Blackstone Group L.P. Stock

Good day, and welcome to the Blackstone Third Quarter 2026 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. Thanks, Katie, and good morning, and welcome to Blackstone's third quarter conference call.

Joining me today are Steve Schwarzman, Chairman and Chief Executive Officer; 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 in a few weeks.

We'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 $1.3 billion. Distributable earnings were $1.7 billion or $1.32 per common share, and we declared a dividend of $1.12 per share, which will be paid to holders of record as of November 2.

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

Good morning, and thank you for joining our call. Third quarter of 2026 represented a highly complex environment, characterized by an historic increase in bond yields globally, including U.S. Treasury yields hitting the highest level in decades, alongside continued geopolitical turbulence, wars in the Middle East and Ukraine, inflation concerns, high oil prices, sovereign debt worries, uncertainty over the U.S. midterm elections and other challenges. These challenges have continued post quarter end. On the one hand, the artificial intelligence revolution is powering robust growth in many areas, while on the other hand, a higher cost of capital has negatively impacted investor sentiment and transaction activity and triggered significant volatility in the markets.

The S&P 500 Index rose slightly in the third quarter with gains concentrated in the largest tech companies and the energy sector, although most individual stocks declined, and the median stock is now 15% below its recent high. Against this challenging backdrop, Blackstone reported strong distributable earnings of $1.7 billion in the quarter, underpinned by continued year-over-year growth in fee-related earnings, notwithstanding fewer realizations as we indicated would be the case on our last call. Inflows reached $63 billion in the quarter, reflecting sustained momentum across our major fundraising channels and exceeded $270 billion for the last 12 months, the highest level in 4 years.

Most importantly, in terms of investment performance, our flagship strategies outperformed the relevant market indices in the third quarter, led by infrastructure and our energy holdings. Overall, the unparalleled breadth of our firm and the leading platforms we've established across asset classes have allowed us to navigate changing market conditions, deploy capital on the most compelling areas and continue to build value for our limited partners. For shareholders, the firm's underlying earnings power continues to expand substantially, and we are moving towards what we expect will be an outstanding 2027.

Stepping back, the economy is strong today. The key catalyst, as I mentioned, is the historic level of investment taking place to facilitate the development of AI, including data centers, chips, equipment, power generation, construction and engineering services and many other related areas. This engine is supporting exceptional corporate earnings momentum as well as momentum in our own portfolio. We also believe we're in the earliest stages of an AI-driven uplift in productivity. And consequently, an additional multiyear tailwind for corporate earnings and value creation.

Rising productivity over time is also a potential mitigant for inflation. Over the past few weeks, however, we've seen an increased focus in the market on the sustainability and risk of AI-related investment, the significant financing needs of companies involved in the AI build-out in the context of higher interest rates and the levels of valuations.

As we've stated before, we believe the transformative power of AI has precedent in the Industrial Revolution and the commercialization of electricity, and we are in the earliest stages of its development. Demand for compute is accelerating, and we see no signs of that slowing down as AI use cases ramp for both businesses and consumers and the world increasingly engages with the vast potential of this technology. At the same time, there's a critical scarcity of supply that is only intensified. Seldom in my career have I seen such a supply-constrained market of this scale. Current public attitudes towards data centers will likely only amplify this scarcity.

Over time, as the public comes to understand the advancements that have occurred in data center operations and construction, including with respect to water usage and the need for electricity. These attitudes should change. We also anticipate new laws and regulations codifying these advancements will be implemented. Of course, there are risk factors to consider. There will be situations where investors don't have sufficient capital and projects can't procure power equipment with the necessary approvals. At Blackstone, we approach investments in this area with the same rigor and focus on risk-adjusted returns that have defined our investment process for 4 decades.

In AI infrastructure, for example, our data center portfolio is built on durable long-term contracts with highly creditworthy counterparties. Overall, we keep coming back to the fundamental supply-demand imbalance, which supports our conviction that this is the right place to invest significant capital. As the AI revolution progresses, the rising demand for capital is creating generational opportunities for those with the platform, relationships capabilities and discipline to meet this demand. Blackstone has become one of the most important capital providers in the AI ecosystem. We started with our data center development business, focused on serving the major hyperscalers, which provided the foundation for deep partnership with many of today's AI leaders. And we've been teaming up with them in multiple ways.

We've previously announced the launch of Krux, our partnership with Google to help address the shortage of compute. We've also created Ode with Anthropic to drive enterprise adoption of AI. And in August, NVIDIA named Blackstone as one of the small group of managers that work with to deploy $500 billion of large-scale GPU financing. At the same time, the energy area, electrification, reindustrialization and of course, AI are leading to accelerating demand for power following decades of static demand. With one of the largest private energy investing platforms across debt and equity, Blackstone is at the center of this megatrend as well. We were actively investing across generation, transmission, storage equipment and services and more.

In the third quarter, we invested in a leading developer of renewable projects in Europe and committed to acquire a supplier of components for data center cooling systems. In August, our portfolio company, Lancium which is providing energy infrastructure to open AI's flagship data center in Texas announced a strategic investment from NVIDIA to help fund its development of low-cost scale power. And in credit, our energy business, backed approximately 15% of solar and storage projects in the entire United States last year. And together with our equity business has supported nearly 50% and of LNG export capacity. Of course, it's much more than AI and energy driving our firm forward.

Blackstone has established leading platforms to address other paradigm shifts, we see shaping the economy and markets. Private credit is becoming a crucial source of financing for the real economy, and we manage the world's largest third-party focused private credit business. Advancements in drug development are accelerating. We've built the largest sponsor-backed life sciences platform. India continues its ascent, as the fastest-growing major economy, and we are one of the country's largest private investors. Private markets themselves remain on a strong growth trajectory, leading to significant opportunities in secondaries where we oversee one of the largest businesses, and defense is an area, it's in critical need of global capital, and we've been highly active here as well addressing this need in numerous ways.

The firm's positioning across these and other areas, powers our deployment, fuels, fundraising and ultimately translates to greater earnings for shareholders. the virtuous circle underpinning our business. And as always, the Blackstone innovation engine continues to fire, and we are investing today in the leading platforms of tomorrow.

Despite the firm's extraordinary record of growth over 4 decades and our unique positioning in the alternative sector Blackstone's stock, along with the other alternative managers has been under pressure. This is due to some of the factors I discussed earlier, along with AI disruption, and private credit concerns. Over the past 2 years, while our shares are down meaningfully, our earnings have grown nearly 50% with commensurate growth in our dividend. In my experience, disconnects of this type don't typically last. We've seen similar drawdowns for Blackstone's stock before, and each time, our shares ultimately recovered and dramatically outperformed any index comparison on the way back up following the fundamental trajectory of our business.

I have learned the most important thing during these periods to keep our focus on delivering great results for limited partners, pioneering new markets for investment and expanding our fundraising channels, all of which are occurring now. Our firm has enormous earnings power, and we expect outstanding results in the years ahead. I believe the future for Blackstone will be remarkable.

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

Thank you, Steve, and good morning, everyone. In a world where demand for capital is rising, private markets are more critical than ever, helping to bridge the funding gap and supports continued technological innovation. Steve discussed our unique positioning across the world's most important investment teams, which is driving our results. At the same time, the markets from which we raise capital are expanding significantly, including in the vast wealth and insurance channels. Meanwhile, in our institutional business, investor confidence in Blackstone remains extremely high, which is translating to greater capital commitments in many areas.

I will focus my remarks on these growing sources of inflows for the firm. Starting with private wealth, where we delivered another outstanding quarter, our total AUM in the channel grew 15% year-over-year to a record $330 billion, with nearly $9 billion of sales in the quarter. Fundraising for our perpetual strategies was up materially from Q2 despite the slowdown in credit, and we launched a number of new products. Our private equity flagship in the wealth channel, BXPE, reported record sales in the third quarter of $2.9 billion, bringing its NAV to $29 billion in less than 3 years, the largest platform of its kind in the world. Of course, it's all about investment performance and BXPE has delivered, achieving an 18% net annualized return since inception.

BREIT grew 9% year-over-year to $58 billion and saw its best regular way net flows in 4 years in the third quarter. BREIT has generated 21 consecutive months of positive returns and approximately 11% net over the last 12 months for its largest share class. And BXINFRA reported its highest quarterly sales since launch nearly 2 years ago at $1.1 billion, bringing NAV to over $7 billion. underpinned by a 17% annualized net return for its largest share class. The exceptional portfolio positioning of these strategies continues to power our returns. For BCRED, gross sales were nearly $750 million in the third quarter. Repurchase requests were 10% of NAV, above the 5% quarterly limit, largely driven by carryover requests from Q2. We fulfilled approximately 50% of total requests resulting in net outflows of $1.4 billion in the third quarter.

Investors who requested a redemption in each of these 2 quarters of proration received 75% of their capital back in about 90 days, another illustration of the semiliquid structure working as designed. Meanwhile, our innovation in the wealth channel is accelerating. Our new perpetual hedge fund product, BXHF had a strong start out of the gate, raising approximately $400 million, including October 1 subscriptions. This strategy adds another core building block to our suite of solutions. We also launched a new vehicle outside of the U.S. and invest across our wealth strategies, Blackstone Private Markets Funds, or BXPM, which we refer to as Blackstone in a box.

And the first 2 funds in our alliance with Wellington and Vanguard went live in the third quarter, including WVB Blackstone, all private fund, which gives investors in the U.S. access to Blackstone's platform in a single allocation. The opportunity in private wealth continues to expand for the firm.

Moving to the insurance channel, where our AUM grew 14% year-over-year to more than $300 billion. Insurance companies continue to turn to private markets for excess spread, and they're turning the Blackstone for our open architecture multi-client model and access to differentiated deal flow. We've established the largest noncaptive insurance platform in our industry, including 40 clients in our dedicated insurance solutions area, representing leading global firms, of which over half expanded their relationship with us in the past 12 months.

Our investment-grade private credit platform, specifically grew 24% year-over-year to nearly $150 billion. This platform is comprised primarily of insurance capital today, but our engagement with pension, sovereign wealth funds and other LPs is growing. Stepping back, there are 2 key developments underpinning the massive secular shift underway toward investment-grade private credit. First, the build-out of digital, energy and transportation infrastructure is creating compelling deployment opportunities of very significant scale.

Second, large IG-rated corporates are increasingly looking to private markets for bespoke nondilutive capital solutions backed by specific assets to support their balance sheet objectives and fund growth. Blackstone is well positioned to be the partner of choice, given the breadth of our platform capabilities and reputation. Our recent activity includes large-scale financings in numerous sectors around the world, including communications infrastructure and an airline loyalty program in Canada, residential real estate in Australia and digital and energy infrastructure globally. For our clients, we are originating high-quality, long-duration investments with favorable counterparty risk all while generating a premium yield over comparably rated liquid credit.

At the same time, our noninvestment-grade credit platform continues to perform quite well. Our flagship funds reported healthy returns in the third quarter, which Michael will discuss. In direct lending, AUM grew 10% year-over-year to nearly $170 billion despite muted flows for BCRED. Inflows from our institutional LPs remain robust, and they're looking to deploying a lending backdrop that has become more attractive. Overall, our institutional business continues to show solid momentum with AUM up 7% year-over-year. In infrastructure, our dedicated platform grew a remarkable 40% year-over-year to $97 billion. We are approaching the $100 billion milestone only 8 years after launch achieved entirely organically, underpinned by 19% net annual return since inception in the commingled BIP strategy.

Our multi-asset investing business, BXMA, has reemerged as a growth engine for the firm. AUM increased 22% year-over-year to $114 billion, with record organic net inflows in Q3. BXMA delivered its 26th consecutive quarter of positive returns for its largest strategy. In our drawdown fund area, it was another active quarter of fundraising. We held additional closings for our new private equity flagship secondaries vehicle, with over $16 billion raised to date toward a target of at least $22 billion, along with our real estate secondaries vehicle.

We also raised additional capital for our fifth private equity energy transition fund, BETP 5, which hit its $8.7 billion hard cap post quarter end, more than 50% larger than the prior fund. This represents the fourth major drawdown fund at Blackstone to hit its hard cap this year, all of which were meaningfully larger than predecessors and had excess demand, and we expect a fifth, our asset-based finance drawdown vehicle in credit to hit its $4.2 billion hard cap soon. Institutional investor interest clearly remains strong for high-performing Blackstone strategies.

Looking forward, we launched fundraising for our new credit energy transition and infrastructure vehicle targeting a larger size than the prior $7.1 billion vintage, and we'll soon begin raising our third longer-dated for private equity vintage.

I'll finish my remarks today with a comment on real estate, where we've been navigating a volatile interest rate environment. In the third quarter, we increased valuation cap rates across our holdings in response to the increase in base rates, which led to depreciation in our opportunistic real estate funds. Importantly, while higher rates are a headwind to the sector's recovery, strengthening fundamentals are a tailwind. In 2022, in contrast, when the Fed began its rate hiking cycle, cash flow growth was decelerating across many areas of commercial real estate due to meaningful new supply coming online.

Today, there are 3 positive dynamics that didn't exist in 2022. First, demand is accelerating in key sectors, including data centers, where we expect a threefold increase in leasing this year across our global platform, and logistics where our U.S. holdings saw record leasing activity in Q3. These 2 sectors represent 54% of our global real estate portfolio. Second, new supply has fallen to a decade plus low across many types of real estate, while the cost to build continues to increase, development further accelerated by higher rates and crowding out from the AI infrastructure build. And third, real estate debt markets have remained resilient unlike in '22 with the availability of debt up sharply this year.

This doesn't mean there won't be legacy equity and debt investments in real estate that will face renewed pressure from higher rates, particularly in lower growth sectors. But in this cycle, as with past cycles, we believe we are in a differentiated position overall, given where we've concentrated our capital and the quality of our portfolio.

In closing the firm's commitment to our clients is as strong as ever, and we are laser-focused on delivering for them. For shareholders, Blackstone remains brand-heavy asset-light manager with minimal net debt and a compelling recurring revenue model, and we firmly believe with lots of growth ahead.

With that, I will turn things over to Mr. Chae.

Thanks, Jon, and good morning, everyone. Firm delivered resilient financial results and overall fund performance in the third quarter. And for the first 9 months of the year, generated double-digit year-over-year growth across fee revenues, fee-related earnings realized performance revenues and distributable earnings, all against a backdrop of significant external volatility.

Starting with results. The firm's expansive breadth lifted AUM to new record levels. Total AUM rose 10% year-over-year to approximately $1.4 trillion with double-digit growth across 3 of our 4 segments, including robust momentum in private equity BXMA and healthy growth in credit, notwithstanding declines in real estate as we've discussed. Total fee revenues for the firm rose 8% year-over-year to $2.7 billion. Base management fees reached a record $2 billion in the quarter, trending on the path we previously outlined, underpinned by year-over-year growth of 13% in private equity and 22% in BXMA. Transaction and advisory fees increased 34% year-over-year to $210 million in Q3, reflective of the continued expansion of the firm's platform.

Fee-related performance revenues grew 19% year-over-year to $540 million, with contribution from 10 perpetual strategies, including BREIT and real estate, BCRED and Credit, BIP and BXINFRA, infrastructure and BXPE and private equity. Fee-related earnings were $1.6 billion in the quarter, up 6% year-over-year, equating to $1.26 per share. Distributable earnings were $1.7 billion or $1.32 per share, underpinned by the strong FRE generation. With respect to net realizations, we said on our last call that we expected a sequential decline in Q3 and net realizations were down 20% quarter-over-quarter. Even so, we were able to execute a number of dispositions with the largest source with multiple exits in our Asia portfolio, specifically in Japan and India.

Stepping back, the firm has delivered strong financial performance in 2026 despite the year's considerable geopolitical disruptions and market volatility. For the year-to-date period through Q3, total fee revenues and FRE both grew 17% year-over-year. Realized performance revenues were up 12% and DE increased 12% as well. all while seeing positive momentum across fundraising, investment activity and fund appreciation, the key leading indicators of future financial performance. And as we move towards year-end and into 2027, the setup is quite favorable.

First, with respect to Q4, we anticipate a significant step-up in net realizations in the fourth quarter, including the sales of multiple companies. In addition, BXMA crystallizes performance revenues in the fourth quarter of each year for most of its open-ended strategies with strong returns year-to-date as do a number of strategies across the credit complex.

As we look ahead to 2027, we expect to return to double-digit year-over-year growth in base management fees with key drivers, including the onset of fees from multiple new drawdown funds in private equity, continued expansion of our perpetual platform, growth in credit insurance and the very positive momentum in BXMA. At the same time, the firm's increasingly diversified and scaled base of fee-related performance revenues is a source of strength, including notably, our institutional infrastructure strategy, which will see its next large-scale crystallization of these revenues in 2027 in the context of its remarkable investment performance. And the surface area for generating transaction fees continues to expand, underappreciated [indiscernible] engine of fee revenue growth.

Meanwhile, the firm's embedded realization potential has continued to build. The net accrued performance revenue receivable on our balance sheet, the firm's store value now stands at $7.3 billion, up 12% year-over-year, equating to nearly $6 per share. Nearly 1/3 of the receivable in corporate private equity is public and liquid while the receivable in our private equity energy business has more than doubled year-over-year.

This brings me to investment performance. Amid rising interest rates and significant market volatility, nearly all of our flagship strategies generated positive appreciation in the third quarter and outperformed comparable indices. Our dedicated infrastructure platform appreciated 6.4% in Q3, underpinned by continued extraordinary leasing momentum in our global data center portfolio, as Jon highlighted. For the last 12 months, our infrastructure platform appreciated remarkable 29% compared to a 4% return for the Global Infrastructure Index over the same period.

The corporate private equity funds appreciated 2.8% in the third quarter and 15% for the last 12 months with our holdings in power and electrification representing the largest gains in the quarter. Overall, our private equity operating companies continue to report healthy underlying fundamentals, including low double-digit revenue growth and strength in margins. In credit, our non-investment grade private credit strategies reported a gross return of 2.6% in the quarter and 7% for the last 12 months, reflecting stable underlying credit performance across the vast majority of our holdings, alongside steady current income.

Meanwhile, BXMA reported a 0.5% gross return for the absolute return composite in Q3 compared to a decline in the HFRX hedge fund index and 13% for the LTM period, which was more than double the hedge fund index. BXMA seeks to outperform liquid markets over time with less volatility, and it has done just that, beating the traditional 60-40 portfolio by 170 basis points per year since the start of 2020.

Finally, in real estate, the core plus funds reported positive appreciation of 1.6% in the third quarter, while the BREP opportunistic funds declined 3.2%. Widening cap rates were partially offset by leasing momentum in data centers as well as interest rate hedges. Areas with lower growth were more impacted, including our multifamily housing portfolio. Despite the cost of capital headwinds, favorable portfolio positioning led to positive performance across all 3 of the most recent vintages of our BREP strategies in Q3, global Asia and Europe and double-digit appreciation in these funds over the last 12 months, including 17% LTM appreciation for our latest BREP Global Fund, 24% for Asia and 13% for Europe.

In closing, the firm continues to demonstrate resiliency and fundamental strength. In a very challenging environment, we've delivered double-digit growth across AUM, revenue and earnings, and we believe we are very well positioned for the road ahead.

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

[Operator Instructions] We will take our first question from Michael Cyprys with Morgan Stanley.

So the market seems to be reacting to perceived risks from AI-related investments in the context of a higher cost of capital backdrop. Just curious how sensitive in your view is this financing build-out to higher rates more broadly, where are you seeing risks here? And how are you protecting your capital from risk of lower-than-expected returns with the AI complex? I know you've talked about long-term contracts, high-quality counterparties. But what risk do those contracts not protect you against?

Well, Mike, obviously, it's an area the market is very focused on today. I would start with where we've really focused, which is on providing compute, which seems to be the area where there are the greater constraints. We continue to see very significant demand at our companies spending it on models is up 20-fold over the last year. We see all sort of productive uses continuing to expand across our portfolio, and we think demand will grow. And the challenge, of course, is chips and data centers and amassing capital at scale. And we think at Blackstone were very unique because we can provide integrated solutions. We can provide power solutions, we can provide financing solutions. We can obviously provide data center solutions. And the vast majority of what we're doing is long-term contracted.

And in the case of the data centers, as you pointed out, these are assets with 15- to 20-year contracts with companies who have $2.5 trillion market caps on average. So I would say for our data center business, in particular, the fact that we wait until we have these long-term contracts before we put the vast majority of capital on the ground, that seems to be a very disciplined approach to deploying capital. And if anything, all the pushback and the squeeze on capital availability and a bit of the shakeout that we're seeing puts us in, I think, a pretty unique space. The fact that we have expertise and that we can amass capital, we can do very interesting things. It's happening in credit. It's obviously happening in real estate and infrastructure here for us.

So we're aware of the risk whenever you have this kind of large investment boom, which is why we focus so much on the picks and shovels while we focus so much on long-term contracted assets, while we focus on not doing things on a speculative basis, all of that makes us feel very good. And if anything, as I said, the shortage of compute is growing and that's making what we build, the entitled sites we have that are powered, they're actually more valuable today. And I think we'll begin to see even larger sites, more concentrated and more integrated with some of our energy solutions.

So we understand that it's a world where people are focused, but the CapEx cycle and the need for compute will continue. There seems to be fewer players who can do this, and that puts us and our investors, we think, in a very good spot.

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

Just wanted to ask around the private wealth fundraising momentum that you're seeing. We're seeing acceleration in 3 of the 4 asset classes. Maybe you can talk through -- I know performers has mentioned, but some of the key drivers and momentum sustaining into 2027. And an early read on BXPM would be great.

So the drivers, as always, are the performance that's the key thing. The brand, of course, and the reach of our wealth team around the world and our relationships. That is a very powerful combination, performance, and it was in the numbers you heard exceptional performance really across the board, if you look at what we've done in private equity relative to the marketplace, infrastructure, same story, real estate, our GAAP versus other competitors is incredibly wide in credit where there was all this talk of some sort of private credit apocalet earlier this year. Of course, none of that has come to pass. And so we're delivering for the customers, and that's the key thing. And this market, as you know, is very underpenetrated. Investors globally are probably about 1% allocated to private assets.

And then to the expansion point, we've got a new hedge fund product that we're excited about, had a very good start out of the box. And it's super early days in some of these multi-asset approaches that will take time because it's a new offering. People are used to buying individual products. We're going to have to educate the market about this. But we've done this before. When we started BREIT, we started BCRED in the early days, took some time I'd expect here, the reaction from the marketplace has been positive, but it's going to take some time to build those particular products.

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

Our question is on the evolution of Blackstone's Capital Markets business. You're still keeping it capital light the holdco while expanding across asset class and geography with investment-grade private credit and increasingly important driver as we just saw on the Broadcom transaction. Could you update us on how the business has evolved? And how we should think about the long-term growth of transaction fees?

Well, I'll just start -- yes, I would just say, generally, what we see, Craig, is as our platform grows, there's just more transaction activity connected to it. more debt and equity offerings as our wealth business grows as our institutional business grows. So it's associated with the overall growth of our AUM and our activity, and we're helping our clients get better execution by using our scale. And then the second component of this is in private credit specifically, some of these large bespoke solutions in real assets require. We're using our very large now $300-plus billion insurance platform some of our institutional clients, particularly on the junior pieces, but in some cases, we distribute a bit as well. And so that's growing as that business growth. So we're continuing with this capital-light approach, that's what we think is the best way for our shareholders. But we're still, at the same time, seeing this pretty rapid growth in transaction and advisory fees.

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

I was hoping to go back to the AI discussion and maybe just double clicking to the first question for Mike. Obviously, we've seen wider credit spreads and CDS levels move up for neoclouds and to some extent, some of the more established players. Can you help us just understand to what extent that kind of capital markets move impact your own valuation, whether it's on the equity side in things like data centers or anything you guys are doing on the debt financing. And as a follow-up, I guess, to that, as public markets become more constrained, I was hoping you could frame the fundraising opportunity you see across Blackstone to fill some of that gap.

So from a valuation standpoint, there's a little bit of an impact, obviously, on the present value of stabilized assets, which we tend to carry pretty conservatively. So it impacts the multiples a bit Interestingly, Alex, on the new assets that you haven't yet leased, I think you'll be able to command a higher yield to absorb this. and you may end up actually in a better spot because it's getting harder to deliver, particularly at scale. So we don't really see a massive impact. When we commit to these large-scale projects, we line up the financing at the same time. We're very disciplined on how we think about financing this. For the neoclouds, I think the key is, will they be able to deliver on their compute promises. We have done a number of things in that area, providing financing on a secured basis against long-term contracts with the biggest hyperscalers. We're creating a neocloud, but that business is just getting off the ground.

The key for those businesses is the deliverability. Compute prices are actually up 50% year-on-year there's a lot of value in legacy H100 chips before people thought they would depreciate much more quickly. So for us, in a lot of ways, a world where capital is more constrained and where we have the scale, the expertise and access to capital, and this gets to the end of your question, that should be beneficial for us. And the ultimate finished product in a world where there's more scarcity of compute should be worth more. And so in terms of fundraising, we're continuing to be able to raise capital. Obviously, investors are asking the same questions around AI. But what we continue to see is demand and usage of the AI going up faster than the compute.

And again and again, what we're focused on is what we think of the most senior part of the stack, either lending or investing against the energy, which is a very large area for us, the electrical equipment and the data centers, that sort of physical infrastructure that's supporting what's happening that we really like the risk return. And if anything, I think the yields will be going up because it's getting harder to deliver that both physically and because of the need to aggregate financial capital to your point, which is getting tougher.

We'll take our next question from Chris Kotowski with Oppenheimer.

Yes. Following up on that last point. I mean people talk about data center finance, like it's all one and you have all these different assets with different risk-reward profiles, the land, the envelope of the building, the power source, the chips that go inside. And I guess, how do you see like the next 3 to 5 years playing out? I mean, it seems to me like your role in all this as being kind of the matchmaker between the capital needs and the capital sources. And do you see more of the opportunity on the like investment grade, drawdown funds, opportunistic side? Or is it -- or is it investment grade and to insurance companies or all of the above? If you could just flesh that out a bit more.

That's funny. That's what I was going to say all of the above because the needs of capital here are so enormous. It's unprecedented in our lifetimes. The amount of capital and so much of it has to come from the private markets because so much of this is development it's not cash flowing. And so having the ability to do hit financings, either on a junior basis, potentially with 1 of the big model companies or on a senior basis wrapped by 1 of the big hyperscalers or chip companies themselves. We're doing that at scale we're obviously providing financing to utilities and pipeline companies, LNG, renewable developers all of that's part of this. They need enormous amounts of capital, and that again is on both the debt and equity side and then in the data center and some of the equipment that goes inside, there's an enormous need for capital.

So as long as the productivity continues that we see at our companies, their ability to serve their customers much more efficiently to create new products and their demand continues to grow. Then I think there's going to be a continued pull for the need of this compute. And we see ourselves as this holistic solution provider. One of the great benefits of Blackstone is that we can play in all these different areas, from investment-grade for more opportunistic equity. We can do it in the U.S., Europe and Asia. We've got all different platforms. We have expertise. We've obviously got relationships with the big hyperscalers to model companies, the chip companies, and we're utilizing all ultimately in our core mission, which is to deliver great returns for our customers.

And despite all the negative things you're reading about AI today, when we look across our business, this continues to be the area where we're driving the highest returns. In the AI infrastructure, a little bit, of course, in the model companies as well. So being able to speak at scale with the key counterparties and be a solution provider from everything from energy through to chips, debt to equity, we think that is a very good place to be. and doing it, I would just that in a very disciplined way.

And I'd just add to that, from a risk-reward standpoint, the consistent comp denominator, whether it's our equity or our lending activities in this AI infrastructure area are tenants on our leases and customers on our customer contracts who are the largest, most creditworthy counterparties in the world.

I'm just curious, just as a follow-up, in the coming years, should we expect things like drawdown funds for to finance GPUs for various providers? Or do you anticipate that most of the funding is going to come in kind of within the traditional real estate and for private equity kind of fund structures and be co-mingled with other kinds of investments?

It's possible here, we'll have a bit of both. I would say in the credit area, we're doing things on a senior basis on investment-grade counterparties, that's being done with a range of insurance companies and pension funds. Those are obviously highly rated underlying securities. And then we're taking a little more risk on the junior side of some of these transactions. In some cases, there are separate SMAs, and you could see us have something focused, for instance, in chip financing specifically. But again, the breadth of what we have in credit, $500-plus billion, that enables us to do a lot. And so I think you could see some dedicated products. But at the same time, customers also want some diversification. And we spent a lot of time, obviously, talking about AI in this infrastructure.

If you look across are $1.4 trillion of assets today between debt and equity, it's about 7% of our total, which is still a very large number, given our scale. But our clients also want other things. They want exposure to defense. They want exposure to life sciences. They want exposure to India and Japan. They want exposure to sports there's warehouses, hotels and travel. So we've got to be mindful of delivering everything. There will be, in some cases, make sense to have dedicated vehicles, but in many cases, it will be in broader commingled vehicle.

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

You definitely partially just answered this, but I ask it anyway because I think there's a little more color to have. So recognizing this amazing AI CapEx super cycle might be once in a lifetime and huge demand for compute and the capital. I am curious on as you pursue going all in on this as -- and I get it, how you balance the potential of technological obsolescence and then concentration limits for both the fund level and the firm. And I'm just curious how that comes up in your LP conversations because when you say 7% of $1.4 trillion, I'm like, no big deal, anyway.

Yes. We spent a lot of time, Glenn, thinking about that. I do think to emphasize the importance of our focus on the physical infrastructure and the focus on long-term contracted assets. So the vast majority of that 7% is in data centers that have 15- to 20-year lease terms at initiation with 96% investment-grade counterparties with an average market cap of $2.5 trillion.

So when we think about risk, that doesn't feel particularly risky to us. There are things we do with model companies, some of what we're doing in our BXN1 area with application software companies and what we've done in our private equity vehicle for individual investors has involved some exposure to the underlying technology. Now to date, that has worked out incredibly well, but we recognize there are risks.

But we're playing across this entire space -- and at the same time, we have a huge push into energy, which is benefiting from the data centers. It will benefit from robotics, autonomous vehicles, but also just from this large reindustrialization we're seeing and really the electrification of everything. And again, lots of what we do there is long-term contracted, building power plants off our utilities, the financings that we're doing for energy companies for LNG companies. So I would say this is a place that focus a ton on risk on downside. Steve's always stressed the importance of not losing capital we are very wide-eyed about what we're doing here and the way we're deploying capital, the contracted nature of most of what we're doing, and the scale and creditworthiness of the counterparties, all of that gives us a lot of comfort.

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

Love hearing the substantial increase in realizations into the fourth quarter. affirmation of the double-digit base management fee growth for next year. Maybe on pack or click into that, maybe one more level. Where do you see the opportunity in the realizations? And then Michael, as you think about the double-digit growth, is there any way to sort of frame that range out a little bit and/or which segments you really see the greatest opportunity when you look across the businesses?

Sure. Thank you, Bill. On the realization part, just to flesh that out a bit more. As we mentioned, let's take the fourth quarter first. We do have -- we're in the middle of the quarter now. We have high visibility into a significant step-up in net realizations in the quarter. That's driven by closings on a number of previously announced sales, primarily in private equity. And I would say that what we have under contract that is expected to close in terms of carry realizations alone in the fourth quarter. is expected to surpass the total net realization levels for the firm from the third quarter. So that's a positive. And then as you know, we have the scheduled year-end crystallizations in BXMA in the context of very strong year-to-date performance as well as a number of year-end crystallizations in our credit drawdown funds.

So that's a very constructive outlook for the fourth quarter, and we see that as well for 2027. I would just step back and say broadly, whether it's the fourth quarter or next year, in an exit environment that's not been easy, obviously, for the broader industry, we feel like we really do benefit from how we position the portfolio around areas the market wants. So whether it's energy, as we've talked about, power and electrification, our energy private equity NAP or balance were the doubling year-over-year, as we mentioned. Life sciences, Japan, India and Europe actually will see a pretty robust slate of exits this year recently in the leisure and gaming area.

And then from a public market standpoint, in an IPO market that's been open but highly selective, we completed, as you know, 9 IPOs since December 2025, 5 this year. The pipeline remains strong, and that's allowed us to liquefy a good portion of our carry receivable, especially in private equity and to be able to be opportunistic going forward, we find windows in the market with particular securities monetize our position. So that's a bit of the backdrop. There's obviously an inherent lumpiness with realizations quarter-to-quarter as you're seeing and you'll be seeing throughout this year.

But overall, the underlying realization potential, we think, remains substantial and just stepping back further versus other firms, the evolution of our firm towards more perpetual capital means about half of or nearly half of our invested performance revenue eligible AUM is in perpetual vehicles, which, as you know, generate incentive fees without requiring asset sales. So that, we think, is a fundamental advantage for our model.

On base management fees, I would just step back and say that in terms of the path ahead, there are a handful of key drivers, and I hit those in my remarks. There is a full year benefit next year of private equity drawdowns. The third Asia fund was activated in September, the fifth Energy Private Equity energy fund hit our cap just after the end of the third quarter. We're finishing the SPX. So we expect the contribution of management fees from these funds to build through the first half next year as fee holidays conclude and remaining fundraises progress in areas like SP. That's number one.

Second, this powerful expansion of perpetual strategies. Our infra AUM is up 40% year-over-year. Our BXP NAV is up nearly double year-over-year BXINFRA NAV, 2.5x year-over-year. and strong events have been BXM VA when they're up 24% year-over-year record organic net flows in Q3. Strong growth in credit insurance across the institutional insurance channels alongside inevitable and eventual stabilization of retail flows in the BDC area.

And then the fifth piece is ultimately a stabilization of real estate. So I think when you take those pieces together, those are the building blocks, and that's why we feel like we're well positioned in terms of the path ahead.

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

I wanted to follow up on your comments on obviously higher rates. So curious just a little bit more detail around the fundamentals and what you're seeing in that asset class.

So there really are, Dan, some cross currents underway here. Obviously, rates went up, and that has an impact, particularly on slower growing assets multifamily in the U.S., some of the assets in Europe. But at the same time, we're seeing accelerating fundamentals. So the sharp drop off in supply that started, call it, 3 years ago, is now beginning to show up. And when that limited new supply of real estate meets a very healthy economy, so strong demand. You're seeing cash flows growing nicely. In logistics, we had a 45% increase in leasing in our U.S. platform, which is quite large. It's our largest holding in our real estate business. Hotels nationally, same-store sales are up 6% this year.

The industry was flat last year. Obviously, data center leasing very strong across our various platforms. We're going to do 6 gigawatts this year, we think, which is triple what we did last year. And those 3 categories, when you look at Blackstone Real Estate, that's over 60% of our exposures are in those 3 asset classes. So -- that is very helpful there. At the same time, the debt market, which 3 years ago was facing a lot of challenges in real estate has been healthier. There are legacy deals that may be challenged, of course, and as I said, slower growth assets will be more hit by the rise in rates.

But overall, the underlying fundamentals mean there is going to be a recovery here over time. That's really the key thing. And so that's what I think -- I think that's the reason why the REIT market, despite the rise in rates is still up double digit in the public re market. So as I said, cross currents, but accelerating fundamentals.

We'll take our next question from Devin Ryan with Citizens Bank.

A question on the Vanguard and Wellington products now that they've launched. I appreciate it's small today, but curious how to think about these partnerships and how to think about kind of the expansion for Blackstone into kind of new markets and new customers and kind of making sure that it's incremental versus kind of cannibalistic. But 1 thing kind of thinking about is whether this could meaningfully kind of increase exposure into retirement and other advised assets that have historically been pretty difficult for private markets to reach. So I'm just curious kind of the bigger picture of kind of where partnerships like this could be going.

Well, I think it's very incremental because in many cases, we're trying to get to customers. We have an access. Some of it is structural. So a number of our products to give them maximum flexibility in investing our QP qualified purchaser Limited, and therefore, accredited investors can access them when you put these in a vehicle with a third party, in this case, Wellington sitting on top, you have a broader reverse of investors you can sell to. That's obviously helpful. There are some advisers, and we think underlying customers who want to be able to push an easy button to not have to subscribe to 4 different funds or different funds plus different liquid products.

So we're trying to access that market. And then you point out in retirement, being able to give holistic, integrated solutions with best-in-class products we think that is very helpful. Now we're still -- the administrative process is still going through in D.C. We do think when we get some clarity on that, that will help the retirement space. Again, that's going to be a bit of a journey. But being able to make it easier to access alternatives is the path we've really been on for a quarter century with individual investors. And 10 years ago, it took a step function up when we created these perpetual products, we've been moving, obviously, globally now, and we have a lot of strength in places like Canada, Australia, Japan, Hong Kong, Singapore, the Middle East, even Europe. Now this is another sort of leg on that journey. We're expanding the products. We're making them easier to access. It's sort of one-stop shopping. So I think this is just another step on that journey. It's still early days. but we do think there's a lot of expansion potential there.

We'll take our question from Dan Welden with Wells Fargo.

The Insurance segment is running mid-teens, and you mentioned today more than 20 clients have expanded the relationship in the last 12 months. Could you talk about the competitive backdrop? Any ability to sustain this growth? And then also maybe touch on the fee rate of the incremental mandate in insurance versus the existing portfolio.

Sure, I'll let you handle the fee part, Michael. On the competitive dynamic in the market, overall, we really like our position in the insurance market because we are independent and we're not insurance companies are self selling products against others, and our focus is on being a third-party investment manager. It gives us a pretty big universe to serve. And what we're seeing with our clients is they're starting in one area with a separately managed account and then broadening we're continuing to get more and more exposure. And it really started with sort of the big 4 strategic accounts.

We're growing the fastest today are the rest of the clients, who are getting more and more exposure. And what they're finding is that as capital intensity is going up in the economy, the ability to access these investments from someone like us an independent third-party manager, who has expertise in underwriting data centers or energy infrastructure or all sorts of companies and hard assets and the fact that we can aggregate that at scale and deliver them call it, 150 basis point premium for comparably rated public credit, they're finding that highly exact.

And I would say the openness to what we're doing with insurance clients, not just in the U.S. but in Europe and Asia, increasingly, that has really grown. So we think that scale in this market is important. It's hard to enter because you've got to have the ability to write multibillion-dollar checks. We have that ability with our model, and we're doing it, as you know, on an asset-light basis. And so I just think this is it's something that the insurance market from a competitive standpoint is now recognizing that they need to have this capability when they're looking for third-party managers, there are -- there's not a big universe of people doing this at scale.

And the other alternative managers who have different models to own insurance companies, they're obviously very capable. They are competitors in this field. But it's a pretty limited universe of who can write checks and underwrite these transactions. And so we would expect we'll continue to see growth in this insurance space and continue to see a lot of growth around asset-based financing. And by the way, 1 other thing I'd add is the fact that we have such robust institutional business for the junior piece of these transactions is a very helpful component when we're out there competing.

On the fee rate part, there's a range, of course, as client specific and it's strategy specific, and we have IMAs and SMAs, as you know as well as sort of what the scale of the relationship is. Overall, I would say it averages in the range of 40 to 50 basis points. But again, there's variability there. The margins are attractive, and it is very scalable. We talked about crossing the $300 billion AUM mark and more importantly, our ability to originate and deliver excess spread to our clients' scales as well.

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

Maybe Michael, just to go back to following up on Bill's question on the base management fee growth, in particular, the double-digit range. Just, I guess, in terms of you laid out all the different conditions that are going to contribute to that, which was great. One a couple I wanted to touch on were the dry powder in credit, which is now -- has expanded pretty substantially the potential for deployment to contribute to that fee growth? And then what would hold it back from getting into, say, the mid-teens, I guess, on a year-over-year basis?

And then -- just to the extent that you are able to generate solid double-digit base management fee revenue view, scale in the FRE margin prior earlier and just get obviously that we had sort of very robust margin expansion along with really strong base management fee growth. So would you expect to see a better scaling in the next 1 to 2 years versus the prior 2 to 3 years?

Brian, a few parts to that. From a -- in terms of credit and deployment, you meant to dry powder balance, it is substantial of $87 billion just for the BXCI portion. If you include BREP, it's $96 billion. And I think you're seeing particularly in the infrastructure and asset-based credit area, which overlaps heavily with pride investment grade, that deployment, and we talked about the qualitative drivers behind that really is -- it's a robust environment. We do see acceleration there. The AUM in our IA BC area was up 31% year-over-year, and that will come more and more into fee earning AUM as invested. The opportunity said is broad and obviously, we continue to fund raise there.

So I think that's how to think about the dynamics in credit. I think in terms of what could sort of constrain it one way or the other. I think it's fair to say the -- a bunch of that is embedded. Obviously, those drawdown funds that are going to have full year -- full year fees next year. Those are more in the Private Equity segment, particularly. Those are more or less built in the big portion of that perpetual fund fee growth, a tremendous sort of, again, built-in NAV growth, broader base entering 2027, one variable at the margin 1 way or the other is obviously somewhat market-dependent around performance and flows in the course of the year.

And then finally, a factor is clearly, the sort of stabilization and inflection point around the real estate segment as it relates to base management fees and also the BDC portion of credit. So the timing of that, we know what we believe -- we know what the end game is, which is stabilization inflection, but the timing of that is a variable as well. And then I just think on scalability and margins, we see it as scalable with the operating leverage built into that, that we've seen across our firm over the long term.

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

I actually, Michael, have another follow-up on that. So you just activated your secondary flagship, you spoke to a robust fundraising that you expect for next year. So that's going to contribute some catch up fees. Is the low double-digit expectation on a core basis? Or would that include the catch-up fees? And then also earlier in the year, you guys spoke to potentially benefiting from some of these great things that you had highlighted in driving that. Will -- how will 4Q bridge us as we get into 2027. Last quarter, you had given a lot of clarity on this quarter. So should we see a step up and what kind of order of magnitude would that be?

Growth quarter-over-quarter. Before this acceleration into 2027, and as I mentioned earlier, especially as these drawdown funds start to season in -- you'll see in the middle of the year, I think that step up even further. And then in terms of your other question, the first question...

It was really around the step up, shape and management.

Sorry, yes, yes, that's a simple answer, which is when we talk about low double digits, we're talking about the full year of base management fees over the full year in 2026.

We will take our next question from Mike Brown with UBS.

Can you just talk a little bit more about the retail channel right now? Just what are you kind of seeing in terms of demand across the platform? And as we think about this higher rate backdrop, what are you observing in terms of asset allocation shifts in terms of new dollars being put to work? And then on some of these newer perpetual products, any view into how these could scale relative to some of your other successful products like BXPE and BXINFRA?

What we've seen overall has been more resilient than I think market participants expected. We had all this noise around private credit, and the flows into that area obviously slowed in response and yet we raised $9 billion in wealth in the third quarter. There was also a lot of volatility on the screen and our AUM in this space is up 15% year-on-year. So to me, that says there's a lot of desire for the type of products we're offering with the structure and the performance we're delivering if markets go down a lot, that can impact things, if headlines are tough. But what we've been watching here is steady growth, and we expect this growth to continue. We think it will be more and more global it will be through the wire houses and the RIAs. And it will be new products. I think the hedge fund products is particularly exciting.

Again, it speaks to the scale and breadth of Blackstone that we're the leader in that space globally for institutions. Now we can offer something very targeted for individual investors. And again, what we have to do is deliver strong performance and in that case, limited volatility. And if we do that, that can scale and grow to be a large product. And I think there's more we can do over time. This platform we have is remarkable and the strength of the Blackstone brand is remarkable. And it's what enabled us to run a business on a capital-light basis since we started. Since Steve created this firm, we use very limited capital for what we do, and we rely on our expertise, our people our track record and delivering strong performance. And in the wealth channel, I think we've done that exceptionally well across asset classes, and that bodes well both for the existing products and for new products will create.

I might just also add -- put a fine point of that. On BXINFRA,it's I would say it's only $7 billion. Our distribution strategy around that has been intentional and selective globally. And so the performance has been terrific. The asset class is obviously so large on a global basis. So I think we see a lot of runway on that to scale. Jon mentioned the hedge fund area, where I would just add, the hedge fund area, I think, broadly, has come back into favor with a lot of investors. I think particularly by multi-strategies that have shown you can deliver double-digit absolute returns with less correlation, more market neutrality, -- and a lot of what we're doing are our version of that, leveraging our platform and I think very compelling fees and liquidity provision. So -- and that's an area that's been hard to access in terms of that performance.

So we're very bullish about that. As John said, there's other white space. There are things in the lab around new flagship strategies. And then this multi-asset space is -- that is a long-term game, but ultimately very scalable.

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

I wanted to follow up on, I think, as Glenn's question from earlier. I think you had asked about Blackstone's concentration. I'm curious if you could talk about how your insurance LPs are thinking about concentration and AI-related debt. It seems like the press and some of the kind of industry data out there would suggest it's small, but growing very rapidly. So as AI CapEx infrastructure finance, financing is picking up, how much like incremental appetite is there from your insurance clients -- and to the extent that they made to get taped out, is this where the sort of third-party kind of traditional institutional IG credit narrative comes into play? Or how should you think about placing all that -- all of those assets?

Well, it's an important question. For our insurance clients, their exposure, as you would imagine, are to the biggest hyperscalers. What we're seeing them do in a number of cases is potentially sell liquid corporate bonds in exchange for some of the asset back. So you have exposure to Microsoft or Meta or so forth, and they're thinking about their exposure to an individual name. And when they look at what we're doing in asset-based financing and the additional spread they can earn for the same underlying credit as well as the support of the physical asset, they think about that as an attractive trade.

So we're seeing some of that -- but yes, they're mindful of their exposure. One thing that I think will evolve over time is an understanding that the compute itself has value. When you look at the airline business, lending against aircraft is an investment-grade business not because Spirit Airlines or an emerging market line has rate credit themselves, but because of the shortage of commercial aviation in the world.

Today when it comes to compute, be it data centers or chips, people are not putting much value on the underlying assets. They're solely looking at the credit of the counterparties. I think that will evolve over time, which will expand some of the capacity these insurance companies have. But I do think it's fair to say today, right now, there is focus on that. I do think that means a broadening of markets. I do think, for us, it means pension funds and wealth funds starting to look at the excess spread in the private investment grade market. I think over time, obviously, there'll be more ownership by mutual funds and others as well. So I think this does need to broaden, but do think the most positive thing here is the underlying asset class has a lot of value and we haven't yet tapped into that. There's really just focus on the underlying name without any credit for the actual assets themselves. We will t

We will take our next question from Ken Worthington with JPMorgan.

Multi-asset, strong inflows in 3Q, I think, by far, a record -- can you give us more color on the sales success you had for the quarter? And then what is the organic growth look like as we think about 2027? And can you expand the fee rate from here?

Yes. This is really exciting for us. Our absolute return or hedge fund business, BXMA, had been pretty flat for a long time. And under Joe Dowling, new leadership there, not so newly more years. He's done an extraordinary job turning around performance. The fact that we've beaten 60-40 over that period of time by nearly 200 basis points annually and doing it without any down quarters in the flagship strategy is extraordinary. And clients are responding to that. And we're seeing that growth, to your question in sort of the general absolute return business that we have there. We're seeing strong performance in the multi-strat business. We've begun to build a very high-end wealth business there for a select group of clients that's also performing incredibly well.

And then we have a liquid business harvest focused on MLPs and energy infrastructure that's doing exceptionally well. And now we have a new engine here with BXHF, and so when we look at this aggregately, this feels like a business that should continue to grow. I don't know what the number is. Is it 20-plus percent a year. It's obviously a function of what happens inside of the business in terms of returns, but strong returns with less in the way of net outflows, more in inflows, all of that makes us feel like this is a business that is on a path again to really start to scale.

And I'd just add, Ken, you asked about sort of fee rate pricing. As John mentioned, different component businesses and what you see in aggregate as a blend, but it's a very positive picture at the division level. In our absolute return area, you have seen versus historical trends, the stabilization of average fee rate, that's both because the comingled portion of that has, I think, resurged in popularity at a higher blended fee relative to customized. In the multi-strat area, we're seeing flows growth there and performance growth, and that is, given the nature of the strategy at a higher fee rate. And then you have things like our portfolio management wealth area, which on average comes obviously at a lower fee rate with very good growth. So the output of that, I think, is a positive and a positive versus sort of what the dynamics were around fees and pricing a number of years ago.

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

A quick housekeeping question for me. You've got a number of funds coming up to the 10-, 11-, 12-year anniversaries, which is usually the end of the investment period. Should we expect some set down in the coming quarters?

Yes, no, that -- it's obviously sort of -- that's been built into our results for many years. You saw actually in this quarter, in the BREP area. The last quarter, in the middle of the quarter, Brett reached the end of its fund life, so there's a termination that actually -- we had a full quarter of that this quarter, which actually was the biggest factor in sort of the management fee quarter-over-quarter dynamics. And then there's other dynamics around that across the suite of older legacy fund our business. But that would be the most notable one. But it's just -- it's -- I would say it's -- that will occur as it has been for years in our business. But there are meaningful developments like the one I just mentioned, we'll expect to call it out for you.

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

Question is on direct lending dynamics. You mentioned institutions leaning into what looks like a better deployment opportunity but broader deployment data, we can see remains pretty constrained. So could you give a bit more specifics on how direct lending pipelines are looking -- and to what extent the improved spread in terms many players have been talking about has continued or improved through today?

So Patrick, what I'd say is, as transaction activities slowed in the third quarter with the volatility, obviously, that had a direct impact on direct lending activity. So I don't think that is a surprise. On the pricing, what's been beneficial has been the rise in base rates in both the U.S. and Europe. We haven't seen a lot of spread widening spreads have hung in there pretty well. And it's tied to the fact that underlying portfolios are really strong. I mean we saw in our BCRED portfolio, double-digit EBITDA growth for our borrowers debt service coverage ratios are 2.3x. We're just seeing there is a tail of some of the legacy older deals, but that's a small minority. Overall, we're seeing pretty good credit health out there. And on new deals, it is competitive. I'd say it's balanced in terms of capital. So benefit from higher base rates, but spreads, I'd say, pretty constant.

Any improvement in pipelines?

I wouldn't say as of now. I mean I think again, all the volatility has slowed the deal business, but there is a desire, I think, for a lot of transaction activity. And as we've talked about, companies are performing really well. I mean, if you look across the Blackstone portfolio, double-digit revenue growth. So I think as soon as we get a little bit of terra firma in the overall sort of geopolitical world, I think you will see a step function increase in transaction activity.

We'll take our next -- I'm sorry, we'll take our final question from Crispin Love with Piper Sandler.

Can you just dig into the real estate management fee trajectory? AUM for the form was flat there, but management fees were down in I appreciate that the transaction other fees was a driver of total fees. But what's the outlook for the base management fees in that segment? What needs to happen for those to stabilize in terms? Just curious on some of the puts and takes there.

Yes. Actually Crispin, just for the -- in terms of the third quarter and sequentially on the dynamics there. I think with Arnaud's question that the biggest factor there was this fund termination of BREP 8 late in the second quarter, which we had a full quarter effect of this quarter. We mentioned before with, I think, to a lesser extent, this quarter, BPP where there have been in there around lower NAV and certain fee incentives to encourage duration of capital. So those are some of the dynamics there.

I think in terms of the outlook, we'd expect real estate base managements to remain broadly stable through year-end and into 2027. And then and sort of the structural dynamics, as you know, we're currently in a period between major drawdown fundraises, which has its effect on the sequential growth. and then the core plus institutional headwinds I mentioned. But offsetting that BREIT being back in growth mode with improving flows and obviously strong performance.

So I go back to in terms of the outlook, we see from here sequential stability in the coming quarters.

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 early remarks.

Great. Thank you, everyone, for joining us today, and we look forward to speaking after the call. Take care.

Good afternoon, everyone. Welcome to day 2 of our Financial Services Conference. If any of you don't know me, I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges.

And for this next fireside chat, really delighted to have Michael Chae, CFO of Blackstone. Michael, thank you.

Ben. Great to be here. Nice to see everyone.

Maybe to kick it off, a macro question. Can you talk a bit about your current view of the world? What are you seeing in your portfolio? How do you see the environment shaking out over the next 6 to 12 months? And with the Fed decision tomorrow, what are your thoughts on [indiscernible] will play out?

Well, I'd first say we're obviously in the midst of a corporate earnings boom, I would say. And there's lots of attention, of course, on stock prices, but maybe not enough on the underlying context, which is this extraordinary earnings environment that we've been in. I think the second quarter saw like the fastest S&P earnings growth in 5 years. And I think 2026 right now is projected to be the best S&P earnings growth year in like 25 years if you exclude sort of the bounce back years after the GFC and COVID.

The massive investment in digital and energy infrastructure that's taking place is, of course, a historically powerful engine, which we're obviously experiencing. That's now -- we see that now diffusing into the -- further into the economy. And despite the scale of the AI build-out, these investments so far remain less than 1% of GDP. That's well below prior investment cycles, starting with railroads all the way through dot-com era, which I think we're more like in the 2% to 5% of GDP range. And then -- and we really see this in our companies, underpinning the earnings momentum is really robust margin momentum. And that's while companies are mostly just scratching the surface on AI-driven productivity gains at scale.

And so the S&P EBITDA margins have expanded about 500 basis points in the last 4 years to the mid-20s or so. In our own portfolio, we've seen margins expand around 700 basis points on average over that same time period up to the sort of high 30s. So it is -- while it's a little bit uneven, we see it as a pretty strong environment for companies to grow and make profits. You asked about the Fed. I'd say in terms of the Fed and path of rates, the market certainly seems to have made up its mind as to what's going to happen tomorrow.

In terms of the actual data that we see and focus on, the reality is core CPI, excluding shelter is at 2% year-over-year, 2.0% through August.

And real-time market rent growth measures are also in the 2% area. And labor markets are in pretty good balance, which we certainly see in our portfolio. So in a vacuum based purely on the data, it's not clear a hike is absolutely called for, but we're not in a vacuum. And in the context of the criteria laid out at Jackson Hole and given the intensity of sort of market expectations that have built up, it does feel likely that we'll have some form to me of a dovish hike, whether those words are used or not or conveyed with the desired effect, I think, importantly, keeping the longer end of the curve in check, which drives cost of capital in the real economy importantly. So I do have high regard for Chairman, Warsh, and we'll see what happens soon enough.

So with that in mind, what does this mean for the transaction environment? So maybe talk a bit about the near-term outlook for deployment and realizations. You guys have been particularly upbeat on the IPO opportunity. What are your thoughts on the sponsor-backed M&A activity, which has been a lot more sluggish?

Well, I'd start with the overarching notion that -- to us, it's never been more important to have scale of capital and breadth of platform. On deployment, there's lots to do an extraordinary opportunity if you're in the right places. So you have these enormous markets globally that are actually short of the capital required to support their growth. And that's where Blackstone, in our view, has a distinct advantage. We're a strategic capital provider at a huge scale across a wide array of strategies.

And so specifically, obviously, in AI and related infrastructure areas in power and electrification, but also life sciences, liquidity solutions for the private markets themselves, including especially secondaries, private investment-grade credit, including corporate solutions. And from a regional perspective, Asia, particularly for us in India and Japan. 70% of our largest investments over the last 12 months have been in the areas I just named.

And so if you're active in these areas, it's a great time for deployment. And it's probably a sharp contrast to maybe a traditional monoline manager built around a narrower set of focus areas. And then on realizations, which is sort of the other side of the same coin, again, I'd say maybe for the typical traditional private equity firm, regular way exits have been more constrained. You're seeing that in the overall sponsor volumes, as you mentioned, which have recovered more gradually than the broader M&A market.

But the areas we've emphasized have, I think, positioned us more favorably. So I'd say 2 dimensions. One, IPOs. We've completed 9 IPOs in the last year and 5 since May. Larger scale, high-quality companies are what the IPO markets want, and that has favored our portfolio construction. And that's, in turn, led to more and more of our carry receivable that's public and liquid. So about 1/3 of our corporate private equity net accrued performance receivable NAPR is publicly traded.

And as we continue to sow more seeds with 6 IPOs currently on file globally, that's going to create more public market cap and continue to grow what I would call our liquid NAPR. And then I'd also highlight our energy private equity business has been exceptionally productive in investing in the power and electric equipment area, and generated really remarkable performance, doubling its NAPR over the last year to over $1 billion. So I'd just step back and say the key question on selling assets is really -- are you exposed to the places the world wants. And fortunately, we think we've leaned into many of the [indiscernible].

Overall, I think it's a constructive environment for our firm. We think we're positioned well at the intersection of mega trends, and that creates a great flywheel in terms of transaction activities that we've learned throughout the history of our business.

So maybe kind of building on what we've talked about so far, Blackstone has delivered some very strong fundraising results over the last 12 months. Looking ahead, how are you thinking about the overall environment for capital formation? Where do you see the most significant opportunities for growth across the platform?

So again, the balance and breadth of our firm continues to drive our fundraising and our fundraising success. We've had over the last 12 months, over $260 billion of inflows. That's 24% growth over the prior LTM period. It's the best 12-month period for us in nearly 4 years and really robust demand across the client -- across our client channels. So we call them "Three 'I's," institutional, insurance and individuals. I'll take them quickly one by one.

In the institutional business, it's vibrant. Our second quarter inflows were up nearly 50% year-over-year. And I'd just say simply put, there is strong demand for high-performing strategies. Multiple drawdown funds of ours hit hard cap this year with more to come. Our infrastructure business is experiencing explosive growth. Platform AUM there is up 40% year-over-year to $90 billion as of the second quarter. BXMA, I think we'll talk more about it, is a growth engine.

In July, we saw the best month of fundraising in BXMA history, from best institutions. In insurance, we think our multi-client model continues to resonate. We're the largest non-captive alternative insurance platform with $290 billion of AUM. That's up nearly 4x over the last 5 years. It's supported at its core by 40 clients in what we call our dedicated solutions area. That's a number of clients that's doubled over the past 2 years.

And just stepping back, insurance companies continue to turn to private markets as the destination for excess spread in an environment where competition in the annuity business and spreads in liquid markets are near historic tights. And we think in that context, we're a partner of choice. The vast majority of our growth to date has been U.S.-centric and so we think we're just scratching the surface in terms of the international opportunity. And you've seen in the last year or 2, what we've done with Nippon Life and also with L&G in the U.K.

And then finally, in individuals or private wealth, the secular growth opportunity remains as attractive as ever. And we think we've continued to extend our leadership position in that channel. Our AUM there is $324 billion. That's up nearly 2.5x in the last 5 years. Our flagships, we have flagships across 5 major asset classes, real estate, private equity, infrastructure, credit and hedge funds. And these strategies are importantly really foundational for a really important part of our next phase of growth, which is particularly around multi-asset products and the retirement channel, which represents a whole new dimension and where we think we're uniquely positioned.

So we can dig in even more into that later. But I'd just say across those 3 areas, it all just speaks, I think, to the breadth of our platform. We're not dependent on any single product or any single channel. And if most industry experts estimate this channel is going to grow at -- continue to grow double-digit growth for the next decade and beyond, we, of course, see Blackstone is really well positioned in that context.

So maybe putting those pieces together, what does it mean in terms of the broader financial picture for Blackstone in the near term, 2027, I think you previously cited double-digit management fee growth. Maybe you could unpack some of that a little bit more?

Yes. So -- as we've said, we think the multiyear financial picture remains one of real strength, and we do see a robust 2027 from an earnings standpoint. As we talked about on our earnings call in July, we expect, as you said, a return to double-digit growth in base management fees in 2027 with the key building blocks of that, including, as I talked about on that call, the full year benefit of multiple new drawdown funds in the private equity segment, continued expansion of our perpetual platform, especially our infrastructure fund, our flagship private wealth vehicles like BXPE and very positive momentum in BXMA.

Alongside that from an earnings standpoint, an increasingly diversified and scaling FRPR base fee-related performance revenues, a widening surface area across the firm for generating transaction fees and a quite constructive outlook, I think, for net realizations, as I referenced earlier. So -- and then I'd add an important overlay here is what I would call the monetization of what we've been doing and building in the AI ecosystem. So I know you all may feel like Steve, Jon and I have been talking at you every quarter about our AI deployment. But you'll, I believe, increasingly see the through line of that to earnings because deployment leads to performance and performance to performance fees and also management fee growth.

And so for example, in our institutional infrastructure strategy, we'll next see a large scheduled crystallization in the fourth quarter of 2027 in the context of outstanding performance, and that's been powered in significant part by our investments in digital infrastructure, data centers and power. And so that NAPR in the second quarter was over $900 million. You can see that in the earnings release, sort of halfway through the 3-year period. You're seeing very significant value in our energy private equity portfolio, as I mentioned. Again, our NAPR there. Just our energy fund NAPR and private equity has doubled year-over-year. BXPE is a very powerful engine.

Our NAV there is already $20-some billion and growing in less than 3 years with exposure to generational AI companies being an important part of the performance and quarterly incentive fee opportunity there. BREIT, it's back in growth mode. And there, almost 30% of the portfolio is data centers, meaningful exposure in most of our recent vintages of our institutional real estate funds and also in Tac Opps to this space. And then we continue to plant seeds like our BXDC REIT. So again, a through line between what we've been building and doing here and earnings power over time. So putting it all together, we see a strong picture of financial performance in the years ahead.

Great. Well, you mentioned AI continues to be one of the biggest investment themes we'll be hearing at the conference. And you guys, as you've been talking about, have been very active across that ecosystem, including some recently announced partnerships, including with NVIDIA. How are you thinking about the most attractive opportunities along the AI value chain? And where do you see the biggest opportunity?

So what I start by saying is that the firm and investment business that we've developed over 4 decades, we think turned out to be built for this generational opportunity in terms of our scale, our breadth of strategies across asset classes and across the capital structure -- up and down the capital structure, the long-duration nature of our capital base, our deep relationships and reach with the largest corporate enterprises and importantly, the integration of intellectual capital across our platform.

But as I go through, which I will, this pretty extraordinary footprint of our activities across this ecosystem, I think it's really important to underscore that the True North is bringing the same focus of risk-adjusted returns -- on risk-adjusted returns to this ecosystem of investment as we have for the past 40-plus years everywhere else.

So just as I kind of walk through the buckets in AI infrastructure with data centers, where we're the largest owner and developer of data centers around the world. We're investing based on committed typically 15- to 20-year leases with the most creditworthy tenants in the world with built-in escalators at attractive unlevered and levered yields on cost. And those -- that generates compelling cash-on-cash returns even before you get to terminal values and to platform values. And in the context of some of the development constraints that -- you're seeing that are being sort of externally imposed that which you can build has that much more scarcity value.

In power, we've been building a portfolio of companies over many years at attractive valuations based on an original pre-AI thesis around secular electrification and the need for grid modernization over the long term. And that's a thesis which obviously was subsequently turbocharged by the mega trend of the extraordinary demand from AI for power. We took what we learned in the AI infrastructure side and have been making discrete, I would say, sensibly sized bets with real right tail optionality in the frontier AI companies themselves, and that's turned out to have had exceptional upside and a very positive impact on the performance in the number of vehicles.

With our presence and positioning in this part of the investment ecosystem growing accordingly. In credit, we've been delivering large-scale financing against critical assets and contractual cash flows, generating excess spread with structural protection and very favorable counterparty risk in partnership with some of the most important and creditworthy companies in the world. So we've been helping pioneer, I think, the development of compute as a financeable asset class.

And then finally, just being in a unique position to develop new platforms in partnership with the players in this area that will be critical to the overall development of the market, so partnering with Google to create Crux AI and neocloud for TPUs, launching Ode with Anthropic in July as a service company to accelerate enterprise AI adoption for our portfolio companies and outside of our portfolio and creating very large-scale financing platforms with Broadcom and NVIDIA to support the next phase of the AI build-out.

So our activities in AI, I know that was a long answer, are multifaceted. They're at scale. They're done with a very long view, and they turn on a consistent assessment of risk versus reward. And all in all, we think we've positioned ourselves as the best positioned private investor in the world to lean into this opportunity.

Okay. Great. So we heard a lot of detail about Blackstone's AI investment strategy. Maybe talk a bit about how you're utilizing AI within Blackstone. So where are you seeing the most prominent -- promising use cases across the firm throughout the portfolio? And what impact is it having on efficiency and value creation?

So I'd say there's 3 legs to our approach. We're focused on utilizing it to make better investment decisions. First, second, drive value across the portfolio; and then third, improving how we operate internally. We do this with a big organization focused on this, over 50 data scientists, 1,000-plus technology professionals within the firm and 100-plus operating executives supporting the implementation of this.

So first on better investment decisions, the most significant opportunity inside Blackstone lies in combining AI with our proprietary data, harnessing decades of information and insights from investments in our investment process alongside pretty rich data from our large portfolio companies to drive better pattern recognition and faster, better informed decision-making on the portfolio, driving value across the portfolio, I mentioned the partnership with Anthropic. I would just say AI use cases are expanding really rapidly across our portfolio. It's still early. Obvious opportunities in efficiency and productivity, but also as importantly, over time in improving revenue growth. So process improvement, customer service, content creation, product innovation, those are the main categories we're focused on staying in our portfolio.

And then third, from a Blackstone operational standpoint, we are definitely seeing tangible productivity gains across core processes. We're focused on software development, legal and compliance, cybersecurity, our valuation process. And so it's early, but that's making us more and more efficient. And this will largely be done in terms of our internal use cases with third-party vendors. But our strategy as a firm also involves which we've been doing for a decade plus, programmatically identifying emerging AI native solutions providers, vendors and in a number of cases, becoming an anchor customer, a design partner and sometimes an investor. And that's a sort of playbook that we're bringing to this as well. So I'd just say we're just getting going on this, and there is a lot more to come.

Pivoting a little bit. I think you mentioned BXMA. You alluded to July inflows. I mean this has been a pretty strong inflow recently. Again, the July inflows, I think you indicated were more than all of Q2 combined. I guess just talk a bit about this business. What are its key components? What's been going well lately? I think this is one that hasn't been on most investors' radars for a while and all of a sudden, things are looking pretty good. So...

Yes. I'd start from saying, from our perspective, the room will head to this. I think hedge funds as an asset class, I think, are increasingly back in favor. And I think it's fair to say that the leading multi-strat firms have led the way by, I would call it, delivering sufficiently high absolute returns, i.e., double-digit returns in this recent 3- to 4- or 5-year period and doing so with low correlation in a market where stocks and bonds have been unusually correlated more of the time. We've done that, too, in our BXMA business.

We've driven -- generated 12% annual returns on a 3-year basis in our largest strategy. We've delivered 25 consecutive quarters of positive returns through the second quarter in absolute return with the second quarter representing our best returns in 6 years. So perhaps given that, because it's all about performance, it's not a surprise that BXMA is experiencing a bit of a renaissance as we've talked about. We're at $109 billion of AUM as of the second quarter. We just crossed the $100 billion milestone earlier this year. We're seeing that performance translating into greater investor interest as you cited.

In terms of the components of the business, if you look way back, BXMA, when we started was essentially a fund-to-funds business, but it's really evolved dramatically since then. And we have 4 core platforms serving different client needs, absolute return, our BSOF multi-strategy business unit, what we call total portfolio management, TPM and a business called Harvest. All the businesses -- all 4 of those businesses have experienced double-digit AUM growth on the back of performance. Absolute returns, as I mentioned, is really seeking to outperform liquid markets through manager selection and asset allocation. That's what we've done. We beat the traditional 60-40 portfolio by 180 basis points per year since the beginning of 2020.

The second platform is BSOF. I mentioned that's our own multi-strat, where we're really doing that, and our edge is leveraging the intellectual capital and the flow of the firm. Our newest platform is what I call TPM, Total Portfolio Management, which helps LPs build really large customized portfolios under our management, and there's very significant demand for that today. And then we also have an MLP, Master Limited Partner business, Harvest, which couldn't be in a better spot of the markets today given the tailwinds in energy and power.

So look, with the track record, the power of the Blackstone platform brand, it was also from an innovation standpoint, a great time to introduce a private wealth-oriented perpetual product, which we call BXHF. And that leverages the capabilities across the whole BXMA business and the firm, and we had a strong start out of the gates in August with the first close of over $200 million. So overall, BXMA, I think, is positioned to again be a growth engine for the firm.

Great. That was a good segue to the wealth business, which I want to ask you about. So maybe just high level, can you give us your latest holistic view on the channel? How are advisers thinking about allocations? What inning are we in?

We're still in the early stages of investor adoption in what's a channel that has an addressable market of $140 trillion or so, depending on how you count it, but is -- has low single-digit penetration today. We do think we have the market-leading business. We've been on this journey in private wealth for 24 years with a dedicated business for the last 15. Today, individual investors are about 1/4 of our assets as a firm. We do think we offer the deepest and broadest product set including the largest vehicles in the market in each of real estate credit and private equity.

And we got here through relentless focus on performance and the client experience. That, in turn, gives us a license to innovate and that powers the growth of the business overall. So that's the simple formula. We're continuing to see strong results in the channel despite the market turbulence. Sales for perpetuals in private wealth increased sequentially in the third quarter. And alongside that, we expect realizations to be down sequentially in the third quarter. And we are receiving a highly constructive tone with distribution partners, FAs, underlying clients.

And longer term, to your question, we just think the business can be much larger than it is today. And with respect to the next legs of growth and the next elements of our growth plan, there are multiple pillars. First is product innovation, multiple product launches underway. I talked about the multi-asset opportunity through our alliance with Wellington and Vanguard. Two products have just been launched by Wellington. We're seeing good early indications of interest with more Blackstone products in development, including for the retirement channel. BXHF, which I just touched on, extends our wealth platform further into liquids and as always, much more in the lab.

Second, expanding distribution. We think there's a long runway. We can go much deeper within the existing footprint, expanding into new subchannels like the RIA area and around the world, Japan, Canada, Australia, looking at Korea and Taiwan in the near term. Third, just education efforts to drive growth. Our brand is a key enabler. We've hosted in the last 12 months, more than 50, what we call these Blackstone Universities, BXUs. One metric is our web traffic across our own education platform is up 3x year-over-year. Fourth, technology, which improves efficiency, and I think will broaden access over time. Today, that largely sits at the distribution level, but I think that will be an increasing opportunity over time for us.

And then retirement, there's a massive opportunity, of course, in retirement and defined contribution. Over time. here, we're the only firm with the key large-scale building blocks across key asset classes, and we think that positions us exceptionally well to deliver solutions to the channel when combined with our brand. And we've -- we're rolling out CIT, collective investment trusts, prepping target date funds, and we're hopeful for the Department of Labor to provide the final rule by year-end or early 2027. And so just taken together in private wealth, we're really optimistic about the opportunity ahead.

Great. Let's talk about direct lending a little bit. So maybe first of all, credit more high level. How would you describe the current health of the direct lending portfolio? Maybe touch on your software borrowers, which for the industry have been the topic of a lot of discussion. Are there any kind of different trends within kind of that sub-asset class? And then maybe can you give us some color on the latest BCRED redemption trends, what you're seeing around the world and kind of your read on how the results shook out?

Sure. Just stepping back on the broader credit platform, if I could, for a minute. We have the largest third-party focused credit platform at $550 billion of AUM. That includes direct lending, where we have 1 of the 2 largest businesses globally, but that's just one piece of the broader business. Our platform -- credit platform includes the largest CLO business globally, the largest real estate private credit business and something we call IABC, infrastructure and asset-based credit business. That's over $125 billion today and is growing rapidly. It grew 28% year-over-year in the second quarter.

In terms of investor demand, there's lots of action today in private investment grade and the IABC area. And we're really seeing strong demand from insurance clients and also pension funds and other LPs increasingly interested as well in that space. In direct lending, specifically, despite the recent softness in the individual channel, the demand from institutions remains favorable. They recognize, I think, increasingly attractive lending backdrop. Direct lending spreads have widened 25 to 50 basis points since the beginning of the year with low loans to value. So that's a very attractive environment to allocate capital.

In terms of the health of the direct lending portfolio, I just see credit quality remains resilient overall. EBITDA growth across our BCRED borrower base was 10% over the last 12 months. Interest coverage up nearly 50% since the first quarter of 2024 to about 2.3x on average. Defaults across our private credit portfolio remained low in the second quarter. We'd expect them to move higher off those historic low levels, but believe they will be manageable and not suggestive of a significant deterioration in overall credit.

Importantly, as you know, our direct lending portfolio benefits from a number of structural advantages that we've talked about senior secured, 40% or so loan-to-value at setup. High current income is a ballast to returns. And over nearly 20 years and through multiple market cycles, our realized loss experience has been exceptionally low. On software specifically, our borrowers in that area are performing well overall and continuing to post double-digit EBITDA growth and at a higher rate than growth rate than our broader portfolio that I mentioned.

On BCRED, we posted third quarter repurchase request a few weeks ago, which to us was overall encouraging. We saw a sharp decline in new requests quarter-over-quarter. And importantly, investors who submitted redemption requests in Q2 and Q3 will have received about 75% of their capital back. And what this means is in 2 to 3 quarters, investors who sought liquidity will have been substantially redeemed. And that's the semi-liquid structure at work, all while receiving substantial current income around 9% annualized yield.

And then meanwhile, we had in the quarter, $3.5 billion of repayments and inflows, which will cover the shares repurchased by about 160%. So that still allows us to build firepower to invest in attractive opportunities. So we launched BCRED nearly 6 years ago, and it was based on the premise of delivering premium income and attractive risk-adjusted returns across market cycles. And the results reflect that. It's 9% net return inception to date, outperforming leveraged loans by around 300 basis points over that time period.

As I mentioned, the current 9.1% distribution rate, 180 basis points ahead of leveraged loans. And to us, these tests of a product like this are ultimately a good thing. We think they show the long-term durability and resiliency of these products and educate and validate the semi-liquid structures and how they work through the cycle.

Great. Maybe just one final question for you. Putting all of this together, as you think about Blackstone shares, to what extent do you think that your optimism is reflected in what you see in the market? And maybe what other pieces do you think the market may be missing?

Well, you won't be surprised to hear. I mean, we believe the market continues to underappreciate both our near-term earnings power and the long-term positioning of the business. I think with the passage of time, even just in the course of this year, many of the perceptions of headwinds that weighed on our sector earlier this year are abating, whether that's concerns about private credit, private wealth flows overall, capital markets. And longer term, the secular shift to private markets continues, and we think Blackstone is a clear leader in the reference institution.

So we feel very good today about the direction of travel for our business, near, medium and longer term. And our market position and our earnings power, all 3 of those. And we think our share price will be an output of that over time.

Great. Well, we'll leave it there. Michael, thank you so much for being here. What a pleasure to have you.

Thanks, Ben.

Appreciate your time.

Good day, and welcome to the Blackstone Second Quarter 2026 Investor Call. Today's conference 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.

Thank you, Katie, and good morning, and welcome to Blackstone's second quarter conference call. Joining today are Steve Schwarzman, Chairman and Chief Executive Officer; 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 everyone 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. 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. On results, we reported GAAP net income for the quarter of $2.4 billion. Distributable earnings were $2 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 August 3.

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

Good morning, and thank you for joining our call. Blackstone reported outstanding second quarter results with distributable earnings up 26% year-over-year to $2 billion, as Weston mentioned, approximately the same rate of earnings growth we delivered in the first quarter. Fee-related earnings grew 22% year-over-year in the second quarter, while net realizations rose 27% despite the geopolitical volatility. Total inflows reached nearly $70 billion in the quarter and over $260 billion for the last 12 months, lifting assets under management 11% year-over-year to a record $1.35 trillion.

The most significant driver of these strong results continues to be the large-scale investments we made in artificial intelligence-related areas, including data centers, energy and power and the frontier AI companies themselves. These investments are leading to standout results in numerous strategies across the firm and are supporting our momentum in fundraising, deployment and as we start to monetize some of the substantial gains we've been building in these areas in performance revenues.

Over the past several years, we've been regularly sharing our views on the transformative potential of AI and how we've been positioning the firm to benefit from the paradigm shift that is underway. Blackstone has become one of the largest private capital providers in the AI ecosystem, a position that gives our investors unique access to the remarkable opportunities emerging in this area and allows them to share directly in the extraordinary potential upside. Many of these opportunities, of course, can't be replicated in the public markets. We built the largest data center development business in the world and demand for compute is accelerating.

We became one of the most active private investors in power and utilities and energy demand is significantly rising. And we invested directly in some of the fastest-growing private companies in the world, including Anthropic, OpenAI, and SpaceX. And we're now creating new companies and platforms that we believe will play a critical role in the advancement of AI, including 4 in the second quarter alone. First, we teamed with Google to build a new AI cloud provider powered by their TPU chips, investing up to $5 billion initially. We think this business has the potential to scale quite significantly over time as the first neo-cloud for TPUs.

Second, we partnered with Anthropic to form a company focused on driving enterprise adoption of their AI-powered solutions, helping firms to realize the vast potential of this technology. Third, we joined Broadcom and another manager to create a financing platform in support of Broadcom's deployment of large-scale AI compute for their end customers. The platform provided $35 billion initially to deliver 1 gigawatt of compute, representing the largest private credit investment in history with much more to come.

And fourth, alongside these partnerships with leading AI companies, we launched a Blackstone REIT known as BXDC, something public market investors can access directly to acquire stabilized newly constructed data centers. The $2 billion offering represented the largest blind pool REIT IPO in history, a testament to our leadership position in this sector. The market for long-term ownership of stabilized data centers is nascent today, but we think it could grow to $1 trillion over time and beyond, representing massive potential for BXDC.

In addition to these new ventures, we're seeing extraordinary momentum in our data center platform, which has grown to $185 billion of total value, including facilities under construction, up from $130 billion at the start of just this year. We expect to lease over 3x more capacity this year than any other year in our history. If we execute on our pipeline, our data center platform could double over the next few years. Growth of this type, underpinned by long-duration leases with some of the highest quality and most creditworthy customers in the world is a compelling illustration of what can be created in private markets.

And while it's still early in the life cycle of our data center investments, as one indication of their significant embedded value, we recently sold our stake in a collection of fully leased assets that are still under construction at a multibillion-dollar gain.

Meanwhile, in energy, we continue to actively invest to help meet rising global demand, including in utilities, utility services, renewables, pipelines, LNG, and electrical equipment across both equity and debt. We've generated highly differentiated returns for LPs in these areas as well as highlighted by the performance of our energy-focused strategies. Last week in credit, we announced a $5.3 billion investment for leading energy infrastructure company, Williams, to support multiple development projects to power data centers. This investment provides yet another example of Fortune 500 companies looking to private markets for customized long-duration capital solutions.

I'm sharing these examples to highlight the remarkable scale of capital needed for the AI build-out and the unprecedented opportunities it's creating for Blackstone and our investors. At the same time, there are investment risks and uncertainties that accompany the rapid growth of AI, along with important societal considerations. In terms of risks, we're mindful of the potential for excessive exuberance in this area, and we've carefully chosen our spots, leveraging our scale and knowledge advantage to build conviction. We focused on identifying compelling risk-adjusted returns with outside upside potential and in many cases, meaningful downside protection.

On the societal implications of AI, I've been extensively engaged on this topic since I made a major donation in 2018 to MIT establishing the Schwarzman College of Computing. And this includes a focus on AI safety. I've been spending a lot of time with leaders in the industry and various policymakers thinking about how to address this critical issue while also preserving the advancement of America's AI leadership.

In addition, the firm is working closely with our portfolio companies, including our data center businesses to address the workforce, environmental and community implications of development through the creation of union jobs, workforce training, water-free cooling systems, expanded power generation, and significant local economic investment. Our goal is for these projects to contribute to the success of the communities we serve.

Overall, I believe the potential change from AI has precedent in the industrial revolution and the commercialization of electricity. Each time in history, there's been this type of dramatic change, economies have adjusted and the standard of living for virtually everyone in society has improved over time. We believe the future impact of AI will echo these previous periods, but with more rapid implementation and complexity. Major change of this type also creates anxiety due to the uncertainties of how the technology will evolve and its ultimate impact. We will need to monitor these developments as a society and course correct when necessary.

In closing, we are in the early days of what I believe will be the most consequential transformation in industry and markets in a generation. Private capital will play a vital role in these advancements and Blackstone is the leading firm. I have great optimism for what's in store for our investors. And for shareholders, our stock is on sale today, and we believe it represents one of the most inexpensive ways to participate in this extraordinary megatrend.

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

Thank you, Steve, and good morning, everyone. The seed planting we've been doing across the firm around AI and AI infrastructure is generating outstanding returns. A relentless focus on investment performance remains our true north. Our clients are responding with robust inflows across all of our major fundraising channels, institutions, insurance companies and individual investors, the Three I's. At the same time, the IPO market is strengthening, setting the foundation for greater realizations and performance revenues over time.

I'll speak about each of these dynamics in detail. Starting with our institutional business, which remains the core engine of our firm. Investor affinity for Blackstone is as strong as ever, and we're seeing our momentum accelerate across numerous areas. In infrastructure, we launched our dedicated platform 8 years ago. And today, it is a rocket ship with AUM growing a remarkable 40% year-over-year to $90 billion. AI is powering our investments in digital and energy infrastructure, in particular, leading to 18% net annual return since inception for the commingled EIP strategy.

Meanwhile, our multi-asset investing business, BXMA, is experiencing a renaissance. We originally entered the hedge fund of funds business in 1990 and effectively relaunched this platform in 2021, when we brought on Joe Dowling to lead it. BXMA has now delivered 25 consecutive quarters of positive returns for its largest strategy, with Q2 representing the best returns in 6 years. AUM reached a record $109 billion, up 21% year-over-year, representing its fastest organic growth in nearly 15 years when the segment was less than half of its current size. Post quarter end, on July 1, BXMA reported an additional $4.8 billion of monthly inflows, its best single month of fundraising in history.

Turning to our institutional drawdown area, which is accelerating. We are raising a new cycle of funds across a number of highly differentiated strategies. Three of these funds hit their hard cap so far in 2026, with excess demand in opportunistic private credit, life sciences and Asia private equity, and we expect our new private equity energy transition flagship to hit its hard cap soon as well. Taken together, these 4 strategies represent nearly $40 billion. Our Asia PE flagship held its final close in the second quarter, raising $13.1 billion, more than double the previous vintage on the back of a 27% net annual return in the prior fund since inception.

Our decision to focus on India, where we believe we have the largest alternatives business and Japan has been a key driver of this performance. Our fifth key energy transition flagship closed on nearly $6 billion in the second quarter, already equal in size to the prior vintage on its way to an expected $8.7 billion. In secondaries, we've raised over $14 billion to date for our new buyout flagship with a target of at least $22 billion. And in credit, we held closings for new drawdown vehicles in direct lending and asset-based finance.

Overall, our institutional business has extraordinary forward momentum. Stepping back for a moment on credit, where our combined platform has grown to nearly $550 billion across corporate and real estate credit, up 13% year-over-year. Inflows were $33 billion in the second quarter or nearly 50% of the firm's total. We're seeing continued strong engagement with institutions across our non-investment-grade strategies despite the market noise earlier in the year. At the same time, we're benefiting significantly from the massive secular shift underway toward investment-grade private credit. A new direct-to-customer model has taken hold, which brings clients right up to borrowers, leading to a better experience for both.

In the insurance channel specifically, this model is resonating as is our open architecture approach. Our insurance AUM reached $290 billion in the second quarter, up 15% year-over-year, representing the largest third-party focused platform in our sector. We announced a new partnership with Japan's largest life insurer, Nippon Life, in which we will deploy approximately $10 billion in private credit over the next several years and also invest in their domestic real estate portfolio. This builds on our existing relationship with Nippon Life through their investments in Corebridge and Resolution Life, both of which are major partners of ours.

In total, we now have 40 clients in our dedicated insurance solutions area, a number which has nearly doubled in the past 2 years, and we continue to add more on a global basis. We're building something highly differentiated in this channel and have established a massive scale advantage with the combined strength of 40 of the leading insurers in the world, all without taking on insurance liabilities.

Moving to private wealth. Performance and brand are the ultimate determinants of success in the wealth channel, and Blackstone is a leader in both. Despite the geopolitical turbulence and muted flows in credit, our AUM in the channel grew 16% year-over-year in the second quarter to a record $324 billion. Total sales were $8.6 billion in the quarter with a slower pace in April and May when sentiment related to the Iran conflict was most negative, but a strong recovery in June. This momentum has continued so far in Q3.

BXPE led the way again in the second quarter with $2.4 billion raised, bringing its NAV to over $25 billion in only 10 quarters. June represented the best month of sales since launch at $1.2 billion. BXPE has achieved a remarkable 20% net annualized return since inception for its largest share class, including approximately 8% net in the second quarter, powered by its outstanding portfolio positioning. Our infrastructure vehicle in private wealth, BXINFRA raised approximately $900 million in the second quarter, bringing its NAV to $6 billion in just 6 quarters, underpinned by a 16% annualized net return in its largest share class.

BREIT raised $1.2 billion in the second quarter, while repurchases continued to decline sharply, falling 42% year-over-year and down 33% sequentially from Q1, resulting in the best regular way net flows in nearly 4 years. The vehicle has generated a 9.4% net return for its largest share class since inception 9.5 years ago, approximately 40% above the public REIT index, including 10.3% net for the last 12 months. BREIT's investment in data centers, which now comprise 27% of the portfolio has been particularly helpful. NAV increased 7% year-over-year to $57 billion. BREIT is clearly back in growth mode.

Finally, BCRED's gross sales were $1 billion in the second quarter, where purchase requests remain elevated and exceeded the 5% limit with approximately 50% fulfilled, resulting in net outflows of $1.2 billion. The semi-liquid structure of BCRED and our private wealth perpetuals is designed to provide greater liquidity than traditional drawdown funds while protecting performance. We have been here before with BREIT. And while it is early in the third quarter, redemption requests are down materially.

Looking forward, our performance supports innovation. Yesterday, the first 2 funds in our alliance with Wellington and Vanguard officially launched WVB All Markets and WVB Blackstone All Privates with inflows expected to start later this quarter. These funds provide individuals with simplified access to 3 world-class asset management firms, including the full breadth of the Blackstone platform. Together, the alliance is actively exploring additional strategies, including for the retirement market. And later this summer, the firm expects to accept our first subscriptions to BXHF, our new perpetual multi-strategy hedge fund product targeting more liquid exposures. Adoption of private markets in the wealth channel remains on a structurally positive trajectory and Blackstone continues to lead the way.

Finally, turning to the IPO market, which has strengthened considerably. At the start of the year, we predicted that 2026 would be the year of the IPO, and that is what's playing out. In the first 6 months of the year, U.S. IPO activity increased sixfold compared to the same time last year, while global issuance rose more than 3.5-fold. Against this backdrop, Blackstone has executed 3 IPOs since May, a mobile advertising business in the U.S., an office REIT in India and the firm's stabilized data center REIT, BXDC. This week, we launched another significant IPO in the U.S. In total, we have 8 IPOs on file globally from a diverse range of sectors and geographies. While geopolitical developments will continue to impact markets, we are optimistic on the direction of travel with our IPO activity providing the foundation for greater realizations over time.

In closing, our highly diversified capital-light performance-driven model continues to deliver. I'm extremely confident about the future.

With that, I will turn things over to Michael Chae.

Thanks, Jon, and good morning, everyone. The firm's continued evolution and the expanding scope of our activity have fundamentally transformed our earnings power, both in terms of the magnitude as well as the breadth of sources of earnings. In the second quarter, we again delivered over 20% year-over-year growth across total revenues, fee revenues, fee-related earnings, net realizations and distributable earnings, following a similar trajectory for these metrics in Q1. Meanwhile, our funds reported strong overall investment performance against a backdrop of significant geopolitical uncertainty, highlighted by notable strength in our AI-related portfolio, as you've heard this morning.

Starting with results. Distributable earnings increased 26% year-over-year to $2 billion in the second quarter or $1.52 per share, underpinned by one of the 3 best quarters of fee-related earnings in our history, along with robust growth in net realizations. First, with respect to FRE, which increased 22% year-over-year to $1.8 billion or $1.43 per share. Fee revenues also rose 22% to $3 billion, with double-digit year-over-year growth in all 4 of our segments, 32% growth in Private Equity, 21% in Real Estate, 18% in BXMA, and 11% in Credit.

In terms of the underlying drivers of fee revenue growth, transaction and advisory fees for the firm nearly doubled in the second quarter to a record $321 million and were up 52% sequentially from Q1. The expansion of our platform and overall levels of financing and investment activity has led to a material step-up in these revenues, representing an important and underappreciated engine of fee revenue generation. Further, fee-related performance revenues increased 68% year-over-year to $793 million in the second quarter, powered by the scaling and strong overall investment performance of our platform of perpetual strategies. These revenues increased nearly threefold for both BXPE and BREIT alongside contributions from BCRED, BIP, BXINFRA and other vehicles.

Base management fees for the firm grew at a mid-single-digit rate year-over-year, in line with the trajectory we previously outlined. We saw strong double-digit growth in base fees in private equity and BXMA, some deceleration in year-over-year growth in credit related to the BDC area and a decline in real estate due to harvesting activity in the BREP opportunistic funds and headwinds in our institutional Core+ business, as I mentioned last quarter. We continue to expect similar year-over-year base management fee growth for the firm in the third quarter as in Q2 with a return to double-digit growth in base management fees in 2027.

Turning to net realizations. We reported $414 million in the second quarter, up 27% year-over-year. Gross performance revenues grew 32% year-over-year to $731 million, underpinned by a 20% increase in private equity, while real estate performance revenues rose nearly fivefold to the highest level in 4 years. We noted last quarter that the geopolitical volatility had pushed out exit pipelines and slowed realization activity in the near term. Even so, we were able to execute a number of dispositions across the firm, including the data center sale that Steve discussed, along with multiple realizations in the energy portfolio. These included a manufacturer of engineered structures for electric transmission, natural gas pipeline, the Europe-based environmental services firm and the public stock of an energy solutions company.

Overall, the firm's embedded realization potential is significant. The net accrued performance revenue on our balance sheet, our stored value now stands at $7.5 billion or $6 per share, the highest level in 4 years, up 13% year-over-year and up 7% sequentially from Q1. And while we do expect a sequential deceleration in net realizations in the third quarter, we anticipate a robust fourth quarter and 2027. That brings me to investment performance, which, as Steve mentioned, was highlighted by outstanding returns in numerous strategies driven in significant part by our AI-related portfolio. This was illustrated in our returns in infrastructure, our dedicated energy strategies, BXPE, BREIT and the most recent vintages of our corporate private equity and real estate opportunistic funds, which have favorable exposure to this area. BXMA's strong overall returns also benefited from its positioning in the AI area.

For the firm overall, AI-related holdings comprised 9 of the 10 largest markups in the second quarter. Our dedicated infrastructure platform appreciated 7.2% in the quarter and an exceptional 29% for the last 12 months. U.S. and Europe-focused data center business, QTS, was once again the largest single driver of appreciation in infrastructure, real estate and for the firm overall in Q2, driven by continued extraordinary leasing momentum. We also saw significant gains across other data center investments in the U.S. and Asia. The corporate private equity funds appreciated 3.7% in the second quarter and 14% for the last 12 months. Our holdings in power and electrification, both private and public, along with strong performance in Asia were the largest drivers of Q2 returns.

The most recent vintages of our corporate private equity strategies were the best performing, powered by these areas, including appreciation of 6.1% in the quarter for our latest global flagship, 8.8% for Asia, and 23.6% for our most recent fully invested energy fund. Overall, our private equity operating companies continue to report healthy underlying fundamentals, including revenue growth of 11% year-over-year. BXMA reported a 5.8% gross return for the absolute return composite in the second quarter and over 15% for the LTM period. BXMA has delivered positive composite returns in each of the last 25 quarters, as Jon noted, and in 38 of the past 39 months, a remarkable achievement, notwithstanding the significant volatility in public markets over this period.

Strong investment performance across the BXMA platform in Q2 led to the segment's highest dollar fund appreciation in history and is supporting robust inflows and continued double-digit year-over-year growth in AUM. In credit, our noninvestment-grade private credit strategies reported a gross return of 1% in the second quarter and 7% for the last 12 months, reflecting stable underlying credit performance across the vast majority of our holdings with strong current income providing ballast to returns. Here, too, our energy funds outperformed with our most recent BGREEN III reporting a 4.5% gross return in the quarter.

Finally, in real estate, overall values appreciated modestly in the second quarter, led by strength in data centers, partly offset by declines in life sciences office and certain other areas. While the recovery in commercial real estate has been impacted by the increase in base rates, our platform remains well positioned with data centers, logistics and rental housing, now comprising nearly 80% of the global equity portfolio. In logistics, our largest exposure to real estate, we're seeing U.S. leasing activity meaningfully reaccelerate.

And for data centers, it's hard to overstate their importance and impact. The most recent vintages of our BREP Global and Asia strategies, which appreciated 7% and 3.7% in the second quarter, respectively, along with our BPP U.S. institutional Core+ vehicle and of course, BREIT are benefiting significantly from their growing exposure to data centers. So overall, AI is helping to drive investment performance across the firm, particularly in the latest vintages of our funds.

In closing, we're in a time of massive demand for capital to fuel historic growth in the most critical areas and private markets are the solution. For Blackstone, the breadth, scale and reach of the business we built over 4 decades have put us in a unique position to be the leader in providing these solutions.

Thank you for joining today's call, and we would like to open it up now for questions.

[Operator Instructions] We will take our first question from Glenn Schorr with Evercore.

Maybe we'll pick up where you just left off, Michael. I respect all the 20-plus percent growth numbers that you all ran through. You got a lot of capital raising, a ton of dry powder and all the seed planting. So the question on base management fees, I heard you on third quarter, but let's just go out to next year where we and the rest of the world is expecting more of like a double-digit pickup. Could you possibly talk through some of the building blocks and the pieces that get us there if that happens, is deployment, the fee holiday roll-offs, credit stabilizing, things like that, that would be helpful. Appreciate it.

Sure, Glenn, thanks. And as you heard from my remarks, we have that expectation, too, about double-digit growth next year. We feel very good about the foundation being put in place. In terms of the building blocks you mentioned, there are a number of fundamental and very positive drivers that support our view and really are about the embedded growth we see going into next year. So first, the full year benefit of the private equity segment drawdowns that will activate -- we've activated or will activate this year. So that's our SP X fund, our Asia III fund in BCP, our energy transition fund.

The second, I'd say, the seasoning and expansion of perpetual strategies, particularly across our flagship private wealth vehicles and our infrastructure platform. So as you know, as Jon said, our BXPE NAV, $25 billion, that's up 2x year-over-year. Our infrastructure business, up 40% year-over-year, BXINFRA, new product introductions. So that is a very positive picture. And I would add to that, in BXMA, in a similarly NAV-based business, by and large, AUM is up 21% and performance and net flow activity remained exceptionally strong. And then in credit, we see underlying positive growth in credit insurance across the institutional insurance channels. We look to an eventual stabilization in retail flows. AUM, as you know, for the whole business is up 15% year-over-year. Inflows are healthy.

The IABC portion of that business, really private investment grade, up in the 20% AUM area year-over-year. The insurance business, AUM up 15% year-over-year. And importantly, you referenced dry powder. Our credit business overall ended the quarter with $84 billion of dry powder, which, as you know, largely earns fees as it's invested, that dry powder balance is over double where it was at the beginning of 2024 and almost 1/3 larger than just the beginning of this year. So that's really this built-in sort of coiled spring as it relates to expanding management fee growth.

And then finally, and importantly, we see stabilization in the real estate base fee trends next year. So if you take those pieces together, we think we're well positioned for a very strong 2027. And then I would just add finally, in the meantime, as you know, beyond base management fees, the firm today really benefits from a significantly broader fee-generating platform. And as the results in this quarter demonstrated, that includes the growing scale and contribution from transaction fees and fee-related performance revenue. So in the first half of the year, total fee revenues were up 21%. So we think that it's a very positive picture about 2027. In the meantime, the overall fee revenue base showing strong momentum.

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

I would love to double-click on what you guys are seeing in the wealth channel. Jon, a couple of positive remarks, I think you mentioned as far as the third quarter goes. So maybe what are you hearing on the ground on BCRED performance year-to-date. I think it's a little challenged still, but it sounds like you've seen some improvement in redemptions. So I would love to get into that a little more. And then ultimately, also on the new products that you launched with Wellington and Vanguard, would love to just get your perspective on how you're planning to scale these products and the flow-through to the management fees ultimately for Blackstone from them?

Thanks, Alex. The wealth platform is in really terrific shape. AUM, as we mentioned, up 16% year-on-year to $324 billion. We saw a recovery in flows certainly towards the end of the quarter, which we talked about sort of in the heart of both the credit and the war, we did see a little bit of a deceleration. And we're now back to the levels we were in the first quarter on a monthly basis. The mix has changed, obviously, with a lot of strength, as you heard in BXPE, BXINFRA, BREIT has much more momentum, but more muted inflows on BCRED, which given the volume of noise is to us, not a surprise. I would reaffirm what I said, which is, it's early in the quarter, but the redemptions in BCRED are down materially, which is positive.

So I think you've got to look at this overall platform and think about it holistically. The strength of our brand, the strength of our distribution team, our global reach, the performance we've provided, the confidence we built with financial advisers and clients. This is a very special thing that's been built. And we think the potential for it to grow is quite enormous with those initial sort of 4 flagships, but then with new product launches, the hedge fund product we talked about.

And then to your point, Wellington and Vanguard. These are 2 amazing firms who have long-storied histories, who are focused on investment performance as we are and the idea of creating products that are one-stop shopping, integrated, where you have all the Blackstone privates together or the Blackstone privates along with actives, passives, equity, fixed income, putting that together and making it easier for investors to access these products.

There are also different standards in terms of where they sit in terms of -- because of the structures here with Wellington as managers as opposed to what we have today, a number of our products are limited to qualified purchasers. Here, there's a larger universe of potential buyers. And there are folks who want just, I think, a simpler, easier solution.

We're excited. It will take time like everything to build these things, but it's a couple more engines we're adding. And I think we do offer something that is really unique. And again, performance is so important. If you look at BREIT relative to real estate products, you look at how BCRED has performed since its inception, you look at BXPE and BXINFRA over the last couple of years, that is remarkable, which is why we think we have built so much loyalty with the customers.

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

I just want to ask about AI. If AI compute increasingly becomes a scarce economic resource. Could we eventually see compute capacity in your view, emerge as a stand-alone investable asset class similar to what we see in real estate infrastructure or energy. Can you talk about how you're positioning for that? And maybe that kind of dovetails with the new REIT BXDC, where you mentioned a massive opportunity to get to $1 trillion. Maybe you could just unpack some of the building blocks and how you see some of the near-term versus medium-term milestones to make progress and sort of hit that over time.

It's a great question, Mike. We definitely see today a global shortage of compute. And there's obviously a lot of dollars being invested, but the dollars are not keeping up with the demand, and we see that on a lot of fronts today. When we talk to our hyperscaler friends, the large language model companies, our friends there, they all would want more capacity. And so as we have this energy shortage in places, there's now some community pushback. We obviously have chip shortages today in memory. It is making it harder to keep up with the pace of demand.

And I do think ultimately that -- what that means is those things that are built and operating are worth more. Data centers are a great example of that. We've seen benefits, obviously, for the neoclouds, which can deliver compute more real time. And I do think what this is going to mean is a market will grow to be very large in the real estate world. We saw this in the mobile tower business. I think we'll see this here. I think BXDC has the potential to grow significantly because there's not just data centers that are owned by the developers and investors like us. There's also an enormous amount of data centers on the balance sheets of the big hyperscalers. So as they need more capital, I think you'll see some of these things sold.

And then the energy assets also, I think, become increasingly valuable as well and the infrastructure around that. We've done a lot of investments in the midstream space, pipelines, LNG, that becomes more valuable. So I do believe the components of compute because of the shortage of compute, will increase in value, and we've positioned us, particularly in infrastructure, where Sean Klimczak and his team have done just a terrific job, but also in the real estate and our energy transition business, we've got a bunch of places where we're exposed to what's happening here. And I do think it points to, at least in the near term, a continued shortage and therefore, values going up.

And Mike, it's Michael. I'd just add that basically almost every business at the firm that we've built over decades is now in position and has acted on this to be a capital solutions provider to this whole ecosystem. So whether it's credit, infrastructure, real estate, energy, private equity, hybrid capital and tech ops, our BXPE vehicle, the BXMA area as it relates to more liquid parts of the market, just this breadth, diversity and scale of the business we've built puts us in a position to basically have a capital pool that can be a solution for every need in this area and the needs are massive.

And so you mentioned sort of the single pool of capital. I would just say we can keep innovating. You mentioned BXDC around this -- around the existing platform businesses in a really, I think, exciting way.

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

My question is on real estate. And I know this hasn't happened in more than 4 years, but public REIT stocks are outperforming the S&P 500 year-to-date. And as you know, very few asset classes have been able to keep pace with U.S. large caps. Now despite this private real estate returns and opportunistic drawdowns in Core+ have still lagged publics. So I'm wondering, do you have any line of sight into private returns and also how this could translate into demand for private real estate across your LP base?

Well, Craig, I'd start with what's happening on the ground with the fundamentals. There has certainly been a headwind last year with Liberation Day and now this year with the war that have kept rates elevated. But sort of underneath the covers, there are a number of positive things happening, which is why I think the public REIT market has moved, and you see that at times that the public markets are more forward-looking. And what's happening is there's been a sharp reduction in new supply, and that is starting to have an impact. The area where it's moving first is in logistics and the warehouse business, which is our biggest asset class.

We saw very strong leasing in the first half of the year at our Link Logistics platform in the U.S. which is up 26% in leasing volume. We're seeing occupancy now and rents start to increase. And investors are seeing this. We're now seeing some large-scale M&A in the public markets with Prologis, what looks to be likely a successful takeover of a $25 billion logistics company in the U.K. in SEGRO. I think these are good signs. I think this will be the first asset class that really starts to emerge in real estate, and that is good for us over time. But yes, the public market anticipates this.

We've also seen strength in hotels. Last year, we saw negative same-store RevPAR. This year, nationally in the U.S., it's plus 5%. That's a very positive sign. We've leaned in, in places like San Francisco, again, a bit AI derivative. We bought 3 hotels in the last 6 months. We feel very good about that. And interestingly, in the office market, which has been in a tough spot for a number of years, in a place like New York, vacancy has fallen from 21.5% to 14.5%, which is a very good sign. We're also seeing -- you mentioned the public REIT market, which is strong, but the public debt market, the CMBS market, volumes are up 23%.

So I would say near-term headwinds slowing things down because of rates moving up. But I think once we get past the war and we see that start to settle down, the underlying strength in fundamentals and investors' desire to invest in hard assets in a world where there's a lot of uncertainty, I think you'll begin to see this real estate recovery in the private sector pick up pace.

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

Maybe just a big picture question to change topics for a second. So I was listening to Steve's comments about Blackstone being a cheap way to play the opportunity in AI and infrastructure, and we would agree wholeheartedly with that. How does that inform your views on capital return from here? Stock is down significantly from its highs, obviously bouncing a bit today, which is great to see. You have a big payout. Any thoughts of maybe rejiggering the payout rate, stepping in on buyback a little bit versus de novo growth? And maybe how are you just thinking about capital allocation from here?

Bill, thanks. It's Michael. Yes. Look, I think we've been committed to our capital policy for a long time, which, as you know, is basically returning 100% over time of our cash earnings back in the form of our dividend, which I think today is at like 4x the S&P yield on a yield basis. And then also a more moderate but sort of consistent buyback program, all to add up to that sort of total return of our cash earnings.

So we think over the long run, that's been a sound policy for us. It does reflect sort of our business model and the relative capital-light orientation of it. We certainly have scope to look at that over time and more opportunistic use of capital as it relates to the stock. But we try to be consistent and committed to our policy, and that's kind of where we are today on that.

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

Great. Maybe just to go back to the really strong momentum in fundraising. It looks like you're now on pace to potentially match or exceed your record year in 2021. So maybe just talk about the confidence of that. I know there's different timing, of course, with the drawdown funds. But as you think about it more broadly, just thinking about that growth momentum across private wealth, credit, obviously, the whole AI and data center theme and increasing inflows in insurance. Are you expecting that fundraising pace even after potentially a really strong year this year to actually continue to grow into '27 and longer term beyond?

Brian, it's a good question. It's hard to put your finger on it. What we can point to is that we've been in a world of pretty high volatility. And I think it speaks to the resilience and breadth of this franchise. And we managed to raise obviously very significant amounts of money, and we're doing it across all 3 of these channels. So you heard about it on the institutional side, where we have a number of funds that are exceeding their hard cap in terms of demand. We talked about our BXMA business, which has really renewed momentum, our infrastructure business, which I think will continue to grow at a really breathtaking pace. It is a bit slower in real estate. But remarkably, that business, despite its slowness in fundraising, we're still producing these very strong results. So when we get to the other side on real estate, that gives me a lot of confidence with the firm overall and where fundraising can move to.

On the insurance side, we continue to see clients responding. I mean we were up 15% to $290 billion in insurance. Those clients really appreciate the premium return we can deliver over comparably rated investment-grade credit. And to Michael's point, we're doing these large corporate solutions that are so needed in the energy space, in the digital infrastructure space. And I think we'll continue to gain clients in that area as well.

And then wealth, despite all the negative headlines, everything, again, up 16% year-on-year to $324 billion, a range of existing products that have delivered and then new products coming online. And I think the thing about Blackstone, it's just the strength of the brand we've built. It is recognized globally by investors. They trust the firm. They trust us across multiple channels, and that is enabling us to continue to grow without having to borrow money or utilize capital at scale. And we really like where we are. We do think in terms of outlook, if we get a more settled landscape or ending inflation, rates coming down, that will be very helpful for the business. So we've got a lot of confidence on the fundraising outlook over time.

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

I guess based on the outlook you gave for management fees for the second half and next year, how should we think about margins in that context, particularly as we think about next year given the growth rates that are expected from the management fee side?

Dan, it's Michael. It's early around margins for next year. But as I said, we're pretty confident about the top line, and we're also confident that our ability to manage expenses and deliver over time operating leverage. So I think we're not going to give a specific viewpoint on that other than to reiterate structurally, we like our margin position.

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

I wanted to dive into the transaction fees. So very strong quarter, looked broad-based across private equity, real estate credit. Are there any lumpy items to call out there? And then, Michael, you talked about this fee stream being underappreciated. Maybe unpack that a little bit for us and what we should be expecting going forward?

Yes. I think that it's really stepping back about the scaling of the firm, the broadening of the firm, the surface area for transaction activity, financing, advisory services that can generate these revenues. And that led to this record quarter and a record first half. And that probably in recent years has been underappreciated, but it's obviously coming to the fore now. And in terms of lumpiness for the quarter, I think, in particular, what's emerged as a really new avenue for this area are these customized capital solutions, these corporate solutions drive to investment grade in the credit insurance area, there's a substantial opportunity for investment-grade rated corporates where we become a trusted solutions provider. And that -- as it relates to transactions in those areas, those can lead to attractive revenues in this area.

And those -- there'll be some variability to that occurring from time to time, but that's a newer sort of strategic area that will continue to grow. So I'd just say while there will be quarter-to-quarter variability in this revenue stream, we do have a considerable pipeline in place for the second half of the year, and the underlying baseline just continues to grow, and our trajectory has been up. And it's really about the expansion of the ecosystem across areas like private credit, infrastructure and so forth.

Yes. I would just say to Michael's point, as the asset base grows, there's just more activity around that asset base. So you could see that areas like digital infrastructure, energy, there's just more and more capital needs, and it's really tied directly to our AUM in a lot of ways. So I do think you're beginning to see this really structural step-up in earnings from this area.

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

Would love to drill down a little bit on realizations. So we've been waiting for recovery in realizations for some time, and you added some color about that ramping in 4Q and into 2027. But could you maybe help us contextualize that expectation? Are there any historical periods that you would point to as a proxy? And how reliant is it on the market conditions, which has sort of been, I think, part of the trouble with trying to nail down timing on this cycle?

Well, I'll just comment on the history. If you recall, obviously, in '08, '09, we had very little in the way of realizations and the engine didn't really ramp back up that time, it was probably 2013. And then over that ensuing period, we had very significant realizations. Here, we've now been in a period of basically 4 years with some similarities, maybe not as sharp a downturn, but this sort of long period of recovery. But short rates have come down. Obviously, the IPO market has started to reopen, and it felt earlier in the year pre the war that this was going to really accelerate. Now it's been delayed a bit. But ultimately, I think we know where this is heading. So I think this -- we do have confidence as we look out towards the end of the year and into '27 that we are going to see a pickup.

And I'd just add on to that. I mean broadly that this has been an uneven recovery in terms of the realization environment. It is one we think will continue to strengthen. But I guess a few particular areas where we're seeing particular momentum. First, I'd say, obviously, and as Jon talked about, the IPO market strengthened considerably. We've made additional IPOs on file. We've been very active. And that's going to provide a foundation for greater realizations over time as these companies season.

So in the corporate private equity complex, about 1/3 of its receivable balance, its NAPR balance is publicly traded and it's growing. And so as we do more IPOs, that will create more public market cap in our portfolio, and that will continue to grow that public NAPR, which is obviously liquid and more easy to translate into net realization.

Second, I'd say within energy transition, there, the receivable balance has roughly doubled in a year. And that really reflects the portfolio we've built around the AI and power ecosystem. And there is in that area, an active M&A market. There's active private sales, both to strategics and other sponsors. We announced something yesterday on this front. So that is a sector that I think is very fertile right now.

And then third, BXMA. We have a scheduled as usual year-end crystallizations in BXMA. It's performing very well year-to-date, as you've heard. And so that is scheduled for the fourth quarter. And where we sit today, that should be quite robust. So overall, if you step back, as I mentioned in my remarks, despite the choppiness in the capital markets sort of volatility, the NAPR overall for the firm has grown to its highest level in 4 years. So we like the position we're in. But as always, we're going to pick the right time to translate this into realizations and sales over time.

We will take our next question from Mike Brown with UBS.

Jon, I wanted to dive in a little bit more to BCRED. You made comments about the withdrawals are slowing here, and we're in the early stages of 3Q. So curious if you think that some of these withdrawals will continue to ease as you move into the onshore redemption window. And maybe just unpack a little bit about what you're hearing from advisers? What do you think is kind of driving that reduction in the withdrawals? Has it been that performance has actually held up quite well. We haven't really seen much in terms of credit issues come through? Or has it been some of the dialogue and education that you've been having with the adviser channel that has really helped ease some of that redemption pressure that we've observed in the prior couple of quarters?

I think it's an important question. I would say as much as anything, it's the level of noise has come down. I think a lot of people were calling for this massive calamity. And when the calamity did not occur, I think sort of the press, what you see on TV or Twitter or in newspapers, that has calmed, which before, obviously was getting clients understandably nervous. They would pick up the newspaper and say, private credit faces this massive problem, and they would call their financial adviser. And that did create a dynamic. I think the key here is what happens in the fullness of time. And do you protect investor capital? Do you deliver positive returns despite all this noise. And I think that's what is going to actually happen.

And so I would attribute to that. Yes, we've done a ton of investor outreach calls, meetings with investors, financial advisers around the world. And yes, I think some of it's the reality. I think this is just natural when these sort of things occur. I actually think what's helpful because we went through this with BREIT in the past. We're obviously today in a very different place. We're going to go through this with BCRED. I'm sure at some point here, we're going to be in a very different place. And what financial advisers and their clients are going to realize, these are long-term products. And if they're in the hands of responsible managers who understand valuation and liquidity, they can deliver premium returns. And that's been the key to BCRED over time as it is with all of our products.

So the short answer is the level of noise coming down has definitely been helpful. And I think the facts on the ground are also helpful. So I think we will work our way through this. There's obviously some carryover from unfulfilled redemptions last quarter, but we will work through that over time. And I feel when I look out into the future, I think BCRED will continue to be a very strong product for us.

We'll take our next question from Devin Ryan with Citizens Bank.

A follow-up question on the data center opportunity. The scarcity dynamics that you described would seem very supportive of the value that's already in the portfolio and what you already own. As you think about deploying the next dollar, do you see the prospective returns being as attractive as what's already in the portfolio? And essentially, just trying to think about, obviously, higher exit prices, greater competition potentially eating into that a little bit versus the flip side of that would just be the supply-demand dynamics you talked about. And maybe it's just too early to start thinking about this, but would love just some sense on how you're thinking about return opportunity going forward there with the dollars coming in.

It's a very different dynamic than typical investment cycles like this, where something generates very high returns and then you get an enormous supply shock coming back the other way, which drives down returns. In this case, because building the compute is so difficult, it's very hard to get the chips today. It's very hard to get the power. It's very hard to get the entitlements. That is meaning that the supply is not matching. The other thing worth noting is because these are very customized and very large, you don't get that sort of Miami condo effect, prices go up and people go out and spec build. These are all long-term contracted for the most part.

And so you're seeing at this point, the shortage is, does somebody have an entitled and powered site. And the fact that we've been doing this now for a long time, not just in the United States, but in Europe and Asia, where we're beginning to see data center demand really start to pick up, that's going to make a difference. Today, we have 15 gigawatts of sites globally that can support $200 billion of data centers where we have the entitlements and we have the access to power. So that today is really the scarce commodity, and that's why the pricing for building these things and the returns has not changed.

And I don't really see much going forward that's going to change that dynamic. It's why we've made such an enormous investment globally in this area and why we think it will continue to deliver very favorable returns. And we've expanded our capabilities with some of the investments we've made in neoclouds around the globe as well. So we're playing this in a number of different ways. But at the end of the day, there is a global shortage of compute. And if you can deliver that, you can earn attractive returns on capital.

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

So I was hoping to drill down into the insurance opportunity. I was hoping to just get an update on what you're seeing in terms of flow momentum, new partnerships. You're clearly seeing really strong growth this year in the mid-teens range, but I wanted to just gauge whether based on the constructive outlook that you provided, whether the expectation is for that to be sustained or whether you envisage a potential acceleration as we look out to -- over the next couple of years?

Well, I would say at a baseline, what we're seeing now in insurers, and obviously, it started in the life annuity space, but it's starting to spread out to the P&C area as well, is a recognition that we need these tools to compete in the marketplace that private investment-grade credit can deliver to you higher returns at higher -- the same or higher ratings levels. And that is very attractive. And these clients have the ability to absorb the liquidity for a portion of their portfolio. So that is sort of the underlying precip that is supporting what's happening here. And we're seeing more and more clients move in this direction. As we form these SMAs, we typically start in one area and then we start to do it in different areas.

In terms of the rate of growth, that will be, I think, a function of both, the continued growth of the platform which we have a lot of momentum in. But then also when we get these new strategic partnerships, those can give you sort of a step function increase. But I would say just as a general matter, spending a lot of time with these insurance clients, they like what's happening here. This is something they want to do. It's something they need for competitive purposes. They like the fact that they can actually reduce their risk level because if you're just dependent on liquid fixed income, you've got to migrate down to BBB or BBB-. You've got to take more risk there and then you've got to have a very -- with your small alternatives or equity portfolio, take maximum risk because liquid fixed income today, everything there that's investment grade is basically sub-100 over.

So the fact that we can produce things with meaningful premiums to that and in many cases, better ratings, that is attractive. So this is a structural trend. And then as you know, we do this with the open architecture model. So we're not out there competing against them. We're serving them the way long-only fixed income managers have done for insurance companies for a long time. So -- and the other thing I would just add, the reason why I think we're scaling is you need scale, particularly in the world we're going into. You need to be able to write large checks. And today, it's really us and some of our other private equity firms who've got a bit of a different model who are out there competing in this arena. I think it's going to continue. I think the momentum will grow. It's hard to put a finger on exactly what the growth rates will be.

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

Maybe just following up on that. You announced a strategic partnership with Nippon Life. You've got 40 insurance partnerships. As you look to these existing insurance partnerships, what is the opportunity to take them beyond the initial scope of the agreements? Can you build on it? And does this play out sort of formally? Or is it informally over time?

It's a good question, Ken. I don't have the numbers in front of me, but I would guess that the majority of the growth that you see today certainly comes from the big strategics and then some of the original SMAs. So the propensity to want to do more is high. We typically start with, call it, $500 million. A number of these partnerships have started to grow into the multiple billions because once they see and get comfortable with the risk return, there's always a little bit of like, hey, what are you doing here? A sense, I want to understand this. And we spend more and more time.

Nippon Life is a great example of that. We've been building this partnership with them over 5-plus years. We've worked closely with them at Corebridge and at Resolution. They see the way we operate. They see the various asset classes, our capabilities in residential, consumer finance, commercial lending, digital, energy, traditional infrastructure. They see what we're doing, and they're comfortable with the approach, our underwriting approach. And I would say another advantage of our business is because we have such a large equity investing business, we have great insights on the credit side. We also generate a lot of flow because we see things have access to things given our positioning in the marketplace.

So I think what you'll see is growth in the existing relationships certainly. And every time we get a new client on, the path is to continue to serve them in a good way and expand the products they touch with us. So that's why this has become an area where we think we can do more. And we're also seeing some more and more interest from them in some of our traditional drawdown funds as well. They become bigger buyers of that as we build this relationship. We spend more time with the key investment professionals and the CIOs. The key is to deliver returns and of course, because it's investment grade, not have losses.

We will take our next question from Benjamin Budish with Barclays Capital.

You addressed this a little bit earlier in the discussion around realizations, but I'm curious if you could unpack a little bit more what you're seeing specifically in terms of sponsor and strategic-backed M&A. It feels like this is part of the market, you've been quite bullish on IPOs, but it feels like this is part of the market that's been a little slower to come back, especially on the sponsor-backed side. There's also implications for the direct lending business in your credit segment. So just curious if you could talk about what's going on there? What does the near-term outlook look like for specifically middle market M&A?

I'd say it's sort of a tale of maybe 3 cities. There's that -- those companies in the AI area, electrical equipment, utility services, some of the energy businesses in and around natural gas, renewables, obviously, the data centers, all of that, the suppliers into that chain there, both in the IPO, the M&A market, private equity, the bids are strong. The pricing is good, and you've begun to see from us some sales. Michael referenced the $7 billion battery storage business we sold just yesterday. I think that's one part of the world.

The second would be, I'd call it, sort of the AI unaffected businesses. So there, let's call that fast food chains, things in the medical supply area, things that are generally pretty unaffected by what's going on. And there, I would say the bid is pretty strong, both in the IPO market and again, in the private market, not as strong as the first category, but an area where there is liquidity in the debt and equity market. I think the exception today is when you get into these sort of white-collar services, professional, information services, enterprise software, even if the businesses are performing well, we have a number of businesses in that area that are performing well. There's just a sort of high quotient of uncertainty, and it's making buyers more cautious.

And that's where you've seen less liquidity. That's where you're seeing the part of the private equity market where you won't see a ton of DPI. And I think that's going to be there for a while. And I think what you'll see is multiples have come down and people's expectations will have to come down. And I think people are going to have to understand better, can some of these companies survive and thrive and some of them certainly will, and then they may get re-rated higher. But that's the part of the market, which has definitely slowed down.

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

Actually, my question might follow on this one. I was wondering if you could unpack the value creation in private equity infrastructure for us. I assume that has been strong in Q2, perhaps it's following these 3 buckets.

Well, I think the value creation story at our companies today is obviously about making them as AI forward as possible. We announced this new company we created with Anthropic called Ode to accelerate deployment at our companies and ultimately service other companies as well. The idea here is how can we transform these businesses. In the case of some of the businesses, certainly the software companies, it's something that impacts the entire business. We've seen some really powerful examples. We own a company -- a software company called Energy Exemplar that helps utilities manage electricity traffic and simulate. That used to be a product that would take a week and the customer almost needed a PhD. It was very complex. The AI is creating a much more simplified, faster. Now it's something that takes basically hours and the user can utilize this in a much more simple way.

So it's a good example of what we're doing. We're bringing it to customer service and things like Great Wolf Resorts. We're innovating new products in our garage door opening business, Chamberlain, our digital doorman business that's been created. That's now a $40 million business from scratch. They think can grow 10 or 15x over the next 5 years. I would say the value creation is how do you incorporate this. And then for the businesses that are less affected, how can they serve their customers better, how can they operate more efficiently. And so we're fortunate to have a really terrific portfolio operations team led by Rodney Zemmel, who used to run AI at McKinsey, and this is a key focus for us. So it's not just in the investing side of the business, it's also adding value to our portfolio companies.

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

Jon, maybe this was blasted out of context, but I see a headline on the screen from, I think, a TV interview saying deals from non-AI firms will be muted for a while. Could you unpack that comment and in particular, add any color on what asset classes and/or strategies you expect to be most muted?

Well, we should correct that because what I said, I think it was on a Bloomberg interview this morning was, I walked through that same sort of 3 different cities thing, which is EAI companies, the AI unaffected companies where there's a lot of interest in buying those. And then I talked about sort of the white collar world. That is where I said there's less activity, the professional, the information services and the software companies. So that's the area where I said there'd be less activity. That's probably 30% to 40% of the overall private equity market. Software for us as a firm is around 6% of our exposures across the firm, but that's where I said there'd be less activity just because of the uncertainty that exists.

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 look forward to following up after the call.

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.