Blackstone Inc (BX) 2009 Q4 法說會逐字稿

Welcome to the Blackstone Group fourth-quarter and 2009 year-end earnings conference call. Our speakers today are Stephen A. Schwarzman, Chairman, CEO and Co-Founder; Tony James, President and Chief Operating Officer; Laurence Tosi, Chief Financial Officer; and Joan Solotar, Senior Managing Director, Public Markets. And now I would like to turn the call over to Joan Solotar, Senior Managing Director, Public Markets. Please proceed.

Great. Thank you, Tawanda, and welcome, everyone. We will review our fourth-quarter and full-year 2009 results today. As mentioned, I'm joined by Steve Schwarzman, Tony James and Laurence Tosi.

Earlier this morning, you should have received the press release, which announced our results. And that's also available on our website, and we plan to file the 10-K tomorrow.

So I'd like to remind you that today's call may include forward-looking statements, which are based on expectations. They're uncertain and outside the firm's control. Actual results may differ materially. And for a discussion of some of the risks that could affect the firm's results, please look at the risk factors section in the 10-K. All of our statements are qualified by those disclosures and others that are filed with the SEC. And we don't undertake any duty to update forward-looking statements.

We will refer to non-GAAP measures on the call and we have those reconciliations in the press release this morning, which, as I mentioned, is also on our website. The audiocast is copyrighted and may not be duplicated, reproduced or rebroadcast without consent.

So, getting to the results, we reported economic net income, or ENI, of $0.29 for the fourth quarter. That's up from $0.25 in the third quarter of 2009. And that was negative ENI of $0.68 in the fourth quarter of last year. So, the improvement versus the third quarter principally reflected higher transaction fees from greater deal volume, higher advisory fees and also greater performance fees and investment income in private equity, BAAM and GSO. For the year, we reported ENI of $0.63 per unit and that compared with a loss of $1.03 in 2008.

Adjusted cash flow from operations, or ACFFO, totaled $217.2 million. That is $0.20 per unit, up 65% from $131.9 million in the third quarter, which was $0.12, and up substantially from the loss of $19.3 million or negative $0.02 per unit in the fourth quarter of 2008. And for the year, ACFFO was $526.2 million or $0.48 per unit.

So, we'll be paying a $0.30 per unit distribution related to the fourth quarter to the public unit holders, and that brings the annual distribution to $1.20 or the full amount of the preference. We've paid $2.70 per unit to public holders since the IPO, or about $755 million.

This is the last quarter that public holders will be preferenced over any other holders. So, starting in the first quarter, distributions will be the same to all unit holders, both public and Blackstone personnel holdings units. So, you have some basis for comparison. Had we distributed across all units in 2009, the distribution would have totaled $0.48 per unit. That is the number that I gave you for ACFFO.

And going forward, we intend to pay a flat distribution in the first three quarters, based on our anticipated annualized net fee-related earnings. And then we'll have a true-up in the fourth quarter based on the full distributable earnings.

I'd also like to highlight a set of new disclosures that we're adding to our public filings going forward starting with our 10-K. And as you'll see when it's released tomorrow, we're providing more information around fund performance, both realized and unrealized, and carrying values by fund. So any feedback would be appreciated. We've tried to incorporate your views in the additional disclosures. And hopefully you'll find that helpful.

Just to note that on the long-term portfolios, primarily private equity and real estate, the carrying value typically doesn't bear resemblance to the ultimate realized value. We've talked about that in the past. And also, it only reflects what is currently left in the fund, not what's been realized.

So, just quick example, if you've liquidated most of your fund at 5 times cost and you have one investment that you're carrying at $0.50 on the dollar, it actually shows that fund at $0.50 on the dollar. So, unlike liquid funds, you really have to look at both the realized and the unrealized components of that. But if you have any questions, you can call up with me or Weston Tucker after the call. And with that, I will turn it over to Laurence Tosi.

Thank you, Joan. Good morning, everyone. Just following up on what Joan said about us working with investor and analyst feedback, we've made several enhancements to our disclosures. Blackstone now breaks out realized performance fees and investment income in addition to realized performance fee compensation. This detail enhances presentation of economic net income and reconciles directly to GAAP such that a reader can look at the cash earnings generated by fees and net realizations, and arrive at what we call distributable earnings for a given time period.

We will use distributable earnings going forward as the starting measure for our distributions, which is substantially similar to adjusted cash flow, but is a more widely used measure that reflects our actual realized cash earnings.

I would now like to share some of the key highlights from the fourth-quarter and full-year results and a few observations about Blackstone's liquidity position and balance sheet.

Across all of our business segments, we saw notable improvements in economic net income and cash flow. In private equity, ENI totaled $177.8 million for the fourth quarter, up from $135.7 million in the third quarter and up from a negative $239 million for the fourth quarter of last year. The improvement was primarily driven by appreciation of the portfolio of 7% in the fourth quarter, which drove higher performance fees and investment income. In addition, a greater level of deal activity led to higher transaction fees, up to $42 million in the fourth quarter.

The private equity segment also reported $34 million of realized performance fees after two years of not seeing any realized fees in that category. At year end, despite difficult markets, the unrealized value and cumulative realized proceeds before carried fees and expenses of our private equity funds represented 1.3 times or 130% of our original investment.

For the full year, ENI for private equity was $490.4 million, a substantial improvement versus the negative $392 million for 2008. In our real estate business, ENI rose to $51.2 million versus $44.2 million in the third quarter and a negative $478 million in last year's fourth quarter. Portfolio valuations for the carried funds were up slightly in the fourth quarter, and the real estate hedge funds were up a net 4% in the fourth quarter, driving the positive performance fees.

For the full year, ENI was a negative $117 million due primarily to portfolio markdowns taken in the first half of 2009, partly offset by a stabilization in the portfolio and positive ENI in the second half of 2009. The full-year ENI was an improvement over ENI of negative $850 million for 2008.

Despite the significant unrealized write-downs over the last year and a half in real estate, the unrealized value and cumulative realized proceeds for our real estate funds represented 0.9 times or 90% of our original investment.

Our credit and marketable alternatives business, CAMA, have ENI of $102.8 million, up from $81.5 million in the third quarter and a negative $132 million in last year's fourth quarter. The primary driver of our improvement was higher performance fees of $81.8 million for the quarter from both our credit platform as well as our fund of funds business, BAAM. The segment had realized performance fees of $35.1 million in the fourth quarter alone, as more assets moved above their high-water marks.

Full-year 2009 ENI for CAMA rose to $265.2 million, up from a negative $195 million in 2008. Similarly, our advisory businesses grew revenues to $125 million in the fourth quarter, up from $97.3 million in the third quarter. Restructuring in particular has performed extremely well and had a second consecutive record year in 2009.

The advisory segment strengthened in the second half of the year to finish nearly flat against 2008 despite a very difficult year in our fund placement business, which was largely offset by the record year in restructuring and gains in our M&A business, which speaks to the balance of the segment and its countercyclical attributes.

Blackstone's solid fourth-quarter fee-related earnings of $139.2 million and realized net performance fees and investment income of $78 million drove our operating cash flow results of $217 million for the quarter, our best since 2007.

Our full-year cash flows were $526 million. The firm remained vigilant on expenses throughout the year and reduced our non-compensation expenses by $45.9 million, or 14%, excluding the impact of the bond issuance and other non-recurring items.

Turning to the balance sheet, Blackstone currently has over $2 billion of cash and liquid investments, or $1.84 a unit, against the $600 million in bonds we recently issued, which gives us a net cash position of over $1.4 billion. In addition, we have an $850 million undrawn revolving credit facility, which brings our total net liquidity position to over $2.3 billion.

In summary, we have ample liquidity not only to meet our investment commitments to our funds, but also to invest in continued growth for our businesses, including opportunistic acquisitions.

I will now turn it over to Steve Schwarzman.

Thanks, LT. In 2009, we witnessed the stabilization of the global financial system that was near the brink of collapse. We saw a massive rally across most asset classes as investors responded to unprecedented levels of governmental stimulus and liquidity, as well as restored confidence. The global economy emerged from a painful recession, with most developed economies returning to growth in the second half of the year and accelerating growth in many developing regions of the world.

In the fourth quarter in the US, we saw tangible signs of an economic recovery, although unemployment remains high and is expected to persist for some time. For an economic growth to be sustainable, this employment picture needs to improve and firms need to have the confidence to start hiring permanent full-time staff.

The global capital markets improved dramatically in 2009 in terms of both availability and cost of capital, which has sparked a return to large-scale strategic M&A activity and successful capital raises. Most of the large-cap banks and brokers have repaid the American taxpayer their TARP monies with interest and profits on the warrants and are focused on how to move forward in a changing and uncertain regulatory and competitive landscape which is inhibiting bank lending.

In the US in particular, debt and equity issuance in terms of both IPOs and secondaries rebounded sharply in the second half of the year. High-yield bond spreads now earn an additional 130 basis points in the fourth quarter, and just to provide some perspective, were down roughly 1200 basis points from their peak in December 2008. Several firms issued senior secured high-yield bonds to repay loans and increase flexibility in their capital structures.

We have actively worked to improve an already-attractive debt maturity profile in our private portfolios and have now bought back, amended or extended $26 billion of debt since the beginning of last year. We recently completed three equity offerings, including two IPOs and one follow-on offering, and could potentially have several more, depending upon market conditions.

In the past few weeks, we've witnessed an increased level of market volatility, given the problems involved with Greece, as well as some confidence problems on the general economy, which have delayed some of our more immediate IPO plans. While we typically sell little or no equity into the IPO, it is the first important step of one of our portfolio companies as a public company. And selling into a toppling market frankly made little sense. We expect that several of our more mature companies that have quite good fundamentals will re-enter the public markets when they stabilize.

Across all of our investing businesses, we've demonstrated our ability to preserve and grow investors' capital in a time of unprecedented market stress. And this is and will continue to yield important benefits in our fund-raising efforts. While fund-raising overall remains a challenge, we have seen demonstrable improvement both for Blackstone specialty products as well as the fund-raising efforts of Park Hill, which raises money mostly for third parties.

We expect to close our BCP6 Private Equity Fund, our GSO Capital Solutions Fund and our initial Clean Tech Fund in May through July of this year. We're seeing encouraging signs from our limited partners in terms of increasing allocations to alternatives over time as they seek higher returns.

Recently, in real estate, we successfully completed a fund-raising cycle and are now deploying that dry powder capital in an environment of increasingly attractive investment opportunities. In our more liquid funds such as our fund of hedge funds, we continue to have inflows and are benefiting from a fractured and dislocated competitive environment. We've had great success in credit with our new rescue financing fund expected to have a final close in the second quarter. We also continued to opportunistically grow our advisory practice by targeting regions and sectors to add new partners which are additive to the firm as a whole.

Across all of our businesses, we have weathered the difficult markets and global economies and have emerged even stronger competitively. In many cases, we are the choice for a seller of assets because we are stable, have a broad market capability and a large pool of available capital. While market and economic conditions will hopefully improve, there will continue to be some periods of dislocation during which we think we will have a greater number of exclusive opportunities to make money for our investors.

In our private equity business, deal activity is beginning to trend towards more normalized levels with a greater proportion of opportunities that are exclusive or where we have a particular advantage to build value.

In the fourth quarter, we invested nearly $1 billion in total capital to new and follow-on transactions. This included an additional equity investment in portfolio company Pinnacle to support its acquisition of Birds Eye Food. Closed the acquisition of SeaWorld Parks from AB InBev, which is the second-largest entertainment park operator in the United States and operates in an industry we know very well at an attractive entry point and a multiple below historic trading levels. We have been talking to Anheuser-Busch for a few years about this asset and we were the most obvious buyer. The purchase price represented a multiple of slightly more than 6 times EBITDA.

We are also investing in an interesting opportunity on build-out platforms. We recently closed our second deal for Summit Materials, which acquired Hinkle, an integrated aggregates, asphalt and paving company in Kentucky. As was the case with the Hamm acquisition we discussed last quarter, Hinkle is part of a longer-term regional development plan which will be executed over the next several years through a combination of large and small bolt-on acquisitions.

We intend to fund up to $750 million of equity in this effort and have a strong pipeline of additional transactions. And frankly, this is consistent with the kind of midmarket type of investing that has been the majority of our investments since 2000.

The Indian market currently also has several attractive potential investments, which tend to be growth-oriented equity. We recently announced an equity investment in Gateway Rail, the largest private container train operator in India, and in line with the key investment theme of investing in infrastructure and logistics development in India, one of the fastest-growing economies in the world.

We are likely to see more realizations in 2010 than we did last year. But some of those decisions will rest with the markets and the economy stabilizing, whether they are sales to strategic buyers or public offerings.

In the fourth quarter we completed the sale of Orangina to Suntory in Japan, as well as the successful IPO for TeamHealth. Two weeks ago, we completed an IPO for Graham Packaging. And while we did not sell any of our own interest in the company, we were able to price this deal at 50% above our mark to market despite a weak market.

I think it is important to recognize that there was a lot of press coverage of this particular offering as being some kind of failure because we cut the size of it and cut the price, even though it represents just an initial issuance by the Company. And here we have a profit of 50% even at the depressed price, plus the stock has gone up since then, compared to our mark to market.

In 2009, we distributed a total of $1.6 billion in realized proceeds to our limited partner investors at a multiple of original invested capital of 1.8 times. It is important to remember, and I say this in each call and I hope you don't forget it, that current marks bear little resemblance to the ultimate value we receive. I'm going to say it again, current marks bear little resemblance to the ultimate value we receive. There is an element of conservatism in our marks in relation to where public comps are trading in both private equity and real estate.

Given a limited number of private transactions and that we use long-term cash flows and multiples in our valuations, there is an inherent lag. If you applied public multiples directly to our holdings, the result would be a more dramatic upswing in valuations similar to what we have seen in the public markets.

In the lending environment, lenders are back in business, at least for good customers and healthy companies. While it still varies by the transaction and type of company, a typical LBO can be set up at approximately 5 to 5.5 times debt to EBITDA and a weighted average cost of debt of less than 10%, although the gross amount of debt probably still remains limited, in the $2 billion to $3 billion range for new deals, but for add-ons, it can be significantly higher. This is a substantial improvement over the 2.5 to 3 times multiples we saw in mid-'09.

Now, imagine going up to 5 to 5.5 from 2.5 to 3 in about a year. It is really pretty remarkable. There is more capital in the market chasing deals now. But prices remain attractive relative to historic levels. And we actually have higher return hurdles now, with generally lower risk due to lower levels of absolute leverage.

Operating performance for the portfolios remains stable and is improving, the result of the type of companies we invested in and our concerted portfolio operations effort. As you remember from last call, we significantly biased our portfolio composition over a two-year effort to be in noncyclicals to protect our investors' capital.

Our focus is positioning companies for growth now in 2010. We believe almost every company will achieve this. On a year-over-year basis nearly two-thirds of companies owned by our private equity funds had EBITDA growth in 2009, and approximately 40% experienced revenue growth. This, combined with more favorable public markets globally, helped drive portfolio appreciation of 7%, up from 5% in the third quarter and versus a depreciation of 20% in last year's fourth quarter. The net IRR for this segment after fees and expenses was 9% for 2009.

We continue to yield substantial benefits through the efforts of our portfolio operations team. Working directly with senior management of our portfolio companies and with the support of our deal partners, we've achieved or are currently in process to realize over $4 billion of aggregate EBITDA improvements in the portfolio through operating initiatives and programs such as our core trust group purchasing and equity health-care groups. There are a lot of numbers that get thrown at you, but imagine $4 billion of aggregate EBITDA improvements under our management. These initiatives drive real and lasting values for our companies and meaningfully expand our investment returns.

Having a team like this is one of the clear benefits of our scale and provides a competitive advantage to our portfolio companies, particularly during downturns. While you often hear me talk about the quantifiable value-enhancing work of this group, it is important to note that during times of economic turmoil, it is often the make-or-break difference, particularly when you have a portfolio approaching $120 billion of revenues, which is one of the biggest industrial groups in the world.

In real estate, we have begun to deploy capital once again. We are starting to see a stronger flow of assets being sold by banks and other intermediary institutions, due in part to higher valuations, but also, interestingly, because the sellers are better able to absorb negative value adjustments, which really means losses, due to improved balance sheets.

Banks are interested in taking and redeploying capital, so there has been a marked increase in selling interest. We've invested or committed $650 million to new opportunistic real-estate transactions since the beginning of the fourth quarter, having invested virtually nothing over the prior two years.

We continue to see positive signs in industry fundamentals. For office properties, our major markets are each recovering at a different pace. In general, increases in vacancy rates appear to have peaked, with some markets, such as New York and London, which are really subject to financial businesses, actually showing signs of decreasing vacancy -- in other words, people taking up more space.

Leasing activity continued to pick up in the fourth quarter. The office environment continues to benefit from a lack of new supply. We anticipate that it will take some time before we see meaningful improvements in rental rates and occupancies in the broader US, given the unemployment situation. However, we are seeing positive signs of stabilization.

In hospitality, demand appears to have bottomed out as well, although pricing remains under real pressure. US REVPAR declined 11.7% in the fourth quarter, which is a clear moderation in the rate of decline versus prior quarters and the peak decline of 20.4% in the month of May 2009. But remember, it is still declining.

REVPAR has historically been highly correlated with changes in GDP and corporate profits, both of which are being forecasted to improve in 2010. This should set the stage for sustained recovery in lodging fundamentals, although similar to office, this may take time, and it's really out of our control.

In our real-estate debt strategies business, our hedge funds were up 4% net in the fourth quarter, and pretty remarkably, 21% for the year. We have raised over $1.6 billion in total commitments in our debt strategies funds and see great interest from current and prospective limited partners in the capacity to grow this business.

In terms of competition, in 2009, we witnessed a substantial re-equitization as public REITs in the US alone raised $25 billion. We've also seen private debt capital beginning to return to the market, but this has been a lot slower.

While the additional capital has caused a decline in cap rates, we are uniquely positioned to invest in many of the largest and most complex investment opportunities in the world. With $12 billion in dry powder to take advantage of these opportunities, we bring scale and expertise that we believe no other competitor in the world can match.

In our fund of funds business, BAAM, we ended the year at over $27 billion in total assets. We're firmly established as the market leader. In both 2009 and 2008, against a backdrop of substantial industry redemptions in both years -- in fact, it was more than substantial; it was close to catastrophic for some firms -- BAAM had positive external net inflows of $0.5 billion in 2009 and $4.2 billion in 2008.

Our pipeline remains strong and we continue to take share. It is no accident that we have become the largest hedge fund of funds in the world. And we continue to receive significant inflows from existing and new investors in the first quarter of 2010.

BAAM's portfolios continued to deliver positive performance in the fourth quarter with a composite net return of 2.8% in the fourth quarter and 16% in 2009. And BAAM achieved these results with considerably lower volatility than its comparable benchmarks and to most other asset classes.

Of the $13.7 billion in external client assets that are eligible to earn incentive fees, roughly 40% are above their high-water marks and are generating performance fees. And if performance trends continue, we expect a majority of the remaining assets to rise above high-water marks within the next year. In fact, one-third of assets that are still below their high-water marks are within 5% of this threshold.

As is the case with all of our business lines, we are continuing to diversify and strengthen our product offerings in BAAM. We're expanding our hedge fund seeding program, which provides capital to outstanding managers in exchange for a meaningful economic stake in the managers' success. Our initial program was $1.1 billion in total size and has yielded a net annual return of 30% since it was inceptioned in 2007. And I don't think you are going to find many things in the world that were up 30% that were started at the top of the markets.

Our credit platform continues to provide very interesting investment opportunities and avenues for growth. In 2009, leveraged loans and high-yield bonds had their strongest 12-month performance on record, ascending from the lows of the financial crisis in December 2008. GSO's hedge funds, excluding funds in liquidation, had a net composite return of 28% in 2009, driven by strong gains in our leveraged loan and distressed portfolios. The vast majority of assets in these funds are earning incentive fees again. And despite the strong market rally in 2009, we continue to see attractive situations for our hedge funds in our distressed, capital structure arbitrage and long-short credit strategies.

Investment in our mezzanine funds continue to perform well, driven by stable operating company performance and high current income generated by the portfolios. Our current mezzanine fund is roughly 60% invested and is seeing opportunities that are attractive to provide mezzanine capital to fund corporate acquisitions and new LBOs. These investments are being made in more conservative capital structures with higher coupons and equity participation.

We continue our fund-raising activities for our new rescue financing fund and we expect a final close later this year. Following the first investment in September, the fund made two new investments, including providing capital to an energy services company in the form of convertible preferred units.

In addition, we recently announced that we would assume management of nine CDO and CLO funds currently managed by Callidus, a portfolio company of Allied Capital Corporation. These funds are primarily invested in leveraged loans and high-yield bonds and will add approximately $3.2 billion to our fee-paying AUM.

This transaction is well aligned with our strategy of accretively adding assets to our platform and capitalizing on the infrastructure we have in place. We anticipate receiving consents and closing on the various funds over the next few months.

Our advisory segment, as LT indicated, performed well in 2009 and remains very busy. Our M&A business grew 7% in 2009 despite a nearly 30% decline in industry volumes globally. That is pretty remarkable, that you can be up with an industry that is way down. The backlog continues to grow and should benefit from the cyclical upswing in 2010 in M&A.

We have been opportunistically expanding our reach across sectors and geographies, and we expect 50% of our transactions this year to involve an international client or transaction, which indicates how global this type of business has become.

Our restructuring business had a record year in 2009. While backlogs remained strong, this historic pattern would suggest that as the economy recovery's restructuring declines as M&A picks up, future restructuring revenues will be influenced not just by economic cycles but by levels of high-yield debt issuance and leveraged loan issuance, which were high in 2009.

Park Hill, our third-party distribution business, which raises funds for private equity real estate hedge funds, continues to be negatively impacted by a highly challenged fund-raising climate. However, we did see sequential improvement, and we are hopeful that we'll continue to see modest recovery in this business, particularly as we expect the fund-raising environment to become more active.

In conclusion, as we progress into 2010, we see an economic recovery that certainly is going on but remains fragile. Growth is accelerating in many other regions of the world. The momentum in the equity market slowed in the fourth quarter and has stalled out early this year. Government deficits are at record levels around the world. Consumer confidence is shaky. Households continue a necessary deleveraging. The global banking system has remained a public target of elected officials. And regulatory reforms have been proposed that are considerable in scope and lacking in detail or consistency.

We need a consistently applied set of rules globally in order for the banks to be able to gauge risk and confidently and actively loan and invest across a wide sector, which is vital to economic growth. Against this backdrop, we grew our fee-earning assets by 6% in 2009 to over $96 billion. This excludes an additional $15 billion of funds which we've raised but which are not yet earning fees, such as commitments to our new private equity fund and assets from the Callidus transaction.

We remain cautious but optimistic about the signs we are seeing across our businesses. We positioned our portfolio to weather the downturn. We are now seeing top line growth returning to many of our companies. And we emerge from this recession with a stronger brand for Blackstone, a more compelling relative track record, a more stable business than ever before.

We have the capacity both within our funds and with our own strong balance sheet to take advantage of the many exciting opportunities that are presenting themselves. With nearly $28 billion in dry powder capital in the funds, we will continue to actively seek to buy undervalued or undermanaged companies or good assets in need of capital and bring the scale and expertise necessary to achieve the returns our investors expect. And with over $2 billion of liquidity at the firm, we have ample flexibility to take advantage of new strategic opportunities.

Thank you for joining the call. We all look forward to answering any questions you may have.

Tawanda, if you can open up the line for Q&A.

Thank you. (Operator Instructions) The first question comes from the line of Roger Freeman with Barclays Capital. Please proceed.

Good morning. I guess maybe first, just on the outlook for monetizations, I think you made an interesting comment that you've got some companies that are more mature and improving -- solidly improving fundamentals. I guess in a tougher market, how many companies do you think you could bring to market this year?

Roger, this is Tony. Why don't I tackle that. I think one of the things you -- when we talk about monetization, the first thing you have to keep in mind is that IPOs are just a part of it.

You know that we have three basic ways to get [liquid on our secure]. One is strategic sales. One are IPOs for companies that aren't already public. A subset of that is secondaries for companies that are already public, which Steve mentioned often we don't sell much on the IPOs. So it's actually technically not a monetization. And then thirdly is recapitalizations, where we can pay ourselves dividend and take money off the table.

I think depending on how things go there, if the markets stay up and if the economy stays strong so that we are selling off strong results, we could easily see something like 10 or 12 monetizations this year.

Okay, great. That is helpful. And then also, I guess, Steve, you were going through the deals or the leverage that you can get on deals right now. How would that compare to, you kind of back into the size of companies you can buy, how does that compare to maybe your average over time, maybe excluding '06 and '07, when deal sizes were a little bit bigger?

I guess our average deal size --

Our average [check cade] is around $400 million equity checks. So we can -- it's plenty of capital to do average-sized deals.

Yes, that's what I was going to -- okay. Great. And then just one -- another interesting statistic, you threw the 20 -- I think $20 billion in revenue across your portfolios. I was just looking at your -- I guess your AUM in private equity. It suggests that you're valued at sort of about 1.2 times sales right now on an equity basis, which is kind of where the S&P 500 broadly is. You typically get a tick-up as you actually monetize over time, post-IPO. I guess does that sort of sync up with your portfolio being a higher quality and I guess probably typically trading above market valuations?

Boy I'm not sure I understood the question, but let me maybe answer the wrong question. When we are marking difficult-to-mark assets, we take what I consider to be an appropriately conservative approach to the valuation and a consistently conservative approach to valuation. Usually, when we are faced with an absolute -- actual -- so it is hard to relate that to where the S&P trades at a point in time, particularly as a percentage of revenues, when some of our companies are different business mixes.

And we do a lot of investing in young companies, growth companies. In fact, we put a quarter of our big "buy-out fund," the core of it's going into startups. So, those companies have values without a lot of revenues, and then you get companies that have lots of revenues and low margins and not much value. And frankly, with the debt on there, it is really hard to equate these things.

So, all in all, I would say that what you'll see is you'll see our valuations, as Steve said, lag the S&P because we take a long-term view and try to be conservative. When we have a realization event, it usually should be actually a positive news; it's at a value above the mark.

And the other thing that is embedded in our marks is, because we get our numbers to you in our public filings quicker than our portfolio companies close their books for the fourth quarter and gets their audits, often, we're often working off either the third-quarter numbers or estimated fourth-quarter numbers for our portfolios, not actual fourth-quarter numbers.

So, when the economy starts running up, we are a quarter behind, therefore, in terms of really reflecting fully the run rate of earnings of our portfolio companies. So you've got a couple of built-in factors that would cause you to think these marks are conservative.

Okay.

Just to add on to that, I think to the first part of your question, it is $120 billion, not $20 billion, just in revenue. But beyond that, yes, we do think we are making the companies stronger. In many cases, they can grow beyond the market comp.

But I think beyond that -- so if you looked at our IPOs, for example, they typically end up going certainly above where we are carrying them. I've looked back historically; that's consistent with every IPO. So if you were to look today at our companies versus surely the comps, and you can argue about what the comps are, etc., you would absolutely see a gap where on average we're carrying them below that, if you look at both real estate and private equity, in the billions of dollars. But from our standpoint, there is really no incentive to move that up to the market comp. We really think [of these as] long-term investments.

Just to quantify that, our recent realization events have averaged better than 1.5 times their marks.

The marks at the time? Okay. Great. Last question, on private equity. As you get the proprietary data points out of your companies, are they suggesting in general that there is more -- that there is improving sustainable consumer demand beyond the inventory rebuild that's been driving GDP?

And as you look at your European companies, you said you're positioned for growth. Tony, you talked a little bit on the earlier call about concerns. I guess there's a healthy debate internally about the eurozone. And how do you think about positioning companies for whatever may transpire there? It's probably early to ask that.

This is Steve. Let me just answer the first part of that question. We are not seeing runaway consumer demand in our companies. You won't see it almost anywhere, I believe, certainly in the US and Europe.

We're probably seeing in some of our consumer-sensitive companies up around 2% consumer type demand, which is consistent with the kind of broader types of numbers you're seeing out of retailers in the United States, obviously much different in places like India and things of that type. But our portfolio tends not to be, like, enormously biased towards the consumer.

We tend to have a defensive portfolio, so it's not as sensitive a measure as you might think sometimes. On the eurozone, our view has been that Europe will be a stickier economy on the way down, but unfortunately a much slower economy to recover. And I think we have been sort of -- and we were a little more negative on the eurozone economy than most observers.

And I think what's happened lately, not only with Greece but with the consumer confidence numbers that came out earlier this week in all the countries and some of the recent GDP statistics, I think more people are coming around to our way of thinking that, gee, Europe could be a long slog to get out of this. On top of that, you've got questions about the euro itself coming from Greece and some of the weak economies. So I think they will have their challenges.

But just to make this point a little firmer, to show you how things swing, I guess it was 2004, and we can make sure we get you the right numbers; I'm doing this from memory. Probably about 40% of the money that we committed at Blackstone in our private equity area was in Europe. And we were very optimistic at that point on Europe. And in the last two years, we have invested hardly anything, with very, very minor exceptions, in Europe. And the last three years, our overall investments compared to the size of either total commitments or the fund have really been negligible.

So we took a view on Europe that was quite counter to a lot of other people. And our team in Europe, really a terrific group of professionals, and they basically said, look, this is like overvalued here, and growth is low. The prices are high. And one of the advantage of us operating our business, and it is one of the unique things about Blackstone, is that we get to see what is going on all over the world, not just in private equity, but in all of our asset classes. And we can see this over-valuation going on in real estate, particularly in Spain. We can see it going on in Asia in certain real estate classes. We could see it though our credit stuff. We just stayed away, basically. So the views that Tony was indicating are not recent, and some of these chickens are coming home to roost now, which does not surprise us.

Yes. Thanks for the color.

And your next question comes from the line of Howard Chen with Credit Suisse. Please proceed.

Good morning, everyone.

Hi, Howard.

Steve, you shared some of the stats on 2009 fundamental performance for the portfolio. As you and the team plan ahead, could you give us a sense of what your operating assumptions are for portfolio revenue and EBITDA growth for 2010?

I'm going to pass that to Tony because it is a tough one.

I don't think I can give you relevant statistics that would be meaningful, because every company really is so different. And we have companies in India and China that are completely different from what we are looking at in the US or other places. So, I'm going to have to duck that one.

But I will talk a little bit about our economic backdrop. At Blackstone, since 2006, when we got quite concerned about the market being at a peak and adjusted our activities accordingly, we've had a pretty consistent view of where the economy goes from here.

I would say at this point we have more internal debate about where it is going from here than anytime in the last few years. So, while we are hoping that the economy -- that our colleague Byron Wien is right and the economy has 5% GDP growth this year and so on, we are not betting on it.

So when we make an investment, we are betting that the economy, after a reasonably decent first -- or beginning here, sort of slips a little bit into slow-motion, because that way, if that does happen, we will be fine. We will get our returns. But if the optimistic scenario is right, we'll just do that much better. So we're adopting a conservative backdrop to all the investment decisions we're making.

Okay, thanks, Tony. Switching gears, regarding the competitive landscape, Steve, I think you noted you are seeing more folks chasing deals. I was hoping maybe you could give us a feel for what you're seeing there, maybe what has changed in the auction markets to the extent that you're involved in those?

I would say you're particularly seeing that in Europe. There's a lot of money there as equity, relatively few deals. And so, when something decent comes up, there are a lot of people showing up. To the extent we are looking at anything there even on a preliminary basis, we are being pretty much blown away in terms of the values.

I think it is less the case in the US, although because interest rates have dropped so much for junk and there is availability of it, and LIBOR is so low and LIBOR spreads are down, cost of money generally is pretty low, certainly in US and Canada. That creates sort of a bit of an uptick. I would say that six months ago, if you were brave enough to buy something, there was relatively little money around and you could get it cheaper.

I guess, Tony, if we had to -- these are all so anecdotal -- that you probably had inflation of 1 to 1.5 turns of EBITDA that you are paying now as compared to where you would have been six months earlier.

Okay, maybe -- I'm sorry. Just maybe following up on that, just outside of Europe, as a theme, is there any other common things that you're seeing, whether it be by type of competitor or sector for these situations where you're getting outbid?

Let me make a comment. First of all, our view is that there is -- let's just start with Europe. We've talked about the economic backdrop in response to Roger's question. In Europe, our view is that you have all the big US firms with fully functional European offices and just as much ability to invest their large global fund in Europe as in the US. In addition, you have quite a large number of almost equal-size European funds that are basically focused just in Europe.

So, you have something like twice as much capital in Europe, private equity capital, and chasing, and because of the structure -- chasing deals. And the structure of the European economy is different from the US. Europe has a few -- a number of gargantuan global companies, whether it's Siemens or Philips or whatnot, which are clearly not relevant for private equity. And then they have a lot of privately owned companies still. What they don't have is a lot of those non-family-owned medium-sized, so to speak, companies that typifies the US economy.

So you have many, many -- and those are the opportunities that private equity tends to focus on. So you have many fewer targets of opportunity in Europe with much more capital chasing. And you end up getting, predictably, much higher prices. And you have on top of that the weaker economic backdrop and potential currency risk because of what is going on with Greece and the euro. So you add that all up, and in our view, as Steve was getting to, it's not a very positive picture for long-term illiquid investing right now. So we are not putting a lot of money there.

But competitors are active there. Some of them have European funds, and the European funds don't have a lot of other places to go. And to some degree, if someone wants European -- your LP wants European exposure, you give them European exposure. So, we are relatively more conservative on that than competitors. And there is activity in Europe. It's just at prices that we think is high.

In China, everyone loves the Chinese economy, but it's very hard to put a lot of capital to work if it is non-Chinese capital. They don't want a lot of Western equity capital coming in. You've seen very few deals of scale there. And I think that will continue to be the case, which is why we are excited about the RMB fund, where we can raise Chinese capital and be active in the Chinese market without the institutional barriers that keep the big international funds out of there. I think all the global firms have China-focused efforts, for obvious reasons. But none of them are putting a lot of money to work very successfully.

The one exception that jumps to mind, obviously, is the CICC deal that TPG and KKR just did. But there of course you had a Western seller, and that ownership was already out of China, so to speak. It's hard to make a business on that sort of thing. And when you do have it, there are a lot of bidders and they're expensive. China in general is expensive, because the markets are high. They are up over 100% from the trough, because everyone is so optimistic about China these days.

Other hot markets, I think India has gotten increasingly active. A lot of people are putting new teams there and are focused. We're seeing more and more activity there, bigger and bigger deals. But it is a big economy; it's a fragmented economy. I think it is the second, maybe it's the most number of listed companies in the world than any country, I think, actually, so a huge number of targets. Brazil is very hot right now. You see a lot of people looking at Brazil and putting offices down there.

And then the US is a big market, and you've got kind of a mixture of things going on there. But there's definitely stuff to do. And we have been steadily active through both 2008 and 2009. And I think we've generally gotten prices that are -- well, based on today's markets, are well below what you would have to pay, today, to replicate those deals.

What I would say in the US, just stepping back, to put context to your question, and maybe we are overanswering your question. But when you have an M&A cycle that is near the bottom and something comes up for sale and money becomes cheaper, you get enormous focus on that one asset, which drives up its cost.

What we have tried to do as a firm, and I think rather successfully so, we just happen to be talking about private equity at the moment. But within that sector, we've had most of our deals direct to, like, avoid that kind of process. And that direct access enables sellers who have gone through typically a big diminution of value to structure something with us that works for them and works for us as well. So that is where we really concentrate. And we're seeing opportunities both for our real estate business around the world and our credit businesses.

And we should not forget that Blackstone is really just not a private equity firm. We spend a lot of time on private equity. It is important, it is huge for us and so forth. But real estate's huge, and credit -- we've got really sort of a pretty nicely balanced business, unlike almost everybody else in our general asset class.

We're seeing opportunities for those businesses that are still providing extremely good returns. This asset inflation that the central banks have created has just raised values for all assets on at least a temporary basis. And we'll see if the growth of the world catches up with those asset valuation levels. More than you ever wanted to know when you asked the simple question.

No. Thanks. That is really interesting color. Maybe regarding China, maybe things will pick up after the lunar new year. But finally for me, I guess on pace of capital deployment, it certainly ramped up as we [coursed] through 2009. But I think we still ended below what you thought you would be able to put to work through the course of the year. I guess you've taken a stab at it in the past. But as you plan for 2010, what are your aspirations for what would be, like, a very good pace of capital deployment for the year?

Well, I think that would vary business by business, but I would have thought -- I don't know very good, but I would have thought a sustainable level of capital deployment in private equity is $3 billion to $4 billion a year. We've done that through 2008 and 2009 on average. And for when it gets better, it could be more, but regardless of what happens, I think that is reasonable.

I think in real estate, we could do $2 billion a year, $2 billion to $3 billion, call it. Once again, hot markets, everything gets higher. And in the drawdown funds in the credit businesses, I think we could sustain $1 billion a year, something like that, based on the vehicles we have now. There's certainly more demand for that capital than, frankly, we have the ability to fund. So we could -- if we had larger capital pools, we could fund more of that. But as it is, that is about what -- the funding pace we'd target, and with some upside, again, as we raise new pools of capital.

And we do believe in risk management through diversification. And that's not just by company or industry or country, but vintage year diversification is one of the things that I think that we have respected. And it's one of the reasons why we did not plunge the whole fund into the market in 2007. So we realize that -- we try to be restrained in both good times and bad, I guess.

In our industry in private equity, we were the least aggressive investor in large deals in 2007. And the benefits will accrue to our investors over time for that decision.

Great. Thanks for answering the questions.

Thanks, Howard.

Your next question comes from the line of Celeste Brown with Morgan Stanley. Please proceed.

Hi, guys. Good morning. We talked a lot, or you talked a lot about the equity markets and potentially tapping the IPO markets. But can you give us some perspective on the credit markets and your needs to access the credit markets to strengthen the balance sheets of the portfolio companies, or if you're at a point with all the debt you've bought back and refinanced that you are not overly concerned about those markets this year?

This has been a weird year, Celeste, because early in the year, we were heavily buying debt of portfolio companies that we knew the equity was strong and the companies were healthy but was trading at distressed levels. For a private equity fund, if you can buy your debt back at $0.25 on the dollar, the debt that you'd pay off, par plus interest, you are guaranteeing yourself a 5 to 1 return virtually. So it was a compelling opportunity. We did as much of that as we could.

In retrospect, I wish we would have done more. We got too hung up on the last few dollars of price. We should have had just loaded the boat with it. But then that completely turned around, after the spring, and by the fall, we were looking at credit markets as being frankly way ahead of themselves, way ahead of the fundamentals, and therefore too pricey. So, we ended up selling debt. And sometimes it's [the amount] and sometimes it is maturity. But if you compound those two things, the weighted average debt outstanding in the future went up a lot.

I think our portfolio companies are generally in pretty good shape. The last big one that we are working on right now that everyone is aware of is Hilton. And that seems to be going reasonably well. But it is not done yet.

Can you give us a sense for, based on your discussions with your limited partners, how they're thinking about rebalancing their portfolios, and then as we look into 2010 and 2011, what assets classes and products they're focused on, whether it be real estate, private equity, liquid, illiquid?

I think, just sort of generally, it has been pretty well reported on that going through the crisis of the last quarter of 2008 and in through much of 2009, with whatever their illiquid portfolios were, with those portfolios falling in value because they were mostly leveraged along with their long-only equity portfolios really going way down, these investors were really caught in a vise. And they became very conservative about almost everything, tried to avoid commitments for the longest-tenure illiquid assets and had a bias to be shorter. And as the Fed and other central banks crashed rates down, they have a real bias for yield and they have a bias for safety.

So as that translates into Blackstone land, the appetite for credit products almost across the board has been very good and strong. The appetite for different types of product in the hedge fund of funds space also has been good because that asset class performed infinitely better than the "conservative" liquid portfolio that funds had. And also there were the blowups that created issues for boards, the Madoff stuff and some of the other and the lack of redemptions.

We saw on that credit side -- we came up with our real estate special situations group buying debt products. And, boy, that was like a hot number. Everybody who's bought into it has done really well. And it's the right product for the right kind of timing. And then we have a variety of specialty products in private equity that appeal to some people, and we're getting traction now with Clean Tech.

And in the fund-raising cycle on BCP6, you went from a time where basically it was almost like a time-out for everybody looking. It didn't have anything to do with BCP or anything else. These were boards of directors under a lot of pressure, portfolio managers under pressure. And now, of course, that is loosening up as people look at -- see that asset values have started coming up from the bottom, that the opportunity to make a lot of money in that asset class is good. I think there's going to be a winnowing out of participants in that asset class.

There are too many managers. The results of too many of those managers are mediocre. I think what you are seeing on the institutional side, the limited partners side, is, among other trends, they are looking and saying, geez, who are really my good people? Who can protect capital? Who was not at the top of the market throwing money out the door? Who is going to take me to the promised land, do what they basically said they were going to do? And I'm going to focus my bets on those firms. And the other ones, for the first time, were really going to starve.

People have been talking about this for 15, 20 years. But what's going to happen on some of these re-up cycles, because there is less aggregate money right now, until all the liquid markets get back to where they started, which they're not, there's going to be a pretty harsh winnowing out of marginal players on the private equity side, which, longer term, for a firm like ours, I think should be a relatively good thing.

I think there is a bias, and each LP speak for themselves, and they have different views and different situations, that firms with real in-depth staffs, financial solidity, and good investment process are going to get more than their fair share in the new world. I don't know whether that was responsive to you, but it is sort of how we see it.

That is great. Thank you.

Your next question comes from the line of Marc Irizarry with Goldman Sachs. Please proceed.

Great. Thanks. Steve, just another question on the business model, and just following on on the LPs. Maybe looking more liquid versus illiquid securities. Your business would seem to be constructed that if investors or LPs moved more towards liquid assets, you'd be ready for it. But what have you done as a fund-raising organization in terms of people and in terms of trying to grow your distribution across the different products? How are you progressing in terms of building out Blackstone's fund-raising and distribution efforts?

Hey, Marc. That is a terrific question. You get super points on that one, because we've spent a lot of time, money and effort on that. I would say, without being overly harsh, is that we were more in a horse-and-buggy world probably two to three years ago in our distribution approach. Markets were hot, people wanted our products. We were probably underinvested in that sector. And the world changed.

Now we are moving as fast as we can, to the rapidly accelerating electric car as opposed to the horse and buggy. We took one of our best people, Edwin Conway, who was working in BAAM, our hedge fund of funds business, which has an extremely good distribution model, and calling program, and servicing program, to basically work with Ken Whitney, who is charge of the whole area, to get a much more integrated overall firm marketing area.

We previously had each of our businesses more or less taking care of themselves with marketing, with coordination on the top 40 or 50 accounts. But as we sort of look at our business, we have about 1,200 limited partners. That is a lot of people to service.

And we recognize, perhaps later than Goldman Sachs, but we get there, that having a really great internal data system, having each of the people in our business lines knowing how to market the products from the other parts of the firm so that we multiply geometrically the number of -- I don't know, I don't run sales businesses per se, whether they are sales imprints or calls or whatever, and have everyone at the firm working in a coordinated fashion, that the cross-selling opportunities, which we have had in the top accounts, which are really quite good for us because our performance has been, relative to almost everyone in our business, very strong in almost every sector, that if we extend that below the top accounts to the full product mix applied to 1,200 LPs, your easiest sale in our business in terms of a business model is to people who are already doing business with you, unless you have great pockets of mediocrity, in which case they are the worst people that you want to call.

We are fortunate that we don't have that problem. And so, we are really quite excited and optimistic about the impact on our business over the short to intermediate term of this kind of change. And it is a big change here. We have now, several times a year, group meetings, sort of teach-ins for all of our different sales areas. People are having fun with it internally because they're growing and learning about what is going on. Our whole IT support of this area is much better. You're getting a much longer answer than you wanted, but this is something we're spending enormous amounts of time on, big amounts of money.

And it's super important because what we have are two parts of our business. We've got the actual investment activity and then getting the word to the world to give us money. I think on the investment side per se, it is really very good. On the marketing side, it could have stood some improvement. So it is getting it. Both Tony and I spend a good deal of time on that, in addition to the heads of the businesses and partners in each of the areas and the rest of us roaming the world as sort of Hare Krishnas to visit our big accounts. So it is a big part of our life and our jobs.

Okay. That is really helpful. Then just in terms of types of LPs incrementally that are showing interest in your strategy, is there a geographical difference or a type of LP investor that is notably more interested in your suite of offerings?

What it is, you could do it that way; you can cut it other ways. Anybody who benefits from commodities are more interested in our products because they have positive flows. So if you look around the world, what you're seeing are Middle East has real positive cash flows, people in the oil business. People in the metal industry, like in South America, with metal prices basically having rebounded, a lot of those pension systems have gotten money. We see in areas of prosperity, like China, CIC. But it speaks to a wider way of looking at the world, a different cut, which is that the sovereign wealth funds basically are in quite good shape.

Remember, they don't have mandated payouts, which pension funds do. And a lot of them continue to get input. So we see this in Canada, another strong country where the economy is doing well, as well as their individual, whether they're a sovereign wealth fund or modified type of fund. So there are pockets around that are good. And then there is sort of the endowment world, which has been really damaged, given a lot of their asset allocation mixes.

Tony is a fisherman, and he picks places around the world that are actually pretty fascinating to go to. If you were a fisherman in the alternative asset area, you would not be fishing in the endowment world right now. That wouldn't be where you'd get your fly fishing tackle ready for.

Let me just chime in on that. I would say that it is also -- there's also a product dimension that you can think about it. I'd say generally speaking, we are getting the interest in a basic private equity product is pretty uniformly distributed -- US, Europe, Asia, Australia, Middle East -- with Steve's overlay of people with money are the ones who are more interested in any product, obviously.

I would say that when you look at our credit products, there's a lot of interest on those in -- well, in the -- both the US and in Asia, interestingly. That is where there's -- those things are sort of hot there. We have industry-specific products. The hot sector right now appears to be energy again, a lot of interest in whatever energy product, but particularly outside of the US with that.

And then I would say in Japan, for example, we have relatively more interest in hedge funds than in any other alternative products. So when you look at the different parts of the world, you've got to kind of also have a product overlay to see where the appetite is.

Okay, great. Thanks for taking my questions.

Your next question comes from the line of Michael Hecht with JMP Securities. Please proceed.

Hey guys. Good afternoon. How are you doing?

Good afternoon.

Thanks.

Hard to believe there are any questions left.

No, no, no. It's hard to believe there are any answers left.

Well, first I just wanted to say thanks for all the new disclosures this quarter, all the unrealized and realized gain stuff. It's actually really helpful.

Just to follow up on the distribution question, on BCP6, can you just remind us where you are in terms of capital raised to date and where and when you think that fund maxes out sizewise?

Well, it is a little awkward because we are in a -- because of the private placement nature of this. But I think we've publicly disclosed we're at about $9 billion to date.

I think we've publicly disclosed this morning that -- we've told people that we have final closing in June. And in a fund-raising environment or in a fund-raising of the type that we do, until there is a final closing, most people don't really work on it because they have always got another look with more of the world behind them before they have to decide. So, we've got a lot of people geared up right now. And we're optimistic we'll pick up a bunch more money, but I wouldn't want to specify what a max might be at this point.

Okay. That is fair enough. And then I would just be interested in a little bit more on the outlook for IRRs and MOIC on both sides of the private equity business here. In 2010 I assume we'll still see below-average IRRs, but better than 2008 and 2009. So just remind us of what you see as the long-term sustainable IRRs in both sides of the business.

Are you talking about IRRs on new investments?

Yes.

Well, I think 2008 and 2009 will prove to be well above-average, not below-average IRRs on new investments. We have been, traditionally our industry's worked with something like a 20% IRR. Sometimes they go a little below that in hot markets. And then of course they don't always achieve it. But our targets lately have been both above 25% IRR. I think that is what we did throughout 2008 and 2009. We had those target IRRs.

So I think those will be a great vintage, and they are all off to a great start in terms of their operating results and what's happened to valuations since. I think those two years will be great vintage years. And I think 2010 will continue that sort of IRR. And if the market normalizes and gets hotter and prices go up and more competitors are active, those IRRs will revert to the more standard 20%/high teens kinds of targets. I think in Europe right now, it is already down probably a little below 20%, frankly. That's showing more of a sense of above-norm prices than below-norm prices.

Okay, that's fair. On the financial advisory side of the business, and maybe this will be in the K when it comes out, but any additional breakdown just across corporate advisory restructuring and Park Hill and just what the backlog is in each of those three areas, how it compares to either a quarter or a year ago, however it's most meaningful?

Well, restructuring backlog -- well, [LC gets] specifics, but restructuring backlog is down a little, M&A backlog's up and Park Hill backlog's up.

Just one comment on the advisory side, so in restructuring, we are expecting that that's going to start to tick down because that is a typical economic pattern. That said, and I'll just throw out one caveat -- Steve mentioned this, but you usually see an upswing in activity in that business following periods of large issuance of high yield.

In 2009, you actually had a very large year of issuance. So while we are looking for it to move more negatively as M&A picks up, we're not sure that that is actually going to be a longer-term sustainable trend. The backlog right now is actually flat. So it is our expectation it will start to tick down. And then on the M&A side, the number of deals that we are currently engaged in is up pretty materially.

Okay, that's helpful. I'm sorry if I missed this, but did you give the flow trends for [Canada] across hedge fund of funds and credit funds in the fourth quarter?

AUM flow trends?

Yes.

Yes, we have that. So just in terms of fee-earning, so just looking at the external, and I will give you the mismatch of the quarters again, but we had inflows of about $966 million, outflows of $1.179 billion, which gives you negative net of $214 million. Then we had market appreciation of $760 million. So we were actually net up. It closed at $25.766 million. So there's a little quirkiness, if you remember.

What is that? What did you just give?

BAAM. If you remember, we tend to get the inflows at the end of June and December -- excuse me, the outflows, but the inflows come the first day of the next month. So if you actually look at inflows into BAAM on that next day, it would roughly be about another $0.5 billion.

Okay.

Your next question comes from the line of Dan Fannon with Jefferies. Please proceed.

Good morning. One quick question just on your excess capital. Can you guys give us some framework for how you're looking at potential opportunities to deploy that here going forward?

As Steve mentioned, we did an acquisition of Callidus, which is a small -- smallish acquisition, but I think will be quite accretive to shareholders. We've got some other discussions of different types at different stages, but nothing imminent. So we are looking at things like that that are of modest scale, but perfect strategic fits in businesses we're very comfortable and experienced managing. I don't see any dramatic step-outs in terms of horizontal mergers or anything like that.

Nor do I see us taking that capital and plunging it into speculating it with principal investments or whatnot. A lot of it is earmarked for the co-investment -- the small co-investment that we have to do in each of our funds, and over time that will be drawn down.

One of the things, though, that -- we live in a world of discontinuous events. And if this Volcker rule stuff actually went through and a lot institutions were forced to exit alternative asset businesses, we would be a very logical acquirer/consolidator of some of those types of things, which could be sort of a good fit for us and good home for some people. So we regularly are monitoring the environment, and sometimes the unexpected happens. People like ourselves are always prepared for those types of unusual opportunities if they develop.

Great. Thank you.

Your next question comes from the line of Robert Lee with KBW.

Thanks. Sorry to -- I know you probably want to get done already, so I will be real quick. Just curious, in your fund-raising here, can you talk a little bit about how maybe terms on some things have been changing compared to what you may have set out to do or what they would have been a couple years ago? And then a follow-up question is, the regulatory environment mainly outside the US -- I know several months ago, several quarters ago, there had been some things floating around the EU that maybe related mainly to hedge funds, I think, but would have made it challenging for a non-European-domiciled firm to raise alternative assets?

I think on the European thing, it is very actively being discussed now. It is a highly complex process to get something through the EU. I believe there something like 1,200 comments or something on -- amendments, 1,200 amendments to the original proposal made there.

So, I think the industry associations involved with both private equity and hedge funds have been quite active. Individual firms have been quite active. There's an increasing understanding there, I think, of how these different types of businesses work and what may or may not be appropriate requirements for them. And us prejudging where that comes out is a little tough right now. But I think the educational level has changed pretty dramatically from where this started.

As to the first part of your question, we see, particularly from certain larger sources of capital, potential fee pressure, a desire to set up more separate accounts than just participate in funds. I think some of this was really created not just on a fee basis, but some of the European pooled vehicles have had real problems. If you are an LP in some of those vehicles, to get something done sometimes requires an enormous amount of your personal time on conference calls and lobbying other people and so forth.

And so some of the larger LPs are looking for ways to be slightly outside of that kind of process. If you can write a big check today when there are not as many people around to just sort of participate in a market, the balance of power has shifted somewhat. (technical difficulty) large [prepayers] of capital. That's I think a cyclical phenomenon. Some of them are trying to take advantage of that. And you either take their money or you don't take their money. So, that should normalize at some point and swing back the other way.

Great. Thank you very much.

Ladies and gentlemen, that is all the time we have for questions today. And now I would like to hand the call back to Joan Solotar.

Thank you, everyone, for joining us. And if there are any follow-ups, just feel free to give me a call directly. Thanks.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect. And have a great day.