividends in the form of very strong performance. I think the wealth channel, as you've heard, early days, and we love our position with our brand. Insurance, the idea of doing this without taking on large amounts of liabilities and being a third-party manager able to serve a broad audience, I think that business can continue to grow. And our institutional clients are quite pleased with what we've been doing really across the pace.

So I look at all that and then I say we're producing the growth we are despite running with basically no net debt, almost no net debt, no insurance liabilities and paying out 100% of our earnings in the form of dividends and share buybacks. And when I look out over time, I think the world just underestimates what this business can be and what its earnings power can be. So we're in a moment. We've seen this.

The sector has fallen way out of favor. We're trading at a meaningful discount to market multiples on consensus earnings. And for a business of our quality and a brand of our quality, I think that will look like compelling value in the rearview mirror.

And just given the movement in public market valuations across the space, and how even private firms in the space arguably probably have derated. Is there opportunities strategically as you think about expanding footprint, any notable gaps or strategic M&A? You've done some small things.

We really don't like buying AUM, because we feel like it's really about human talent and capabilities, what we did in life sciences secondaries buy small businesses with amazing people, put them on the Blackstone platform and supersize them. We're also, I would say, always a bit concerned about cultural fit managing these businesses are hard. Yes, I do think there might be 1 or 2 opportunities.

But with us, it's going to be tuck-in. You're not going to see us do -- I think it's unlikely we'll do a big acquisition. We just think we have a very special brand that stands for something. We want to attract the best people. And if we can get those people, those talents, we can grow and build those businesses. And there is a real advantage these days to scale.

There's a real advantage with our clients. There's a real advantage with corporates. There's a real advantage in AI infrastructure. We think we can continue to grow at large scale because the market opportunity is so big, and there are so many subsets here who want more exposure to alternatives, and the alternatives are providing very healthy solutions, particularly in this new world we're heading into.

So as you can probably tell, I feel pretty good about my business. I don't love what I see on the screen, but that's life in the big city, and we are long-term holders. We're the biggest investors in this company, and our confidence remains very high.

Great. Well, we're out of time. We'll have to leave it there. Thanks so much Jon.

Thanks, so much. Thanks everybody. Thank you.

Good day, and welcome to the Blackstone First Quarter 2026 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Great. Thank you, Katie, and good morning, and welcome to Blackstone's first quarter conference call. Joining me today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Vice Chairman and Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K.

We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.

Quickly on results. We reported GAAP net income for the quarter of $1.3 billion. Distributable earnings were $1.8 billion or $1.36 per common share, and we declared a dividend of $1.16 per share which will be paid to holders of record as of May 4.

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

Good morning, and thank you for joining our call. Blackstone reported outstanding results in the first quarter, Distributable earnings increased 25% year-over-year to $1.8 billion, as Weston mentioned, underpinned by 23% growth in fee-related earnings and a 26% increase in net realizations. Inflows reached $69 billion in the first quarter and nearly $250 billion over the last 12 months, reflecting broad-based strength across our fundraising channels.

Total assets under management grew 12% year-over-year to a new record level of more than $1.3 trillion. Most importantly, nearly all of our flagship strategies reported positive appreciation in the quarter compared to declines in major equity and credit indices, led by exceptional strength in infrastructure. We achieved these results amid a volatile market backdrop, which was impacted by geopolitical turbulence, including the war in Iran and AI disruption fears.

We've also been navigating an intensely negative campaign against the private credit sector. Despite the strong long-term returns generated in this area, resilient fund structures and continued healthy demand from institutional investors and insurance companies.

First, with respect to the market backdrop, since 2020 alone, we've experienced 5 market-moving events around the same time of year. The COVID shutdown in 2020, Ukraine invasion in 2022, the regional banking crisis in 2023, the tariff announcements in 2025 and now the conflict in the Middle East which triggered the largest quarterly increase in oil prices in over 35 years. In each of these prior events, having patients was the key. When the world ultimately normalized risk appetite returned and investors refocused on fundamentals.

To that end, what we see through the lens of our extensive global portfolio, is an economy that has been highly resilient through the macro shocks of the past several years. The AI revolution an extraordinary level of investment taking place in data centers, equipment, chips, energy infrastructure and other related areas continues to power economic growth, and we see no signs of that engine slowing down.

At Blackstone, we began thinking about the transformative potential of AI many years ago. I personally became active in the field in 2015. spending time with key industry figures that would define the AI revolution. Today, we believe Blackstone has become the largest investor in AI-related infrastructure in the world. And we have a front row seat to the remarkable advancements underway in this ecosystem.

In 2021, well before ChatGPT arrived, we privatized QTS, which would become the cornerstone of our data center strategy. Our total portfolio now consists of over $150 billion of data centers globally, including facilities under construction, and it continues to grow rapidly. with an additional $160 billion in prospective pipeline development. In addition to developing data centers, 2 weeks ago, we filed to launch a new public company that will acquire stabilized newly constructed data centers, leveraging our deep expertise in this area.

We've also become 1 of the largest investors in the modernization and growth of the U.S. electric grid, given the rising demand for energy, including to power data centers. Specifically, we are the most active private investor in the utility sector over the past several years. Our portfolio also includes the longest cross-country network of natural gas pipelines in the U.S. with this resource expected to account for approximately half of data center power generation within the next 5 years.

Additionally, we are major providers of private credit to energy companies. Alongside our expansive platforms in digital and energy infrastructure, we've also invested in several of the leading innovators driving the AI revolution itself, such as anthropic and open AI, primarily through our wealth platform. In addition to these winning areas, we expect AI to catalyze new opportunities across other Blackstone business lines, such as life sciences, where we believe AI will accelerate advancements in biomedical research. At the same time, the firm has significant exposure to physical assets which we believe are well insulated from disruption and benefit from their own positive tailwinds, including logistics, residential real estate, transportation, and communications infrastructure and many forms of asset-based credit. We also own fast-growing franchise businesses that are effectively royalty streams on physical assets. alongside a significant portfolio in the health care and industrial sectors.

Overall, we believe Blackstone is extraordinarily well positioned for an AI-enabled future. Of course, some sectors and companies will see disruption. Software in particular, has come into focus as an at-risk area and we expect the range of outcomes here. The sector will have to adapt to AI, and there will be winners and losers with mission-critical platforms likely to be more resilient. As technology modes narrow, advantages will increasingly come from proprietary data, deep workflow knowledge, customer trust being embedded in systems of record and the speed and strength of execution.

At Blackstone, we will continue to drive preparations in our own portfolio. to help our companies address and incorporate these innovations.

Turning to private credit, where it's worthwhile to separate fact from fiction. External assertions have ranged from the sector posing systemic risk to the prospect of significant losses of investor capital. These assertions and their dissemination have negatively impacted capital flows in the wealth channel to private credit strategies, including to our flagship vehicle in the space BCRED, despite the external noise, our institutional and insurance clients who represent 75% of our credit platform, AUM, have continued to commit large-scale capital to the asset class.

Of note, BDC's and credit interval funds with redemption features represent less than 10% of the U.S. noninvestment-grade credit markets. Meanwhile, Treasury Secretary, leaders of the Federal Reserve and the SEC and the heads of numerous financial institutions have now acknowledged they do not see systemic risk from private credit. The key question is whether private credit is a good product for investors and can it continue to deliver premium to liquid credit over time.

At Blackstone, we've generated 9.4% net returns annually in our non-investment grade private credit strategies since inception nearly 20 years ago, roughly double the return of the leveraged loan market. This track record crosses market and economic cycles, periods of high and low interest rates and multiple credit default cycles. We believe we are moving toward a period of lower base rates once we work through the impact of the Iran war.

And we also expect defaults to move higher from historic lows as we've stated previously. But we've designed our funds with these cycles in mind with low fund leverage, high current income generation and the equivalent of meaningful reserves for future potential losses. We remain highly confident in our ability to continue to achieve a premium return to liquid markets over time. Meanwhile, our overall credit platform is expanding significantly. including to the investment-grade private credit area, which John will discuss further, performance and innovation have been the foundation of the outstanding results we've achieved in credit as with every business at Blackstone.

We believe will continue to drive our growth in credit going forward. In closing, the firm remains laser-focused on delivering for our investors in these dynamic markets. We've established leading businesses across virtually every part of the alternatives industry with over 90 distinct investment strategies, providing a unique platform for future growth and profitability. Our people are more innovative than ever and we are relentlessly pursuing new markets and asset classes.

We remain steadfast in our mission to be the best in the world at whatever we do, and we have no intention of slowing down.

And with that, I'll turn it over to John.

Thank you, Steve, and good morning, everyone. The outstanding results we achieved in difficult markets are a testament to the breadth of our platform and the power of our brand. Blackstone is an all-weather firm. Meanwhile, multiple pillars of strength are driving us forward. Our institutional business is driving our credit platform is expanding despite the market noise and our private wealth business continues to shine.

Starting with our institutional business, which remains the bedrock of our firm. AUM in this channel is now approximately $715 billion, up more than 50% in the last 5 years, and we're seeing powerful momentum today across numerous areas. Our dedicated infrastructure platform grew 41% year-over-year to $84 billion underpinned by exceptional investment performance. The co-mingled VIP strategy has generated 19% net returns annually since inception 7 years ago. versus our original target of 10% to 12%.

Data centers and energy infrastructure continue to be the largest drivers of gains in this area as well as for the firm overall. As the AI revolution accelerates, we see a profound shift underway toward hard assets and having 1 of the largest infrastructure platforms alongside the largest real estate business in the world, should be quite favorable for our investors. Sticking with our open-ended strategies, our multi-asset investing segment, BXMA, cross the $100 billion milestone in the first quarter up 15% year-over-year. It's a fastest organic growth in nearly 12 years. BXMA delivered its 24th consecutive quarter of positive returns in its largest strategy in Q1 despite the market downdraft.

In our institutional drawdown area, we are raising a new cycle of funds across a number of highly successful and differentiated strategies, most of which we expect to be significantly larger than predecessor. In Life Sciences, our new flagship BXLX6 hit its hard cap in the first quarter, raising $6.3 billion, an industry record and nearly 40% larger than the prior vintage. on the back of 18% net annual returns in the prior fund since inception.

The diversity of the sources of capital was remarkable, including from pension, sovereign wealth funds, foundations and endowments, family offices, insurance clients and the wealth channel and 50% of total capital came from outside the United States. This outcome exemplifies the breadth and power of the firm's fundraising engines. In corporate private equity, we've raised nearly $12 billion to date for our new Asia flagship, including April closings, and we're approaching its $13 billion hard cap. compared to approximately $6 billion for the previous vintage.

In secondaries, we raised an additional $6 billion in the first quarter for our latest private equity flagship, bringing it to $11 billion to date. halfway to our target of at least the size of its $22 billion predecessor. The secondaries platform, like BXMA, crossed over the $100 billion milestone in the first quarter.

Post quarter end, we closed an initial $1.7 billion for our fifth private equity energy transition flagship. which we expect to be substantially larger than the prior $5.6 billion vintage. Finally, in credit, we held a final close for our latest opportunistic fund of [indiscernible] in the first quarter, which hit its cap and was meaningfully oversubscribed reaching over $10 billion of investable capital, 1 of the largest institutional credit fundraises in our history.

This success in fundraising is in sharp contrast to what 1 reads regularly in the press about weak institutional demand for private market strategies. Again, what matters is performance. Our opportunistic credit strategy has achieved 13% net returns annually since inception nearly 20 years ago. Stepping back for a moment on our credit business, which continues to deliver strong results amid the noise. We now manage $536 billion of total assets across corporate and real estate credit. up 15% year-over-year, including $40 billion of inflows in the first quarter. The BXCI segment specifically grew 18% year-over-year and Q1 represented 1 of our best quarters of fundraising from institutions and insurance clients on record.

The foundation of our growth in credit is innovation, which is powering our expansion beyond noninvestment-grade strategies to many forms of investment-grade private credit. In Q1, our investment-grade private credit platform grew 23% year-over-year to approximately $130 billion. We are becoming a key capital provider for the real economy, including infrastructure, residential and consumer finance, commercial finance and aircraft leasing. The opportunity here is enormous. The need for capital to build out AI infrastructure exceeds the capacity of public markets.

For our investors, our direct to borrower model is designed to produce a durable premium to comparably rated liquid credits by eliminating distribution costs while delivering borrowers greater certainty. Our model generated nearly 180 basis points of excess spread on credits we placed or originated over the last 12 months for our private investment-grade focus limited partners. In the insurance channel overall, our open architecture, multi-client approach continues to resonate with AUM growing 18% year-over-year to $280 billion, up fourfold in the past 5 years. In our noninvestment-grade strategies, we continue to see strong demand, as I mentioned, underpinned by our institutional clients.

That said, we have seen demand slow in the individual investor channel, as Steve noted, specifically for BCRED. In Q1, BCRED gross sales were $1.9 billion, a solid but decelerating number, while repurchases increase, resulting in net outflows for BCRED of $1.4 billion in the quarter. As we saw with BREIT, however, we believe what ultimately matters is long-term performance and delivering a premium to liquid markets.

BCRED has generated 9.4% net returns annually since inception over 5 years ago for its largest share class, nearly 60% higher than the leveraged loan index through periods of both high and low interest rates. On a year-to-date basis, BCRED protected investor capital against the backdrop of widening spreads and declines in the public credit indices. It did show despite taking significant loss reserves, The portfolio now carries a weighted average mark to 96. 4, including the bottom 5% of loans at less than $0.70.

Meanwhile, BCRED's borrowers reported low double-digit EBITDA growth for the most recent 12-month period. while interest coverage has improved by approximately 40% over the past 2 years to 2.2x as rates have declined and earnings have grown. Overall, our private wealth platform continued to shine in Q1. Our AUM in the channel increased 14% year-over-year to $310 billion and is up nearly threefold in the past 5 years. powered by our performance and brand.

As 1 illustration of our differentiation in this channel in a recent survey of financial advisers by Bank of America's equity research team, Blackstone ranked #1 in terms of brand quality for the fourth time in a row with a score that was 4x higher than our nearest competitor. Our total sales in Private Wealth were $10 billion in Q1, including $7 billion for the perpetual strategies. BXP led the way with $2.5 billion raised and has achieved a remarkable 18% annualized net return for its largest share class lifting NAV to $21 billion in only 9 quarters.

Our infrastructure vehicle and Private Wealth VX Infra saw its best quarter of fundraising since launch at approximately $900 million, bringing NAV to nearly $5 billion in just 5 quarters. BREIT, our largest private wealth vehicle by NAV raised $1.2 billion in the quarter, up 44% year-over-year to the highest level in 3 years. Meanwhile, repurchases fell 41% over the same period, leading to positive net inflows for each of the past 2 months. BREIT has generated a 9.3% net return for its largest share class since inception over 9 years ago, 60% above the public REIT index, including positive returns each of the past 15 months.

The vehicles portfolio positioning, including its significant exposure to data centers now at 23%, has enabled BREIT to navigate an extremely challenging period for real estate markets and deliver a highly differentiated experience for investors. Looking forward, we remain very optimistic about our prospects in the vast and underpenetrated private wealth channel. Our innovation is accelerating, and we have a multitude of products in the pipeline, including a new perpetual multi-strategy product targeting more liquid exposures called BXHF. This vehicle will leverage the capabilities of BXMA business and is another important building block alongside our flagship private wealth vehicles in real estate, private equity, credit and infrastructure. enabling us to offer the full spectrum of these asset classes to individual investors.

We plan to bring a number of multi-asset strategies to market over time, including through our strategic alliance with Wellington and Vanguard. Meanwhile, we're seeing positive developments in the defined contribution channel with the regulatory rule-making process well underway.

Overall, there is huge runway before us in private wealth. In closing, as we demonstrated again in Q1, this firm is built to deliver for investors through good times and challenging ones. We believe we remain tremendously well positioned to navigate the road ahead whatever it may bring.

And with that, I'll turn things over to Michael.

Thanks, John, and good morning, everyone. In the first quarter, the firm delivered 20% plus year-over-year growth across fee revenues, fee-related earnings, net realizations and distributable earnings, while at the same time, our funds reported resilient investment performance, all against a backdrop of significant turbulence in the external environment. This broad-based strength highlights the exceptional balance and durability of our business.

Starting with results. Fee-related earnings grew 23% year-over-year to $1.5 billion or $1.26 per share. representing 1 of the 3 best quarters of FRE in our history and the best outside of a calendar Q4. Fee revenues increased 20% year-over-year to $2.6 billion, driven by strong growth in both total management fees and fee-related performance revenues. Total management fees reached a record $2.1 billion, up 13% year-over-year, underpinned by double-digit growth in base management fees across 3 of our 4 segments including 14% for private equity, 15% for credit insurance and 21% for BXMA.

In real estate, base management fees declined moderately on a year-over-year basis in Q1, in line with the trajectory we previously outlined due to harvesting activity in our opportunistic funds and headwinds in our institutional Core+ platform. At the same time, transaction and advisory fees for the firm nearly doubled year-over-year to $212 million, with a record quarter for our Capital Markets business. It's important to note that we generate these [indiscernible] utilizing minimal capital.

As our franchise continues to scale, including an infrastructure and investment-grade private credit, we expect continued strength in this revenue stream. Fee-related performance revenues were $488 million in Q1 up 66% year-over-year, powered by a fourfold increase in these revenues at BREIT and a nearly 2.5-fold increase at BXP alongside contributions from BCRED, VX Infra and other perpetual strategies.

Distributable earnings increased 25% year-over-year to $1.8 billion in the first quarter or $1.36 per share. In addition to robust FRE net realizations totaled $448 million in the quarter, up 26% year-over-year. Gross performance revenues grew 70% year-over-year to $780 million reflecting the highest level for the calendar Q1 in 4 years. Principal Investment income was lower on a year-over-year basis with the prior year including the sale of our internally developed Bistro software asset.

Realization activity in the first quarter included numerous modernizations in the public portfolio, the sale to a strategic buyer of an aerospace and defense company, the recapitalization of a housing finance platform in India, and the sales of certain other energy positions. This disposition activity reflected the transaction environment that was strengthening in the latter part of 2025 and entering 2026, allowing us to execute 4 IPOs last year. The significant recent market volatility and broader uncertainty has had the effect of pushing out exit pipelines and slowing realization activity in the near term.

That said, if there is a durable resolution of the conflict in the Middle East, we would expect robust activity in the second half of the year. Turning to investment performance. Our funds delivered resilient returns in the first quarter, powered by the large-scale portfolio we have been building across the AI and energy ecosystem. Infrastructure led the way again in Q1 with 7.8% appreciation in the quarter to 25% appreciation for the last 12 months. Gains in the quarter were broad-based with particular strength in data centers and in the energy portfolio.

The corporate private equity funds appreciated 3.2% in the first quarter and 16% for the LTM period with Q1 returns also powered by energy, both the private and public holdings, along with Medline strong post-IPO performance. These gains were partly offset by material declines in our software portfolio in the context of the significant contraction of software market multiples.

Overall, our private equity operating companies have continued to report healthy underlying fundamentals. with revenue growth increasing sequentially in Q1 to 10% year-over-year. In credit, our noninvestment grade private credit strategies reported a gross return of 0.6% in the first quarter and 9% for the last 12 months. reflecting solid underlying credit performance across the vast majority of our holdings. In Q1, certain markdowns in the portfolio were more than offset by continuing substantial current income.

At the same time, in real estate credit, our business generated healthy performance again in the first quarter with the noninvestment-grade funds appreciating 2.3% and over 14% for the LTM period. Meanwhile, BXMA reported a gross return for the absolute return composite of 1.7% in the first quarter and over 12% for the last 12 months. The BXMA has achieved positive composite returns in each of the last 24 quarters, as John noted, notwithstanding multiple significant market drawdowns during this period.

BXMA delivered this positive Q1 return in a quarter where public equities, liquid fixed income and the HFRX Hedge Fund Index were all negative. Indeed, since the start of 2021, BXMA has generated a 50% higher cumulative return than the 60-40 portfolio, equating to approximately 250 basis points on an annualized basis. This performance powered BXMA's sixth consecutive quarter of double-digit year-over-year growth in AUM in Q1.

Finally, in real estate, overall values were stable in the first quarter. significant strength in data centers was offset by declines in Life Sciences office, along with our public holdings in India in the context of a 15% decline in the country's stock market in Q1. The BREP opportunistic funds reported modest depreciation in the first quarter. Outside of the India public portfolio, BREP values were stable. The core plus funds appreciated 0.8% in the quarter, driven by BREIT's strong positive performance.

I would highlight 3 important factors with respect to the positioning of our real estate business. First, funds across our global platform, including the most recent vintages of our BREP Global and Asia strategies, Our BPP U.S. Institutional Core+ vehicle and of course, BREIT has significant exposure to a rapidly growing data center portfolio. Second, in logistics, our largest exposure in real estate. As you've heard from us and other industry participants recently, we're seeing very positive momentum in leasing activity, including a record forward pipeline for our U.S. platform.

Third, we expect the collapse of new supply, will be very supportive of fundamentals over time across major sectors, including logistics and multifamily, where industry forecasts call for deliveries this year to be at their lowest levels in 12 years. Overall for the firm, strong investment performance lifted the net accrued performance revenue on the balance sheet, our store value, up 9% year-over-year to $7 billion, the highest level in 3.5 years, weighting to $5.69 per share.

Meanwhile, performance revenue eligible AUM in the ground expanded to a record $635 billion in the first quarter, also up 9% year-over-year. The firm's significant embedded earnings power continues to build.

In closing, it has certainly been a complex operating environment, wrongly and for the firm, but our balance provides resiliency in these dynamic markets and creates a strong foundation for future growth. We believe we remain the partner of choice in private markets for investors around the world, and we have greater investment firepower than ever before to capitalize on the many opportunities before us. Thank you for joining today's call, and we'd like to open it up now for questions.

We'll take our first question from Craig Siegenthaler with Bank of America.

Steve, John, hope everyone is doing well. Our question is on the IPO pipeline. You're sticking with your expectation for a record year of IPO activity despite the conflict in Iran. So what's driving the record IPO outlook? Because I think some of your peers are going to talk about a more muted 2026 in their upcoming calls. And do you expect that to translate into sizable realized performance fees in the second half of this year? Or is that more of a 2027 event?

So Craig, I think it reflects the diversity of our firm and really our strong presence in the physical world and frankly, around AI infrastructure. So we saw in the back half of last year, we took 2 companies public in the U.S., in Allegiance and Medline. Those stocks are up 180% and 60%. So if you bring good companies that have real earnings momentum, the market wants that, so I would say it breaks into different buckets. It's AI beneficiary companies. Obviously, electricity, digital infrastructure, some of the tech companies that are going to go public this year, then I'd say the AI unaffected companies, Medline would fall into that bucket. Those areas, investors, I think, have a lot of interest, where there will be less activity will be in professional services, information services, software, the white collar world.

But again, given where we're exposed across our firm, we think we'll be able to get a number of IPOs done. So I do think it's really a function of how people perceive this business. In terms of translating, I think you made the right point on what happens timing-wise, these things get public, then over time you sell. Interestingly, in the case of Legion and Medline, both have performed so well. We've been able to do secondaries relatively quickly. but it is on the path towards liquidity. And we would say once this war resolves and the market stabilized a bit here, I do think we'll see an acceleration. But I think our mix of businesses is favorable, maybe a little more favorable to others in this IPO regard.

Craig, it's Michael. I'd also just add that even today, partly based on the IPO activity that we've undertaken recently, if you look at our net accrued performance revenue receivable actually, within corporate private equity, within the coprivate equity portion of that, nearly 1/3 is public. And so that puts us in a position to more readily monetize these positions if we like the value and markets are right over time. And then on top of that, as John mentioned, subsequent new issue activity, assuming markets hold up.

We'll take our next question from Michael Cyprus with Morgan Stanley.

So with AI powering strong returns across Blackstone's complex, Curious where you see that showing up in growth and fundraising results. And as you look out across the business today, where do you see the biggest drivers of growth over the next year versus the next 3 to 5 years as you pursue new markets and asset classes.

So Michael, I guess I would say it's broad-based in terms of the impact of the AI. Certainly, our infrastructure business, both for institutional clients and individual investors is benefiting because there, you have 2 very big engines. You've got the data centers as well as what's happening in energy. I think as it relates to our energy transition business, which we talked about in the prepared remarks, given the performance there and the need for energy for not only data centers but for robotics and autonomous vehicles and reindustrialization, there, you'll definitely see strength.

In real estate, it is becoming a bigger and bigger part. And as you've seen in BREIT, it's clearly been a big beneficiary, and it allowed us to power through this difficult period of time. But even in our flagship U.S. Core Plus fund it's become a bigger share and now beginning in some of our opportunistic vehicles. So there, I think it will start to have, over time, a very positive impact in terms of returns. And then on the credit front, asset-based finance is an area where credit investors are very focused. They have concerns about what's going to happen with various corporate credits. They're saying, "I'm interested in asset-based finance. And again, AI infrastructure ties into that as well.

So I would just say that it's from base, I would also point out, by the way, in our private equity vehicle for wealth, a similar story there where we own some of the big LLN and tech companies, the 3 big companies likely to go public. and we also have a bunch of AI infrastructure. So when you look across our firm, this strategic decision that we made to go long AI infrastructure, I think is going to be the single most important thing for the performance of our clients and ultimately, the growth of our business. It doesn't happen overnight, but you're beginning to see it move into our results. And I think it will really differentiate things, lead to inflows and most importantly, lead to these positive returns for our customers.

And Mike, I'll just add broadly, if you step way back, being in a position where we think we're probably the leading large-scale private capital provider to these areas around the ecosystem that need capital so badly to transform the world, that puts us in a really great position. That's sort of the big picture overlay, I would say, in the coming years.

We'll take our next question from Bart Dziarski with RBC Capital Markets.

I wanted to ask around the private wealth and you have a business plan to sort of expand FTE to 450 by the end of this year. And just in the current environment, like are you accelerating that business plan? Are you dialing it back? Just how is that evolving as you go through in the private wealth channel?

We continue to move in wealth, I would say, at a fairly rapid pace. Joan Solotar and her team have done a terrific job expanding who we're serving within the United States, but broadly around the globe. Canada for us is an exciting market. Japan, I think, over time, will grow more in Europe, the Middle East, Asia, there's a lot of opportunity. Wealth is so underpenetrated in relative to what we see in the institutional world, which is call it 1/3 or more allocated to alternatives. Individual investors are low single digits, even very wealthy ones.

So we see this as a big TAM. And then as I referenced, we have a pretty unique asset in our brand, the recognition of who Blackstone is, the fact that people trust us as a steward of capital. And then we've got this range of products. So for investors who want private equity or credit or real estate or infrastructure, now Hedge Funds. And then these multi-asset areas where we can offer a holistic solution to investors, we think, are very special. So we continue to invest around the globe, expanding our team more boots on the ground and delivering this product. And as customers have good experiences, like we experienced with institutional investors, they start with 1 product and then start to expand.

So this feels to us is an area that has a long runway. And interestingly, going through this moment in credit, we went through a moment obviously, a few years ago in real estate and showing that these products can deliver both in terms of their liquidity promises as well as their returns. builds confidence with financial advisers and their underlying clients. So our confidence in this channel remains as strong as ever, and our positioning, we think, is quite unique.

We'll take our next question from Alex Blostein with Goldman Sachs.

John, just to build on that last point, if you zoom out a bit, the wealth channel is clearly still going through some growing pains, right? I mean, we see quite significant reaction in the channel, not just for you guys but for the whole space. So curious if you take a step back, sort of what are the lessons learned from the recent experience, which obviously the industry is still going through with respect to redemptions in terms of how the products are sold, how they package? How are you thinking about the minimums that will be appropriate for clients to happen in order to come into some of these products as you kind of continue on this path of expanding the footprint there?

Well, Alex, it's interesting. What's been more challenging is that some of the social media and press reporting is so different than the facts that we see. When you think about these products, they're sold not directly to individual investors. They're sold through financial advisers who are obviously sophisticated. There's incredible levels of disclosure when we're selling these products. If you look at BCRED, on the cover page, there are 6 bold highlighted lines talking about the liquidity limitations in the product. To me, it's not a surprise that we have more than 300,000 customers and yet we have not heard complaints from them that they don't understand that they are trading away some liquidity for higher returns.

And I think you just have to look back at the BREIT experience. There was a lot of noise at the time, we said the products are working. They're protecting individual investors. And so when you look back in the fullness of time, you have a product that's been around almost 9.5 years, for 1 year, you had more limitations on liquidity instead of 1 month, it took you 4 months to get substantially all of your money back. And in exchange for that, you produce a 60% premium annualized in returns. And that's the business.

And so these caps on redemptions are not about their feature of these products. If you're good in any of these products over a 10-year period, there'll be a moment a cycle. The key question is, are you offering a premium in exchange for giving up this liquidity? Have you properly disclosed this. So I feel very good about what we've done. I think ultimately, the products will continue to produce this premium as they have in BREIT and BCRED and I think these tests are helpful. I don't think it deters the long-term trend line, which is for individual investors to get the exposure, the higher returns, the diversification benefits, the opportunity to invest in some of the fastest companies in the world in real estate and infrastructure.

I think that all holds together. We're going to get through this like we've always gotten through these moments and the products will continue to grow.

We'll take our next question from Bill Katz with TD Cowen.

Just want to mix up my question a little bit, given the first set of questions. speed to spend a lot of time this quarter in particular talking about BXMA. I was wondering if you could maybe step back and talk a little bit about what you're seeing in terms of institutional allocations? And then within the wealth segment, are you seeing -- how are our financial advisers sort of repositioning from BCRED, where you see the demand going and would that also include the sort of the hedge fund complex at large.

So Bill, you've been a follower of us for a long time. So we haven't talked a lot about our absolute return business because it has been pretty flat for a long time. It did protected investor capital, but since we brought Joe Dowling on, the business has really inflected in terms of performance. We've delivered, I think, 250 basis points a year of premiums here since Joe joined us more than 5 years ago, we've had 24 quarters in a row of positive performance, as we talked about in our flagship strategy. And that, of course, attracts investors' attention. If you can deliver downside protected vehicle that delivers a premium to 60-40 and you have liquidity, that is a powerful combination.

And at the same time, I think investors are recognizing in a world with a lot of volatility to be able to protect their capital in something that is more liquid is very valuable. And I do believe as base rates have come down, and I think over time, will come down further, I think these products become more and more important. So I would say the receptivity in the institutional meetings I have has really picked up, I would guess in the individual channel, we'll see more and more receptivity. The multi-managers have done quite well. I think the product offerings we will bring, I think, will be attractive over time to individual investors as well.

So this is an area of the firm that, as I noted, has been pretty flat, but is now growing again, I guess, up 15% year-on-year, which is remarkable. And I think, again, performance drives everything for us. what they've done in BXMA bodes very well for the future of that business.

We'll take our next question from Glenn Shor with Evercore.

Oh, by the way, 1 other question, Bill had was on BCRED, where the flows are going and so forth. I should just hit that quickly. Sorry, Glenn. I would just say, we've continued to see inflows. Obviously, in the quarter, we had a good quarter away from BCRED. The war has probably slowed things down a little bit here in the near term. But we would expect, given the strong performance of the underlying products. Once we get a resolution there, we're going to continue to see strength. So just as we BREIT went through a long period of time, in their case, we did very well with other products, I think the strength of our product offering will continue to be very valuable, and we do think investors will look at these various areas. And then obviously, as people feel better about credit, we'll see a return there as well. Sorry, Glen, go ahead.

No problem. So I wanted to ask on credit and the different moving ins and outs on fees. So maybe you could help separate the headwinds and tailwinds to help us talk about the future. So we saw a drop in credit fee paying AUM during the quarter and the resulting impact on management fees. But credit deployment was down in the quarter, but I'm wondering how much of this is timing. You raised a boat load of institutional money between last quarter and this quarter on the institutional side in private credit? And maybe talk about the timing of deployment and how we should think about that translating to management fees. I appreciate it.

Sure, Glenn. Yes, there are a number of moving parts. And fee AUM was up 14% year-over-year in the quarter. We saw a $37 billion of inflows, the platform is broadening in scale and diversity. There obviously is some near-term deceleration in the BDC area. But overall, I think the breadth of the platform is the story over time. As part of that, our asset-based finance area, which we call IAPC was up 29% year-over-year in fee earning AUM. We do have substantial, which you're getting at substantial dry powder not earning management fees, $74 billion of dry powder in the credit area, Fred insurance area, and the vast majority of that earns fees upon investment, so you'll see that brought in over time.

So those are some of the, I think, key drivers. Quarter-over-quarter, there was the sequential decline of 1%. Again, there's puts and takes but it was mostly attributable to sort of a onetime benefit in the fourth quarter related to some insurance partnerships and sort of an annual adjustment there. So lots of moving parts. The direction of travel, we think over the medium and long term is very good. You will see in the very near term, some deceleration. But the breadth of the platform across strategies and also, as you're pointing out, this building dry powder that will earn fees as invested make us continue to be very positive over time.

And I would just add to that, Glenn, it is striking the difference in terms of what we've seen from the institutional and insurance clients relative to the wealth channel to all the noise about private credit. It's a sharper contrast as I've seen, and I think it does bode very well for our credit platform.

I wonder if I could ask just a very quick follow-up. In that line, John, in the past, when real estate went through something similar-ish to this, you were able to deploy a lot of money and take advantage of some dislocation, if software helps -- I mean, I should say AI helps more than it hurts. Software spreads have widened a ton in credit. And I'm wondering how you think about balancing the opportunity versus too much concentration risk while things are wide like this?

Yes. Look, I think when you have these moments where markets gap out, it could be on the noninvestment-grade side, frankly, it could be on the investment grade side and the fund finance areas, people get nervous that does create opportunity. Interestingly, the market has held up much better than the headlines. The leveraged loan market at this point has recovered quite a bit for everything really, but the non-software names.

I think there will probably be some opportunity in technology. I do think there's going to be a heterogeneous outcome for different software companies. So I think you've got to be thoughtful in terms of where you focus, but overall, I think it is attractive. And the fact that we raised more than $10 billion of investable capital for our cost fund, I think that will prove to be very well timed. So if investors, if we see big trade-offs or subsectors where we have differentiated insights, I do think we'll be able to deploy capital.

And to that, we've done a few things. but it has been interesting how resilient this market has been despite the headlines.

We'll take our next question from Dan Fannon with Jefferies.

Last quarter, you talked about strong management fee growth for 2026. Based on the previous comments, it sounds like credit slowing a bit here as we think about the near term. But maybe if you could talk more broadly about the other large segments as we think about the rest of the year in management fee growth?

Sure, Dan. Right. So stepping back, if you look at that first quarter, Three of our 4 business segments outside real estate grew combined management fees 15% year-over-year. So that is carrying forward the healthy momentum from 2025. And in terms of some of the building blocks of that and the outlook on the positive side, we talked about the new drawdown fundraising cycle that's underway. We will see an embedded upward ramp from these, mostly later in the year. SP can our strategic partners fund, that was activated in late Q1, and we'll continue to fundraise our third Asia private equity fund, our energy transition fund, we expect to activate in the near term.

Now those will all have fee holidays, so the impact will really be in the second half of the year and especially in the fourth quarter. You continue to see the seasoning and expansion of our perpetual strategies overall. It's nearly half of our firm-wide AUM now. the power of BXP scaling, it's $21 billion of NAV in 2 years, more than doubling year-over-year. VXInfra actually has emerged. That's about $5 billion, up 3x year-over-year. And of course, infrastructure up 41% year-over-year, including VXInfra and will be new products.

So -- and then as we just talked about a couple of questions ago, BXMA obviously has terrific momentum. On sort of the caveat side, we just talked about the deceleration in credit, notwithstanding many of the positives within that platform. And then as we referenced last quarter, some slowing in our real estate segment, reflecting really 2 things: harvesting activity and our opportunistic funds and some headwinds in BPP, as I mentioned. So those are, I think, really the key factors and sort of the architecture of the year.

We'll take our next question from Ken Worthington with JPMorgan.

As we think about the Middle East conflict and fundraising from that geographic customer segment, how big have Middle Eastern clients been historically for Blackstone, and do you see the conflict impacting fundraising from these clients in the near to immediate term? And on the other side, does the conflict change where, what and how big investing looks in the Middle East for Blackstone?

Thank you, Ken. I'd say we've seen remarkable resilience from those clients so far in terms of continuing to make commitments to our vehicles. it's possible some of them may make some different choices in terms of reinvesting at home for a period of time. But right now, we've continued to see strong interest, I would say as it relates to our platform, as you know, we're very diversified. So there's no country outside the United States, who represents more than low single digits to our overall firm. It's why it's really the way Steve built the firm, and I think it provides real resilience to the overall firm as well.

I would say, in terms of those countries, I think it's a mistake to bet against the Middle East, either the GCC countries or Israel. These countries are really embracing capitalism, investment growth and I think once this conflict is resolved, that pattern will be restored. I think these countries will continue to be quite strong. And reflecting that, we made 2 commitments during this award period, 1 in Abu Dhabi to help build a payments company and 1 in Dubai in the aerospace area, aircraft leasing. So we continue to be believers in that part of the world, and we think this will prove to be temporal.

We'll take our next question from Brian Bedell with Deutsche Bank.

Great. Just if you can provide some context within the retail credit -- within the retail wealth product space, just in terms of what you're hearing from financial advisers, and sort of the composition of the clients that are asking for redemption requests. I think for BREIT, it was a minority of customers and I suspect that's the case for BCRED as well as most people understand the long-term viability of the products. But what -- if you could just characterize that what you're hearing from that phase and to what extent do you think it's just the risk-off environment that might impact flows in the near term.

And then, of course, given your brand strength, do you expect to actually gain market share in this channel, given not just only the brand and the performance, but also the breadth of product.

All right. Well, Brian, I guess I'd start with your last question on market share. I do believe that when these shakeouts happen, we saw this in the real estate area, I think the number of competitors has diminished. And I think it positions BREIT very well as real estate starts to get an up cycle pickup and the way we manage through that proved important. I think there is a likelihood as well here in credit that the combination of how people manage transparency, liquidity, valuations, returns can be beneficial also. So I do think we could see a changing of the guard or winning a little bit through this process. So yes, to that. The other part of the question was around the profile of the redeemers.

So what I would say is you're exactly right. Contrary to this popular idea that it's small investors that are leading the charge here, it is actually a smaller number of large investors who are double the size basically on average of the typical investor in these vehicles. They're the ones we saw this. If you went back to BREIT, it's the same story here with BCRED. The great mass by a number of smaller investors tend to stick with the product over a long period of time. It's sort of the bigger boulders as opposed to the pebbles where you get more movement in terms of redemptions, and that's proven to be similar, again, as I said, different than the popular perception.

We'll take our next question from Brian McKenna with Citizens.

Okay. Great. So we've seen time and time again that capital and liquidity become a lot more valuable during periods of volatility. I appreciate the benefits of this from a deployment standpoint. But from a business perspective, can you just remind us why you operate a capital-light model. And then what are some of the strategic and competitive advantages of having this kind of balance sheet during all parts of the cycle, and really, that's from a business growth perspective and really your ability to always be in a position to lean into longer growth opportunities across the business.

Well, we appreciate that question because running capital light can be a harder business model because you have to raise money from third parties as opposed to borrowing large amounts of money, earning a spread on that. But we do believe that given what can happen when the environment changes, what the regulatory climate can look like that being an investment manager gives us the greatest flexibility, operating a business with virtually no net debt, no insurance liabilities means that if we need to use capital to do something at the firm level, it's available, there's no moment where we're facing any sort of liquidity crisis.

As you know, we pay out basically 100% of our earnings between our dividends and our stock purchases. We like this capital-light model. We like being an open architecture, third-party manager for our investors. We think that's the right long-term approach. And particularly when you get to moments, you're not going to see, there's no redemption risk at a firm level. There's no credit risk at a firm level. We think this is an all-weather business model. And it's why we've been through a lot of volatility, particularly in the last 6 years, and the Blackstone firm keeps powering ahead.

So we're going to continue to be a capital-light investment manager, focusing on delivering performance, that's what really matters, building our brand, building this reservoir of trust, and if we do that, you'll continue to see very strong capital flows and you will see strong financial performance. And that remains sort of the hallmark of our term.

We'll take our next question from Brennan Hawken with BMO Capital Markets.

A couple of questions, a little more modeling oriented. So quarter-over-quarter base fee growth has slowed in recent quarters. We understand you have several large funds on sea holidays. But can you maybe help us get an idea about what that might look like over time as we progress through the year, and make our way closer to those big funds coming off the holiday?

And then also, a second component, stock-based comp picked up a bit here. How should we think about stock-based comp through the course of the year and the next couple of years?

Sure. Thank you, Brandon. I'll take the second 1 first. Yes, on stock-based comp, and I think if you step back, John just hit it. I mean if you look over the long term at our capital return policy, nearly 100% of our cash earnings at the same time, our sort of approach in our program around keeping our share count effectively flat. I think over the last 8 years, it's -- our share count has basically grown like 0.3% a year while our AUM has grown a compounded like 14% per year.

So we like that relationship. And there is seasonality to EBC growth in the course of the year. The rate of growth in the first quarter was below that of a year ago, which I think was sort of a preview that we gave. And I do think in the fullness of the year, you will see that rate of growth end up being materially lower than the first quarter, materially lower. So that's, I think, kind of a framework on that.

On base management fees for the course of the year, I gave some of the building blocks a couple of questions ago. And I think sequentially, you are seeing probably this quarter and next quarter, some more moderate growth across the firm. We expect that to accelerate in the latter part of the year, in part based on those drawdown funds coming online, getting through their fee holidays as well as continued momentum elsewhere. which I outlined. You do have these sort of these headwinds in the real estate area.

And again, we think those will, I think, in a sense, bottom out in the middle part of the year. And also, I think accelerate sequentially as we sort of exit the year into the early part of next year.

We'll take our next question from Steven Chubak with Wolfe Research.

Steve and John. So I wanted to drill down into some of the comments on AI exposure. You spoke about size exposure to companies are certainly well placed for AI transformation across utilities and data centers. And I know you cited a couple of other examples. At the same time, they're growing concerns around disremediation risk, you cited the challenges facing the software sector, but the threat of AI admittedly extends beyond software. I was hoping you could just speak to your process for how you're reunderwriting AI risk across your portfolio? And what are some of the actions you're taking to maybe better position the book to navigate this looming threat?

So I'd start with acknowledging you're right, this does go beyond software. It does include, as I mentioned, information services, professional services, really sort of the broader white collar world. our biggest exposure would be in software, and that's less than 7%. So pretty small as a percentage of the firm's AUM. Nevertheless, we are quite focused on working with our companies to adapt to an AI forward world. Many of these software companies have very valuable incumbency models that should enable them if they become [indiscernible] do with AI to do quite well. And other companies are more exposed.

Nevertheless, I think these management teams are capable and many of them will shift to the new world. I think software will be very important sitting on top of these large language models, but the outcomes will be quite differentiated. So for us, working with our portfolio operations team and our AI experts with our portfolio companies is super important. As we think about deploying new capital, yes, you've got to be thinking about what are the risks in this world? What are the multiples? If you looked in the quarter, our biggest investments, and this really doesn't speak to a change, but just how deep we are in the physical world, the biggest investments we made in the quarter were a Spanish waste company, another data center company that we invested in a residential services business, another business in the energy, electrical equipment space. Our exposure in those areas is really going to pay off.

And I think, by the way, interestingly, real estate, which really has been the sleeping giant at Blackstone here, as investors pivot back to hard assets as we get some calming after the war. And as the performance picks up along the lines, Michael was talking about, particularly around logistics, where we're seeing very favorable supply-demand fundamentals. I think that's an area where we could start to see an acceleration. But no question today, this is top of mind when we're investing capital particularly in, I'll call it, those white collar affected areas and with our existing portfolio company, it gets a huge amount of focus there.

That's great. And at the risk of breaching the 1 question rule. I was hoping just at the risk of this knocking covered, if you could just speak to the DOL and the provisional guidance that was offered on Alt inclusion in 401(k)s.

Well, I think what's interesting in 401(k), which people don't fully realize is that fiduciaries today can put private assets into 401(k) plans, defined contribution plans. What's really held it back, of course, is the long history of litigation. And so what you end up with is individuals who are not in a defined benefits plan, end up getting no exposure to alternatives. And yet, their colleagues who may have joined their company 10 years earlier, have a huge team and 1/3 of their assets and alternatives.

And so we think it makes a ton of sense for there to be the benefits of diversification and returns, exposure to some of the fastest, most innovative companies in the world, exposure to real estate and infrastructure, which are mostly in the private markets, and so what this DOL ruling, and it's still working its way through the system does is start to establish a safe harbor like annuities got, I guess, a decade ago, so that a plan sponsor can put this in the mix, it will be a minority of assets, but we'll give individual investors the opportunity to get this exposure. It's still a very regulated system between the sponsors, consultants, the ARIA standard. But I think this is a good development. It will take time, but we see interest here. So this is an area that we think over time has a lot of potential.

We'll take our next question from Arnaud Giblat with BNP Paribas.

My question is regarding the core vision Equitable merger. I was wondering how this will affect your billion investment management partnership with Cor bridge. I was wondering if there are risks to the assets or indeed, if there's -- is that perhaps a growth opportunity to grow the partnership through the merger. And also, what's your plan for your 12% stake in Core bridge?

So we view this as an exciting opportunity for Cor Bridge with their merger with Equitable as it relates to our existing IMA with them, we have a contractual relationship. We're entitled to manage $92.5 billion of assets, so long as we meet certain performance thresholds. I think we're at around $80 billion today. We expect that we'll continue to grow. More importantly, we've delivered very strong performance for Core Bridge and its balance sheet on average, across our insurance clients, as we mentioned, we've delivered 180 basis point premium relative to comparably rated investment-grade credits and our hope here is as the joint balance sheet expands that we can do similar things for Equitable, obviously, we haven't gotten into any of the details. It's early days. The merger hasn't been approved, but we would love to try to expand what we do for the combined company. Our base business remains secure and we look at this as a potential opportunity to expand because we can think we can continue to deliver these premium for insurance policyholders on the equitable side, but we'll have to wait and see.

Oh, I didn't comment on our stake, obviously, now we're in a merger period. We're going to wait and see. We think CortBridge represents very compelling value on the screen and where it trades today. I think this merger has to go through, we're long-term investors. We believe in this compound -- in the combination of these companies. And ultimately, at some point, because we run a capital-light business, we'll recycle that capital, but we don't expect that in the near term.

We'll take our next question from Patrick Davitt with Autonomous Research.

The market is still having a lot of trouble framing how to think about the refinancing risk in the software loan portfolios. And given that's still many years out and the loans are generally still performing really well, it feels like we're kind of in a state of limbo. So could you better frame what options or levers your credit team has, if any, to proactively work with the backing sponsors well ahead of those maturities to help give some tangible outcomes that NIPTs concerned the bud preemptively?

Well, it's interesting. If you look at our software exposure and DCD, for instance, the average borrower put up $3 billion of equity. So they have a lot of incentives here to make these investments work. And as you said, Patrick, the performance of the companies has continued to be remarkably good. In fact, in our credit portfolio, our software businesses were the best-performing sector, so I think when it comes to options when you have multiple years away, there's a lot of things that could happen. Right now, obviously, sentiment is quite negative. The market is going to see how these companies perform as AI continues to move out. given the low levels of leverage using BCRED, again, as an example, these were 37% loan-to-value loans. In many cases, the EBITDA has grown quite substantially.

So I think for those that are well performing, these wall of maturities, people find a way, either through refinancings extensions, these things tend to happen. I think the challenge is less around performing companies more around if you have a business that is struggling in what you do and that becomes harder. And those are the situations, of course, where we've taken meaningful marks in the portfolio. So that, I think, is what happens. But generally, if performance continues, I think you'll find a receptive market. It may take a bit of time. Right now, the uncertainty question is just very high.

We'll take our final question from Crispin Love with Piper Sandler.

I just have a follow-up on the 401(k) question on the -- just the retail channel noise we've seen recently. How do you think that may impact the 401(k) opportunity longer term? 401(k)s definitely have less need for near-term liquidity and private market exposures may make sense here as you have articulated. But is it worth the risk and potential headaches for the alts, for the plan sponsors to get involved with a less sophisticated investor base compared to private wealth just with the pushback you'd likely see from senators, headlines, et cetera.

Yes. Well, you made an important point, which is obviously, near-term redemptions, not the focus in retirement savings. And so we think the rational argument here of getting the benefit of long-term compounding from high-performing alternatives is quite compelling. it may have, in some cases, raise some questions from some of the plan sponsors. But again, I think how this ultimately plays out, I don't believe that you're going to see large losses and the things that you read in the press coming from these private credit sponsors and if the products perform, we get through the redemption cycle again, I think people will see like we did with BREIT, that these products are more resilient than the skeptics argue.

And as a result, that, combined with the nature of the long-term hold of the 401(k) vehicles, I think people will see these are quite beneficial. I mean to me, the fact that we have this enormous institutional market most of which is anchored by defined benefit plans for U.S. retirement workers and then somehow that same worker works for a different company today or no longer works for a state that has a pension plan is no longer entitled to $1 of exposure. It just doesn't seem fair, it doesn't seem rational.

So I think the key, again, will be showing people that these products are run in a responsible way and deliver premium performance. And in the fullness of time, that's going to win the argument.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks.

Great. Thank you, everyone, for joining us today, and we look forward to following up after the call.

Good morning, everyone. Thank you all for joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North American Head of Diversified Financials at BofA. And it's my pleasure to introduce Michael Chae.

Nice to be here, Craig. Thanks for having me.

So Michael is Vice Chair and the Chief Financial Officer of Blackstone. He joined Blackstone back in 1997. He served in several senior roles, including Head of International Private Equity, Head of Private Equity for Asia Pacific, and he was also a partner in the U.S. private equity business. Michael, so thank you for joining us. Just quick intro. Blackstone manages now $1.3 trillion in AUM. It ranks it as the #1 alt manager in the world. It also has the largest individual investor business, which it started much earlier and has dedicated significantly more resources to than peers. And I think the firm has grown AUM by more than 15x, maybe a higher number now since the 2007 IPO.

So a very highly diverse business with scaled businesses across real estate, private equity, credit and even hedge funds, which have come a little bit back in favor this year. So with that, let's get started on the macro front. So you have a very expansive portfolio. You've also frequently cited your diverse differentiated insights.

So I was hoping that you could share some perspective as you look around the world and look at the portfolio, what is the state of the macro environment today? And also where is this heading?

Sure, Craig. And again, great to see everyone to be here. I'd start by saying despite all of the noise out there and all the curveballs that have come our way over the last year, that the operating environment for our firm and the fundamentals in our portfolio are quite strong. In terms of the macro drivers, I'd say the most important factor, of course, is that we're undergoing a historic investment boom with what we expect to be a productivity boom coming behind that. In our Blackstone portfolio, we're seeing continued strength. We saw 9% revenue growth in our corporate private equity companies in the fourth quarter with resilient margins.

And we're seeing particularly robust gains in those parts of our portfolio in the AI and related infrastructure ecosystem. Our data center platform in the U.S., QTS grew leasing 50% in 2025. We expect similar trends in 2026. In terms of the consumer, and I heard our host, Brian Moynihan, talk about this morning on TV. Clearly, we see elements of that sort of 2-speed or K-shaped consumer economy. We see that in our economy hotel assets, some of our water parks, some other consumer-facing businesses. But the higher-end consumer, which drives so much of consumption in this country remains strong, and we see that in our luxury hotels, in premium travel, in credit card data broadly.

And then in terms of inflation, we've been pretty consistent on this. We see it as basically under control. Labor costs in our portfolio and I think broadly are stable. We see a labor market that's in balance, although possibly cooling gradually. And shelter inflation in real time is running well below the lagging measures embedded in CPI. So all of this in terms of our portfolio is leading to corporate confidence. We survey our CEOs every quarter. Their optimism is at the highest level in over a year. And virtually none expect a recession in the next 12 months.

So all this translates into a capital markets environment that is really quite robust, which is a very good thing for the operating environment for our businesses, the combo of healthy economic growth, moderating inflation. We think that's supportive of short rates coming down along with the cost of capital overall. although the steepness, I would say, of the yield curve over time remains to be seen. High-yield spreads today are at nearly, I think, all-time heights -- tight, sorry, heights would be bad. Investment-grade spreads, I think, the tightest since like 1998.

And we subscribe to the view that AI-related productivity is going to have a meaningful deflationary pull over time. So -- and then I would add in terms of sort of Fed and monetary policy, I think Kevin Warsh has really strong credibility with the market and with financial decision-makers and will be stabilizing and positive force. So when you combine all that, overall, we think the economy and the operating environment for us remains on quite solid footing, healthy economic growth, moderate inflation, short rates coming down. And that makes for a constructive backdrop for our business.

So how does that translate into the investing backdrop? And do you expect 2026 to be a stronger deployment year, year-over-year? And where is Blackstone leaning into in terms of deployments?

Yes. Yes, we do expect it to be a very active year. We are coming off a very strong 2025. We deployed throughout the year about $138 billion of investments. That was our highest annual level in 4 years, including $42 billion in the fourth quarter. We definitely leaned into the public market volatility. We signed or closed 8 different public to privates in 2025 across real estate and private equity. We saw record deployment in credit and in our secondaries business. So robust deployment momentum moving forward into 2026.

Where are we focused? Stepping back, it's a rapidly changing world, obviously, that's replete with critical markets of massive scale that actually are short of the long-term capital they require to grow. And private markets are a critical part of the answer. And for us, our extraordinary breadth and reach of our business, in our view, really allows us to be a strategic capital provider at huge scale. So it's a really kind of unprecedented and incredibly exciting time for us. So what does that mean? There's this intersection of multiple megatrends that are, I think, that are driving our deployment, and I think will continue to do so for years. Obviously, AI and digital infrastructure.

We talked about that a lot, data center CapEx increasing by some forecast projected to increase 3.5x over the next 5 years versus the last 5 years, that's probably low. something like $7 trillion required. We have the largest platform in the world. And we're really just aiming to be simply put the best positioned, most trusted partner to hyperscalers to deliver that critical infrastructure for them. Alongside that power and electrification CapEx there for the sector is expected to grow 50% plus over the next 5 years versus the last 5.

We're one of the most active investors in that ecosystem in our private equity segment, mainly in infrastructure and in our energy private equity area, we've completed actually 31 investments representing over $10 billion of equity just over the last 2 years in this space. And that's really driving significant gains in our portfolio. We announced a few days ago, the sale of a majority stake in a business called Sabre, which is one of our early kind of electrification thematic investments. Life sciences, where we have a big business, the extraordinary innovation that's happening that's sort of in drug development that's sort of colliding with the reality of funding constraints by big pharma, and it creates an annual R&D funding gap of over $200 billion.

So that positions our private capital business well. Private credit, as we all know, it's expanding really into being a critical financing source for the real economy, mostly on an investment-grade basis, whether it's infrastructure, commercial, asset-based finance, consumer and resi finance, fund finance and other areas. So -- and that's going to create a $30 trillion market opportunity that's just been barely penetrated by private credit today. And then the private markets themselves, they've doubled from like $6 trillion or $7 trillion to $13 trillion over the last 7 years. And with it, the need for liquidity solutions for both GPs and LPs. And yet less than 2% of those private markets turn over every year on the secondary market. So that's a huge opportunity, obviously, for secondaries and for those capital solutions.

And then I'd just say from a global regional perspective, Asia is 40% of the world's economy, and it's about 8% of all AUM globally. So that's a big opportunity. We've obviously leaned into India and Japan, among other markets. So I'd just step back and say it's never been a more exciting time, certainly in my career and I think for our firm where we're just never been a more vital capital provider in so many massive critical markets around the world.

So let's flip it from deployments to growth in fundraising. So how do you see fundraising trending in 2026 across asset class? Where do you expect to see the most strength? And while we're at it, there's been a lot of discussion around industry consolidation. How do you guys think about GP consolidation theme heading in the future?

So on fundraising, in 2025, we generated $239 billion of inflows. That was up 40% year-over-year. And really with strength across each of our key client channels, we call them the 3 Is. Inflows in institutional were up over 50% year-over-year. Fundraising sales in the individual investor channel also grew over 50% year-over-year and inflows from our insurance clients was up about 20%. So lots of momentum and good things happening across all 3 channels as we enter 2026. Starting in institutional, where I would say contrary to what you sometimes read in the press, this channel is alive and well, certainly at Blackstone.

Our AUM in institutional is over $700 billion. That's up 60% or so in the last 5 years. We're raising a new cycle of drawdown vehicles, including multiple flagships. I think at the conference last year, I said that I thought we'd see even greater inflows in 2025. And I would say it's still early, but we're currently expecting our drawdown fundraising in 2026 to be well above 2025 levels. And then away from drawdowns in infrastructure, we expect continued strength. AUM there is up 40% year-over-year entering the year at $77 billion, amazing performance. The SMA, you noted this at the beginning. We're seeing a resurgence in client interest. driven by performance, 23 quarters of consecutive quarters for our business of positive performance. That led to our best year of organic net inflows in nearly 15 years last year.

And then in credit, BXCI exited 2025 with record inflows from institutions, reflecting, I think, this kind of broad emerging secular shift among institutions in terms of their awareness and interest in private credit strategy. So that's a lot of momentum. In the insurance area, -- we continue to see clients respond really favorably to our multi-client model. Our AUM in that area is over $270 billion. That's up 4x in the last 5 years. We're the largest non-captive business in the insurance area, asset management for insurance in the world. We're seeing growing global opportunity with amazing partners like Nippon Life, the largest life insurance company in Japan, L&G, Legal & General in the U.K., the largest insurance and asset manager in the U.K. And I would just say, when you think -- look at the industry dynamics, we really like where we sit and our distinctive model.

As you all know, in annuities market, that's intensely competitive, -- but where spreads in the liquid markets are near historic tights, as I mentioned, the need for excess spread from private assets is more imperative than ever. And we're really ideally suited to serve that with our scale to serve that demand without taking on the liabilities and risk associated with them ourselves. So we really like where we sit. And then finally, in private wealth, I know we'll talk about that more. We crossed the $300 billion milestone in the fourth quarter, up 3x in the last 5 years. All of our flagship perpetuals really delivered in a big way in 2025, and we think are well positioned going forward in our private equity strategy for individuals has grown to over $18 billion in 2 years of existence.

We think we led the market in terms of sales in that area in 2025. Our infrastructure strategy is already one of the largest in that space only a year after launch. BCRED is coming off a record year of sales. And despite some of the noise impacting net flows remains anchored in outstanding performance and a really great positioning. And then BREIT, we see -- we're seeing very positive momentum, and we're as optimistic as we've been in years in terms of the demand for that going forward. So looking forward, we'll continue to expand the product offering. We have that strength from that sort of core group of products. And overall, we anticipate another strong year in 2026.

And so then on consolidation, which you asked about, I don't -- I know others -- peers have commented on this. I don't think it's about smaller firms GPs disappearing in the near term. I think it's about concentration of capital and flows. I see growth accruing -- continuing to accrue to and flows being directed disproportionately to the larger scale players with track records and brands. LPs are consolidating capital, consolidating relationships. And scale, I think, broadly speaking, is just critical in terms of the ability to deliver capital solutions and most interesting investments at scale in terms of the advantages of data, intellectual capital, brand reach. And so -- and while we've been, I think, successful in selectively making acquisitions over our history, the beauty of our model, I think, is that we can continue to expand and innovate in an unconstrained way organically and in a capital-light way.

So the macro outlook sounds pretty good. The investing outlook sounds pretty good. The fundraising outlook sounds pretty good. Now how does all that translate into financial performance of Blackstone over time?

Yes. Well, we think it's a multiyear picture of strength. First, in terms of 2026, as I said on our earnings call, we saw mid-teens growth in base management fees in 3 of our 4 business segments in the fourth quarter, and we expect a continued strong trajectory in these businesses in 2026. The drivers are broad and deep in the private equity segment. I mentioned our latest drawdown fundraising cycle. We expect 5 of those funds in the private equity area totaling over $50 billion to be launched at various points this year and to be fully fee earning by the end of the year. And just overall, that's a reflection, I think, of the vibrancy and breadth and expansion of the platform, whether it's across Asia private equity, our dedicated energy strategy, our longer-dated core strategy, life sciences growth and of course, secondaries.

So we think these businesses should scale really considerably from here. And I can't overstate the power of our private equity strategy for individuals and private wealth. It's early days, but we see this as a significant engine for management fee and FRE growth going forward. In credit, continued strong momentum in 2026. with significant dry powder that will earn fees as it's invested. And then BXMA,'s open-ended strategies benefit from positive net inflows and NAV-based appreciation. And we entered 2026 with the fee-earning AUM in that area up 14% Switching to transaction fees, we expect a strong year ahead again for our capital markets business in the context of both improving transaction backdrop and also this widening aperture of the firm's investment activity, which our BXCM business participates in.

And then this overall expansion of our perpetual capital platform is now almost half of our firm-wide fee-earning AUM. It drives the expansion of our firm's earnings power in a substantial way, both in terms of management fee growth, management fees that compound with NAV and also incentive fees. So that's a really strong foundation for FRE growth in 2026 and beyond. And then net realizations, the transaction environment has improved significantly. And so we expect disposition activity to ramp as we move through the year. And then I'd say looking forward to 2027, even though it's early 2026, A lot of, I think, powerful drivers in the private equity segment. We'll see the full year benefit of those drawdown funds that I mentioned being activated in 2026. We expect continued sort of powerful momentum in our private equity retail product, continued momentum in credit and BXMA.

We'd look to a resumption of positive growth in real estate. And in terms of net realizations, would anticipate very significant benefits from the cyclical recovery, which is now underway. And then really importantly, there is another large scale scheduled crystallization of incentive fees of fee-related performance revenues in our institutional infrastructure business with respect to what will then be 3 years of gains. In 2024, that generated $1.1 billion of fee revenues, and we anticipate it will be quite substantial again in 2027. So we see a very positive picture for Blackstone. -- financial outlook for the years ahead.

So Michael, you have the #1 private wealth business in the world, kind of first at that, bigger at that. You have multiple category leaders, BC and credit, BREIT in real estate. And then you have some large funds that are scaling quite quickly like BXPE and BX Infra. What is next for Blackstone in private wealth? Are there still opportunities to expand distribution? Are you already covering a lot already? And then also, where does the retirement channel fit in because we might be getting something from the Department of Labor in the next month or 2?

Right. So you've heard us say this before. We think we're still in the very early stages of investor adoption in what is a $140 trillion global market with low single-digit penetration of private markets today. We've got the, we believe, the market-leading business and the pace of innovation is accelerating. So our momentum is underpinned by these 4 core strategies with great performance, represents over $160 billion of AUM. These strategies are really foundational for our next phase of growth, particularly around multi-asset products and the retirement channel, which represents really a whole new dimension of our wealth business where we think we are uniquely positioned.

In terms of new products, just to reference a few, the alliance with Wellington and Vanguard, the WBB Alliance, we filed the registration statements for 2 products. We expect launches later this year. We announced a partnership with L&G, including public-private credit products for the U.K. wealth and retirement markets. And then alongside that, we expect other major multi-asset products that we plan to introduce. We've also filed for a new perpetual product that leverages our capabilities across BXMA, which we think we can deliver something very special. And then other new strategies always are in the lab in process. You asked about distribution.

We certainly think we can go much deeper within the existing footprint and expanding distribution around the globe. So the U.S. remains the largest market. It's still very early in its adoption, including moving deeper into key subchannels like the RIA channel, which is a $10 trillion U.S. market, deeper into the credit investor area. And then major markets focus outside the U.S. So in Japan, that's the second largest market outside of the U.S. as we know, an enormous pool of financial assets, about half are allocated to low-yielding cash or deposits among households, very low penetration vaults. In Canada, it's a $4 trillion market. We now are offering all 4 of our core perpetuals there, and we're growing distribution across major hubs.

Australia, it's a $2.5 trillion market. It's actually almost comparable in size to the U.K. We recently established teams on the ground there. So we're in process of rolling out products across multiple distributors there. And then Korea actually is a newer market, but we'll have boots on the ground there, we expect for the first time later this year. So that's, I think, an exciting picture. For defined contribution, massive opportunity over time. And here, again, we think we're the only firm with these large-scale building blocks across private market asset classes, which will position us exceptionally well to deliver private market solutions.

We think, as you mentioned, after we hear maybe soon from the DOL and after the comment period that the rulemaking could be finalized by the end of the year. And in the meantime, we're expanding relationships with leading players in the retirement market and preparing our existing products for inclusion in target date funds. We've created ARISA compatible CITs for BREIT and our private equity strategy to start with, with a near-term goal to add private credit infrastructure to that. We recently announced a partnership with Empower, the country's second largest retirement plan provider, $2 trillion of AUA.

And then with our partners, Vanguard and Wellington, we're focused on launching our wealth-focused products in the near term, and we're excited about the opportunity to potentially expand this relationship, including potentially to the U.S. retirement market. So overall, we're very optimistic about the picture here.

Great. Let's switch gears and go deeper into private credit. I look at the fourth quarter 2025 results for Blackstone, very good across the board, including returns. Now despite that, there's been some more focus on the area, and that includes in the last week on the software front. So how do you think Blackstone is positioned in private credit? And when you read some of the newspaper articles or watch how the stocks are reacting and talk to investors, do you think what's happening has been overblown?

Well, first, just stepping back before we get to software, Blackstone, we think, continues to and has delivered really outstanding results in our credit business. Just to remind people, we have a $520 billion platform diversified across liquid credit, direct lending, infrastructure and asset-based finance, private investment grade, real estate debt. Our BXCI segment grew FRE 16% in 2025 and DE by 37%. Deployment was a record in 2025 and fundraising was nearly a record, underpinned by record inflows from institutions. Our IG business within that grew 50% year-over-year. And in terms of investment performance, which you mentioned, 11% gross in our noninvestment-grade private credit, 17% in our real estate high-yield area.

Over 2 decades in private credit, we've delivered annualized realized losses of 0.1%. And today, credit quality remains strong. Defaults remain historically low. It's reasonable to assume we'll see some increase in defaults from this extremely low level, but believe the structural advantages will continue to produce superior results. So overall, outstanding momentum to our credit business as we move into 2026. So with that said, the market has been focused, as you mentioned, on the AI disruption risk, in particular, in software. You asked, is it overblown? I'd just say when you see such indiscriminate and very technical trading against the whole sector as you have with software stocks, which includes some of the best companies in America.

That almost definitionally means it's being overdone with a too broad brush. And there'll be a range of outcomes over time, but we expect larger, well-entrenched businesses to be better protected and in many cases, beneficiaries of AI given the attractive moats and resources to invest in their own businesses and apply AI as a competitive advantage, characteristics which we think are evident across our portfolio. For Blackstone overall, software represents 7% of our total AUM, more on that in a moment. In credit, software represents 10% of our platform across the firm. And we believe we're quite protected in terms of first, where we are in the capital structure; and second, the nature of our portfolio.

So our average loan-to-value was less than 40% at setup, which implies the original purchase price would need to be impaired by over 60% before our position is impaired at all. Our focus is on larger companies. The average TEV of our software holdings is over $4 billion. And these produced -- this portfolio produced on average, high single digits year-over-year revenue growth and low double-digit EBITDA growth for the most recent reported period. So bigger companies, low loan to values and healthy growth overall. Some quick illustrative math, which we're all getting good at these days. If you take the year-to-date decline, for example, in the software index of, say, 20% and apply that to our $4 billion-plus average TEV, our loan-to-value would still be sub-50%.

And maybe even more simply, the public software comparables have traded down from 17x to 14x EBITDA, our net leverage multiple in our large vehicle is still less than half of that. And at Blackstone, in our credit business and across the firm, we have significant resources to support our investments and help drive value, our operating teams, our deep sector expertise across the firm. So -- and also this volatility will definitely create buying opportunities. And I'd just end on overall across the firm, as I said, 7% of total AUM we focused extensively on deeply embedded, high-retention businesses where switching costs are high.

And it's worth probably also repeating here in terms of playing offense that we've been one of the largest investors in the whole AI ecosystem, the largest in the infrastructure around it in data centers globally, one of the largest in power and electrification, as I said, really playing the picks and shovels that are making AI a reality in a way that sort of neutrals picking winners and losers. And at the same time, we've also invested directly in AI leaders such as Anthropic and OpenAI and some of the application companies that sit on top. So we think we're positioned to make our business and our investors major beneficiaries of the AI revolution.

That's great. Let's turn to a different asset class, real estate. Real estate has been out of favor for a couple of years here, really since interest rates turned in 2022. But this has led to some positives, including potentially less competition going forward. But where are we now in terms of the net flow fundraising outlook? I know John Gray called the bottom a couple of years ago. He was right, and he was also writing that it's been uneven. It wasn't a V-shaped bottom. But what does the fundraising return outlook look like now?

Yes. So first, I think we would acknowledge that the sector's recovery has taken longer than we would have hoped, but we do believe we're moving towards a better environment. Private real estate values have slowly improved from the trough about 2 years ago. It's still down about 16% since the start of that interest rate cycle in 2022 versus the S&P being up 75% over the same period. Across our portfolio, and I think this is really important to highlight, we're seeing multiple areas of real strength. So data center fundamentals are obviously exceptional. Industrials have significant momentum. So our U.S. logistics platform saw record leasing in the fourth quarter.

We're seeing corporate confidence return to the market. You hear that from some of the large public peers in industrials as well as well. This is a very important development for the real estate market and for real estate business. In multifamily, which represents the vast majority of our residential exposure, it's turning the corner, we think, or will be turning the corner given absorption of excess supply and new deliveries being past peak and coming down. In grocery-anchored retail, often overlooked. We see rents in those markets having grown high single digits last year. And then even in the traditional office market, although it represents a small part of our portfolio, we are seeing the recovery take hold in certain markets. Manhattan office leasing activity is at like a 6-year high. In San Francisco, rents on trophy properties are growing double digits.

And then just more broadly, there are a number, I think, really important tailwinds for the industry that we've talked about. First, new construction starts for virtually all kinds of real estate are down sharply. U.S. multifamily, new starts, the lowest in over 14 years. Logistics, the lowest in 12 years. And this will increasingly translate into depressed deliveries and new supply, just a time lag from starts. And it's become much more expensive to build. We estimate construction costs are up about 50% over the last 5 years across real estate sectors in the U.S. The cost of debt is down sharply. Debt issuance activity is up sharply. 2025 is the highest year of CMBS activity in the U.S. since the GFC. So that's a real harbinger, I think, of transaction activity, which we're starting to see pick up. U.S. market activity was up over 20% in 2025. In terms of flows, which you asked about, we do believe the sentiment is improving.

We see strong interest in real estate credit and significant improvement in BREIT flows driven by performance. So BREIT was up 8.1% net in 2025, the best annual performance in 2022. And as I said before, we're as optimistic as we've been in years around prospective demand. We're in between major drawdown fund raises in real estate, but we saw strong success in our most recent vintages despite the backdrop of the last couple of years last year. We closed the world's largest ever European real estate fund and our real estate credit fund, we raised a fund nearly the same size as our -- as the prior fund, which was a record size. And then in terms of our flagship global opportunistic strategy, it's over 50% committed in the current vintage.

So we could be back in the market raising the successor fund before year-end, subject to deployment. So I would just say overall, Blackstone is exceptionally well positioned as the cycle turns in real estate, we think. It's really all about portfolio construction. As we said before, 75% of our global portfolio in these 3 sectors, data centers, logistics, residential, BREIT is nearly 90% across those 3. And in those 3 enormous strength in data centers, significant momentum in logistics and strong underlying fundamentals in multifamily. And you asked about competition. I'd just say that our sector selection has been key through cycles to driving, we think, highly differentiated results versus our peers. And it's been our experience that with each real estate cycle, our business emerges stronger than before.

Great. I don't think I'll do a meeting this week without bringing up AI. So I'm curious in terms of how is Blackstone applying it today? -- how -- what might you be doing with it in sort of 5 years? And is the output that we're going to see FRE margin progression and maybe better investment outcomes.

Great question. It's early days. But at Blackstone, let's just talk about sort of operations. We're employing AI-enabled tools and processes across multiple areas in varying sort of breadth of use cases. In many cases, we're -- this is sort of off the radar usually, but we're strategic partners with emerging application providers and all with very promising early results. So just some examples in software development, like a lot of folks, AI coding assistants have made our engineers, we think about twice as -- 2x more efficient in the past couple of years in those coding activities. In cybersecurity, we recently adopted an application from a company called 7 AI, which is an AI-powered platform, which boosts cyber investigation speeds and accuracy, we think, by about 30%.

In legal and compliance, we talked about this quickly on the earnings call. We're using something called Norm AI, Blackstone portfolio company to help review marketing materials, and we have a lot of them, which is already showing the opportunity we think to make our teams in this area with this use case, 50% or so more efficient. And then in valuations, in portfolio management, we're using a product called 73 Strings to automate data extraction and ingestion and model building. And it's been transformational, I think, in terms of the efficiency of these very extensive processes at the firm. So in nearly all of these cases I just mentioned, we're an investor in the platform and the businesses as well as an anchor customer and a design partner.

So we think we're sort of a first mover, have -- we're very well positioned around adoption, and we're at the leading edge of the ecosystem. You asked about operating margins. I do think over time, these and other tools and platforms will enhance our productivity and impact our margins positively. But ultimately, though, really, for us, the foundational opportunity for our business lies in our data. In a world where public market investors are, we think, confined to public market data, which will be increasingly commoditized, instantly available to all.

I think that being able to possess and integrate the deepest, richest troves of proprietary private market data will infer a true strategic advantage to a firm like ours. And in that, we're distinctively positioned given our scale, the breadth of our businesses, our global footprint, 4 decades of longitudinal data. So overall, we just -- we expect to be a leader in enabling our business with AI, and we do expect the impact to be very consequential.

Great. Well, with that, we are out of time. So on behalf of all of us at Bank of America, Michael, I just wanted to thank you very much for joining us.

Thanks, Craig.

Good day, and welcome to the Blackstone Fourth Quarter and Full Year 2025 Investor Call. Today's call is being recorded. [Operator Instructions].

At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Great. Thank you, and good morning, and welcome to Blackstone's Fourth Quarter Conference Call. Joining today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Vice Chairman and Chief Financial Officer.

Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-K report later next month. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K.

We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.

Just quickly on results. We reported GAAP net income for the quarter of $2 billion. Distributable earnings were $2.2 billion or $1.75 per common share and we declared a dividend of $1.49 per share, which will be paid to holders of record as of February 9.

With that, I'll now turn the call over to Steve.

Good morning, and thank you for joining our call. Blackstone just reported the best results in our 40-year history, with distributable earnings of $1.75 a share as Weston mentioned. This capped a record year for the firm, in which DE increased 20% and to $5.57 per share or $7.1 billion, powered by strong growth in fee-related earnings and a significant acceleration in net realizations.

Inflows reached a stunning $71 billion just in the fourth quarter, the highest level in 3.5 years. At approximately $240 billion for the full year, reflecting robust momentum across the institutional, private wealth and insurance channels. Of particular note, our fundraising in private wealth increased 53% year-over-year in 2025 to $43 billion, and we expect strong inflows again in 2026, given our performance and continuous innovation.

According to recent analyst research, Blackstone, as an estimated 50% share of all private wealth revenue across the major alternative firms. In total, the firm's fundraising success lifted assets under management, 13% year-over-year to a new industry record of nearly $1.3 trillion.

Most importantly, we generated outstanding investment performance overall, for our limited partners again in 2025, highlighted by notable strength in infrastructure, corporate private equity, our multi-asset investing business, BXMA. We achieved these results amid the turbulent year for markets, which was impacted by tariff uncertainty, geopolitical instability and the longest government shutdown in U.S. history.

Federal Reserve officials like in this backdrop to driving in a fog, for Blackstone, a key advantage of our leading scale with the portfolio spanning more than 270 companies, nearly 13,000 assets in real estate, and one of the largest credit platforms is the expansive array of proprietary data it produces. This data provides deep insight into what's happening in the global economy helping us see through the fog and chart the path forward.

What we saw in the data was a fundamentally strong economy, underpinned by the ongoing technology an AI-driven investment boom. We were also encouraged by what we're seeing on the ground in terms of moderating inflation in the context of limited input and labor cost growth at our companies as well as our real-time understanding of shelter costs given our unique position in real estate. We shared these perspectives with you throughout the year, which did not always align with the consensus viewpoint.

Today, there continues to be a range of geopolitical uncertainties that are impacting markets, but we remain anchored by the strong operating and capital market fundamentals we see through our portfolio. Our views on the economy inflation have informed our investment approach. They also led to our condition that the deal cycle would accelerate, including a resurgence in capital markets activity.

First, in terms of our investments, our data gave us the confidence to lean into key thematic areas such as digital infrastructure, including data centers, power and electrification. Private credit Life Sciences and from a regional perspective, India and Japan. These areas have been among the largest drivers of appreciation in our funds. We also took advantage of volatility in markets to sign or close 8 privatizations during the year in private equity and real estate, including in the fourth quarter, medical technology company, whole logic, for $18 billion.

And in credit, we saw record deployment in 2025. And including the emergence of an important new source of direct origination, customized long-duration capital solutions for investment-grade corporates. We've executed multiple of these to date, and we expect to do more over time.

In total, we invested $138 billion across the firm in 2025. And the highest level in 4 years, planting the seeds of future value. Stepping back, the historic pace of investment taking place in the U.S. to facilitate the development of artificial intelligence, including the design and manufacture of semiconductors, data center construction and the expansion of power generation is the key driver of economic growth today. It is creating an enormous need for capital solutions.

The U.S. has long occupied a unique position in the world in terms of its innovation and economic leadership and the investment medical cycle underway in AI and power and the expected future boost in AI-related productivity should propel U.S. economic growth for years to come.

Blackstone is extremely well positioned to benefit against this factor. Given our scale and expertise in these areas, including our ownership of the world's largest data center platform as well as our position as a major investor in the modernization and growth of the U.S. electric grid.

Turning to the acceleration in the deal cycle and capital market activity. We regularly spoke about this dynamic last year. And we're now seeing it start to materialize. IPO and M&A activity are accelerating, deal sizes are increasing, and sponsor activity is picking up.

In the fourth quarter, global IPO issuance rose 40% year-over-year, including a 2.5-fold increase in the United States notwithstanding the government shutdown. Blackstone was a major contributor with the $7.2 billion IPO of medical supply company Medline, the largest IPO since 2021, and the largest sponsor-backed IPO in history.

The offering was extremely well received with shares trading up over 40% on the first day. Medline is a perfect illustration of the power of Blackstone's private equity model at work and our ability to generate attractive returns on large-scale control deals across vintages.

This 2021 transaction represented the largest health care buyout in history, which we completed in partnership with the company's founding family. Key limited partners and 2 other financial sponsors. During our ownership, we accelerated the company's growth, implemented multiple initiatives to drive value and executed accretive acquisitions to expand the company's product suite and end markets.

Today, Medline is a category-leading public company that is exceptionally well positioned for continued success. Medline was Blackstone's fourth IPO globally since last summer, and our momentum continues to build. We have one of the largest IPO pipelines in our history, reflecting a diverse mix of sectors and geographies.

Looking forward, the structural tailwinds driving the alternative sector and in particular, Blackstone are accelerating. For investors are discovering the benefits of private market solutions, including in the vast private wealth and insurance channels.

At the same time, we continue to deepen our relationship with institutional limited partners across multiple areas. These tailwinds, alongside the cyclical recovery underway in transaction activity or a powerful combination for our firm and our shareholders.

In closing, I couldn't have more confidence in the firm and our prospects for continued growth. Our business performed exceptionally well through the high cost of capital backdrop of the past several years, and we believe we're now moving into a more supportive environment with a portfolio concentrated in compelling sectors and nearly $200 billion of dry powder to take advantage of opportunities we are extremely well positioned for the road ahead.

And with that, turn it over to Jon.

Thank you, Steve, and good morning, everyone. This is an exciting time for Blackstone 3 powerful dynamics coming together. First, the deal environment has reached escape velocity on the back of moderating cost of capital. Secondly, the AI revolution is creating generational opportunities to invest private capital at scale, both debt and equity, while creating attractive gains across multiple sectors.

And third, adoption of private markets continues to deepen across all 3 of our major customer channels, institutions, insurance and individual investors. These dynamics are translating to outstanding results across the firm.

Starting with our institutional business, which makes up over half of our AUM and comprised over half of 2025 inflows. We are seeing strong demand today across numerous open-ended and drawdown fund strategies. In infrastructure, our dedicated platform grew a remarkable 40% year-over-year to $77 billion, including over $4 billion raised in the fourth quarter, underpinned by exceptional investment performance.

The co-mingled VIP strategy has generated 18% net returns annually since inception 7 years ago, and 2025 was one of the best years yet, with broad-based gains across digital, energy and transportation infrastructure. Our QTS data center business was again the largest single driver of returns for BIP as well as in real estate.

Speaking with our open-ended strategies, BXMA reported excellent results again in Q4. We -- the composite gross return for BXMA's largest strategy has been positive for 23 straight quarters and exceeded 13% for the year in both 2025 and 2024, a the best since 2009. Investors are responding favorably with $6.3 billion of net inflows for BXMA in 2025, representing the highest net fundraising in nearly 15 years. and lifting AUM 14% year-over-year to a record $96 billion.

Meanwhile, in our institutional drawdown area, our business is accelerating with a new fundraising cycle underway. We've held initial closings of $5 billion for our new PE secondaries flagship targeting at least the size of the prior $22 billion vintage with another major close expected in the coming weeks.

Our secondaries platform saw a record year of deployment in 2025, and we see strong growth ahead, fueled by the ongoing expansion of private markets. In corporate private equity, we've raised over $10 billion to date for our next Asia flagship compared to approximately $6 billion for the previous vintage. And expect to reach over $12 billion. We also launched fundraising for our fifth private equity energy transition vehicle, which we expect to be meaningfully larger than the prior vintage of approximately $5.5 billion, with a first close anticipated this spring.

Rising demand in the power and electrification ecosystem is creating enormous deal flow in this area and are currently investing vintage is approximately 80% committed only 1.5 years after launch. In Q4, we also held closings for the new vintages of our tactical opportunities, GP stakes and life sciences vehicles.

And in credit, we raised an additional capital for our fifth opportunistic strategy, bringing it to over $7 billion with a target of $10 billion. There's no question that institutional investors remain the bedrock of our firm. Diving deeper into credit specifically, our platform overall continues to see extraordinary momentum.

We now manage $520 billion of total assets across corporate and real estate credit, up 15% year-over-year. Inflows exceeded $140 billion in 2025, with strong fundraising across the institutional insurance and private wealth channels. Underpinning this demand, again, is investment performance.

Our non-investment grade strategies in private credit and real estate credit delivered gross performance of 11% and 17%, respectively, for the year. Since inception 20 years ago, our noninvestment grade private credit strategies have generated 10% net returns annually, double the return of the leveraged loan market with minimal losses.

Despite the external noise today in private credit, facts do matter and our portfolio overall is in excellent shape, including high single-digit EBITDA growth on average for our direct lending borrowers for the most recent annual period. The backdrop remains favorable with corporate profits growing, short-term rates declining and transaction activity increasing.

At the same time, we're benefiting from the massive secular shift underway towards investment-grade private credit, which we believe is in the earliest stages. We now manage $130 billion in this area, up 30% year-over-year. Our farm-to-table approach, which brings clients directly to borrowers and is designed to create a structural premium to liquid fixed income is really resonating.

Why is investment-grade private credit growing so quickly? Two main reasons. First, corporate investment-grade bond spreads are at their tightest levels since 1998 and we've been seeing insurers and now some pensions and sovereign wealth funds looking to earn materially higher spreads at the same or lower risk levels.

Second, the build-out of AI infrastructure recorded a massive amount of private debt capital for the construction of fabs, energy supply and data centers.

Turning to the insurance channel specifically. Our AUM grew 18% year-over-year to $271 billion. This remarkable growth is happening without taking on any insurance liabilities. Investors are responding particularly well to our open architecture model and the value we deliver.

We placed or originated $50 billion of credits for our private IG focused clients in 2025, which generated approximately 180 basis points of incremental spread versus comparably rated liquid credits. These results are more important than ever in an environment of tightening yields.

Moving to the individual investor channel where we are uniquely positioned given the breadth of our product lineup, our performance and the power of our brand. Our AUM in private wealth grew 16% year-over-year to more than $300 billion and is up threefold in the past 5 years.

In Q4, our total sales in the channel exceeded $11 billion, up 50% year-over-year. BCRED led the way with gross sales of $3.3 billion while net inflows were $1.2 billion. For the full year, BCRED reported record gross sales of over $14 billion, powered by investment performance. With 10% net returns annually since inception 5 years ago, almost entirely comprised of foreign income.

Our private equity flagship in this channel, BXP has also generated outstanding performance achieving an annualized net return of 17% since inception. BXP has grown to $18 billion in only 2 years with its broad-based approach to our expansive private equity platform.

Our infrastructure strategy in private wealth BX Infra is approximately $4 billion, only 1 year after launch with strong performance out of the gates. And BREIT delivered terrific results in 2025. underpinned by a net return of 8.1% for its largest share class, nearly 3x the public REIT index. BREIT portfolio position continues to drive returns, including its significant exposure to data centers. In private wealth, as with the rest of Blackstone, our relentless focus on investment performance gives us the license to innovate, and our innovation is accelerating.

We expect 2026 to be our busiest year yet terms of product launches as we stated previously. Blackstone has led the evolution of the private wealth market to date, and we expect to lead it in the future.

Turning to real estate, where we've been navigating the early stages of the sector's recovery. We said the cycle was bottoming 2 years ago, but that the recovery wouldn't be a straight line. Since then, U.S. private real estate values have been slowly improving. However, since the interest rate cycle began approximately 4 years ago, real estate values are still down 16% and compared to an increase of 75% for the S&P 500. We think real estate has plenty of room to run.

We've taken advantage of choppy investor sentiment to lean into deployment, investing or committing over $50 billion in real estate since the cycle trough 2 years ago. including our commitment in Q4 to privatize Alexander & Baldwin an owner of high-quality grocery-anchored shopping centers and warehouses in Hawaii. The gradual pace of the recovery to date has meant our real estate funds in aggregate saw limited appreciation in 2025, notwithstanding BREIT's strong performance.

That said, we do see a number of positive signs which point to a better year ahead. These include the sharp decline in construction starts, which have fallen to the lowest level in more than 12 years in the U.S. in both logistics and multifamily, our 2 largest sectors in real estate, continued growth in debt availability and declines in the cost of debt a pickup in transaction activity and now an improvement in logistics demand with our U.S. platform reporting record leasing activity in Q4.

At the same time, our exposure to data centers continues to be a source of strength. As does real estate credit. We remain highly optimistic about the direction of travel for our real estate business. In closing, we entered 2026 with tremendous momentum. Our clients are growing their commitments to us across channels. We are actively investing that capital in compelling thematic areas and realizations have begun to accelerate. Blackstone's performance-driven capital-light brand-heavy model continues to deliver for shareholders.

And with that, I will turn things over to Michael.

Thanks, Jon, and good morning, everyone. The firm's fourth quarter results represented an outstanding finish to a record year. I'll first review financial results and will then discuss investment performance and the forward outlook.

Starting with results. The fourth quarter represented the best quarter of distributable earnings per share in the firm's history, as Steve highlighted, and one of the 3 best quarters of fee-related earnings. First, in terms of FRE, which reached $1.5 billion in Q4 or $1.25 per share. Management fees increased 11% year-over-year to a record $2.1 billion, underpinned by 10% growth in base management fees and a 27% increase in transaction and advisory fees.

Base management fees for 3 of the firm's 4 segments: Private equity, credit insurance and multi-asset investing on a combined basis grew 17% year-over-year in Q4, while in real estate, base management fees declined moderately. Fee-related performance revenues for the firm totaled $606 million in the fourth quarter, generated by a broad range of perpetual strategies led by BREIT as well as BCRED and BXP, the year-over-year comparison reflected the crystallization of over $1 billion of these revenues in our institutional infrastructure business in last year's fourth quarter related to 3 years of accrued gains.

Excluding this from the prior period, fee-related performance revenues grew significantly year-over-year and FRE overall grew 24%.

In terms of distributable earnings, we reported $2.2 billion of DE in the fourth quarter of 2025 and/or $1.75 per common share. Alongside robust FRE, net realizations increased 59% year-over-year to $957 million, the highest level in 3.5 years. Gross performance revenues exceeded $1 billion in the quarter, driven by a number of net realizations across the firm, including the sale of a portion of our stock in Energy Solutions Company Legions.

The sale of a stake in the city center complex on the Las Vegas Strip. The modernization of certain royalty interest in our life sciences portfolio. And importantly, year-end crystallizations in DxMA and certain credit vehicles with respect to full year 2025 performance. BXM specifically reported record performance revenues in Q4 of $465 million up 38% year-over-year. We also closed the sale of the firm's 6% stake in Resolution Life in the fourth quarter in connection with the company's sale to Nippon Life with the realized gain reflected in principal investment income.

Turning to the full year. Despite numerous challenges in the external operating environment in 2025, Blackstone delivered record full year results across digital earnings, fee-related earnings, management fees and assets under management, all of which have approximately doubled or more than doubled in the past 5 years. Distributable earnings grew nearly 20% to $7.1 billion.

Fee-related earnings increased 9% to $5.7 billion. Management fees rose 12% to $8 billion, while FRE margin expanded over 100 basis points to the highest level ever for a full year period. And net realizations grew dramatically in 2025, up 50% to $2.1 billion.

Meanwhile, the firm's extraordinary breadth lifted AUM up 13% year-over-year to $1.275 billion. At the same time, all of our key operating metrics accelerate in 2025, inflows, capital deployed, total fund appreciation and realizations. Net accrued performance revenues on the balance sheet or store value increased 7% in 2025 to $6.7 billion.

The foundation of future value for the firm continued to expand, even as the pace of monetizations increased, and all of this during a period where the significant underlying earnings power of our real estate business has yet to reemerge.

The fundamental driver of this positive momentum is, of course, investment performance. Our funds overall delivered strong returns in the fourth quarter and in 2025. Infrastructure led the way with 8.4% appreciation in the quarter and a remarkable 24% for the full year.

The corporate private equity funds appreciated 5% in the third quarter, with particular strength in the public portfolio and 14% for the year, supported by high single-digit revenue growth at our operating companies and resilient margins. BXMA reported a 4.3% gross return for the absolute return of composite in the fourth quarter and 13% for 2025.

BXMA has delivered positive composite returns for the last 23 quarters, as Jon noted, and in each of the past 33 months. which is driving strong inflows and the segment's fifth consecutive quarter of double-digit year-over-year AUM growth in the fourth quarter.

In credit, our noninvestment grade private credit strategies reported a gross return of 2.4% in the fourth quarter and 11% for the full year, reflecting stable underlying credit performance. our $160 billion-plus global direct lending portfolio specifically, realized losses were only 11 basis points over the last 12 months.

In real estate, overall values appreciated approximately 1% in the fourth quarter and 1.5% for 2025. In Q4, continued significant strength in data centers was partly offset by headwinds in certain areas such as life sciences office and U.K. student housing.

In total, our real estate portfolio remains well positioned, with 75% of our global equity holdings concentrated in data centers, logistics and rental housing. Re-sectors supported by very positive long-term fundamentals, as Jon discussed. At the same time, our real estate credit business continues to report outstanding performance with our noninvestment-grade funds appreciating 17% for the full year including 2.8% in the fourth quarter.

Moving to the outlook. The firm is advancing with significant momentum across multiple drivers. We expect management fees to continue on a strong positive trajectory in 2026, underpinned by robust growth in the private equity, credit and insurance and multi-asset investing segment with real estate management fees consistent with Q4 levels in the near term. along with a strong contribution for our capital markets business in 2026.

Meanwhile, the continued expansion of our platform perpetual capital strategies overall is widening the aperture for generating fee-related performance revenues, in terms of net realizations, the backdrop has become much more constructive as you've heard this morning. While we will not have the onetime benefit of the sale of our Resolution Life stake and our software platform [ Bistro, ] we expect a strong year ahead, particularly with respect to our drawdown fund business with activity building as we move through the year. Overall, our embedded value and realization potential are significant. And we are very optimistic in the multiyear outlook for this.

So in closing, in 2025, the firm delivered robust financial performance in the face of a complex external environment. And as we look forward, with powerful structural tailwinds and multiple engines of growth, we strongly believe the best is yet to come.

Thank you for joining today's call. We'd like to open it up now for questions.

[Operator Instructions]. We will take our first question from Craig Siegenthaler with Bank of America.

Our question is on the record IPO pipeline. So what sectors and industries will you be leaning into will some of that spill over into real estate? Or is it too early? And as you hand limited partners cash back at a blended [ Mok ] of 2x. Can you talk about the second order effect it will have on fundraising as LP liquidity profiles rebound?

Thanks, Craig. I would say it will be mostly concentrated in the corporate space just because, obviously, the fundamentals there are strong, the market is open. I think it will be broad-based. But obviously, there is a lot of focus around energy and electricity and some of the picks and shovels around that. But in general, as we saw with Medline, high-quality companies are getting a good reception I do think it will be more U.S. focused, but I think we'll do a number of things in India, and that's a place where we'll see probably more real estate activity as well just because of the underlying health of that economy and that IPO market Europe is slower, but it feels broad-based to us and getting better.

And as I said on TV a little earlier, it feels like 2013, '14, where you had that 4-, 5-year hibernation period, the markets reopened, and we took a bunch of companies public. And that's the way it feels today and the fact that Medline and Allegiance and a couple of companies we've taken out have performed so well for shareholders. I think that's a very good sign. So we do have a lot of confidence.

In terms of what it means for our customers, yes, as they get capital back, as they get gains back and makes it easier for them to allocate more capital to us, it does get that flywheel going again. This is a very positive sign. I think we forget some time that the last 4 years has been in the abnormal period. That M&A and IPO activity have been well below historic levels, and we're moving back towards more historic level of activity, and it is a very positive sign for our business. It helps, obviously, with transaction fees, it delivers returns.

Generally, we're putting these things out at higher levels and carrying value it gives the investors more capital in their pockets to redeploy. So it's a very good virtuous cycle for us, and we're excited to see the IPO market coming back like it is.

We'll take our next question from Michael Cyprys with Morgan Stanley.

I just wanted to ask about AI. You guys are obviously big investors in data centers and AI infrastructure. But just curious how you're deploying AI across your portfolio companies, what learnings you've had along the way, what sort of impact you're seeing from this deployment? And how do you see this evolving over the next 12 to 24 months?

Well, it's still early days, but we are starting to see some real impact. I'd say at the Blackstone level, it's been with our software engineers. That's where we've seen the biggest impact day 1 in terms of making our folks twice as efficient when they're coding. We're beginning to use it for cyber monitoring, which is giving us a productivity boost. We invested in a company called Norm AI to help us on the legal side, particularly marketing compliance.

And then I would say data summarization is super helpful. We have 270 million companies, 13,000 pieces of real estate and the ability to get that real time and to use that information to make us better investors to me, that is hugely important. At our portfolio companies, I would say customer engagement. We have a number of companies who are doing that content creation, certainly with the media focused companies there rules-based businesses, again, legal accounting, transaction processing.

We're working with some of the LLM companies on how to accelerate this and so it feels to us like real productivity gains will come. It's not happening immediately, but we're seeing early test cases that are quite positive. This is one reason I'm optimistic about what can happen to earnings overall in the stock market and certainly across our portfolio companies.

So we want to be really leaders in this space. We hired Ronny's Zema, who ran AI at McKinsey to help with this, and it is a huge focus for our firm.

We'll take our next question from Bill Katz with Cowen.

Just curious, just coming back to the retail opportunities, so appreciate the big picture and your market share. One of the biggest pushbacks is, as rates continue to work their way lower the relative appeal of income-oriented vehicles is going down. So I was wondering, a, what are you hearing on the evolution of -- in the wealth market -- and how would you be positioned if that trend were to continue?

And maybe you could break that down in terms of maybe fleshing out your activity level you mentioned in your prepared remarks for '26 and what it might mean for products, geography or incremental distribution opportunities.

Thanks, Bill. I think the place to start, of course, is the breadth of offerings we have. So one of the great things about our firm is -- we obviously have income -- we have products that are incoming growth, and we have growth oriented products show the fact that we have a very large-scale private equity vehicle. We've got just starting out infrastructure vehicle. We have real estate. Obviously, we have credit as well. That's powerful if investors start to shift a little bit.

But I think it's worth noting that I think the appeal of, let's say, private credit is not just about absolute returns. It's also very much around relative returns and the return premium we can generate. So in the fourth quarter, our institutional investors in credit we had record fundraising with them because of that premium, both in noninvestment grade and investment grade.

And if you think about when we started, for instance, BCRED, base rates were close to 0 at that point, and yet we had significant flows. So the key to us, and if you look at what we've done in direct lending, let's say, over 20 years, we've consistently outperformed what the leverage loan and high-yield market offers -- that's why I think these products can continue to do quite well.

Yes, there may be a little less demand for these at the margin because of lower absolute rates in the wealth channel, although the institutional clients actually leaning more into the space now. And at the same time, obviously, equity-oriented products benefit in a meaningful way, lower rates.

And I think one of the great things about our firm is we have the ability to capture that benefit across a wide range of equity products and things we own, both on the individual investor side and the institutional side.

We'll take our next question from Alex Blostein with Goldman Sachs.

Jon, I was hoping you could unpack a little bit what's going on in direct lending, both on the wealth side and the institutional side. On the one hand, obviously, we saw redemptions pick up, not surprisingly last quarter gross sales on Gen 1 looks like they slowed down a little bit in BCred still. So what's the sentiment from advisers? How long do you think this will continue on the well side of things?

And then importantly, it looks like on the institutional, it's been almost the opposite where your fundraising dynamics on direct lending and the direct lending side are quite strong. So help us understand kind of both of those markets as we stand today.

Well, Alex, you characterized it well. On the institutional side, where they're looking at the fundamentals and it's not the headlines and some of the noise here is not as impactful their confidence in what we're doing and their need in many ways, is going up. So if you think about it on the insurance side, the fact that investment-grade credit is at 71 basis points, corporate investment-grade credit, which is the tightest level since 1998.

The fact that we can bring our insurance clients an extra 180 basis points, which is what we did in 2025, obviously motivates them in this area. And similarly, as rates come down, on the noninvestment-grade side, they still see the benefit of the incremental yield because of our farm-to-table model that we can bring them as investors directly up to borrowers without all the origination, securitization, financing friction. And so that's helpful.

On BCRED wealth specifically, the numbers are, as you know, we raised $14 billion in BCRED last year in the fourth quarter was $3.3 billion despite the noise -- we did see this uptick in redemptions, which is not a surprise given all the headlines out there, although, of course, it's very different than what we're seeing on the ground in reality.

Yes, there will be losses in noninvestment-grade credit. The key, of course, is your portfolio healthy. Last year, we saw actually high single-digit growth in the EBITDA of our borrowers. The loan to values are sub-45%, and rates are coming down. So the credit metrics are healthy.

The key remains can we deliver a durable premium to what you can get in liquid credit and that we feel very confident. In terms of sort of outlook, we'll have to wait and see on the redemption front. Over time, but I think performance will be a key driver here on that. And on inflows, I think it's notable that the last 2 months despite all of this, we've had $800 million of gross inflows each of the last few months in excess of that.

So we have a lot of confidence in the portfolio and the outlook over time despite these headlines.

We'll go next to Glenn Schorr with Evercore.

So maybe a little more of a -- not going to go with the management fee question that, sorry. So I think we and consensus have that flattish near-term management fee growth that you talked about, but we also have a ramp in '26 and it ramps up even more in '27. So I guess I'm looking for you to talk to when about you see the ramp and the why, meaning how much and when do you -- is it about the deployment of all the dry powder? How much do you see fee holiday running off and helping in over the next couple of quarters?

Sure. Well, look, overall, I think as I outlined in my remarks, you have this picture of overall strength and in the private equity credit and PSMA segment, 17% base management fee growth in the fourth quarter year-over-year, you have that really entering the year with significant momentum in those areas, put a little more context around that in sort of the shape of the year in the period ahead that you said, first, we have talked about our new drawdown fundraising cycle that is underway.

We're actively fundraising for 5 PE drawdowns, among others. We're targeting over $50 billion for those in aggregate where we expect it will be materially larger than their respective predecessors in aggregate. And following what we expect to be the commencement of their investment periods in the first half of the year and then file [indiscernible] at different lengths, we expect all 5 to be fee earning by year-end. So going to say you have the continued seasoning and expansion of perpetual strategies overall. Perpetual capital is 48% of our fee earning AUM, that's up 18% year-over-year.

You have this quite impressive scaling in BXPE. You have BXMP just entering its second year, coming off holiday. Obviously, of our VIP area, new products coming. And then overall, from a business line standpoint, this strong momentum in credit insurance across channels and really broadening diversity in AUM in that area up 19%. And I talked about real estate in my remarks.

So fundamentally, we're on this upward trajectory. We feel really good about our positioning. I just commented on sort of the shape of some of these major new drawdowns and sort of the timing of fundraising closes, launches and fee holidays. And so you will see that upward ramp in contribution in the course of the year and then full year contribution next year.

And I would note, in this year, you also will have full year contribution of a couple newer drawdown funds like the second growth fund, the life sciences fund. And so you have those embedded components around the overall picture.

We'll take our next question from Dan Fannon with Jefferies.

So Michael, maybe just to follow up on that in the context of all that growth, how you're thinking about FRE margin and the potential for expansion in 2026?

Sure. Look, I think as this past year illustrated, we think our margin position is fundamentally strong. The expanded over 100 basis points to a fiscal year record in the context of record FRE and we do always sort of advise people to look at the full year. And as it relates to 2026, in terms of drivers to note, as we've said before, there's a level of sensitivities to bupes and transaction fees.

And we think the setup for both of those are quite strong entering the year. On operating expenses, we had previously outlined a path of a decelerating rate of growth for 2025, and that is what happened. And we feel good about the continuation of that trend over time. All of this in the context of quite healthy expected top line revenue. So at this stage in the year, you've heard me say before, we would view the starting point again as margin stability with the potential for upside. So that's what I would sort of leave you with here in January.

We'll take our next question from Brian Bedell with Deutsche Bank.

Great. Those last 2 questions were similar to mine. Maybe if I can extend it to 27% just because the ramp-up happens more in the back half of the year, especially with the turn on of the various private equity funds and fee holidays. So looking at base management fee growth of probably 11%-ish or similar in '26 to 25%, again, just because the ramp is happening in the back half. But as we get into '27, does that portend an inflection point upward, back to base management fee growth rates that are closer to what we saw in the '20 to 2022 cycle, versus low double-digit side?

And then also, if I can layer in the FRE margin question for 2017. Is it fair to assume that you -- if you have that accelerating revenue growth. Obviously, it depends on FPs. But can you continue to scale that for FRE margin improvement in '27? And is there any ceiling you're thinking about for FRE margin in that content?

Thanks, Brian. I would say, overall, as you're hearing, we feel quite good about 2026, and we feel really good about 2027, just overall across the business from a fee-related earnings standpoint, from a -- as part of that fee-related performance revenues with obviously, the infrastructure, every 3-year large incentive fee happening late that year.

With transaction fees over the next couple of years. Around net realizations, certainly, if this sort of market cycle we see continues and with margins as well. So without getting too granular, certainly for a couple of years from now, that's the overall picture. And structurally and in terms of the kind of timing of those new fundraises, I mentioned and the fact that they'll contribute full year fees in 2027 and the other factors and yes, around operating leverage, we feel quite good about it.

We'll go next to Mike Brown with UBS.

So in light of the DOL's proposed rules facilitating the alts in 401(k) plans last week, I just wanted to check in and see if you had kind of an updated view on how the market could start to open up and if you're expecting anything in 2026.

And then just on a related note, where does the alliance with Vanguard and Wellington today, is there any new developments to share on that front?

So on the 401(k) front, we obviously have to wait and see what the administration put out. There's a rule-making process, so I would expect '26 as a year of sort of building and hopefully, the rules coming out. And I think you'll begin to see capital raising more in 27 on the 401(k) side.

I do think that if we get a favorable outcome here that allows private assets to move into American Workers savings program, I do think long term, it has a very significant potential. And obviously, for us, as the largest player with the biggest products, that it positions us quite well and obviously, the strength of our brand also.

So -- it's something we're very focused on. We have an excellent team and leadership group on it, but it's something that's going to build, and I see this as sort of a foundational year.

On the Vanguard Wellington front, there's not a lot I can say I do think that we will hopefully be launching products this year in the first half of the year. I'm not sure I can go much beyond that. But to me, it speaks to just what's happening to alternatives and the fact that in the wealth channel, they continue to spread out, and we're hopeful that we can reach a broader audience beyond sort of very top end of potential clients, wealth advisers.

And there are a lot of people, I think, interested in these products, particularly if we can make them easier to access. And so I would just say, overall, in wealth and individual investors that the firm's brand and the performance we've delivered is pretty extraordinary. And that this is an area where I think there is lots and lots of overall, lots and lots of opportunity, we've been at it for many years. We did our first drawdown product going back to 2002.

We did our first semi-liquid perpetual now 9-plus years ago with REIT and we built up a lot of goodwill in this channel. And I think you will continue to see new products come online, we filed something in the hedge fund area as well recently. I think you'll see us continue to deliver for these customers and continue to expand. And what's nice about this AUM, as you know, it's in this perpetual format, it tends to stick for long periods of time and compounds.

So we have a lot of optimism and it's on multiple fronts within this wealth and retirement area.

We'll take our next question from Brennan Hawken with BMO.

In the perpetual wealth management strategies, what does the AUM base look like across geographies, particularly interested in what the exposure is as far as Asia goes, to Asian investors. And it would be great if you could to give that breakdown by asset class?

I don't know if we have that, handy, what I would say is the vast majority of the capital comes from the U.S. And within Asia, I think the next biggest market for us globally is Japan, which is a market that obviously has long-term stickiness.

And then we've had recent great success in Canada. We do have an investment base in Hong Kong and Singapore, and we're spreading out around the globe, but it continues to be a U.S.-dominated business with Japan now a strong #2 for us.

We'll take our next question from Brian McKenna with Citizens.

So just a bigger picture question for me. As Blackstone has become bigger and bigger over the years, I mean, there's been some questions from time to time around your ability to keep generating strong outperformance. But if you look at your results over the past year, I think you could argue that fundamentals are only accelerating here and then performance across most of the businesses is only getting better.

I think this is a great example of why scale is so important in the industry. But as the company continues to grow from here, how do you make sure you continue to deliver for your investors and then also make sure you're preserving your culture across the firm.

It's a great question. I would say we have a fair drive at this place that starts with Steve at the top and a desire to deliver for our customers. The reason we've grown so much over 40 years is because we haven't lost sight of True North, which is delivering returns for our customers. And so for us, what we're utilizing is the enormous scale advantages in terms of insights coming from our companies, our real estate and infrastructure and translating that into deployment of capital.

And so you've seen this thematic push into AI infrastructure, both digital and energy infrastructure. You see this in geographically, the big focus we've had in India probably is the leading foreign investor there in private equity and real estate. Our push into Japan as well, which has paid off for us so well in Asia overall. Our focus on secondaries and GP stakes and our knowledge of alternatives using that to translate into terrific returns.

Obviously, our enormous scale in real estate, which is a competitive advantage. And in credit, doing this on an asset-light basis just based on our relationships with clients and the ability to write these very large checks allows us in our minds and in the numbers to outperform.

So I know everyone's always like, oh, larger, it's worse. I think in this environment, having more scale and more data is a meaningful moat and we are trying to capitalize that for our investors each and every day.

There is a very much of an entrepreneurial spirit in this place. there is a fair sense of urgency and desire and will to win and none of that is going away. And so I think the key thing to look at is we raised $71 billion of inflows in the quarter, $239 billion in a year in what has still been a pretty tough environment, real estate lagging, the M&A and IPO markets not quite open yet and look at what we're doing.

So we think the future as the world normalized cost of capital comes down, you have what's happening in the AI world economy growing faster, productivity picking up and us investing in sectors we really like.

We think that we'll really get this flywheel going, which is why you hear this optimism on the call.

We'll take our next question from Ben Budish with Barclays.

I wanted to follow up on some of the discussion on the exit environment. I hear the optimism around the IPO opportunity in particular. But just curious if you could comment a little bit on what you're seeing regarding financial and strategic sponsor-backed M&A. What does that mean for the near-term pipeline? I think your commentary about the ramp is more predicated on the IPO cycle just taking some time despite the growing pipeline. But how are you thinking about other types of M&A, which we expect maybe in the next couple of quarters? How should we be thinking about that?

Well, the strength in the stock market is certainly helping. We announced a defense contracting business that we sold in the fourth quarter, which was maybe it was early this year, maybe in the last couple of weeks, archive that we sold, and that was from a strategic.

We do see strategics now given the strength of their stocks and the fact that the regulatory environment is much more conducive for M&A, there's more confidence as we've sort of normalized the approach in terms of evaluating antitrust issues, that's been very helpful.

So I would expect a mix. IPOs are obviously helpful for a number of these companies. But I think we will see strategic. There was an announcement this week on the state side, where a large manager bought a smaller credit manager that we had a stake in, again, that reflects an M&A environment that's improving. So I think it's fair to say it's on both sides.

And then on real estate specifically, we did see a 21% increase in overall M&A activity in real estate. We talked about the strength in logistics. We've seen some of the stocks on the screen start to pick up. I would not be surprised as you start to get momentum in that space, particularly as you move towards the latter half of the year, you'll see a pickup there as well.

So -- we did lean a lot into the IPO story, but I do think M&A and strategic sales will be there, and they'll continue to be financial buyers for some assets as well.

We'll take our next question from Steven Chubak with Wolfe Research.

So I wanted to ask on the outlook for credit flows. You cited the $700 million of equity raised in 4Q. Those flows appear to be accelerating. I was hoping you could speak to what the reception has been for the product how you're approaching marketing the offering given just a more complex regulatory apparatus in Europe?

And -- as you think about your North Star, whether BCRED is a reasonable paradigm to anchor to as you think about how much this could scale over a longer horizon?

Well, we're excited about the BCred product. Direct lending in Europe is a compelling area. The spreads are wider. The loan to values are lower. We've had a product that has delivered 10% inception-to-date returns lower rate economy in Europe. It is a harder place to distribute product because of the regulatory matrix that exist in Europe but we are beginning to get more and more traction.

Some of the new structures that have come out in the U.K. and on Continental Europe, we believe, will make it easier. And the fact that we've delivered this consistent performance. So I think this is a product that could scale it's not the size of the U.S. market. So I wouldn't have those kind of expectations. But certainly, it's gone from raising single-digit dollars or euros.

Now, as you pointed out, $700 million in a quarter, and we have real positive momentum there. So it's an example, again, of the strength of our platform and the way it's globalizing and the growing receptivity to private assets not only in the U.S. but around the world.

And so this is one where we're going to just keep focusing on it, keep delivering strong returns, and I think it can consistently grow.

We'll take our next question from Ken Worthington with JPMorgan.

Curious how you see the deployment opportunities developing in real estate this year particularly core versus opportunistic? And you've got plenty of capital still in the latest flagship BREP funds. How does the deployment pipeline look for those funds this year?

Well, I'd say it's been a little bit lumpy. We've done some big things. We said here, we've deployed across the whole real estate platform in the last 2 years, $50 billion. But sellers generally are a bit reluctant because people obviously want to see higher prices, want to see the sector recover I think you'll continue to see us find some big things to do. I think we'll continue to invest in AI infrastructure and data centers in the space.

I think we'll continue to look for privatizations because certain parts of the public real estate market are lagging. And then as values start to move up again and sellers become more motivated, I think we'll see transaction activity pick up. It's still very low relative to historic levels. And again, this is an asset class that's not going away. Real estate has fallen pretty far out of favor and yet hard assets, apartments, logistics, beachfront hotels, they're definitely going to have long-term demand.

I would say, I think the focus for us initially will be more on the opportunistic side. But over time here, I think you'll see more and more transaction activity.

We'll take our next question from Arnaud Giblat with BNP.

I was wondering if you could carry on the real estate side. Could you talk a bit more about the outlook for performance in multifamily. I mean, I heard what you said with regards to the very low levels of new starts and potential from recap improvements bleeding into performance. But I was just wondering if you could develop a bit more what are the drivers you see that could help the performance in multi-family.

What we've seen in multifamily in the U.S. has been pretty slow growth, in some cases, modestly negative, pretty flat the last couple of years as the absorption of instruction and slower job growth just basically led to a relatively flat market.

I think the good news sign goes back to the supply dynamic, which is the starts are now down 2/3 from their peak. That takes a while to work through the system. But when you stop building new supply, that should be supportive of rental values over time. And again, this is a sector so long as the population continues to grow.

There's some aging of existing stock. There should be incremental demand and better fundamentals, we have seen an improvement over what we saw versus 6 months ago, 12 months ago. And again, the cost to own remains pretty high, which is pushing people into the rental area.

So I would say, overall, logistics is clearly in a better position today, which is our biggest asset class, multifamily in the U.S. Our second biggest area is beginning to show some better signs, but that lack of new supply, combined with a healthy economy should create a favorable dynamic as we work through this year.

Our next question comes from Patrick Davitt with Autonomous Research.

You talked about the increased demand for IG Private Credit. -- but mostly from institutional pools, it seems like retail demand for those strategies has been slow to develop, just looking at VMAX and similar products from other managers. -- do you think the relative yields or returns are to be low relative to other products in the market? Or is it something else?

And then, I guess, looking forward, given your discussions and education process with the distributors, do you see a path to a meaningful uptick there as that process plays out?

So what I would say on the individual investor side, there clearly is more attraction to higher-yielding products on credit relative to the institution who are just looking at a pure fixed income replacement, but I do think over time, these things will evolve. I mean, if you think about the evolution of alternatives, they really started at the highest level with private equity and real estate private equity.

And over time, with institutions have also migrated into infrastructure and real estate and performing credit non-investment grade now investment grade. I would guess as alternatives mature over time and they're more and more accepted, you'll see a similar path. It may not happen overnight, but they won't just think about I'm going to do an alternative just because I'm going to get a double-digit return.

I think people will begin to recognize the benefit of a premium return over what I can get in liquid markets. But as it relates to fixed income, investment-grade fixed income today, it's not there yet.

We will take our final question from Crispin Love with Piper Sandler.

You announced the BREIT bonus shares early in the quarter. It's not huge, but first, how is the uptake on that special so far? And then was that driven by your opportunity to deploy capital in real estate -- and then where are you most focused in that area for deployment?

And then also just separately, how are your institutional investors in real estate. Is the interest improving noticing a shift in sentiment?

Well, I definitely say that the institutional owners are much more open to hearing about real estate than they were, let's say, 2 years ago. That sentiment is starting to shift and getting better.

On the individual side, we have seen some uptick in BREIT over the last year, but it's been modest. The motivation for the bonus shares was really about attracting more capital to invest into what we think will be a very favorable environment.

We did have in December the best net flows in the BREIT that we've seen in more than 3 years. So -- but at this point, I think it's still too early to see what the reaction is going to be.

I think the key thing with BREIT, as with all these products be performance. So the fact that we posted something at 8.1% last year, which was well better than the public markets well better than other private REITs is important.

We've got to continue to consistently deliver strong performance. I believe if we do that, we'll begin to see the flows pick up in BREIT over time.

With no additional questions in queue. I would like to turn the call back over to Weston Tucker for any additional or closing remarks.

Great. Thanks, everyone, for joining us today and look forward to following up after the call.

Good bye.

All right. Good afternoon, everybody. Thank you for joining us. We'll get started with our next session. Hopefully, everybody is well fed. Next up, it's my pleasure to introduce Jon Gray, President and COO of Blackstone.

With more than $1.2 trillion in assets under management, Blackstone is the world's largest and most diversified alternative asset manager, distinguished by its expertise across effectively all major subverticals within private markets. The firm also has had enormous amount of success growing in the wealth channel as that market continues to expand as well.

So lots to talk about. Hopefully, lots of good cyclical things to talk about as well looking out into 2026. So Jon, thank you for being here. Always fun to have the conversation with you.

Alex, I'm happy to be back.

That's great. Look, why don't we start with a bit of a question on the macro side first with the economic outlook. Given Blackstone's breadth of investment capabilities, you always have very unique perspectives in terms of what's going on, on the ground real time with respect to corporate health. So talk to us a little bit about that and what '26 looks like for the corporate world.

I think we're a little more optimistic than most people are. The U.S. economy has been incredibly resilient. We had Liberation Day. We had a government shutdown. We've had pretty high absolute level of short rates. And yet in Q3, our private equity companies saw 9% revenue growth. I'm sure we're going to get into private credit. Default rates amongst noninvestment-grade borrowers have been low. Profit margins have been increasing. And globally, it's a pretty good picture, too.

I would say the things powering it, obviously, are this AI CapEx cycle. That is clearly the biggest engine of growth. And it's been a great thing, obviously, for our business, I think for the alternative space overall. I'd say the weakness is in Europe and then also around some of the consumer businesses we have, particularly middle and lower income. So water parks, theme parks, hotels. If you looked in the November Smith Travel data for hotels, revenue in luxury was up 6%, 7%. It was down the same in economy. So you're definitely seeing a bit of this K-shaped economy. But overall, I'd say it's a pretty good picture when I look at it net-net from our company's vantage point.

I'd say the other encouraging thing is the inflation data to us has continued to look better than what you read about. And we often find that our 270 companies and the 13,000 pieces of real estate give us better insights. So rental housing inflation is running well below the 4% that's in the CPI data today.

In the labor market, what I would say we see is basically the difficulty of hiring has gone way down. 93% of our CEOs 3 years ago would have said it's hard to hire. Today, it's 30%. Hourly wages have gone from [ 4.1% ] a year ago to 3% at our U.S. companies. So there's a bit of stickiness in goods inflation, but I think the Fed will actually get data here over time that will allow them to cut rates. So if you've got a resilient economy, cost of capital coming down, obviously, we have spreads that have tightened a bunch in investment-grade and high yield. That's helpful.

And then we're on the cusp of this massive both investment boom followed by what I think will be a very significant productivity boom from the technology. And I think it's hard to get really negative in aggregate when you overlay that with the other set of facts. So that makes us all more inclined, which is why you see us active investing.

Great. Let's translate that into the investment activity, which has really accelerated for you guys over the last couple of quarters. I think about $140 billion of capital deployed over the last 12 months. And again, the pace of that deployment has really accelerated. I guess looking out into 2026, can we talk a little bit about key themes and investment areas where you're finding the most attractive risk-adjusted returns? And also, by the same token, talk a little bit about areas you're trying to avoid.

Yes. I mean, if you subscribe to our world view that bringing superintelligence at scale at very low cost is going to be transformative. You try to figure out how can I invest in that and take the least amount of risk.

And I think we've become the leading investor in the infrastructure around this. Massive investments on data centers, but long-term lease data centers where you don't put a shovel in the ground until you have a 15-plus year lease with a very large market cap company. Huge investments in energy and power. So that's generation, transmission, utilities, electrical equipment, everything we're going to be doing, the data centers, the robots, the autonomous vehicles is going to plug into the wall. So making huge bets.

And in our business, what's great is we can express it in infrastructure, in energy transition, in real estate, on the equity side, on the debt side. So I would say that infrastructure around what's happening continues to be a huge theme for us.

I would say coming to alternatives, we really like the secondary space. We're the largest player in that. There's a lot of push, obviously, for DPI. Alternatives continue to grow. Being able to provide liquidity there at scale is a real advantage. We like that area.

I would say some of these big corporate solutions deals we're doing on the private credit side, we've done them with Rogers and EQT in the midstream space and Sempra, energy, where you're helping them in very capital-intensive businesses, do things that are capital efficient for them and lower their cost of capital. And that at our scale on the credit side is an area that is -- there's a relatively small number of competitors to do that.

I would say commercial real estate, which I'm sure we'll hit on, has had a tough 3.5-year run, but you can sort of see the pillars of this recovery starting to come in place, and we're definitely getting closer to that.

And then geographically, I would point out in Asia, two places we love, India, which has been hugely successful for us, both in real estate and private equity. That is an economy that I think will continue to be the fastest growing of the big 20 economies out there where the physical capital markets, legal infrastructure continues to improve.

And then Japan, where the growth won't be as high, but there's a real openness to foreign capital coming in. And that is unlocking all sorts of assets. We bought a $3 billion luxury real estate complex from a railroad company this year. We did a couple of privatizations, and that is a market we also like. So one of the great things about our business is being -- having global scale and being to play in different markets, different parts of the capital structure.

What I don't love, I would say emerging markets generally away from India and maybe the Middle East, that has been a tough place. We haven't done a lot of it, but we just haven't, over time, achieved real return premiums for the risk and perhaps and definitely much more importantly, businesses at risk of disruption from AI. Everybody is talking about bubbles in AI. And yes, there'll be plenty of losers in AI, but -- in the race, but what's happening to legacy businesses. If autonomous vehicles continue to gain share, which I suspect, what does that mean for an auto insurance company? What does that mean for a company who's focused on collisions? And yes, it may take 15 or 20 years, but what begins to happen to multiples. We saw that in the media business, or we've seen that in other industries.

So I would say disruption around horizontal enterprise software companies, IT services businesses and then lots of rules-based businesses, legal, accounting, transaction processing, I think you've got to be very mindful. And if I was giving one piece of advice [ to ] investors, this is the main thing to focus on.

Yes. No, lots to unpack there. Thank you for that. Why don't we double-click on really that first theme and probably the biggest theme, which is around AI. Blackstone was very early in identifying the secular opportunity. We've talked about, it feels like for years, but it's finally kind of here. Talk to us, I guess, maybe a little bit more about how you envision this market evolving from an investment perspective where it feels like other people are on to this as well and the opportunity set is still there, but there's a lot more capital, obviously chasing that around right now.

So what are the parts of the market where you still feel comfortable deploying capital? What do you see in terms of performance of these assets relative to your expectations? And then within AI, what are the risks?

Yes. So this has been the best performing area for our firm. There's no question. We bought QTS in 2021 for $10 billion, and its lease capacity is up 12-fold. And we did that in our infrastructure business. We did that in BREIT and our institutional real estate Core+ Funds. That turned out to be a really good decision. We bought the biggest data center player in Asia.

I would say, surprisingly, despite the capital that's moved there, because of the constraints of power, it's still an attractive place to deploy capital. And as I said, you're not really investing the capital at scale until you have a long-term lease. So these are not condos in Miami. This is a much safer underlying activity. And so I continue to believe that's a really good way to invest in this. I do believe -- and by the way, again, both on the equity side and the debt side.

We talked about the energy. I just -- if there was one thing you could believe in, it is power. I just -- I can't come up with a scenario where we're not using significantly more power 5 years from today, 10, 15 years, it feels like we're going to a world where there's a lot of need for electricity.

I'd say as you move up into more of the direct business, we are investing, but obviously, we recognize the risk. It's with different pools of capital. We've invested in a couple of large language models, companies. We have begun to invest in a few of the application software companies, companies like OpenEvidence in the medical field or Norm Ai in the legal field. And some of these companies have the opportunity, if they are able to execute, to grow to be very big and very profitable, but we recognize not everyone is going to win. And what we're trying to do is figuring out how to play this, recognizing what's coming and again, not taking too much risk.

On the traditional sort of private equity side, we're also looking at businesses where we think we can potentially transform them, have sort of an AI-or-die strategy where you could buy a health care claims processing business or an accounting firm and bring this technology to bear and make them much better in serving their customers and much more productive.

So every investment memo, in the first two pages of the memo, there's at least one paragraph about the AI risk for that business. We've gone through all our portfolios, yellow, red, green, where do we have the most risk. We just see this. Look, it's taking time. It's a little bit like basic science where they've invented some unbelievable therapies, but getting them to the hospital, the clinic is hard. But it's going to happen. And when it does, it's going to radically change like we saw with Yellow Pages and taxi cabs. And I think usage is going to continue to go up.

So I think for us as a firm, it's a great opportunity because the needs and capital around the chips and data center and power are so enormous, and we're really uniquely set up to go after that. And then in some of our growthier strategies, we can also make some very interesting investments on things that have a lot of upside. And at the same time, we've got to look at our legacy portfolios and try to limit the risk and push to get those companies to transform.

Great. Well, it will be fascinating to us for sure. So all right. Another hot topic, credit, not surprisingly. And it feels like the news flow around that has died down a little bit, but it's clearly still very much top of mind for investors.

When we sort of take ourselves out of the day-to-day news flow related to this topic, talk to us maybe a little bit of what you guys are seeing as far as credit trends across the portfolio, not just in direct lending, but maybe in your private credit holistically. That's part one.

And then part two, the development with Bank of England. You and I think some of the others are effectively volunteering to participate in a stress test, which might be quite helpful to the ecosystem. What do you think it's going to look like?

Well, I would step back and try to focus on what's happening and why is it happening here. And what we've really seen is an innovation that's been taking place now really in an accelerating way over the last 5, 7 years, but started earlier than that. We've been at direct lending now for 2 decades. We have a private credit business that doesn't use balance sheet; that, between corporate and real estate credit, is $500 billion and is growing very rapidly. And we have competitors who are obviously growing as well. They may be using a different approach in how they do things.

Why is it happening? It's happening because what you're basically doing is bringing investors directly up to borrowers. It's not that much different than what Amazon did to revolutionize the delivery of goods to consumers. And obviously, we still have a large brick-and-mortar retail world, but we have other players now who do this online at scale.

And why are borrowers embracing this, both on the investment-grade and noninvestment-grade side? It's because we're able to do things with speed and flexibility that at times you can't do in the public markets. Why are investors embracing it? Well, they're producing higher returns. So for our insurance clients on the investment-grade side, year-to-date, they've earned 170 basis point premium over comparably-rated securities. It's not a surprise. Our insurance business is growing at 20% a year. When you're able to deliver that premium, it becomes even more important, by the way, as base rates come down.

So on the noninvestment-grade side, similar dynamic. We produced in our non-traded BDC 300 basis points of premium return. And that is the reason why this is happening. And by the way, as a side note, it's also deleveraging the system. Our non-traded BDC is probably 1/10 as leveraged as you would see in a financial institution, and you also get better duration matching. You don't have daily deposits and so forth. So it's helpful for the financial system. Obviously, banks are hugely important and play invaluable roles, but we've added something that is helping consumers and businesses and investors.

Now your question is what's happened to credit quality? And I'd say, in general, credit quality looks pretty darn good. If you look across, again, our non-traded BDC, the average loan-to-value we made was 40% at origination. So a fraction of what it was back in the '06, '07 days. EBITDA this year at the companies in the portfolio, up 9%. And of course, we've got a Fed now that's cutting rates, which is helpful for the borrowers.

Now will there be isolated credit incidents? Sure. Could there be disruption given what's going on? Yes. But the question is, will we have higher losses, higher defaults than -- and therefore, lower returns than the leveraged loan and high-yield market? We don't believe that at all. And so ultimately, this is going to be about delivering enduring premiums and returns without taking on incremental risk. That's what we've done in both investment and noninvestment grade. That's why I think it will continue.

To your point on the stress test, if they show up and say, "Hey, you're doing noninvestment-grade lending." And using BCRED as an example, $80 billion balance sheet, $50 billion of equity, and they compare that to the financial institutions, they rate who would have $5 billion of equity, it seems a little different to me. And so I think whenever you have this kind of innovation and change in a market, it's obvious people are going to want to ask questions. You also are creating some disruption to existing business models. But in my mind, this is a structural change that will continue, and you will continue to see more capital allocated.

Yes, you are trading away some liquidity. And so you're not going to see this for the full fixed income market. There are plenty of things that will continue to be done by banks. But private credit is not some sort of short-term blip. It's not adding enormous risk to the system. It is a fundamentally sound change in the system that's helping the overall financial markets. It's helping borrowers, it's helping investors.

Yes. That all makes a lot of sense. Why don't we spend a couple of minutes on another kind of mega trend out there, which is the wealth market. Enormously powerful from a growth perspective for you and many of your peers. But I do think Blackstone is still by far and away the leader. I think you have roughly 50% market share of the industry fee pool in this market. So let's spend a couple of things there.

First, I'd love to get your perspective on the road map for additional product innovation. So you guys were early with BREIT and BCRED. You obviously have a product in private equity. You have one in infra. What does the makeup of this product set looks like over the next couple of years? What else are you working on that will be rolling out in the next 1 to 2 years?

Well, again, why have we had so much success? Why have we gotten to $290 billion in the wealth space? It's because we started a long time ago, 23 years ago in drawdown funds, 15 years ago in building a dedicated team, almost a decade ago with creating semi-liquids with BREIT and bringing the fees down and the quality of investing way up.

And it's all performance driven. Again, you're asking investors to make a trade, you have to deliver a premium performance. You have to give them something different in terms of diversification, access to things they couldn't otherwise have. We've been very successful at that in both good times and bad. That gives me a lot of confidence.

The keys to me in the market to us are that what we introduce delivers those returns, and we're not just creating products because that's what can sell, but we can have an enduring advantage. We have generally done things that are broad-based in scale because we know certain markets can go in and out of favor pricing-wise. We've made decisions over time where we've chosen, in the case of private equity and infrastructure, to sell only to qualified purchasers because the 40 Act limitations we thought would have made it harder to deliver in those asset classes, the kind of returns and scale we wanted.

To your question, I think you'll see us find ways to put some of these products together, simpler solutions. You'll see us do some things in collaboration. We announced our alliance with Vanguard and Wellington. I think you'll see some of that introduced in the new year. We've done a multi-asset credit product. There are a couple of other things. I think I'm going to hold off on the announcement, just like what the theme of this year's holiday video will be. We're going to...

I'm going to try that later, but you already shut me down on this one. So...

Yes. What I would say is there is a lot of enthusiasm. But again, just like with our institutions, just like with our insurance clients, we've got to deliver performance.

And so when you look at individual investors, they're probably about 1% allocated to private assets versus 1/3 for institutions. That still feels like it has a long way to run. And I think our positioning in the market, given the strength of the brand and the strength of the performance and then the breadth of the product offerings, that feels like a really, really good combination. And in Q3, we saw a doubling of inflows over last year's levels. In a better market environment, given the breadth of what we're doing, it feels pretty good, too.

Let's talk a little bit more what's going on, on the ground, I guess, today. Obviously, lots of focus on credit like we talked about earlier. It's really the first time that the growth in this private credit part of the market with wealth gets tested like we are seeing now with a lot of headlines and the barrage of headlines on this part of the market for the last couple of months now. Obviously, BCRED had a filing out this morning. Redemption picked up, not quite to 5%, but close, but also gross sales slowdown as of December 1. So what are you hearing on the ground from financial advisers, the wire house, the gatekeepers in terms of this being either a short-term reaction to the news flow or something more substantive?

Well, there's obviously been an enormous amount of noise out there around private credit, much of which we would push back with the facts. But I would point out a little differently, Alex, we've been through a couple of these tests before. In fact, we've gone north of the 5% in '22, went north of it in '23 after Silicon Valley Bank. We saw a pretty meaningful spike after Liberation Day.

Whenever you get a lot of negative headlines, particularly among the individual investors, you can see a shift in sentiment. What matters ultimately, again, is performance. So in October, we produced 70 basis points of performance. We feel really good about the underlying both credit quality, we talked about the growth in the EBITDA in terms of the companies here, the low loan to value. To me, that's ultimately what is determinative here.

And so as I said, you could be in an environment where you'll have several companies with defaults. The question on those things are have you marked those appropriately? Do you know how to handle it? Are you senior secured? We feel really great about what we've been doing. And by the way, on the flow side, despite relentlessly negative press, in the fourth quarter, we had $3.3 billion of gross inflows. And we still had implied $1.2 billion of net inflows.

So I think, again, what matters is performance. And I think interestingly, we went through BREIT, which was a different sort of environment, obviously, a much harsher downturn in the underlying asset class, we significantly outperformed. And my confidence in that product is extraordinarily high. And so again, if we show that we can outperform the leveraged loan market, the high-yield market, an enduring premium in returns, then I think financial investors will continue to subscribe to these products. That's to me the key focus.

Great. That all makes sense. Okay. Let's talk about another important area for Blackstone, which is obviously the real estate business. We talked a little bit about that before we got on stage but clearly feels like the sentiment from some of your peers and the marketplace broadly around real estate is starting to improve. It's something you talked about as well in the past. So give us your expectations around sort of growth in your real estate franchise for the next 12 to 18 months.

Well, it's been a difficult 3.5 years, no question about it. COVID hurt the office market. You had this huge step function increase in cost of capital. So cap rates went up a bunch, values came under pressure. And investors, not surprisingly, don't feel great because they haven't had a great experience during this period of time.

But when you look under the hood, the pillars of a recovery are coming closer, right? So you've seen values fall. This is definitely not your bubble asset class, that's for sure. And yet underlying demand for housing will continue, logistics for going to a resort hotel. So it's an asset class that has fallen out of favor, but has long-term strong demand profile.

Supply is down almost 2/3, new starts in terms of logistics and rental housing, which takes time to play out, but is very beneficial. Cost of capital, base rates down, spreads down, borrowing costs are probably down about 40% from their wides a couple of years ago. And you're beginning to see transaction activity pick up. It can take some time, but it certainly feels like we're getting closer.

And so I think for us, we have focused on these -- the picture that's coming, and we're trying to invest ahead of it. So not a surprise. We've been privatizing a bunch of REITs. We announced a commercial real estate REIT in Hawaii, Alexander & Baldwin this week for $2.3 billion. This reflects our view of real estate and what we do believe will be a coming recovery.

Great. Okay. Let's pivot from kind of the themes to maybe some of the financial KPIs for the business. Really starting with fundraising. Again, incredible year, I think, over $225 billion over the last 12 months of inflows across the franchise. As you look out into 2026, what are your early expectations for fundraising?

I think it should be a very good year. We talked about wealth, a lot of momentum there, given the introduction of new products and the success of existing products. I feel very good about that.

When I think about our insurance business, again, more and more insurers are beginning to recognize to be competitive, they need this additional yield. Our open architecture model, not competing with them is a very helpful space to be and to be able to do it broadly. I think that should continue to grow. Again, I mentioned 20% growth in the last quarter.

And then our institutional business, where people have always said is a mature business, it's grown 60% in the last 5 years. I think over the last 12 months, it's about half of our flows in. It's -- a number of those things are drawdown. So you send the money back, you don't get that perpetual compounding thing. But the strength of our franchise in energy transition, in Asia private equity, in secondaries, in credit, in so many areas, in real estate, in life sciences, we have so many areas where we've delivered for clients that it feels to me we will continue to have another good year. We have a good fundraising cycle ahead of us. So I would say, right now, with this kind of market backdrop, it feels pretty good.

Yes. Well, speaking of market backdrop, the outlook for realization and broadly capital markets activity has definitely been a bright spot in these conversations for the last 2 days. So you've been also pretty bullish on that for a couple of quarters. I think one of the points you made is that Blackstone's IPO pipeline is the highest it's been since 2021. Talk to us a little bit more about your expectations for realizations over the next 12 months and maybe help us frame that in some sort of a historical context because it does feel like there's a lot of pent-up demand on the exit side.

Well, we saw M&A and IPO activity basically crater during that sharp increase in rates. And it's still running today well down versus historical levels as a percent of the market cap of the stock market. And so to us, it feels natural now as you get cost of capital coming down, spreads coming down, a strong equity market, that you begin to see an IPO market that's emerging. Yes, we did three in the quarter -- in the third quarter. We have a large one in the market today. We've got an active pipeline for next year. M&A activity in the U.S., I think quarter-to-date is up almost double. And I wouldn't underestimate the power of the regulatory environment changing.

And so I think the ability to have confidence that you can buy or sell a business really matters. I still think we're operating well below historic levels. This year, you had Liberation Day, the government shutdown. I think if you have smoother sailing next year with lower cost of capital and some confidence, I think you'll see a meaningful pickup. So I would be in the camp that we've sort of moved from sort of taxi to takeoff as it relates to transaction activity, the IPO market. That feels pretty good to us. And obviously, that's good for our business. It should be good for our shareholders.

Great. With a couple of minutes left on the clock, I'd love to wrap up with a couple of thoughts on evolution of the business, given the fact that you guys celebrated your 40th year anniversary this year. You've been there, I believe, for 33 years of those 40. Couple that with really the performance of the stock, and it's not just you, but the whole space obviously struggled a bit this year, coming off a phenomenal 2-year run, and I think that's important to acknowledge. But how do you think the company is evolving? If you see further points in the cycle where there's a bigger disconnect between the value and what your forward looks like, how do you think about capital management in that context? Or any other thoughts around that would be helpful.

Well, I feel great about the underlying business. We did have this 40th anniversary. We brought all our partners together around the world. When we talk about all the potential markets, all the potential growth, we feel really good. We still think alternatives, even though they've grown a lot, and it seems big, it's a $13 trillion industry. When you think about public equities and corporate fixed income, asset-backed fixed income, infrastructure, residential, commercial real estate, $300-plus trillion market out there for us potentially to invest capital into. The total business is equal to the market cap of, I don't know, four stocks in the United States today. I think there's still a lot of room to go here.

And to me, the key continues to be delivering for the customers, making sure we get right these technological changes. We're able to intervene in businesses. We've got a really rigorous disciplined process, that we attract and retain amazing people, that we have an entrepreneurial spirit. I mean, Steve Schwarzman has really sort of pushed that into the firm this idea. We're constantly thinking about what we can do better.

We are not a place despite our size, scale that is sitting around saying, "Hey, we're there." I described recently at our CEO conference, our Boardroom meetings. You would think we're a failing company. I mean the conversation is a relentless focus on we missed this market. This competitor has done this. I feel, for us, we have this vast expanse in front of us. The key thing is we've got to maintain the quality of our people, our integration and process. And being able to be a full-service capital solutions provider in the private markets, we can give you super low-cost investment-grade debt. We can give you more junior debt. We can give you pref equity. We can do control. We can co-invest as a minority. We can do stakes. Second -- everything across the platform, that is really powerful. And do it increasingly on a global basis.

And of course, do it without a balance sheet. All the capital we're managing is third-party capital. We don't owe it back to anybody. It's not an obligation. If rates and spreads tighten, our business is to deliver returns. And so the way I feel about the business is we are in exactly the same business we've always been. Our plan is to continue to be in that business and to be excellent in it. And things come up and down in cycles and this and that. But if we continue to deliver premium returns in these different areas, our relationships and the strength of our brand, which is really, really powerful and allows us to grow without capital, if we have that, then we can expand a ton in our original institutional business and in a very profound way with insurers and individual investors.

So my optimism about the future is extremely high. And then back to your earlier question, it's nice to be coming to a part of the cycle where things are starting to turn up. So the long term, we feel great about. And obviously, the short-term pickup in deal activity, that's also very good.

Great. Well, we talked about a lot of themes over the course of the day today. I was hoping you could hit on one more theme, which is your holiday video. So if you're willing to share anything with us today, that would be of great interest to...

It's -- I could tell you, but I'd have to tell you. It's basically what it is, Alex. It's so funny. We're so crazed about it because we don't want it to get out. We don't even tell our colleagues, partners. They just get their role, like show up, wear this ridiculous outfit at this time, and we're going to film you.

And I will say the broader point for us is we want to be great at what we do. We demand a lot of our people, but we want it to be a human-scale place. We want to make fun of ourselves, which is what the holiday video is. We want to have a really integrated culture. It's why every Monday, we do our internal Blackstone TV, where we connect with people. It's why I do these sort of ridiculous running videos. It's all in an effort to humanize what we do for all our constituents out there. And obviously, we've got a lot more, both shareholders, investors. We have 300,000 investors these days. You're reaching a broader audience.

And I couldn't be more proud of the quality of the people, what they do, how they give back. We've had a very difficult year because of what happened. We had this horrible shooting. But the pride I have in our people is immense. And so my optimism going forward is very high. But I would say the video will be cringeworthy. So please don't hold that against me.

On that note, thank you so much, Jon. Great to see you.

Thank you, all.

[Audio Gap] Vice Chairman and Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks.

I'd like to remind you that today's call may include forward-looking statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K.

We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the Shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.

Quickly on results. We reported GAAP net income for the quarter of $1.2 billion. Distributable earnings were $1.9 billion or $1.52 per common share, and we declared a dividend of $1.29 per share, which will be paid to holders of record as of November 3.

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

Good morning, and thank you for joining our call. Before we begin, I want to take a moment to acknowledge the horrific shooting that occurred at our New York City offices on July 28. The random attack resulted in multiple deaths, including our beloved colleague, Wesley LePatner. Wesley was a wife and mother and a dear friend and mentor to many within and outside of our firm. We will greatly miss Wesley. We'll continue to honor her legacy.

We are also grateful for the bravery of our building security team, along with the New York Police Department, who responded that day and who put themselves in harm's way every day to protect others.

Turning to our results, Blackstone reported an outstanding third quarter. Distributable earnings increased nearly 50% year-on-year to $1.9 billion, as Weston mentioned, underpinned by a 26% growth in fee-related earnings and a more than doubling of net realizations. Inflows reached $54 billion, the fourth consecutive quarter in excess of $50 billion, and totaled $225 billion for the last 12 months. Our fundraising success lifted assets under management to a new industry record of $1.24 trillion.

And looking forward, I believe our prospects for growth are strong today is at any point in the firm's history. The structural tailwinds driving the alternative sector are accelerating with Blackstone as the reference firm. More investors are being introduced to the benefits of private market solutions than ever before, with growing adoption across the vast private wealth and insurance channels.

And following the U.S. administration's areas in executive order, we expect the defined contribution market to open to alternatives over time as well. In these areas, the powerful advantages of our brand, scale and breadth of capabilities are even more pronounced.

At the same time, institutional limited partners are increasing their allocations to alternatives in multiple areas, and they're consolidating relationships with the best performing managers who can provide comprehensive multi-asset solutions.

Meanwhile, in terms of deployment, the scope of where we invest continues to expand significantly as we scale our platforms in digital and energy infrastructure, private credit, Asia, the secondaries market for alternatives and other key growth areas. We are in the early innings of penetrating markets of enormous size and potential.

In addition to these secular forces, we're also now seeing the deal cycle turn, creating another significant tailwind for the firm. The combination of a resilient economy, declining cost of capital and equity markets at all-time highs is leading to a resurgence in capital markets activity. including global IPO issuance, which more than doubled year-over-year in the third quarter.

Notwithstanding the current government's shutdown, more conducive capital markets should lead to greater realizations for Blackstone, which, in turn, support fundraising and deployment. In the last 3 months, we executed 3 successful IPOs. And our IPO pipeline for the next 12 months, if converted, would translate to one of the largest years of issuance in our history.

Despite all these positive developments, over the past several weeks, there's been a significant external focus on the implications of certain credit defaults in the market. These events have been erroneously linked to the traditional private credit market as a result of misunderstandings and misinformation.

Importantly, the defaults and focus resulted from bank-led and bank syndicated credits, not private credit. Moreover, these situations are widely believed to involve the fraudulent pledging of the same collateral to multiple parties.

The traditional private credit model is characterized by direct origination in the context of a long-term hold strategy, with due diligence performed by sophisticated institutional managers and rigorously negotiated documentation.

For Blackstone, our $150 billion-plus direct lending platform is comprised of over 95% senior secured debt, with low loan-to-value ratios of less than 50% on average, meaning there is significant borrower capital subordinate to our positions in nearly all cases from companies backed by financial sponsors or public companies.

And in the private investment-grade area, we've concentrated our activities in multitrillion-dollar markets where Blackstone is often a leading player, including data centers, energy infrastructure and real estate, with our loans secured by underlying assets of excellent quality.

Our long-term, highly disciplined approach to investing in credit is the foundation of the strong results we've produced in this area as with every business at the firm.

Our non-investment grade private credit strategies have generated 10% returns annually, net of all fees since inception, nearly 20 years ago. In direct lending specifically, we've experienced annual realized losses of only 1/10 of 1%, including through the global financial crisis. And our investment-grade focused private credit platform in BXCI has experienced zero realized losses to date.

Of course, as the cycle progresses, it's reasonable to assume we'll see some increases in defaults. But we believe our structural advantages will continue to produce superior results. Performance has powered our growth in private credit. And we believe it will continue to power our growth in the future.

Stepping back, this month, we celebrate Blackstone's 40th anniversary. It's been, I can assure you, an extraordinary journey. The firm has grown from a start-up in 1985 to the largest alternative asset manager in the world today and one of the 50 largest public companies in the United States. Importantly, we achieved almost all of this growth organically, which is quite distinctive among large firms in our industry.

We are business builders at Blackstone, not business buyers. And while it's harder to build a business than buy it, over the past 40 years, we methodically planted seeds that would grow into major market-leading platforms in nearly every area in which we operate.

What we've achieved over the past 4 decades would not have been possible without the efforts of three extraordinary individuals, who worked alongside me to either start the firm or to take it to the next level. Pete Peterson, my co-founder, gave us the necessary credibility that provided the launchpad for our growth.

He was joined in 2002 by Tony James, who helped professionalize the organization and led us into many new business areas.

John Gray took over in 2018 and has done a remarkable job managing the firm and pioneering a plethora of new business lines and products. John also redefined our investment approach to emphasize thematic positioning, resulting in our concentration today in data centers, where we're the largest in the world; energy and power, logistics, private credit and India, among other winning areas.

John, as did Tony and Pete during their time at Blackstone, demonstrates an unstoppable work ethic and profound care for the firm, its reputation and its people.

Each of them changed the destiny of the firm. and have been the best partners for me that I could have imagined. I owed them all an enormous debt of gratitude.

Looking forward, what's been built at Blackstone is ideally designed for the environment we see before us and to capture the generational shifts underway in the global economy and markets.

In terms of where we raise capital, we believe Blackstone is the partner of choice to bring the best of private markets to a rapidly expanding universe of investors. In terms of where we invest, the future requires massive capital solutions across all forms of equity and debt capital to power the AI revolution, to develop the infrastructure needed to meet the rising global demand for energy, to fund the extraordinary advancements in drug development in the life sciences area, to partner with large investment-grade-rated corporates, who are increasingly looking to private credit to meet their objectives; to help India meet its incredible growth potential and to drive forward other transformative megatrends that will define the investment landscape for decades to come.

Alternatives will play a vital role in this future. And we see Blackstone leading the way with the largest and broadest platform and the deepest investment capabilities, underpinned by the power of our brand.

The firm has achieved much in the past 40 years. But I strongly believe the best is ahead. Thank you to our shareholders for joining us on this adventure. The adventure continues.

With that, I'll turn it over to John.

Thank you, Steve, and good morning, everyone. What Steve has done to both create and continue to drive this firm for 40 years is the stuff of legend. I'd also like to emphasize what Steve said about [ Westley ]. She was an extraordinary woman, colleague and dear friend, simply the best of the best. We will miss her a ton.

Moving to the quarter, this is an exciting time for the firm and our investors. The deal dam is finally breaking, and we have a bunch of secular tailwinds driving us forward as well. I'm going to focus my remarks specifically on the growing sources of capital inflows at the firm.

In corporate and real estate credit, we crossed the $500 billion milestone, up a remarkable 18% year-over-year. In private wealth, our AUM in the channel grew 15% year-over-year to nearly $290 billion. And in our institutional business, we're seeing strong momentum across numerous areas in our drawdown and open-ended vehicles.

Diving into credit, private credit markets are expanding from their origins in noninvestment-grade corporate credit and direct lending to become a key mechanism for financing the real economy, including commercial finance, consumer and residential finance, fund finance and of course, infrastructure.

Blackstone is tremendously well positioned to lead this evolution as the largest third-party investment manager in credit globally, alongside our continuous innovation.

Notably, our infrastructure and asset-based credit business grew 29% year-over-year to $107 billion, one of the fastest-growing areas at the firm. Our scale gives us access to what we believe is the broadest set of opportunities across the risk spectrum, which we can offer holistically to clients. As a result, we're seeing robust demand for multi-asset credit solutions across our 3 I's, institutions, insurance companies and individual investors.

Another important development underway in credit markets is the rising opportunity to partner with large investment-grade rated corporates, which we've discussed previously. Fortune 500 companies with substantial funding needs are increasingly looking to private credit for customized long-duration capital solutions, which are difficult to replicate in public markets.

Scale and reputation are key. And Blackstone has established ourselves as a partner of choice, following our landmark transactions with EQT Corp and Rogers Communications. In the third quarter, we executed another major partnership, a $7 billion investment we are leading in a venture with energy infrastructure company [ Cempra, ] to support construction of a liquefied natural gas project on the Gulf Coast.

These corporate partnerships provide our clients with access to high-quality, directly originated investments in a sector where we have high conviction, as always, without taking on balance sheet risk.

Meanwhile, in the insurance channel, our AUM grew 19% year-over-year to $264 billion across IG private credit, liquid credit and other strategies. Our open architecture, multi-client approach is a major advantage. Our platform now includes 33 strategic and SMA relationships, and we continue to add more.

Importantly, in the past 12 months, nearly 2/3 of our clients have expanded their relationship with us, the strongest testament to the value we deliver for them. In our IG focused area overall, we generated over 170 basis points of incremental spread year-to-date versus comparably rated liquid credit.

Our farm-to-table model, which brings clients directly to borrowers, is designed to produce a structural premium to liquid markets. particularly vital in an environment where spreads and interest rates are tightening.

Turning to private wealth, where our platform has grown to nearly $290 billion, as I mentioned, up threefold in the past 5 years. To put our scale in perspective, a recent Goldman Sachs research report highlighted that Blackstone has an estimated 50% share of all private wealth revenue among 9 major alternative firms.

To put our momentum in perspective, we raised over $11 billion in the channel in the third quarter, more than double year-over-year, to the highest level in over 3 years. BCRED led the way, raising $3.6 billion and is on pace for a strong Q4. BXP raised $2.1 billion in the third quarter, bringing its NAV to $15 billion in only 7 quarters. BREIT generated healthy sales of roughly $800 million in the third quarter, while repurchases continued on their downward trajectory to the lowest level in 3.5 years. Finally, BXINFRA raised over $600 million in Q3 with its NAV exceeding $3 billion only 3 quarters after launch.

In private wealth, as with every business at Blackstone, it all comes back to investment performance. BCRED has achieved 10% net returns annually since inception nearly 5 years ago. BREIT has generated 9% net returns for its largest share class for nearly 9 years, a 60% premium to public real estate markets, including approximately 5% net for the first 3 quarters of the year. BREIT's exposure to data centers, now almost 20% continues to be extremely helpful in driving its results. And BXP has delivered a 16% annualized net return [ Ford's ] largest share class since inception. Our investment performance powers our fundraising along with our ability to innovate.

Looking forward, we expect 2026 to be our busiest year yet in terms of product launches with a significant focus on multi-asset opportunities. We're also broadening distribution in several major markets around the world and moving deeper into key subchannels, including the RIA channel.

With these developments alongside our strategic alliance with Wellington and Vanguard, our partnership with Ellen G and the U.K. wealth and retirement markets and the massive potential in the U.S. defined contribution channel over time, the opportunity in private wealth continues to expand for Blackstone.

Moving to our institutional business, which has grown by 64% over the last 5 years and has strong momentum across multiple areas. In infrastructure, our dedicated platform grew 32% year-over-year to $69 billion, including over $3 billion raised in the third quarter. The comingle VIP strategy has generated a remarkable 17% net returns annually since inception.

Our multi-asset investing business, BXMA, grew 12% year-over-year to a record $93 billion, again driven by performance. Q3 represented the 22nd consecutive quarter of positive composite returns for BXMA's largest strategy. Investors are responding favorably, with BXMA generating year-to-date net inflows of over $5 billion, the highest in nearly 15 years.

In our drawdown fund area, it was another quarter of fundraising. We held additional closings for our new private equity Asia flagship, bringing it to over $9 billion as of quarter end, already significantly larger than the prior $6 billion vintage, and we expect to meaningfully exceed our original $10 billion target.

We also raised additional capital for our next life sciences flagship, bringing it to $3.3 billion, already more than 2/3 the size of the prior $5 billion -- I'm sorry, already more than 2/3 the size of the prior $5 billion vintage.

In credit, we held an initial close of $1.6 billion for our new high-yield asset-based finance strategy, targeting $4 billion. In secondaries, we finished raising the largest ever infrastructure vehicle at $5.5 billion, and we're now raising our next PE secondary flagship, targeting at least the size of the prior $22 billion vintage, with the first major close expected in the fourth quarter.

Also in Q4, we expect to launch fundraising for the fifth vintage of our private equity energy transition strategy, with a prior vintage already approximately 70% committed only 16 months after starting the investment period. Other drawdown strategies we are raising include opportunistic credit, tactical opportunities and GP stakes.

Overall, we believe investor confidence in Blackstone is as high today as ever, which, as you've heard, is translating to growing capital commitments across many areas. In real estate specifically, investor sentiment is starting to improve following the downturn. We remain firm believers in the sector's recovery, and that flows ultimately follow performance.

Commercial real estate values bottomed in December 2023 and since then, have been slowly improving. We think they're now approaching a steeper point in that recovery curve. The cost and availability of capital have been steadily strengthening, and transaction activity has been increasing, including by 25% year-over-year in logistics, U.S. logistics in the last 12 months.

In a market driven by supply and demand, the dramatic decline in new construction starts, including to the lowest level in over a decade in U.S. logistics and apartments, our largest sectors in real estate; should be very positive for values over time. As we stated before, we believe Blackstone is the best positioned firm in the world to benefit from the recovery underway in real estate markets.

In closing, the firm is in outstanding shape by any measure, a cyclical resurgence in transaction activity alongside multiple secular growth engines should be very positive for our shareholders.

And with that, I will turn things over to Michael.

Thanks, John, and good morning, everyone. Over the past several quarters, we've highlighted how the scaling of the firm's platforms in key growth channels is driving robust momentum in fundraising, assets under management and FRE. In addition, we've outlined a path of accelerating net realizations over time as capital markets strengthen. The third quarter was an excellent illustration of these dynamics of work and reinforces a favorable multiyear picture for the firm.

Starting with results, AUM continued to advance to new record levels. Total AUM rose 12% year-over-year to $1.242 trillion, while fee earning AUM grew 10% to $906 million. Management fees increased 14% year-over-year to a record $2 billion, underpinned by continued double-digit growth in base management fees, including 23% growth in base management fees for the private equity segment, 18% for credit insurance and 15% for BXMA.

At the same time, transaction and advisory fees for the firm nearly doubled year-over-year to $156 million, with our Capital Markets business reporting 1 of its 2 best quarters in history, following a record Q2.

While we expect a lower baseline of these revenues in the fourth quarter, the expanding scope of the firm's investment activity is widening the aperture of activity in our Capital Markets business.

Fee-related performance revenues grew 72% and year-over-year to $453 million in the third quarter, generated by 9 different perpetual strategies, including BCRED and multiple other vehicles across the credit complex, BREIT and real estate BXP and private equity and BIP and infrastructure.

Overall, total fee revenues for the firm grew 22% year-over-year to $2.5 billion in the third quarter. Fee-related earnings increased 26% year-over-year to $1.5 billion or $1.20 per share, one of the three best quarters of FRE in our history, driven by the growth in fee revenues along with healthy margin expansion.

With respect to margins, as we stated before, it's most informative to look over multiple quarters, given intra-year movements. On a year-to-date basis, FRE margin was 58.6%, reflecting expansion of over 100 basis points versus the prior year comparable period. While we expect FRE margin in the fourth quarter to be sequentially lower due to seasonal expense factors, for the full year 2025, we are tracking favorably against the initial view of margins we provided in January.

Distributable earnings increased 48% year-over-year to $1.9 billion in the third quarter. or $1.52 per share, powered by the strong double-digit growth in FRE alongside a significant acceleration in net realizations. We generated $505 million of net realizations in the quarter, more than double the prior-year period and up 55% sequentially in Q2.

The largest single realization in the third quarter was the sale of an interest in the GP stakes portfolio within our secondaries platform at the end of September. We also completed the full exit of Hotwire sales of certain U.S. energy assets and a number of other realizations across the private and public portfolios.

Looking forward, in terms of fund dispositions, we have a robust pipeline of processes underway amid the improving transaction backdrop, and we believe we're moving toward acceleration in 2026, the concentrated in private equity with expanding contribution from real estate over time. And the firm's underlying realization potential is significant. The net accrued performance revenue on our balance sheet, our store value, stood at $6.5 billion at quarter end or $5.30 per share, while performance revenue eligible AUM in the ground has reached a record $611 billion.

Turning to investment performance, our funds delivered healthy returns overall in the third quarter. Infrastructure led the way with 5.2% appreciation in the quarter and 19% for the last 12 months, reflected of broad-based gains across digital infrastructure. including continued notable strength in our data center platform, along with gains in our power and transportation-related holdings.

The corporate private equity funds appreciated 2.5% in the quarter and 14% for the LTM period. Revenue growth at our operating company strengthened to 9% year-over-year in the third quarter, while margins have remained resilient, supported by labor market conditions that are in balance and continuing to moderate.

In credit, our noninvestment-grade private credit strategy reported a gross return of 2.6% in the quarter and 12% for the LTM period, reflecting healthy underlying credit performance. Default rates across our noninvestment-grade holdings overall ticked up slightly but remained minimal.

In our direct lending portfolio specifically, realized losses were only 12 basis points over the last 12 months. The BXMA reported a 2.9% gross return for the absolute return composite in Q3 and 13% for the last 12 months. Notably, BXMA has delivered positive composite returns due to the past 30 months, which is leading to strong inflows in the segment's fourth consecutive quarter of double-digit AUM growth in Q3.

In real estate, values were stable overall in the third quarter. The core+ funds appreciated modestly, driven by the third straight quarter of positive performance by BREIT. The opportunistic funds declined slightly in the quarter with positive overall appreciation in the underlying real estate offset by the negative impact of foreign currency movement.

In total, our real estate platform remains well positioned, 3 of our highest conviction sectors, which are supported by very positive long-term fundamentals, data centers, logistics and rental housing; comprise approximately 75% of the global equity portfolio and nearly 90% of BREIT.

Overall, our investors have continued to benefit significantly from the firm's position with leading platforms to address many of the most important market opportunities globally, including the largest data center business, leading energy infrastructure platform, the largest third-party focused private credit business, one of the largest private market secondaries platforms, a leading life sciences business and what we believe is the largest alternative business in [indiscernible]. These platforms have powered our investment performance and our growth, and we expect will continue to do so in the future.

In closing, Blackstone is exceptionally well positioned, supported by both cyclical and secular tailwinds. The breadth and diversity of our global portfolio is a source of strength, while the firm's culture of innovation continues to drive us forward, leading to outstanding financial performance for shareholders.

With that, we thank you for joining the call. I would like to open it up now for questions.

[Operator Instructions] We'll take our first question from Dan Fannon with Jefferies. .

I wanted to follow up just on the private credit market given all the headlines and uncertainty. Can you just discuss in more detail any changes in credit quality across your portfolio? And then potentially also just in terms of what you maybe have done differently here, given some of the news and the recent bankruptcies we've seen in recent weeks?

Well, I would go back to the idea that this really isn't private credit story that what occurred here were bank-led, bank originated, bank syndicated credits. It also was a bit idiosyncratic as it appears that there was at least according to the reporting fraud involved.

So I don't think there's much look through to private credit per se. None of these are what happens -- these are not directly related to the private credit market. And given the idiosyncratic nature, I don't think it really speaks to credit overall.

I'm not sure anything really changes in our model. Steve spoke about the way we underwrite in private credit, which is doing deep due diligence, underwriting, what we're doing to hold.

In terms of defaults today, they remain minimal realized losses date still almost nonexistent at these levels. You would expect as you get deeper in the cycle, you could see a little more over time. But when we look in aggregate at our business and what we think we'll deliver to our investors, we think it will continue to be quite strong.

So I would say, given the underlying strength of the economy, what we've seen with margins we just don't see a lot of credit issues out there.

We'll take our next question from Craig Siegenthaler with Bank of America.

Hope everyone is doing well, and congrats on the 40-year anniversary. This is the first quarter following President Trump's executive order for privates and 4K. And just last week, I saw that you launched your defined contribution business.

So I wanted to ask an open-end question. What are your plans? And do you do this alone? Or can you leverage your partnership with Vanguard and Wellington?

Well, we're obviously starting to move. I think the announcement was important. We were already heading in that direction, building up our capabilities, but we thought it was important to have a dedicated group of senior people focused on it. And between Heather, Tom, Paul, the individuals we announced, we've got a great lineup of people.

I think this is an area where we will work with others. It's a broad market. You've got a lot of constituents involved. Certainly, there are large corporate plan sponsors where we already have deep relationships. Some of this will be done through some of the large financial institutions, who have platforms. There's going to be a range of partnerships here.

Yes, we would intend to work with some of our existing partners. But it's still early. Obviously, this has been announced by the administration. There needs to be the rule making. Of course, with the government shutdown, that's been slowed.

But I think everyone's expectation is that individuals and retirement who are in defined contribution plans, should have the opportunity to invest in alternatives just like their counterparts and defined benefit plans have. And we continue to believe, given the scale of our offerings and the breadth of our offerings, we can really provide holistic solutions.

So I would say it's an area we're going to spend a lot of time on. Obviously, it will take some time to build. But again, the benefits of returns and diversifications, I think will really resonate with plan sponsors with consultants once the right legal frameworks in place. we will do this. And yes, I think we'll work with others along the way.

We'll take our next question from Michael Cyprus with Morgan Stanley.

Wanted to ask about your brand strategy and how that's evolving as you extend further into the private wealth channel. Globally, understand you had, I believe, your first TV advertisement in Japan. So I was hoping if you could talk about your approach to marketing, advertising, brand, how that's evolving as you pursue opportunities from 401(k) to private wealth globally? And might we see a Blackstone stadium anytime soon?

I don't expect a Blackstone stadium anytime soon. What we do is fairly targeted, of course, we did do a launch in Japan, which we think is a very important market. I think it's the country in the world with the second most in savings. And the leadership there has done, I think, a really terrific job of pivoting just their citizen ring from being savers to being investors, and they've opened up alternatives, both offshore and onshore.

And that's really important because Steve, going back 40 years, has thought about Japan as a key market. We've got a really strong brand there, made a big difference. He was recently there. There's a lot of enthusiasm, I believe, for Blackstone and our products. And making it more top of mind does make sense.

Doing advertising, I think, for us, will be targeted. Obviously, we're pretty focused on who we're talking to in private wealth, financial advisers and customers who these products are appropriate for.

So I think you will see us with a broader footprint over time. It makes sense as we grow to hundreds of thousands of customers. But at the same time, I think we'll do it in a targeted way in markets and in sectors where we think we can have a real impact.

What's promising is just the growth in the private wealth area. The fact that we had this doubling in fundraising in the third quarter year-over-year and that the number of products we have, where we're going to expand to is very promising.

So when we look out, we love our positioning in this space. And yes, we're going to do it on a global basis. And yes, it will involve a little more advertising versus what we've done historically.

We'll take our next question from Bill Katz with Cowen.

Okay. Thank you very much. I apologize for the horse voice here this morning and can [indiscernible] as well tragic.

Just thinking about maybe Michael, a question for you. As you think about the interplay between the margin outlook ahead and also what seems to be a pretty healthy pipeline for realizations. Any thoughts on how we should think about the comp within the FRE versus the comp on gross realizations?

Bill, thank you, and thank you for your remarks. No, I think in terms of what the overall FRE margin dynamics, obviously, they continue to be healthy, Bill, and I think the bottomline is, over time, we'll continue to see operating leverage. We're obviously pleased with our year-to-date performance.

With performance revenue fee margins, especially advice to carry, as you know, those comp ratios can vary quarter-to-quarter based on sort of the mix of realizations, the vintages of realizations. And overall, in terms of the relationship between the two, I think we've said before that that we're happy with our basic approach. We have the ability and some control on a year-to-year basis to allocate compensation between the two in a way that we talked about before.

So while we have that lever, I think the overall approach is 1 we're going to stick with.

We'll take our next question from Brian McKenna with Citizens.

So I had a question on wealth, Retail investors today, they have access to a number of different strategies within private markets. But there are some parts of the market where the risk to rewards are better than others. So for example, lower base rates and spreads are a bit of a headwind for direct lending, Returns are likely moving lower there, but it's generally a positive for private equity and real estate and performance should be accelerating there, all else equal.

So I'm curious, how much time is being spent with your counterparts on education, just in terms of what you view as the proper allocations within private market portfolios through the cycle?

Well, we spent a lot of time at the home offices and in the field and then large-scale Zoom calls talking about how we see the markets. What we try to remind our wealth clients is that they should think about this similar to institutional investors. And it shouldn't be, "Hey, I'm going to just flip from here to there." If you went to a large state pension fund or a sovereign wealth fund, they would have allocations to real estate to private equity, to credit to infrastructure. They may modulate them a bit, but they take long-term approaches. And we think that is very prudent.

Yes, there are moments in time where certain asset classes outperform relative to others. But we think all of the areas today actually look pretty good. You mentioned private credit Yes, we have seen -- we're in an environment where base rates are coming down, but the premium relative to liquid credit, that endures, that is a real value to investors when they think about incremental return, so valuable, the farm-to-table model.

And yes, in our equity-oriented strategies, there's a benefit lower rates, no question in real estate, in private equity, in infrastructure. But I think the biggest message to our investors is take a long-term approach, have a balanced portfolio so that you get the benefit of diversification and then the long-term compounding from each of these asset classes.

We'll take our next question from Ben Budish with Barclays. .

One of the questions we get a lot on your investing strategy around data centers is how do we know we're not in the bubble. So just curious your response to that question.

And then maybe you could help us understand a little bit what are the key drivers of returns for that strategy? Is there a cash flow component? Is it valuations? I know you talk a lot about supply and demand dynamics. To what extent might cap rates matter? So that would be helpful just to get a sense of what is sort of driving the excellent returns we've been seeing there.

Yes. Well, I think the key thing for us in our data center busines is how we do the business. The vast majority of our investing and the vast majority of return comes from building, developing, leasing these data centers. We do it now in the U.S. We do it in Asia. We do it in Europe. We have leading platforms around the globe. And the key to what we do from a risk standpoint is we make sure we have an investment-grade counterparty.

Today, I would say, in general, the largest companies in the world with roughly $1 trillion to $4 trillion market cap, and we get lease terms of 15 to 20 years. And that's when you start to deploy capital at real scale. And to us, that seems like a very prudent way to do this. The returns come from the differential between the cost of doing those projects and then what their worth is stabilized assets. So when you have a high investment-grade company and a long-term leased asset, that is quite valuable.

So I think this -- when you think about what's happening in AI, the demand for compute, I think this is a very good sector to be in. I think it's also worth noting that the demand for data center space continues to grow. In fact, in our portfolio, in Q3, we saw a doubling in our leasing pipeline globally versus Q2, to give you a sense of the acceleration we're seeing.

Obviously, some people may be concerned about that, but compute power and compute needs are going up. The key for us on behalf of our investors, primarily in real estate and infrastructure where this exposure sits; is to make sure we do this in a prudent way, long-term leases, credit tenants, we continue to do it that way.

And by the way, similarly, we're doing this at scale on our credit business. There, we're also lending to entities where there's equity, plus they have these long-term leases as well.

And so this is a huge need. It's one of the reasons why private equity and alternatives as a segment are growing so much this reindustrialization, the AI infrastructure requires large-scale capital, and we as a firm who does this on the debt and equity side with real expertise has a big competitive advantage. So I think this will continue to grow, but we'll keep doing it in a very disciplined way.

We'll take our next question from Alex Blostein with Goldman Sachs.

John, I wanted to go back to the wealth discussion for a second, and I apologize for the two-parter, I guess, on this. So on credit, totally hear your point around the relative premium to liquid markets. But how important is the sort of 10-ish percent gross return to the retail channel? So to the point you make, does that resonate or it's really viewed as an absolute product? And any sort of color you can give us on the ground today, what the response in either gross sales or redemptions has been to BCRED's dividend cut from a couple of weeks ago?

And then zooming out, I was intrigued by the multi-asset comment you guys made around launches for next year. Could you maybe just expand on that, what that could look like, what parts of the market you're trying to attract with these vehicles?

Sure. So I think, Alex, the key, of course, is relative returns. When we launch BCRED now, I guess, 5-plus years ago, we were targeting, I think, 8-plus percent returns given where base rates were and the product has done very well.

As we go from a 5.5% short rates to now low 4s, probably a year from now low 3s. I think what investors will be looking at is how does that size up relative to what I can get in other forms of fixed income, particularly liquid fixed income. It could have some impact. But I think generally, the key will be this relative premium.

To date, we've continued to see healthy gross sales. This quarter to date on pace in BCRED in a good way. We have not as of yet seen any sort of elevated redemptions, we haven't seen material changes. And I think the key is we continue to deliver for customers, deliver that relative premium, have a healthy portfolio from a credit standpoint. I think if you do that for investors, that's what matters.

And by the way, it's not just in the wealth channel. Think about our growth in insurance. There actually, as rates come down to some spread compression, the need for private assets, comparable risk, investment-grade comparable risk, but with higher returns becomes even more important in that context.

So I think the key for us is to deliver premium returns over base rates, be they long rates or short rates. If we do that, I think our private credit business will grow a lot.

Michael just about multi-asset credit. Let me just quickly hit that. Our multi-asset I would say what's happening in the wealth channel is we have a scale now where we can do some interesting things. We obviously have the collaboration with Wellington and Vanguard. And if we do something there, it would be not surprising that involve potentially multiple of our products.

We have the ability, we have some of our partners who are seeking things with different mixes of products based on incoming growth. And so creating those offerings is something that's pretty unique to Blackstone because we're not just in private equity or infrastructure credit or real estate. We can offer I think, unique combinations, unique solutions to investors. And as this industry matures, those kind of comprehensive offerings, I think, will be more attractive.

Sorry, next question.

We'll take our next question from Brennan Hawken with Bank of Montreal.

I wanted to circle back on Alex's question. So totally get, John, that this is not a private credit issue that we've seen public markets or have a tendency to overreact and certainly, we've seen that. But curious about, you guys just recently had a dividend cut in BCRED. What I'm really curious about is what is the feedback you're hearing from the wealth management channel, given the big reaction in the public markets around some of this? Are you seeing -- are you hearing similar things from the ground within your wealth management counterparts and partners?

And what can you tell us about the flows since October began and how they're looking in the credit vehicles? Is there any sort of pullback with the dividend cuts and maybe some apprehension around credit, albeit misplaced?

Well, we expect strong flows in BCRED in November. So that's all we know as of today. I would say the reaction in the wealth channel is a realization that these products and credit are 97% floating rate. So by definition, when rates come down, that impacts yield, and they want us to be responsible managers in terms of where we set the dividend level.

So I just think that's the reality of the world we live in today. And again, the key is a relative premium over what you can get in liquid credit, and that continues to be enduring.

And so I think the conflation of declining short-term rates with credit issues supposedly from these three nonprivate credit-related situations is odd. And I think investors understand that with floating rate products as floating rates come down, that has an impact, but you're still getting that meaningful premium I keep talking about.

We'll take our next question from Glenn Schorr with Evercore ISI,

So the big banks and brokers are all giving very supportive cover for you on the forward M&A and IPO calendar that's upon us, you were able to replace whatever you monetize with some more accrued carry. So $6.5 billion, as you mentioned, I think 80% of it is across private equity and secondaries.

So I guess my question is, if the deal calendar comes to fruition over the next handful of quarters the way just about everybody is saying it's going to be, how does the maturation of your assets fit? Meaning, should we see an incremental pickup in line with overall volumes? Is it more IPO dependent? Because it's pretty spread across all your products.

I don't know if -- we certainly don't want to get into the business of forward projections here, but I would say, Glenn, just directionally that as M&A markets pick up and as IPO market pick up, our ability to monetize a crude net carry goes up. And you certainly saw some of that this quarter, you would expect as you move into '26, you'll see more of that.

So directionally healthier markets, more liquid markets, better credit markets, better IPO markets; that's healthier for realizations, and it does accelerate the time frame. That being said, it takes time to get IPO it's done, it takes time to get sales processes done. But the overall outlook, which you keep hearing from us is getting better. This deal dam is breaking, and it should lead to more realizations over time,

We'll take our next question from Brian Bedell with Deutsche Bank.

Great. Great. You answered a lot on the private credit, but maybe just -- John, but maybe just one more area. And that would be like just the competition that you're seeing with banks or seeing banks become more competitive in the direct lending business, how is that impacting spreads?

And then related to that, obviously, credit insurance has been a huge growth driver from a fundraising perspective, accounting for more than half of your fundraising over the past 2 years. Do you see that dynamic continuing?

And then if I could just squeeze in one more to Michael, and that's just the outlook for base fee growth for 4Q on a year-over-year basis, just wanted to I think you may have talked about that earlier, but just wanted to reaffirm that.

You got a lot in there, Brian. So as the banks, I think, are feeling healthy. they are in the marketplace. There is this sort of constant set of choices, should you do a bank-led deal or direct lending deal. That's been going on for a long time. And even for us on the private equity side, each deal is a little bit different.

So to me, that dynamic is a little more of a constant. I would point out one of the benefits of the market is getting better as deal volume goes up. So you need, I think, both the private credit and the bank market because I do expect that volumes, certainly next year in the deal business, will go up, which creates a healthier supply-demand balance for capital.

On the insurance front, there, it's pretty limited in terms of the number of people with an open architecture model not competing in the insurance space and who can do this at real scale. And that, I think, has been very beneficial for us. I think that's why you continue to see our rapid growth.

I would say the momentum we have in our insurance business is pretty exceptional today. Clients are recognizing that this is a favorable risk, return trade-off that they have long-duration balance sheets and getting an average of 170-plus basis points of incremental return on investment-grade credit makes a ton of sense in doing with us, with our scale and our brand and our open architecture model really works. So that is an area where I think you will continue to see a lot of growth.

And Brian, on the management fee outlook, I mean, just step back and reiterate that we've been talking for some time about how the launching and scaling of our platforms in these key growth areas is leading to an expansion of firm's earnings power. And you certainly saw that in the results this quarter and third consecutive quarter of double-digit base management growth.

As it relates to Q4, we'd expect continued top line momentum, That would note, we expect slower year-over-year base management fee growth in Q4 versus Q3, primarily given multiple private equity flagship step-ups in the prior-year period and some sequential slowing in real estate. But in terms of that and the outlook for 2026, we're very positive.

We'll take our next question from Steven Chubak with Wolf Research.

So I wanted to ask on the real estate outlook. The performance indicators admittedly have been a bit mixed. On the positive side, monetization revenues tripled sequentially performance has also improved, but the pace of fundraising has moderated and the absolute return still remains tepid despite the interest rate tailwinds.

So I was hoping you could speak to the performance outlook, both for opportunistic and core+ in 4Q and looking ahead to next year And just thoughts on the timing of an inflection in real estate fundraising and what would inform that expectation.

SP999.

Well, we've been pretty consistent. We said at the beginning of '24, we thought real estate was bottoming. We said it would be a slow non-V shaped recovery. That has certainly been the case.

It's hard to say exactly when things turn, but a number of the tumblers are falling into place for real estate. First off, we've seen cost of capital come down pretty meaningfully, The 10-year back down here at 4%. Spreads have come down quite a bit. That is very helpful for the sector. The CMBS market, volumes they are picking up. I think they're up about 25% year-to-date. We're also seeing this very constructive decline in new supply, which you heard about in our prepared remarks, which starts to set a foundation for cash flow growth as you look out over time.

I would tell you, qualitatively, we are seeing some good signs in the sense that in the last couple of weeks, we announced 2 large transactions, big office building here in New York City, and then that we were selling and then we sold some logistics in the U.K. to a public company. These sort of transactions were very hard to get done 12 months ago.

And I would note that during one of a recent transaction we've been involved in, I got multiple calls from buyers asking if they could be positioned to win. And I joked internally that was the first time in 3.5 years, that has happened.

So I think we're at a point here, the combination of a capital markets recovery and a sharp downturn in construction sets the groundwork for getting closer to that inflection point. And I think when you see that, obviously, it will be very helpful to our business given the exposure we have. And that's why you see us trying to deploy capital at scale to capture this before people start to feel more comfortable.

I will also say the sentiment amongst global investors. I was in Europe, in Asia in the last couple of weeks; is definitely moving to a better spot. But in general, investors want to see a little more positive performance, and that will make a difference.

Now in BREIT, we've had 9 months of positive performance. I think that will begin to have an impact there on flows. So it will take some time. But at some point, I think investors will recognize, "Wow, this is a sector that's been out of favor. It's not going away. People are still going to live in apartments. They're going to order logistics. These things are long-term asset classes, and I can invest in them at discounts to replacement costs at attractive prices." I think that will start to make a difference. And I definitely think we're getting closer to that point.

We'll take our next question from Ken Worthington with JPMorgan.

You talked about a greater focus on the RIA channel for wealth. Maybe to help level set us, what is -- or how much of your wealth is RIA sold at this point versus the broker Wirehouse channel? And is this focus about adding more in different sales personnel? Or does the product need to be adjusted as well in terms of fees and structure?

So Ken, I don't know -- I don't think we disclose or have certainly not the information here now, about where the different forms of distribution. But I would say the RIA channel is very large, but it's harder to access, as you know. I mean, at the bigger wirehouses, you can work at the top of the house, it can get distributed out.

One of the advantages we have as a firm is having 300-plus people on the ground, and that enables us to go out there and talk to people. And I think for us, we recently put -- brought in a new senior person to run that area for us. And we're really trying to do a concentrated outreach.

Obviously, the marketing, the advertising, those things matter when you're going to a more distributed market. But the underlying pricing of the product, that doesn't really change, but it requires a lot of effort. I will say we did create an interval product in multi-asset credit, which was our first rail interval product, which we launched in the RIA channel specifically.

So I think for us, it's about going after it. It's a little bit like foreign markets, where you have to put a concentrated effort, if it's Japan or Australia or Canada, Asia, it's the same sort of thing here. And again, given the track record of our products, the performance we've delivered, the strength of our brand, if we put the right resources on the ground, I think we can build big relationships and large AUM in the RIA channel. So I think that's an area of major opportunity for us.

We'll take our next question from Patrick Davitt with Autonomous Research.

A different angle on Brian's question. Maybe it's a bit too early to know, but had some wobbles in the bank loan market, to your points earlier, seen some deals pulled and/or reprice which I think you could argue was actually good for direct lending dynamics.

So curious if you're seeing any signs of the banks are rethinking how aggressive they've been in that channel potentially getting less competitive because of what's happened and/or any sign new origination spreads could get a little bit wider on the back of those bank loan blow-ups.

The bank market obviously has to be sensitive because they're in the distribution business. So when you see what happened in the last couple of weeks, not a surprise, you could see a little bit of hesitancy.

But I think market participants have concluded that this was pretty isolated and it is not a sign of something bigger. And as a result, I don't think we would say today, we're really seeing any sort of pullback from the banks.

We'll take our next question from Crispin Love with Piper Sandler

We'll take our final question then from Arnaud Giblat with BNP.

In credit and insurance, your dry powder has cost doubled in the last 12 months. I was wondering if that was the case as well in direct lending, private debt, given how tight the spreads have become and lose the covenants or with the competition with both in the Canadian loan market?

And specifically, if I could just follow on that specific point into BCRED, how do you see capacity developing? I mean is it -- if conditions remain really hot and tight, do you start worrying perhaps a bit about capacity and the speed that we you're deploying capital, assuming that flows remain strong?

Well, I'll just comment -- Michael can comment on where the dry powder sits in credit. But I think there's a bit of mischaracterization here as to how hot the markets are overheated, Loan-to-value that we originated in our direct lending in Q3 was at 38% loan to value. That's probably half the level it was if you went back to '06, '07. So -- and spreads are sort of in line with historic levels.

So yes, it's a business that has grown a lot, but it's taken a significant amount of share. And we just haven't seen sort of the erosion of credit standards. And we actually have had a very strong deployment year. I think we've had a record year this year, first 9 months in terms of deployment. So we feel good about the business. In terms of...

I just point out you have dry powder, as you probably know, is largely about drawdown funds. And our direct lending capital obviously sits in a lot of different vehicles, including perpetual ones. So direct lending, just sort of structurally, is a smaller fraction of our dry powder.

Thank. With no additional questions in queue. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks.

Great. Thank you, everyone, for joining us today and look forward to following up at the call.

All right. Good morning, everyone. Welcome to our next session here at Barclays Global Financial Services Conference. I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges. And for this next fireside chat, I'm really delighted to have Michael Chae, CFO of Blackstone.

Michael, thanks so much for being here.

And nice to be back. Nice to see you.

Likewise. Well, maybe just to kick it off, can you talk about your current macro view? What are you seeing? How do you think the environment shakes out over the next 6 to 12 months?

Sure. Look, overall, despite some obvious cross currents, we see the U.S. economy as really quite resilient. That's been reflected, I think, in corporate earnings in general and certainly in our own portfolio. I'd say on the positive side, what we see are the twin engines that we see really powering this right now are, first, the cost of capital, broadly speaking, coming down, continuing to come down.

And second, this really unprecedented investment boom in the sort of AI, AI infrastructure and power electrification ecosystems, which we have a lot of exposure to. On the cost of capital side, obviously, the 10-year is hovering around 4%. You've got obviously a central banking sort of posture that is increasingly accommodative, both with respect to short rates and also I think management of the balance sheet. And then from a spread standpoint, whether it's the liquid high-yield markets, IG markets, leveraged loan markets, spreads are sort of a decade-long tight. And then on the CapEx boom side, we know these stats. But this year, I think AI-linked spend, tech CapEx has been a bigger contributor to GDP growth and consumption. So that's pretty remarkable. And I think kind of overlaying all this from a sort of general productivity, corporate efficiency standpoint, margin strength standpoint, I think it's a very constructive environment.

So overall, I think a strong corporate profit environment. You don't typically see recessions without erosion in corporate profits. And so we're, again, I think, quite constructive right now. I think in terms of where we see sort of sector weakness, we do see a deceleration in sort of the lower end consumer. You see that in discretionary spend on some leisure assets. You see that at the lower end of the hospitality space. You see continued weakness playing through in the construction supply chain. And then I'd say some evidence of -- in terms of enterprise tech spend, discretionary spend, some of that being sort of displaced by increased investment in AI spend prioritization. So that's where I'd say we sort of see some more yellow flags.

But overall, a quite resilient picture, deceleration in some areas, but a lot of momentum in others. And again, cost of capital coming down. On inflation, where obviously, we benefit from having a quite rich portfolio full of data points around this that we try to measure pretty rigorously. We think the path of travel continues to be quite constructive. We do expect to see continuing signs of goods inflation, but with multiple positive offsets, decelerating shelter costs, wage costs, energy costs. On the shelter side, we sort of say this all the time, but perennially, the government data, which is lagging, embeds like a 3.7% measure of shelter cost inflation in CPI, more real-time market rent data, both external public data and also our own internal data has it more like 150 basis points below that. So in the low 2s. And when you have CPI ex-shelter in the low 2s, then you have a picture that in a real-time basis, it's closer to target. The labor market softening, obviously, has had a lot of focus justifiably so in our own portfolio. We see -- thanks, Rich.

We see basically labor conditions in balance and continuing to moderate, which puts additional downward pressure on inflation. Wage growth in our portfolio has dropped below 3%. Our CEOs who we survey every quarter on this, the vast majority are not finding it hard to hire workers. 3 years ago, 2.5, 3 years ago, it was like 90%, finding it hard to hire workers. And just in terms of just overall sort of wage inflation trends on a net basis, it's running at a quite modest level. So -- and then I said -- as I said, energy costs down sharply. So overall, in the macro, we think the economy hangs in there alongside rates moving lower. And that does, I think, create quite a constructive backdrop for our business.

Great. So with that in mind, what does that mean for the transaction environment, both your ability to deploy and to realize?

So we're seeing a busy fall followed by a busy late summer and really, I think, creating robust momentum into 2026. Obviously, the market sort of weathered multiple years of multiple shocks, whether it was inflation or rates, regional banking crisis, which seems like ancient history, geopolitical things, policy shocks, tariffs, which has led to an unusually elongated cycle, certainly unusually elongated capital markets, transaction environment, new issue cycle. That's led obviously to real pent-up demand following this historical drought. If you had U.S. M&A and IPOs down like 70% over the last several years versus historical averages. We've been saying for a while that this just can't persist and that it will normalize, and we think that's happening now. And so we see sort of the recipe in place for a real resurgence in activity with multiple ingredients, healthy economy, declining cost of capital, better regulatory environment for M&A, equity markets obviously near all-time highs, greater business confidence. And so this -- we are seeing this translate into accelerating transaction activity.

For the market overall in terms of announced and completed M&A and IPO volumes market-wide, I think quarter-to-date, it's up somewhere between 35% to 50% year-over-year based on the measure, that's albeit over quite depressed lows. That's for the market. For us, in terms of deployment, we've been on our front foot for a while. As of the end of June, for the prior 12-month period, we had deployed about $145 billion of capital across the firm. That was up like 43% over the prior 12-month period. So we -- even ahead of, I think, the kind of the general resurgence, we were trying to get ahead of this in terms of our own view of -- own constructive view of the macro and also obviously sort of focusing on our sort of big investment themes. And that has continued right on through. There's been no summer slowdown at Blackstone.

In our private equity business in the last 10 weeks, we've made 20 new commitments and about $11 billion of equity in our credit business also in that time period, about $11 billion of new commitments. And in terms of forward indicators, our credit business, especially our direct lending business is a pretty good proxy for the overall sponsor market. And in August, yes, we measure these things, new deal screenings in our credit area were up about 50% year-over-year. So that's a pretty good forward indicator, I think, of overall transaction activity. I mean I would just say just stepping back as it relates to deployment, it's really -- we're in a unique spot in terms of the breadth and scale of our platform. The scale of our capital base, the breadth of it across 80-plus investment strategies, which leads to incredible, I think, cross-fertilization of intellectual capital insights, data across the breadth of our portfolio and business really allows us to be a strategic capital solutions provider at scale. Directed at themes where we have real insight. And so that's -- I think that's more than ever, especially in terms of offering like financing solutions to the real economy and to this incredible investment opportunity against these mega themes, it's really an extraordinary thing.

On the realization front, which I know is really what everyone cares about most, we do expect to see a significant pickup in realizations as the transaction backdrop resurges. That's how capital market cycles work. We have a robust pipeline of processes. We've taken public in the past 2 months, a company in India, a company in Europe. We're pricing an IPO this week in the U.S. Our IPO pipeline, if converted, could potentially make 2026 our largest year of issuance ever on a dollar basis. And then as I said, M&A activity is accelerating. So if we stay on track, I think we are moving towards a real lift off in terms of realizations in 2026.

Great. All right. Let's dig into a few of the other sort of themes in the space right now. One of the newest is the potential for alternatives to be added to 401(k) plans. Can you talk a bit about how Blackstone might participate here? What are the next steps you think are required for the opportunity to start to come to fruition? And how should investors be thinking about the ultimate P&L impact?

Yes. And you've heard this framed in different ways, but this is my favorite. It is kind of remarkable that you have these 2 roughly $12 trillion retirement markets sitting alongside each other, defined benefit and defined contribution. The DB side, basically like 1/3 allocated to alternatives with some of the most sophisticated institutions having done this for decades, seeing outperformance alongside this similarly sized DC market with virtually 0. And that's really created and it is a very serious matter, world of haves and have-nots in the retirement space, people with pensions, larger institutions, the ultra-high net worth have long had access to or alternatives and the everyday investors from -- and retirees have not.

So Obviously, the executive order from last month instructed regulators to provide a framework and a pathway for plan sponsors to offer funds with private market allocations. We think it could and I think will be a real inflection point in the evolution of this market. It's a very positive and logical step towards improving retirement outcomes for millions of Americans. And again, I think the benefits are clear. The benefits are clear in terms of outperformance over almost every measurement period, institutions with larger allocations to alts have outperformed those with smaller or little allocation to alts by multiple hundred basis points. And then really importantly, from a diversification standpoint, when you think about retirees building retirement portfolios of assets over multiple decades, you've heard some of these stats now, including wrapped around my Wall Street Journal this morning. 90% of like -- over 19,000 of U.S. companies with revenues over $100 million are private and not accessible to everyday investors. And then meanwhile, the number of public companies has basically been cut in half from like 4,000 to 2,000 over the last several decades and 7 public companies comprise over 30% of the S&P 500.

So again, for the vast portion of investors, everyday investors, they don't have access to this increasingly large part of the corporate economy. And that's, I think, an issue both in terms of long-term performance and also diversification. For us, we do think we're exceptionally well positioned as a partner of choice in this area, our brand, our track record and really importantly, we're the only firm with large-scale perpetual products across all the key asset classes with uniformly strong performance since inception. These types of perpetuals and perpetual structures are ideally suited and structured to be the vehicles to receive allocations from target date funds and managed accounts. So I think that's a very, very powerful position for us to be in that and a platform and a portfolio of products that we've built for the wealth business for many years now that now, I think, is really well positioned for this space.

And in terms of financial benefits, it's obviously early. This is long-term sticky capital. We would expect it to be quite accretive over time. In terms of the opportunity set, I think the key focus, the main event, certainly over the near to medium term will be around this professionally managed account area. Most of all target date funds also managed accounts, long-term horizons, multi-decade glide paths, highly compatible with private markets. And they're also the fastest-growing part of the market. They're 40% of the market today, like 5 out of $12 trillion, but they've been growing at double digits, and they're expected to nearly triple over the next decade and be more like 60% of the market. So -- and I think there'll be interesting ways to think about executing on this against that market through partnerships and otherwise.

So look, I'd just say this will take time to unfold. We would counsel patience and a long view, but we see the long-term opportunity as very significant, and we would expect to be a leader in this area as well. And in terms of next steps, I mean, I think as people know, the regulator was basically instructed to respond to the executive order within 100 days of the order. That will be followed by a public comment period. And so we await the details of the implementation of the order, and we look forward to bringing the best of private markets to this area.

Got it. Maybe following up on that, can you maybe talk a little bit about your insurance model? How are you scaling private IG to keep up with demand? How do you think about the opportunity as well outside of insurance and retirement?

So in insurance, we believe our model is a winning model. We think we're -- our model -- with our model that we're maximizing the market opportunity with the lowest amount of risk. The open architecture multi-client model positions us well to address the entire $40 trillion global insurance market, not in competition with our clients. We're not taking balance sheet risk. We don't have the ups and downs that come with spread earnings

nor the regulatory exposure of owning and being an insurance company. It took us time to scale up this approach, but we think we've now hit escape velocity and that the jury is increasingly in with respect to our choice of model. I think the proof of that is in our performance. If I said all that, and we have this tiny credit and insurance business. Those words would sound pretty cheap, but we've created a nearly $0.5 trillion credit and insurance platform across the firm, and we've grown to be the largest non-captive insurance business and asset manager in private markets. We have over $250 billion of AUM, insurance AUM that grew 20% year-over-year as of June. We have 30 strategic and SMA relationships with insurance clients. That's up from 19 a year ago. We have sort of a land-and-expand approach and philosophy where we win a client relationship that may be around a single strategy or product. And then we work through performance and how we manage the client relationship to expand that relationship to broaden it over time. And indeed, in the vast majority of those client situations, we've done that. So in this area, insurance, the combination of our brand and origination capabilities is really quite powerful.

On private investment grade, private IG, the expansion in insurance is obviously powering our growth in that area. We have $115 billion private investment-grade platform. It grew -- or was up 38% year-over-year in the second quarter. That's powered by really this growing origination engine across internal platforms, across external partnerships and flow, internal flow. And it's across a really exceptionally diverse range of strategies and asset classes within private IG, commercial and consumer finance, infrastructure finance, fund finance, transportation equipment finance and corporate solutions. We're focused really the whole sort of goal of this is delivering durable excess spread for our clients. And that since the beginning of 2024 has been nearly 190 basis points of excess spread versus the relevant investment-grade benchmark, liquid benchmark.

And in terms of broadening the kind of client set, the activity so far has been mostly for insurers, but private wealth, other institutions outside insurance are definitely in their early days of their private credit journey and are increasingly exploring and pursuing private investment grade. So -- and I think just broadly, once again, from a scale standpoint, from a breadth standpoint, LPs are consolidating their relationships in this area like other areas to those who can provide sort of a holistic approach, and that will favor folks like us.

Got it. Kind of along the same lines on the IG private side, your structured asset business is one doing things that are very other few firms doing anything that really can kind of compete there. Talk a little bit more about this area. How big do you think this can be over time?

I think pretty big, and it's very exciting. Private credit, just stepping back, I think, is increasingly becoming a key funding mechanism for financing the real economy with very long-term capital, often at quite remarkable scale these days, including relating critical infrastructure supporting AI and energy and power ecosystems. For borrowers, it's -- I think it's always been hard and it's getting even harder to access through the kind of the traditional credit markets, these long-term efficient credit solutions, particularly for complex long-dated financings. And so that's where we sort of come in.

We've spoken about recently publicly about a couple of large-scale corporate solutions that we announced. Rogers Communications in Canada is a $5 billion financing backed by the critical wireless infrastructure assets of Rogers, where we partnered as investors with sort of Canada's most prominent pensions. And then EQT, $3.5 billion financing where we -- it was a financing secured by very high-quality midstream pipeline and storage assets. So as I said, these are complex long-term solutions, can be at massive scale. And for our clients, really importantly, these transactions represent yet another avenue to access really high-quality, directly originated long-duration assets. And so we bring together these borrowers and these investors on our very massive platform. And these financings, obviously, these credits are backed by and secured by these critical hard assets. So this is a really important, I think, development in the capital markets. And we'd expect this to be in real time, you're seeing more and more of this and this being a really significant development for us and for the markets.

Maybe moving over to your wealth business. So at this point, you have the largest or among the largest products in every asset class. How do you think about room to grow from here? Is it a matter of expanding distribution, launching more products and you've got a multi-asset credit product coming, I think, later this year or next year. How do you think about sort of the optionality on growth?

Yes. It's a very exciting sort of trajectory for us that I think is continuing. I'm just stepping back, as I think folks know, I think we do -- we feel like we do have a significant first-mover advantage. We began raising private wealth capital like 23 years ago. We created a dedicated platform and business for this 15 years ago. Today, we have around $280 billion of AUM. The largest alternatives private wealth platform in the world by far. And we got here through relentless innovation in terms of products, product development and a commitment to delivering really exceptional client experience.

To give you a sense of like organizationally, we have around 350 employees globally in this area. That's up over 20% year-over-year. And about 30% of the platform assets people sit outside the U.S. For us, it -- in terms of relentless focus, begins and ends with returns and the foundation of our platform are these several large-scale category-leading products that have delivered outstanding performance since inception. So BREIT, our nontraded REIT, it's $53 billion of NAV, 9.2% inception-to-date returns. BCRED, our non-traded BDC, $45 billion of NAV, 10.2% inception-to-date net returns. And then BXPE, $14 billion in a little over 1.5 years and 16% -- over 16% inception to date net returns. So that's -- those are really the pillars, and it's all about performance.

In terms of our distribution strategy, we obviously led this with an initial focus on products with sales concentrated in the large wirehouse area, and that remains a vital area of focus for us. But we've been expanding further regionally in terms of distribution, Canada, Japan, Europe, Australia, key geographic markets. And we've been adapting our product structures to strengthen and customize our coverage of subchannels within wealth. So you mentioned our multi-asset credit product, we call it BMAX. For the RIA channel, which is a real focus for that product, we implemented an interval fund structure with a daily ticker, no sub docs to really sort of tailor that product for channels and clients like that.

And so look, product innovation has also allowed us, I think, and will increasingly enable us to address the mass affluent area, the retirement areas we talked about and really expand the TAM of our overall business over time. So in terms of product growth and innovation, looking forward, we do see the pace of innovation accelerating. We would expect where we sit today that 2026 to be our busiest year in terms of the number of products launched in this channel. And I think as an important part of that, we expect multi-asset opportunities to become increasingly core drivers of that growth and innovation. Obviously, in terms of what's public, we announced our strategic alliance with Vanguard and Wellington. We announced recently our partnership with Legal & General in the U.K. the developments in the D.C. market. So those -- I think that's an important dimension to the growth, and we have much more planned in this area.

And I would just say, if I reflect on your last 3 questions, Ben, we just discussed 3 massive markets that are just beginning to emerge really for private markets, retirement, insurance, private wealth. And for us, for Blackstone, what's so exciting is -- we think our advantage as brand and scale and the breadth and diversity of our business, everything we've worked to build over 4 decades will be advantages and edges that are even more pronounced in those markets. So that is -- that makes this as exciting time as any in my fairly long career at the firm and in the firm's history.

Got it. Maybe switching gears a little bit. Let's spend some time on your infrastructure business, another very large market you guys talk about a lot. Just talk a little bit about how this opportunity set has evolved and where you see it going over the next few years.

Well, it's obviously one of the fastest-growing verticals within alts. I think it was like less than $10 billion in the private markets area 20 years ago, and now it's like $1.5 trillion. Massive funding needs for projects globally means there's more opportunities than available capital. We have a long history investing in this area initially in our opportunistic drawdown funds. But what we found when we focused on the dedicated insurance business is opportunistic drawdown funds posed a couple of challenges, a higher cost of capital relative to the -- much of the opportunity set and a finite duration, which made it harder to match with a very long-term asset class.

So we created our dedicated infra strategy in 2017 as a perpetual open-ended structure. It allowed us to pursue a much broader set of opportunities and to sort of do what others can't. And our focus to date has been very clear in terms of where we're investing on 3 large markets with very strong tailwinds, digital infrastructure, transportation and power. And the results, I think, have been pretty stellar. Our AUMs $64 billion, up 32% year-over-year, driven by exceptional performance. I've said this before, but I think our growth plans and strategy in some ways, parallel our real estate playbook over the last couple of few decades, geographies, channels, asset classes. We recently launched a European-focused vehicle that's last fall, that's now approaching $2 billion. We launched a private wealth vehicle at the beginning of the year. That's now approaching $3 billion. We have robust momentum in the infrastructure credit area. And we actually just closed raising a $5.5 billion infrastructure secondaries fund in our SP area. That's the largest infrastructure secondaries fund ever raised.

So overall, across the firm, we've got about $140 billion of AUM today across various equity and debt strategies and infrastructure. And we've constructed this amazing portfolio in our equity area. We own the largest and fastest-growing data center platform globally, QTS, the largest in Asia, AirTrunk, the largest private cell tower operator in the U.S. and Europe, PTI, the largest private renewables operator in the U.S. in energy, the largest North American ports platform, Carrix, and the largest U.S. marina servicer, Safe Harbor. So we just love that portfolio. And then I'd just say stepping back, kind of hitting a theme I've been -- that I think has been resonating today, this business really does in this area really sits at the exact intersection of the convergence of a couple of the most enormous secular mega themes and trends of our time around digital infrastructure and power and electrification. So there's huge runway ahead for this business. And we think our team has done a really remarkable job positioning us over the last 8 years since inception, and the future is very bright.

Just following up on data center specifically. There's clearly tremendous demand for more capacity. But how do you think about things like the risk of near-term overbuild that could potentially drive down asset values?

Yes. I think on the kind of short answer because I know our time is short. On the demand side, every indication for us is that it's going to keep coming. And that's from talking to key players in the ecosystem. We talk to almost all of them all around the world. And then if you just -- I forget what they're saying, if you look at what they're doing at the beginning of the year, there's a lot of noise around is there going to be a pullback. And I think for the big 4 biggest hyperscalers, their plans for the year or just the year are up 45% in that same time frame.

And then on the sort of supply side on the data center side, I would just say I think we're very comfortable. And I think importantly, if you look at our position, I just talked about the scale of our platforms, we don't -- our model is we don't build on spec. These are -- for us, we're nearly 100% pre-leased to investment-grade tenants, obviously, some of the most important companies in the world, 15-year type term leases. And then obviously, the critical constraint is on power, power and land, but really most of all power. And that really creates an advantage for those with capabilities to develop and access power at scale. And so we think we're really positioned to do that. We're prepositioned in our platforms with very, very large land and power banks to support $125 billion plus of future data center development. If you look at the announcement we made in Pennsylvania this summer, this $25 billion announcement and partnership between QTS and PPL, we're building both gas power plants for DCs and the DCs sort of in partnership, which I think highlights the interconnected nature of these 2 themes and our leadership position and how we're approaching it. So we're obviously cognizant of the concerns, but we're feeling quite comfortable about them.

Maybe moving over to your traditional private equity business. Can you talk a little bit about the general appetite from LPs? You're clearly showing some early fundraising success in your latest Asia fund in particular, but how are LPs generally thinking about allocating to this asset?

Yes. I'm glad you asked because I think it's somewhat overlooked or underappreciated just how vibrant our corporate private equity businesses are. And while the traditional buyout business is somewhat more mature, there's still, we would say, very healthy demand for high-performing clearly differentiated strategies. We have $165 billion of AUM in our corporate private equity business alone. It grew 14% year-over-year as of the end of the second quarter. It's expanded beyond sort of the original global flagship fund where I built my career in my early days at the firm to regional strategy, sector, longer-dated strategies. You mentioned Asia. We've had exceptional performance, raised $8 billion plus to date, already meaningfully larger than the prior fund. We expect to exceed our original $10 billion target.

Our dedicated energy strategy, which has been one of the most active and best performing areas of the firm. We're currently in our latest fund, which is $5.5 billion. We started the investment period last year, and we're already 60% committed. Our longer-dated core private equity fund, which is a $19 billion complex, very strong performance there. So that's a really great platform. We now obviously have this new growth engine that I mentioned in BXPE in the private wealth channel, and that will be a very important, very positive platform, new platform for the firm. So -- and we benefit from sort of the power and scale of having all of these different strategies sort of be synergistic with each other as it relates to intellectual capital and just the ability to provide the largest scale solutions.

I would say also just as a final note, first, I do think the largest, most diverse firms will be capable investing at scale, offering co-invest and so forth. We'll continue to take share among LPs as they consolidate relationships. With their sort of most trusted largest GPs. And as a final note, I would say from a cyclical standpoint, the DPI concern will get better, [ I propose of ] the sort of a market discussion we started with. And so I think that issue will get better. And I think it's -- and I think it will -- it's beginning to feel better, and I think we'll increasingly feel that way in 2026.

Great. Maybe just on real estate, moving over to that asset class. How would you describe where we are in the cycle? How does this impact both the existing portfolio and the opportunity for new investments over time? And what needs to happen for returns in this sector to improve?

Look, the 2 -- as we've talked about, the 2 pillars of recovery in any real estate cycle and certainly this one, I think, are solidly in place, which is the cost of capital coming down and supply coming down. And so all-in borrowing costs in this area are down like 40% from a couple of years ago. Spreads are back below pre-liberation day levels and construction is really collapsing around core sectors around the U.S. and around the world. U.S. multifamily and logistics starts in 2024 were down like 65% versus 2022, and that's going to work its way through into deliveries. So -- and last January, we called a bottom, but we said it wouldn't be a straight line.

And since then, private real estate markets have appreciated gradually, but as I said, all the ingredients, I think, are present for further improvement. And real estate values have reset and are up only about 6% from the trough, while the stock market, the S&P is up nearly 90% and corporate bonds are up something like 35%. So you see that sort of that lagging dynamic. And look, it comes back to our portfolio construction, which, as I've said, remains to me, what we've done over the last 5, 10 years in this area, some of our finest work. We have a portfolio globally that's 75% concentrated in 3 areas: logistics, multifamily and data centers. Rental housing and data centers. BREIT itself is nearly 90% concentrated in those sectors.

Cash flow growth through it all has remained very resilient and fundamentals, as I said, are poised to accelerate. So -- and I think the federal -- the Fed easing will be a potential accelerant as well. And so with respect to deployment, where we have $54 billion of dry powder, we've deployed $35 billion -- over $35 billion over the last 1.5 years, several major public to privates given the volatility in the public REIT markets, we continue to favor those 3 big sectors, starting with data centers, as I mentioned. And then outside of the big 3, we are, I think, selectively focused on a few other areas.

Traditional office, we've screened a lot of deals. We've only done a few. But with selective assets in selective markets and then selective submarkets within those markets at the right price and discount to replacement cost, we are constructive. Grocery-anchored retail. That sector saw virtually no new construction really over the last decade and has maintained very healthy demand. We did this public to private in that area earlier this year. And then in the lodging area and hotels, where we've done a lot over time, we are seeing this bifurcation in demand between the high end and lower end, and I think that will create some opportunity. So -- and then on the exit side, that is still strengthening.

Liquidity is clearly improving at the lower end of the market with more granular assets. There's good demand for smaller assets and portfolios. You're seeing 10 to 20 sort of plus kind of first round bids for these smaller assets, these kind of $100 million average sized assets. And that, again, consistent with cycles, sets the stage for larger scale exits as we head into 2026 and beyond. So -- and then I'd say on the LP and investor side, there is more openness to allocating to real estate, but it's still early in that the recovery of sentiment. We've continued to have strong success in our drawdown fundraises. We completed our fundraising of our Europe real estate fund, $10.6 billion, the largest European real estate fund ever raised based on third-party commitments in our real estate debt business spreads, an $8 billion fund that we've raised so far over -- I think, over double the size of the next biggest real estate debt fund raised in the last handful of years.

And then on open-ended strategies and BREIT in the second quarter, as we said on our earnings call, we saw our best regular way fundraising in 2.5 years in the second quarter, and we raised $1 billion for dedicated core plus logistics strategies in the second quarter. So the ultimate path of travel, we think, is clear here. And we do believe we're approaching the steeper part of the recovery curve. And we do think our leadership position will be reinforced coming through the cycle as it has in the past.

Got it. We've got barely a minute left. I wanted to ask one kind of final question on your outlook. Hopefully, we can both talk fast. Clearly, the firm has been expanding its investment capabilities, the client base. Since your IPO, your AUM is up 14-fold or more. Market cap is over $200 billion. How do you see this going from here over the next 5 to 10? I know it's a big question in a short amount of time, but...

Well, in 40 seconds, I would say 3 things. We think alternatives and private markets are the future investment management. And it's a secular shift and mega theme that is as important as most other mega themes. We view ourselves as the clear leader in reference institution in that very exciting space. And we want to lead the evolution of the sector in the future, and we want to strive to be one of the best public companies in the world.

Very succinct. Appreciate. Mike, thank you so much. Pleasure to have you.

Thanks, Ben. Nice to see you.

Good day, and welcome to the Blackstone Second Quarter 2025 Investor Call. Today's call is being recorded. [Operator Instructions]

At this time, I'd like to turn the call over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Great. Thank you, Katie, and good morning, and welcome to Blackstone's second quarter conference call.

Joining today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Vice Chairman and Chief Financial Officer.

Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks.

I'd like to remind you that today's call may include forward-looking statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K. We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the shareholders page of our website.

Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent.

On results, we reported GAAP net income for the quarter of $1.6 billion. Distributable earnings were also $1.6 billion or $1.21 per common share, and we declared a dividend of $1.03 per share, which will be paid to holders of record as of August 1st.

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

Good morning, and thank you for joining our call.

Blackstone reported outstanding results for the second quarter. Distributable earnings increased 25% year-over-year to $1.6 billion, as Weston mentioned, fee-related earnings grew a remarkable 31% year-over-year and represented 1 of the best quarters in our history. The strength of these results notwithstanding in the backdrop for realizations reflects the significant expansion of the firm's earnings power, that has been underway as we continue to innovate and scale key growth initiatives. These include our platforms in private wealth, credit and insurance and infrastructure along with the launch of multiple new funds in our drawdown area. The firm's expansion is also powering our fundraising with inflows reaching $52 billion in the second quarter and $212 billion for the last 12 months, lifting assets under management 13% year-over-year to a record $1.2 trillion. In addition, there were reports that the U.S. administration may soon issue an executive order that could help open another vast new market for the firm to deliver superior returns and diversifications for investors, the $12 trillion U.S. defined contribution channel. The foundation of Blackstone's exceptional long-term growth, of course, is investment performance. We continue to deliver for our limited partners, and the second quarter represented the highest amount of overall fund depreciation in nearly 4 years. The firm achieved these results in a turbulent quarter for markets, which began with the S&P 500 falling 14% amid collapsing investor sentiment due to tariff's policy uncertainty and geopolitical instability. At the time, we advised patience to allow for trade negotiations to take place and to give tariff diplomacy a chance to work its way through the system. Despite the significant external uncertainty, we were encouraged by the fundamental strength of the economy, the accelerating pace of technological innovation as a major growth catalyst and what we were seeing on the ground in terms of declining inflation. We consistently shared our view that inflation was below the Fed's target when adjusting for lagging shelter costs based on the proprietary data from our large-scale portfolio and our unique position in real estate.

As always, the firm's insights informed our views on investing, and we continue to lean into areas where we have high conviction. We invested $33 billion in the second quarter and $145 billion in the last 12 months, 1 of the most active 12-month periods in our history, setting the foundation for future value creation and what we believe is a favorable time. Our deployment has emphasized areas benefiting from long-term secular megatrends such as digital and energy infrastructure, digital commerce, private credit Life Sciences in India. These areas have also been among the largest drivers of appreciation in our funds. In particular, the enormous need for debt and equity capital to build the infrastructure powering the artificial intelligence revolution has created extremely positive dynamics for our business.

In real estate specifically, we called the bottom of the cycle 18 months ago. And since then, we've been actively investing across our real estate equity and debt strategies. We also said it wouldn't be a V-shaped recovery, that is what's happened. Private real estate markets have appreciated gradually over this period. We are now seeing promising signs with new supply falling sharply, the cost of debt capital coming down and transaction activity picking up. Overall, despite ongoing uncertainties in the environment, there are multiple supportive tailwinds for our business. In terms of the economy, the backdrop remains favorable with resilient growth. We see inflation remaining muted with the likelihood for an increase in goods inflation, but decelerating wage, energy and shelter inflation. These factors should give the Fed room to lower interest rates over time, which is positive for asset values.

In terms of policy, we continue to believe the focus of policy actions ultimately is to support growth. Tax cuts have now been passed into law and a number of trade agreements have been reached with many more under active negotiation. It remains to be seen how individual negotiations will play out, but the direction of travel is toward more resolutions. As the policy environment settles, we expect transaction activity to benefit, including realizations. Greater clarity will lead to greater confidence for companies, financial sponsors and market participants. We're seeing this dynamic start to take effect with the U.S. stock market at record levels. M&A particularly sponsor M&A accelerating and the IPO market reopening. 2 weeks ago, we successfully executed a sizable IPO in Europe. The first from our private equity or real estate portfolios outside of India in several years, and we are preparing a number of other companies for public offerings over the coming quarters. More conducive capital markets if sustained, should lead to the acceleration of realizations for Blackstone over time.

In closing, we are tremendously well positioned to navigate today's dynamic backdrop on behalf of our investors. Our portfolio is in excellent shape, concentrated in compelling sectors, and we have $181 billion of dry powder to take advantage of opportunities. Since our founding 4 decades ago, Blackstone has continued to innovate and advance the frontier of alternative assets, we are never standing still, and I believe the best is ahead for the firm and for our investors.

And with that, I'll turn it over to Jon.

Thank you, Steve, and good morning, everyone.

This was a terrific quarter for Blackstone. The firm's distinctive competitive advantages continue to drive us forward in multiple areas, leading to expanding earnings power, as Steve noted. I will highlight 3 of these areas this morning. First, our robust growth in private credit; second, our market-leading position in private wealth; and third, our strong momentum in the institutional channel. Overall, a cyclical recovery in transaction activity, alongside multiple secular growth engines is a powerful combination for our firm. Starting with private credit. Blackstone has built the largest third-party focused credit business in the world with $484 billion across corporate and real estate credit, up threefold in the past 5 years. Over the same period, revenue from this platform has increased more than fourfold. Today, we offer clients and borrowers a one-stop solution across the risk spectrum with leading businesses in direct lending, leveraged loans, real estate lending, asset-based finance and numerous forms of investment-grade private credit. The scale and breadth of our platform, distinctive origination capabilities, connectivity with borrowers across the market, and our open architecture multi-client model in the insurance channel are significant advantages.

In insurance specifically, our decision to be an asset manager for insurance companies rather than becoming 1 positions us well to address the $40 trillion global insurance market. Today, we manage over $250 billion on behalf of insurance across private credit liquid credit and other strategies, up 20% year-over-year. Our platform now includes 30 strategic and SMA relationships, and we continue to add more.

Two weeks ago, we announced a partnership with a leading U.K.-based insurer and the country's largest asset manager, Legal in General, in which we'll provide investment-grade private credit solutions to support their rapidly growing pension risk transfer and annuities businesses. We will also work together to develop public private credit products for the U.K. wealth and retirement markets. We're targeting up to $20 billion for this partnership in the next 5 years.

Our expansion in the insurance channel is powering tremendous growth for our private investment grade platform, specifically with AUM up 38% year-over-year to $115 billion in the quarter. As always, the key is investment performance. Since the start of last year, we placed or originated $68 billion of credits for our private investment grade focused clients rated A- on average, which generated approximately 190 basis points of excess spread over comparably rated liquid credits.

Stepping back, Blackstone's innovation in private credit is allowing many borrowers to access this market for the first time, while dramatically widening our aperture to invest. For example, we previously discussed the very substantial opportunity emerging with investment-grade rated corporates, illustrated by the bespoke solutions we designed for Rogers Communications and EQT Corporation.

We closed a $5 billion Rogers investment last month alongside Canada's preeminent pension plan as co-investors. We believe a few other investment firms could have executed this transaction given its size, complexity and the depth of relationships needed. Blackstone has become a trusted mission-critical solutions provider to many of the world's leading corporations and we expect more of these types of partnerships over time.

Turning to private wealth where we continue to advance our market-leading position. In this vast channel, $140 trillion, including mass affluent and high net worth individuals, a new generation of investors is gaining access to the benefits of alternatives, which is a development led by Blackstone. We started raising private wealth capital 23 years ago and established a dedicated organization nearly 15 years ago, growing AUM to almost $280 billion today, by far the largest private wealth alternative platform in the world. Each of our flagship U.S. perpetual vehicles is the largest or amongst the few largest of its kind. Revenue from these vehicles exceeded $700 million in the second quarter alone compared to approximately $50 million in the same quarter 5 years ago. As with credit, our scale is a major advantage in the wealth channel, alongside our extensive network of relationships with advisers and distributors, our broad menu of high-performing products and the power of our brand, which is built on that performance.

In the second quarter, our sales in the wealth channel increased 30% year-over-year to $10 billion. BCRED led the way, raising $3.7 billion underpinned by performance, 10% net returns annually since inception. BXPE raised $1.7 billion in the second quarter, bringing its NAV to $12.5 billion in only 6 quarters with an annualized platform net return of 17% towards larger share class. BREIT had its best quarter of regular rate fundraising in 2.5 years in the second quarter and $1.1 billion while repurchases continued on their downward trajectory. BREIT's highly differentiated portfolio positioning has led to 9% net returns annually since inception 8.5 years ago, approximately double the public REIT index on a cumulative basis, including over 3% year-to-date for its largest share class. This has resulted in BREIT's second consecutive quarter of generating fee-related performance revenues for the firm.

Finally, BXINFRA saw healthy sales of roughly $600 million in the quarter despite still only being on a small number of distributors. We launched BMAX, our multi-asset credit product in May, which provides individual investors, greatly expanded access to the private credit universe, and we'll be ramping up distribution over the coming quarters along with other products in development and our previously announced alliance with Wellington and Vanguard, we are quite excited about our continued prospects in the private wealth channel.

Moving to our institutional business, where we are seeing strong momentum across key open-ended and drawdown strategies. In this channel, again, the advantages of our brand, scale, breadth of products and of course, our long-term investment performance position us extremely well in an environment where limited partners are consolidating their manager relationships, favoring the largest and strongest firms.

In infrastructure, our dedicated platform continues on its powerful growth trajectory. AUM rose 32% year-over-year to $64 billion, supported by remarkable investment performance. 17% net returns annually to the commingled BIP strategy since inception. Our multi-asset investing business, BXMA, reported its fastest growth in nearly 7 years with AUM of 13% year-over-year to a record $90 billion, again led by performance. Q2 marked the 21st consecutive quarter of positive composite returns with BXMA's largest strategy.

In our drawdown fund area, we raised significant capital in the second quarter. We closed an additional $3.5 billion for our new private equity Asia flagship, bringing the total rates to date to $8 billion, already 25% larger than its predecessor, and we expect to exceed our original $10 billion target. In our $91 billion secondary business, which has doubled in the last 5 years, we raised additional capital for our fourth infrastructure vehicle, bringing it to over $5 billion, nearly 40% larger than the prior vintage, and we launched fundraising for our new PE secondaries flagship targeting at least the size of the prior $22 billion fund with the first close expected in the fourth quarter. Other strategies we are raising include life sciences, opportunistic credit, GP stakes and tactical opportunities. Overall, LPs continue to recognize the substantial benefits of investing in private assets despite the cyclically slow realization backdrop.

Looking forward, importantly, we believe the deal-making pause is behind us. As Steve noted, the environment we are seeing is emerging from -- I'm sorry, as noted, the environment we see emerging of lower short-term interest rates less uncertainty and continued economic growth, combined with a pent-up desire to transact is the right recipe to reignite M&A and IPO activity. For Blackstone, we have the largest forward IPO pipeline since 2021. These trends should be very favorable for dispositions exiting this year and into next year.

In closing, we are highly optimistic about the road ahead, supported by multiple powerful engines of growth Blackstone's value proposition for both our limited partners and our shareholders is stronger than ever.

With that, I'll turn things over to Michael Chae.

Thanks, Jon, and good morning, everyone.

We've previously outlined the building blocks for the favorable step-up in the firm's earnings power that has been underway. These included the onset of management fees for multiple drawdown funds exiting fee holidays the seasoning of perpetual capital strategies and their expanding financial contribution, both in terms of NAV-based management fees and recurring fee-related performance rates, robust growth of our credit insurance business and our healthy margin position.

Firm's second quarter results perfectly illustrate these building blocks coming to fruition while at the same time, our significant embedded potential for net realizations continues to build. I'll first review financial results, followed by investment performance and the forward outlook.

Starting with results. Steve and Jon highlighted the continued scaling of the firm's platform in key growth channels and the powerful effect that is having on assets under management, inflows and FRE. Total AUM increased 13% year-over-year to $1.2 trillion, underpinned by inflows of $212 billion over the last 12 months, while fee-earning AUM rose 10% year-over-year to $887 million. Base management fees increased 14% and to a record $1.9 billion in Q2, representing the third consecutive quarter of double-digit growth. Transaction and advisory fees rose 25% year-to-year with a record contribution from our total markets business related to the firm's significant investment activity in the quarter, including in private credit infrastructure. Fee-related performance revenues reached $472 million in Q2, up over 2.5 folds from last year's second quarter, generated by 8 different perpetual strategies, including BCRED and BXSL in credit, BXPE and private equity BIP in infrastructure, creating real estate, along smaller contributions or other strategies. These drives taken together lifted full fee revenues to $2.5 billion in the second quarter, a remarkable 27% year-over-year and up 14% sequentially from Q1.

Coupled with the firm's strong margin, fee-related earnings rose 31% year-over-year to $1.5 billion in the second quarter or $1.19 per share. Distributable earnings increased 25% year-over-year to $1.6 billion in the second quarter for $1.21 per share. For the LTM period, DE rose 26% to $6.4 billion or $5 per share despite net realizations remaining at unit levels, leading to 26% growth in the dividend to $4.26 per share. This equates to an attractive 2.4% yield on the current share price, double the yield of the S&P 500, and the forward outlook is favorable, as I'll discuss further.

Moving to investment performance. Our funds generated strong overall appreciation in the second quarter, the highest amount nearly 4 years, as Steve noted, despite the volatile environment. The corporate private equity funds appreciated 5.1% in the quarter and 17% for the last 12 months. This was broad-based. Despite the macro uncertainties at the outset of the quarter, our operating company has generated high single-digit year-over-year revenue growth, along with resilient margins. In addition to core private equity, our other PE strategies delivered strong returns in the quarter. The tactical opportunities funds appreciated 4.1% and 14% of the LTM [indiscernible]. The SP Secondary funds appreciated 6.6% in the second quarter in the context of well-positioned portfolio benefited sizable recent investments executed at favorable prices.

The SP funds appreciated 11% for the LTM period. Our dedicated infrastructure platform appreciated 2.9% in the second quarter and 19% for the last 12 months. Notwithstanding a decline in the public portfolio in Q2 on market turns with depreciation underpinned by continued significant momentum of data centers, along with other digital infrastructure power and transportation-related holdings.

In real estate, values were largely stable overall in the second quarter with appreciation in the opportunistic funds in BREIT led by strength in data centers. Within the core platform, the BTP funds declined modestly, driven by our life sciences office portfolio, which has been impacted by new supply coming online and increased tenant caution. Overall, our real estate platform remains well positioned with data centers, logistics and rental housing comprising approximately 75% of the global equity portfolio, nearly 90% of [indiscernible].

In credit, our non-investment grade private credit strategy for part-day gross return of 3.0% in the second quarter and over 13% for the LTM period. Default rate across our 2,000-plus non-investment-grade credits remains in the area of 50 basis points for the last 12 months with no new defaults in private credit in the second quarter. The XMA reported a 2.8% gross return for the indi return composite in Q2 and 12% in the last 12 months. Notably, BXMA has delivered positive positive returns in each of the past 27 months, a remarkable achievement in liquid markets in any case and particularly so given the historic volatility as characterized in this period.

One final note on returns. Our dedicated life sciences business reported outstanding performance again in the second quarter, appreciating 6.7% and 27% over the LTM period. The quarter benefited from positive developments for a number of investments in the portfolio. Our life sciences platform provides investors with exposure to innovation and an exciting growth area in a way that we believe is largely uncorrelated to broader public markets. Our prior $5 billion flagship has achieved annualized returns of 20% since inception net of fees. Overall, the strength in the firm's investment performance continues to power our growth.

Turning to the outlook, as you've heard this morning, there is a very positive multiyear picture for the firm. First, in terms of FRE, set up to the high quality earnings stream is favorable with a few drivers of note that will affect the second half of this year. We expect base management fees to continue on a strong positive trajectory with the rate of year-over-year growth in the second half, resembling that of the first half. On transaction fees, following a very strong first half, we would anticipate a lower baseline in the second half with potential upside from rising transaction and market action.

Looking forward to 2026 and beyond, for us structural momentum in FRE driven by the firm's multiple pensions and growth. In terms of net realizations. In the second half of this year, we expect to close the sale of the firm's 6% stake in resolution life in connection with the sale of the company to keep on life. With respect to fund dispositions, we believe we're entering a more constructive environment as Steve and Jon discussed, and that we're well positioned to see an acceleration of net realizations exiting this year and moving into 2026.

Performance-revenue-eligible AUM in the ground was a record $604 billion at quarter end, up 14% year-over-year. Meanwhile, net accrued performance revenue on the balance sheet earned store value grew sequentially to $6.6 billion or $5.30 per share. These are positive indicators of future realization potential.

In closing, the firm continues on its path of extraordinary long-term growth, powered by our brand investment performance and culture of innovation against the backdrop of significant secular tailwinds. As always, we remain totally focused on delivering for our investors.

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

[Operator Instructions] We'll go first to Alex Blostein with Goldman Sachs.

I wanted to start with a question around credit. Obviously, incredibly powerful driver for you guys and the industry broadly. It's been fueling growth for a couple of years now. At the same time, we're clearly seeing compression in credit spreads. And I'm curious how playing into your client conversations where the premium to liquid market is still there, but perhaps might start narrowing when there's more capital coming in there. So any conversations around demand for private credit, whether it's from retail channels or institutional channels and any implications on fee rates longer term as we think about this product continuing to grow?

Great question, Alex. I would say on the credit front, the demand remains extraordinarily robust. And we're seeing it broadly non-investment-grade investment-grade credit, which, as you know, is early days, we're seeing it in the United States, and we're seeing it around the world. And I would say clients are recognizing that base rates have come down, short rates are likely to come down more spreads have tightened gradually. But what I think the clients are enthused about as we are as well is that enduring premium between the liquid markets and private credit. And that's what they're focused on. And so long as that continues to exist, I think this makes this a very attractive space. In the second quarter for our insurance clients, we delivered that A-rated premium of 185 basis points, 190 over the last 18 months. So that's really what the clients are focused on. And to me, that's the key to this. That's why I think it will continue to grow. Also, I think there are some areas here where private credit has a unique capability. Some of these corporate solutions we've done with Rogers and EQT Corporation, which really work much better in a private format and then tied to this enormous investment spend around data centers and energy infrastructure, again, that's harder to bring to the public markets and it lends itself to private credit. So I would say today, we continue to see very strong demand, the business, you can see it in the numbers in terms of the rate of growth 20% insurance, 16% overall between credit and insurance, corporate and real estate debt. It feels to us like this will continue. And the key is, yes, absolute returns may come down a bit but the relative premium for private credit and what private credit can do and how it can solve solutions for borrowers that continues. So I'd say our optimism looking forward in the space and doing it the way we do it, which is purely as an investment manager with no capital risk and that open architecture, which allows us to serve a broader universe, we like all of that, and we have a lot of confidence looking forward.

We'll take our next question from Glenn Schorr with Evercore ISI.

That's a good lead into this question because I feel like everything is going pretty darn good at Blackstone with the exception of the real estate in general in this environment. So the question is, maybe you could give us the mark-to-market of the expected recovery in terms of what's going to drive it, meaning pricing financing deal flow, client flows to the asset class are we all in on waiting on lower rates? What is the incremental over the next, say, year or 2 that's going to drive demand for your real estate products.

Thanks, Glenn. I would say the good news now is it's all about a question of when, not if, because the building blocks for this recovery are clearly coming into place. The first and most important 1 is new supply coming down. And that takes time to work through the system because you start a project 2, 3 years ago and then it comes online, it's excess capacity. Now because of the 2/3 decline in building in the U.S. from the peak, in terms of logistics and apartment construction, you're going to begin as we get towards the end of this year and into next year to have a much more favorable supply-demand dynamics. The other area is cost of capital some of its base rates, which you highlighted. And obviously, the Fed cutting rates will be helpful. But some of it's spread and those have come back now back to preliberation day levels, they're down significantly from the wides in 2023. And you're beginning to see those early green shoots in terms of a faster recovery, transaction activity for smaller assets has definitely gotten better. You see that for both apartments and logistics in the U.S. There's a little more liquidity in Europe now as well. And that to me is an important sign. And then on the customer side, which you referenced, there's definitely now more openness to allocating to the space. We're having more conversations there. We raised some capital for a dedicated core plus real estate industrial strategy of a couple of billion dollars we had. As we've seen, we announced the best quarter of fundraising regular way and BREIT that we've had in 2.5, 3 years. So it's the early signs of this recovery if rates come down faster, obviously, their recoveries quicker. If they don't, the new supply will continue to be muted, and then the recovery will take a little more time, but ultimately, we know the path to travel. It's not as if we're going to disintermediate apartments or last mile warehouses. So I'd say our confidence on the ultimate outcome high, and we're getting closer and closer to that tipping point where real estate will start to move. We haven't quite gotten to that escape velocity yet, but it's feeling better and better given some of these key things, the cost of capital and the decline in new supply are very supportive as you start to look forward.

We'll go next to Craig Siegenthaler with Bank of America.

We had a question on strategic partners. So in your secondary fund returns accelerate in 2Q, and there is a 1- or 2-quarter delay there too, so maybe they should get even better with endowments and a few Asian institutions selling their pace stake and discounts wider. So I want to see if you could update us on the investment return and fundraising outlook for second [indiscernible].

Craig, it's Michael. On the return portion, as I mentioned in my remarks, it was a combination of factors that really drove pretty robust returns. It does reflect the gains from a very significant large new purchase 1 of our biggest secondary deals in history, and that has a beneficial effect. And then in terms of the underlying funds, we had good appreciation, which contributed to that return as well. And then there was a minor portion of actually currency benefits as well. So it's a combination of those factors, but I think what really kind of outsized returns to the quarter is the benefit of that very large exciting deal that we did close in the quarter.

And I would say in the broader segment, it's really in a sweet spot today. Obviously, there are investors who want liquidity, deal volume, investment volume, I think, for us, is up something like is it 40%, I want to say, roughly in the first half of the year over last year. And the pipeline looks pretty good on the deployment front. The returns have been very strong over time in this area and that's making it attractive to investors. We announced the progress we've made on the secondaries infrastructure fund. We've just started on the flagship secondaries private equity fund. We expect we'll get a really good response given the performance over time. So this is an area of the firm. It's doubled over the last, I guess, 5 years. I expect that it will continue to grow quite a bit. And it's another reason why Blackstone has this exceptional platform. Other firms have strength in 1 area or another. There are just so many areas. And so when we travel around, I personally travel around a ton talked with CIOs around the world, the ability to talk about a range of solutions, a range of investing areas they may be today more cautious on real estate or regular way buyouts, but they're excited about Asia private equity. They love what we're doing in secondaries. That's really the power of Blackstone. It's true in the institutional channel. It's true in the retail channel and secondaries is a powerful example.

We'll take our next question from Michael Cyprus with Morgan Stanley.

I just wanted to ask about 401(k) and the retirement opportunity set. I was hoping you could maybe elaborate a bit on how you see the path unfolding for all accessing the 401(k) retirement channel? It seems that target date is perhaps maybe the most likely vehicle. Just curious to get your views on that. How meaningful of an allocation could this be within the target date vehicle, not just for [indiscernible], but also considering fixed income replacement and other types of strategies that you have or may have in the future? And just more broadly, how you see this playing out and talk about some of the steps that you guys are taking?

Well, it starts with, we'll wait and see if there is an executive order and then ultimately, world making. So I think we all need to be patient here. But as we've talked about in the past, we think this is compelling for individual investors today in the defined contribution world, the access to alternatives, both the returns and diversification benefits. So we would expect this is going to happen at some point over time. But again, we have to wait and see. In terms of where it will happen, the size. I think we've got to wait. I do think it's logical that it happens more in the target date funds it's obviously more appropriate for somebody earlier in their sort of lifespan as opposed to somebody just on the cusp of retirement. And so I think the target date funds is where we'll see this initially take hold. Obviously, it's a very large market. And for us specifically, the fact that we have created scale perpetual products that have track records that can absorb large amounts of capital, that is a real competitive advantage. I do not believe drawdown funds will be the structure given the complexity of those for defined contributions. And so I think it's going to be about large-scale perpetuals. It's going to be about firms with brand names and the right legal approaches and track record that capital can get allocated to. So obviously, the dollars in the space are large, our positioning in the space, I think, will be fairly unique and the range of offerings we have across asset classes, again, pretty unique to be a partner with distributors in this space. But we've got to wait and see. Is there an executive order, how it rolls out. It will take time, but I do think there is a potentially significant opportunity here.

We'll take our next question from Bill Katz with TD Cowen.

So just coming back to some of your forward-looking guidance, can you unpack a little bit how you sort of see the interplay for the FRE margin, very strong quarter this quarter. And then relatedly, as we think through the realization up cycle, how do we think about the payout rate on that? That's been pretty steady in the mid-40s. Should we assume that, that's still the same kind of payout going forward? Just trying to think through the overall earnings gearing here.

Bill, it's Michael, thank you for the question. Look, on the margin outlook and dynamics, we're obviously pleased with the performance year-to-date. It's the result of healthy double-digit management fee growth and strong underlying margin position. We also benefited from higher fee-related performance revenues and transaction fees, which carry attractive incremental margins. I think in the second half, a few variables to consider there's there is a level of sensitivity to fee-related performance revenues as we've commented in the past. There is, as we also said, seasonally higher OpEx in the second half of the year. But I think in that area, we previously pointed to low double-digit growth in 2025 overall, and we'd reiterate that view. But look, overall, for the fiscal year, we're tracking favorably against the initial deal we gave in January of sort of stability as a guidepost. But as I mentioned, there's always a few variables that can ultimately impact us. But long term, we feel obviously very good about our positioning and the ability to generate operating leverage. On realizations and the sort of performance fee margins and comp ratios, yes, I think broadly speaking, you should expect stability that varies with the mix of funds and strategies that are the source of arms revenues in a given quarter. We have had the ability to manage the mix of compensation between fee compensation and performance revenues, and we'll still be able to do that, which I think will be beneficial to FRE margins directionally and might trade off performance revenue margins somewhat as a result. But I think that's more directional at the margin. But we feel very good about our sort of our levers to drive margins across the P&L.

Moving next to Dan Fannon with Jefferies.

Jon, I wanted to follow up on your comments around the deal making pauses behind us. Just want to get a little bit more color on your confidence around this. We've obviously been here before and waiting for activity to pick up, but you obviously sounded much more confident here this morning. So I just would love a little more color there.

Well, it's a fair question because I think we expressed some confidence similarly at the outset of the year, and then we had the tariff issues and that slowed things down. You can feel things sort of the tumblers falling into place. It's the combination of equity markets recovering to record levels. It's debt spreads now back to the preliberation day tight. It's general business confidence, particularly for businesses away from manufacturing and retailing who are in the teeth of some of the issues around goods and the cost of those goods. And so there's overall a more constructive environment. There's also a more favorable regulatory environment than there's been in a few years. Of course, for M&A. And when you just look at the levels of M&A and IPO volume over the last 3-plus years, it's running about 2/3 below historic levels as a percentage of market cap in the stock market. So there's just a lot of pent-up demand in the system. And then when we look at our proprietary data, we've got the busiest pipeline we've had since 2021 of potential IPOs. We talked about getting 1 done in Europe are a couple of weeks ago. And then deal screenings on the BX, the credit side, up 50% new deals sort of coming in the door that we're looking at versus the end of the year. So lots of things are coming together. Yes, you need a level of terraform, but if this holds, I do expect we'll see a step function increase in transaction activity. That, of course, on the realization side, as Michael noted, it takes a little bit of time. It's like moving the plane out to the runway before it ultimately takes off but those signs of getting companies public, public companies becoming more active, debt markets, there's been a ton of refinancing activity as cost of capital comes down in the last few weeks, all the things are coming into place, and that's what's giving us this confidence you hear.

We'll take our next question from Brian McKenna with Citizens.

So real estate performance eligible AUM totals around $200 million today. Net accrued performance fee stands at less than $1 billion today. So I'm curious how much of the $200 billion is currently generating performance revenue? And then is there a way to think about how much of this AUM, call it, is 10% away from the hurdle I'm just trying to get a sense of the trajectory of accrued performance fees in real estate from here as performance and underlying trends begin to normalize.

Thanks for the question. Yes, as you mentioned, the balance of performance are an eligible dollars in real estate is about, it's over $200 billion. I would just frame it that about 60% of that is above their respective hurdles. In terms of the components, and BRED opportunistic, importantly, as it relates to [indiscernible] as you know, the vast majority, 80% plus of the AUM is above hurdle. And as I said, that really represents the bulk of our crude carrying real estate, 100% of BREIT is also above that hurdle. So that's sort of the structure of it. And so I think we're -- as Jon just referenced with time, we expect the realization cycle to accelerate probably more in private equity before real estate than ultimately in real estate. And in those BRED funds as it relates to net realizations, that's the positioning relative to hurdles, which is [indiscernible].

We'll take our next question from Steven Chubak with Wolfe Research.

Regarding the BMAX launch, I was hoping you could speak to your confidence level as to whether this could scale at a similar pace, to some of your other retail vehicles, just trying to gauge the early reception. Any additional color you can offer on some of the retail products in the pipeline that were referenced in some of the earlier prepared remarks.

Sure. I think on BMAX, it will take some time. We've launched this in a little bit of a different way in the RIA channel to start. We've gotten a good reception, but this, I think, will because we have a number of interesting things in the marketplace today, I think this is obviously a little different as an interval fund. And what we're finding with new platforms in the marketplace. People want to see the track record start to grow and build because this is easier to access on the interval fund basis, I think the ultimate potential is quite significant, but I would expect to ramp up to take a bit of time. If you look at our track record, of course, in the flagship products, we've had great success, obviously, BREIT and BCRED, BXPE in just 18 months is remarkable, where it's going to be essentially the market leader in the space in a short period of time. Our infra platform we talked about is on a small number of distributors. We have a European credit platform that's picking up some momentum. So the conversations with our wealth partners is incredibly positive and sort of the Blackstone positioning in that space because of the track record we have, the breadth of products, the fact we've been at it so long is really special. I think you'll continue to see us introduce new products, and I think we'll continue to get a good reception and it will be increasingly on a global basis. Each product will have its own sort of pace to how it picks up and part of it is where we decide to launch these based on a whole variety of considerations. But the overall path is pretty darn good.

We'll take our next question from Benjamin Budish with Barclays.

I wanted to ask something kind of specific on your fee-related performance revenues. It looked like the performance in the quarter or at least the outperformance versus a lot of expectations was driven by private equity, which I would assume is more BIP than people were expecting. I know that's 1 that can be a bit lumpy based on the timing of fundraising and deployment with the big sort of 3-year crystallizations. But any color you could share in terms of what FRPR can or might look like over the -- at least the next couple of quarters would be helpful just for modeling purposes?

Yes. I think just as it relates to BIP, which was 1 of your question, and I think at the end of last year in the last couple of quarters, gave a sense of the shape of the year after that very large crystallization in the fourth quarter. Generally, as you know, infrastructure is subject to will be subject to more frequent crystallizations related to the layering in of new investors and the open end of fundraising over time. In the second quarter, we did have nearly $100 million of revenue, just to actually give you some specifics around that in the quarter. We'd expect about half that in the next quarter from a scheduled crystallization from the institutional fund and then nothing in the fourth quarter from the institutional funds. We do expect a modest amount for [ BXN ] for of the private wealth infrastructure products from its first crystallization in the fourth quarter, which will then be quarterly thereafter, which was the BXPE structure when it started as well. So there are some fairly granular sense of infrastructure and people [indiscernible] for the balance of the year.

I would just say generally, the layering of these various products will be powerful to earnings power over time.

We'll take our next question from Ken Worthington with JPMorgan.

With regard to Legal in General, you mentioned $20 billion over the next 5 years. Is this based on new products expected to be developed and distributed, or is there an IMA or more immediate asset management element of the partnership as well? And then last quarter, you mentioned Wellington and Vanguard. Can you give us an update on product development, how that's progressing and when we might see those products start to hit the market?

Sure. With [ L in G, ] it's a partnership focused around credit and insurance. I'd say a couple of things. $20 billion is ultimately our aspiration here with them. I'd say it's a combination of things. The main element of it will be managing investment grade private credit for their pension risk transfer and annuities business, something obviously we do for large clients here and SMA clients. So that's a relationship to make them even more competitive in that marketplace in the U.K. And then we also said we're going to try to do some things together in wealth, creating some products together for the U.K. market and then potentially in retirement there and defined contributions again with our credit product. So it's a broad range. They are the leading insurer and asset manager in that market. We were very excited to be able to partner with the company of that quality and scale, and there's a real entrepreneurial energy now with the CEO, Antonio there, and we're excited about what we can do with them together. On Vanguard Wellington, there's a limit to what I can say, I think legally, at this point, we can say that Wellington has filed for our first product together. Obviously, that process of SEC approval will take some time. But we're excited, as we talked about on the previous call, just the idea of bringing our best-in-class private capabilities with Vanguard and Wellington best-in-class and active and passive debt and equity. And we think for a portion of the wealth market, this could be particularly attractive, just sort of one-stop shopping. But I can't really speak to specifics other than this 1 filing that's been made.

We'll take our next question from Patrick Davitt with Autonomous Research.

You mentioned the Life Sciences performance and the divergence between PE and real estate and have obviously built a great business there. But there seems to be a fairly significant cut to government research and science funding coming through the pipe. Do you have any early thoughts on how much exposure your portfolios could have to that? And does that cut and funding change your view on the life sciences investment opportunity from here?

So it has certainly added to the uncertainty in this space. Michael talked a little bit about on the tenant demand side in our life science office area. I think the key thing, though, is there is just enormous innovation happening in life sciences that the AI is likely to accelerate that, that there are huge capital needs, both from the pharmaceutical companies who want to find partners to accelerate their Phase III process for products as well as for smaller life science companies who don't want to issue equity. And it is definitely a marketplace where we think we have a pretty unique offering and capability. It is possible that we could see some changes in terms of reimbursements and MFNs outside the United States. But overall, the market is quite substantial. The need for these products is substantial. And the number of groups with expertise at scale to do these partnerships is limited. So we still see a very big investment opportunity here.

The final thing I'd add on life science office is, as Jon mentioned, the supply coming down in real estate and applied -- partially applies to this sector as well. Starts are down something like 80% plus since sort of their peak a few years ago. So that is ultimately going to be a real benefit for the sector [indiscernible].

We'll take our final question from Arnaud Giblat with BNP Paribas.

One quick question on BXPE, please. So there's clearly been a lot of appetite for this product. I'm just wondering how you're thinking about sizing of this product in relation to capacity to deploy in retail, in particular, as you might be thinking about vintage diversification, how should we be thinking about the potential divergence in construction between this wealth products and your flagship.

Well, I would say at Blackstone, our greatest strength has always been a capacity to deploy and do it in a way that delivers strong returns. We designed BXPE with the idea that this is a product that takes in capital on a regular basis as we experienced with BREIT and BCRED and therefore, we wanted the widest aperture possible. So the product can invest in the U.S., Europe and Asia. You can do it in control private equity minority, hybrid equity, secondaries, life sciences, growth opportunistic credit, we actually sacrificed a bit in terms of the market potential by making it only eligible to qualified purchasers so that we had the flexibility to deploy capital across these variety of areas. To date, the performance has been exceptional. And I just think at Blackstone, we're able to find lots of opportunities to serve our institutional clients, which you were asking about, which obviously is critically important, both in terms of the main funds and also their co-investment desires but also create a whole new range of additional investment opportunities across the firm. So I feel very good about our ability to deploy capital. We've certainly been able to show a cross credit. We did it in real estate. We have the capabilities to scale up. And this is obviously beneficial in the wealth channel as it grows. It's 1 of the things that really differentiates Blackstone as a firm.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks.

Great. Well, thank you, everyone, for joining us today and look forward to following up after the call.

That will conclude today's call. We appreciate your participation.