Blackstone Inc (BX) 2012 Q3 法說會逐字稿

Welcome to the Blackstone third-quarter 2012 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; Joan Solotar, Senior Managing Director, Head of External Relations and Strategy.

And now, I'd like to turn the call over to Joan Solotar.

Please proceed.

Great.

Thank you.

Good morning, everyone, and welcome to our third-quarter 2012 conference call.

I'm here today with Steve Schwarzman, Chairman and CEO; Tony James, President and Chief Operating Officer; and Laurence Tosi, our CFO.

Earlier this morning, hopefully, you've seen, we've issued a press release and slide presentation illustrating our results.

And that's all available on the website.

We expect to file the 10-Q in a few weeks.

I'd like to remind you that today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the Firm's control.

Actual results may differ materially.

For a discussion of some of the risks that could affect the Firm's results, please see the Risk Factor section of our 10-K.

We don't undertake any duty to update any forward-looking statements, and we will refer to non-GAAP measures on the call.

For reconciliations of those, please refer to the press release.

I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Blackstone funds.

This audiocast is copyrighted material of Blackstone and may not be duplicated, reproduced or rebroadcast without consent.

So a quick recap of our results.

We reported economic net income, or ENI, of $0.55 per unit for the third quarter.

That's up sharply from $0.19 in the second quarter of this year, and up from a negative $0.34 in the third quarter of last year.

Improvement was mainly driven by greater appreciation in the underlying portfolio assets across the board on every one of our investing businesses.

For the third quarter 2012, distributable earnings were $190 million or $0.15 per common unit.

That's up 50% from the same period a year ago.

We'll be paying the $0.10 per unit distribution related to the third quarter to common holders of record November 15.

As you know, we'll have a catch-up following the fourth quarter.

As always, if you have any questions on anything in the earnings materials, please follow-up with either me or Weston Tucker after the call.

And with that, I'm going to turn it over to Steve.

Thanks a lot, Joan, and good morning.

And thank you all for joining the call.

Today, I'll briefly discuss the state of the global markets, and I'll highlight our third-quarter results in the context of what really matters in our business over the long-term.

L.T. will then briefly review financial results, and then we'll focus most of the time today on taking your questions, which we think is perhaps a little better approach than we've had in the past.

As you all know, we saw sharp increases in global equities in credit markets in the third quarter attributed to massive liquidity from central banks around the world, and in spite a very mixed economic data and pretty much slowing economic data around the world.

What does that mean for our business?

There are three things that matter that I'll focus on today.

First, our LPs, limited partners', willingness to entrust Blackstone with the managing of their investments.

Second, our ability to deploy our investors' capital into attractive investments.

Third, our ability to improve upon the assets we invest in to create value, which is eventually realized.

These measurements are more meaningful over time versus any one quarter.

I'll show you what's happening now.

On the first point, investors are continually seeking those managers who can deliver good returns.

Today, investors around the world are seeking returns in illiquid investments, because returns from government, risk-less securities supposedly or high-grade bonds are very, very low, as you all know.

Beyond that, pension funds are experiencing funding shortfalls, which has been a long-running secular development.

We are in the midst of a megacycle where Blackstone stands out in having significant experience across the illiquid asset classes, where the returns are substantially greater, historically.

We've been the recipient of greater inflows from these institutional investors; in fact, more than any of our peers.

I'll run through those numbers.

But importantly, the reason we're raising so much money is because we are delivering good returns for our limited partners.

In the third quarter, for example, we had gross inflows across our businesses of $10 billion, that's in one quarter, or $38 billion over the last 12 months, excluding acquisitions.

These are really big numbers.

Combined with limited outflows, our ongoing success in fundraising resulted in record total assets under management of $205 billion.

And that is up 30% year-over-year, which is actually a pretty stunning number in terms of growth -- 30% growth year-over-year.

We completed our fundraising, for example, for our seventh global real estate fund, which hit its $3.3 billion cap and was oversubscribed in addition.

We believe this is multiples the size of what any of our competitors will be able to raise, and is a testament to our limited partners' confidence in our business and our strategy, and our ability to protect and grow their capital through virtually any market environment.

Also, in real estate, our debt strategies platform, which is nearly $4 billion in aggregate size, has launched fundraising for its next drawdown fund.

We grew this business organically from zero in 2008, and it now complements our opportunistic business nicely.

A few weeks ago, we announced the acquisition of Capital Trust's real estate debt business, which will add $2.4 billion in AUM to the platform when it closes.

In private equity, we had our final close on our energy funds, with $2.4 billion of commitments.

And we've already deployed or committed 40% of this capital, which really goes a long way to addressing any kind of J curve-type issues.

Our tactical opportunities platform, which I think we've talked to you about before, which invests in attractive opportunities we see around the Firm, but do not fit neatly within the investment mandates of our existing funds, is now $1.4 billion in size, which is starting to expand the marketing effort to a broader list of our largest LPs.

BAAM, our hedge fund solutions business, [so] another $1.7 billion in net inflows in the third quarter and an additional $500 million on October 1. On a year-to-date basis, we generated $3.7 billion in net inflows.

This continues our strong performance from last year, when the traditional hedge fund of funds industry reported net outflows, while Blackstone, with its differentiated hedge fund solutions approach, captured 10% of the entire hedge fund industries net inflows.

In fact, we were just again rated the largest allocator to hedge funds globally.

We've differentiated ourselves from the competition, and today, we couldn't be more different from the traditional fund of funds model.

So we provide a superior level of customization and innovation to our institutional LPs.

In credit, it's a whole variety of things that we're doing such as new CLO's, business development companies, exchange traded funds, and large mezzanine and rescue lending fund.

It's a very busy time for our GSO group.

We're seeing good inflows and strong LP demand for our products, and we continue to launch new products and diversify.

And they're all working.

At $55 billion in total assets, our credit platform grew 62% from last year, or 32% excluding acquisitions, a huge expansion of this business in large part, because we're selling high returns in a world where investors are having trouble, in some cases, making money at all.

A few weeks ago, we successfully launched our third closed end fund, which trades under the ticker BGB, and raised nearly $1 billion.

Following a successful performance by our first rescue lending fund, which we call Capital Solutions, we're in the process of raising our second fund, which is likely to start investing early next year.

In total, across the Firm, we've amassed the largest global pool of dry powder to capitalize on market opportunities across strategies and across regions at $36 billion.

That's money that ultimately we'll be investing on your behalf.

We remain prudent in how we deploy this diversity buying by region, [specter] and vintage.

But the potential earnings power of this capital running through the Firm is quite substantial, as you might imagine.

Moving into the second critical driver of value for our public market investors is our ability to source great investments.

And this is actually the most fun.

In the third quarter, we maintained a very active investment pace, employing or committing $6 billion across the firm, bringing us to over $13 billion on a year-to-date basis.

Roughly half of this amount was deployed in our real estate business, where we remain uniquely positioned as the largest capital pool in the world, and are, in many cases, the sole bidder for properties.

Our strategy remains as Jon Gray would say it, buy it, fix it, sell it, where ee acquire good assets that need improvement often in distressed or overleveraged situations.

Since the fourth quarter of 2009, when markets bottomed, we've invested $17.6 billion across our real estate funds, which we believe the largest purchaser of real estate in the world.

We have high expectations, the ultimate returns we expect to generate on this capital we've deployed in this extremely favorable environment.

In private equity, while investors' risk appetite has increased recently, driving up multiples across most sectors and regions, valuations still look generally attractive relative to historical levels.

The environment remains fragile, as I think you've heard from Tony in the earlier call, and there is substantial uncertainty and hesitation in the markets.

Though it is the highest price, of course, that wins a competitive auction, we continue to focus on investments where we have some advantage or bring some unique value that we believe others can't.

We rely on proprietary sourcing of transactions, and the majority of our new deals in private equity are exclusive.

We leverage the Blackstone brand-name to be the partner of choice for entrepreneurials around the world, [speaking] growth capital, and for corporate partnership investments.

During the third quarter, we closed in the first two tranches of our investment in Cheniere, a $1.5 billion equity investment, to fund the construction of a natural gas liquification export facility, with equity coming from our BCP VI Fund, our Blackstone Energy Partners Fund and some LPs who are co-investing in this investment.

Our financing of this construction consists of a convertible fixed security, which is convertible at a price well below today's stock price, and has attractive pick and cash yield features in the interim.

As you've probably read, we also provided rescue financing to Knight Capital, which is a company we were already looking at prior to the technology error that occurred in early August.

We had already conducted diligence, and were positioned to swiftly react and invest as part of a broader capital infusion funded by Blackstone and other strategic investors.

Our equity investment is immediately convertible into common shares at a level well below today's price, implying a substantial mark-to-market gain.

A third notable private equity investment was Vivint, a large residential security monitoring and home automation company, which also has a rapidly growing residential solar business.

It should close by the end of the year.

Lastly, post the end of the quarter, BCP VI Blackstone Energy Partners, our Energy Fund, signed a commitment to fund a minimum of $650 million into a privately-owned oil and gas company, which we expect will close before year-end.

Like Cheniere, this is a unique opportunity and was negotiated on a proprietary basis.

Financing environment for new deals remains highly attractive, and we're seeing record levels of new issuances of US high yield and leveraged loans.

No one could have predicted that one four or five years ago.

New issuance mix of funding for new LBOs, dividend recaps and repricing, some of which reflects repricing, [were made] at July 2012 issuance, where borrowers are paying to lock-in even more attractive terms from what they negotiated just a few months ago.

In our credit business, GSO, with one of the largest and fastest-growing platforms in the world, we are well-positioned to provide financing to good companies in the current vacuum of traditional bank lending and junk lending for smaller-sized companies, as a rule.

We deployed $720 million from our credit platform in the quarter, and have another $5 billion in dry powder to put to work, again, in a very favorable investing climate.

Final critical area for public market investors that I'd like to focus on today is our ability to create value and generate outstanding realized returns.

This remains an area of misunderstanding about our business that we are solely financial engineers generating returns via manipulation of capital structures, and this couldn't be farther from reality.

We are true operators of assets.

We develop a bottoms-up strategy transformation before investing.

We carefully select the very best management teams, and we bring new -- we breathe new life into broken assets, where we propel great assets and management teams to the next level by providing much-needed capital and advice that they could not access otherwise.

Then we exit these investments when we've completed our work.

Our business model is structured so that we can be patient about this process and take a very long-term view.

Long-term investors with patient capital, we make decisions based on the best outcome over the life of a fund, which can be 10 years or longer.

And it takes time to truly affect change and correct issues.

Because our business is largely immune from investor redemptions, much different than a regular money management firm, we are never forced to sell assets into weak markets.

Through market cycles, and over our 27-year history, we've generated net annualized returns on realized investments of 23% in private equity, and 28% in our global real estate business, which dwarfs performance of virtually any other investment class.

We've had $1.8 billion of realizations in the third quarter across the Firm, bringing us to total realizations of nearly $6 billion on a year-to-date basis.

Third-quarter included another follow-on sale of a portion of our interest in Team Health, which generated a multiple of invested capital of 3.7 times and $35 million of distributable earnings from just this one medium-sized investment.

In real estate, you may have seen the recent announcement -- I believe it was yesterday, the sale of Sunwest Senior Living, which BREP VI acquired majority control of out of bankruptcy in 2010.

The assets had fallen into disrepair, and we invested substantial capital, along with our partner Emeritus, to improve the (technical difficulty) -- increasing occupancy in two years by 900 basis points, 9%.

Two years later, we are selling the $225 million investment at 2.4 times multiple of investment capital, which is roughly 40% above the current quarter's mark.

I'll just repeat that for you, 40% above the quarterly mark.

And I know all of you in the analyst community look at our financials as to where marks are.

And we've had a historical experience of significantly higher exits and those marks.

Our legal team would say we can't promise that in the future, but that has been our experience typically in the 25% to 30% area over our marks historically.

We expect the sale of Sunwest Senior Living to be completed in the fourth quarter.

If you can make 2.4 times your money in two years, where the stock market performance is probably average -- and I didn't do this math and we'll get it for you; probably average, somewhere around 6% or 7% over a two-year period -- this is a massive performance, because this investment -- and it's just for a for-example -- was compounding at 45%.

What we do for a living is do things like this.

And it's really what justifies people giving us these very large amounts of money, because we think we can replicate very favorable investment outcomes.

This is a prime example of how our buy it, fix it, sell it strategy works.

As we look at the maturity profile of our real estate assets, we'd expect 2013 and '14 to be substantial years for realizations of funds that are fully in carry.

In summary, our third quarter results demonstrate more of the same, but with really substantially strong fundamentals to the Firm, in terms of positive trends, as we continue to see strong capital formation and share gains across all of our businesses.

We continue to invest and build value across our investment portfolio, positioning ourselves to generate great returns for our investors.

Can't do that without the support of our limited partners and the absolutely terrific people who work at the Firm, which is really our biggest asset, and where I think we're in terrific shape.

With that, I'll hand it to Laurence Tosi to take over with a brief review of our financial results.

And then we'll open it for questions.

Thank you, Steve.

Good morning, and thank you very much for joining our call.

Third quarter ENI of $622 million brings Blackstone's year-to-date earnings to $1.3 billion or $1.18 a unit, up 23% over last year, and a record first nine months for Blackstone.

The Firm generated $190 million of distributable earnings in the quarter, up 51% from the prior year, bringing the year-to-date total to $540 million.

Revenues were up 20% to $2.8 billion for the first nine months of the year, driven primarily by a sharp increase in values across all of our investment businesses, generating performance fee revenues of $1.1 billion year-to-date, up 38% from the same period last year.

Blackstone now has over $2 billion in accrued net performance fees, including $160 million or $0.14 per unit in accrued net incentive fees.

Incentive fees are typically realized on an annual basis.

Over the last year alone, the net performance fee receivable grew 75% as a result of strong fund performance.

Blackstone reached a record $66 billion of performance fee earning assets in third quarter, doubling from the prior year period, despite the fact that we had realization events which generated $8 billion in proceeds.

Following on Steve's thoughts on core drivers of value, I'd like to offer a few thoughts on the core growth drivers at Blackstone.

A central characteristic of Blackstone's culture is innovation.

That instinct is perhaps nowhere more evident than in the $82 billion of organic inflows we've experienced over just the last two years.

Even more telling is the fact that $32 billion of the $82 billion of organic inflows comes from strategies that did not even exist four years ago, and are spread across our four investing businesses, with each contributing materially.

Blackstone's unmatched business breadth allows us to always look for ways to leverage our expertise in asset classes and markets, to create new strategies, adjacent to existing ones, where we believe we can deliver consistent outperformance for our LPs across our distinctively wide range of industry-leading businesses.

Importantly, all of these new strategies are built on our existing platform, people and expertise, which allows us to create lasting LP synergies by offering a deeper set of high-quality funds.

More than half of the investors in these organically grown funds came from other Blackstone funds, a reflection of the sustained relationship building impact of our organic growth.

Now, turning to a few observations about Blackstone's balance sheet and assets.

At the end of the quarter, Blackstone had $6.4 billion of total net asset value on the balance sheet, up 30% over the past year to $5.66 per unit, including $2.01 per unit in cash and liquids.

We retain our best-in-class A, A-plus ratings.

During the quarter, Blackstone took advantage of favorable credit markets and launched a $650 million bond offering.

While marketing our issuance to institutional investors, we were afforded the opportunity to highlight the fundamentals of our competitive positioning and our ability to create value.

Cash flow, long-term contracts generate largely redemption-free and consistent 30% cash margin across cycles.

Asset returns, realized cash revenues on assets is 2.5 times that of traditional asset managers.

Operating leverage, normalized ENI margins are 10 percentage points higher than traditional asset managers.

Organic growth, Blackstone has grown three times faster than the leading traditional asset managers since 2009, and 20 times faster than 2006 -- since 2006.

And finally, yield, Blackstone's results currently to date paid two times the dividend yield of a traditional asset manager.

[On] investors enthusiastically embraced the message and the Blackstone operating fundamentals with $4 billion of orders in one of the most successful offerings of the year, driving the spreads at the offering and through to today, 100 basis points tighter on our debt, largely wiping out the pricing differential between Blackstone and the highest-rated traditional asset managers.

Perhaps more importantly, the overwhelming interest allowed us to issue the first-ever 30-year debt for an alternative manager, and allowed us to lock in favorable rates on funding, that gives us strategic flexibility to continue to grow our business, organically and inorganically, and create long-term unitholder value.

On behalf of everyone at Blackstone, we thank you for your time in joining the call.

And we welcome any questions you may have.

(Operator Instructions) Howard Chen, Credit Suisse.

Steve or Tony, I mean, there have been moments in the Firm's history where you've -- your thinking has led the market -- your early-identify the real estate crisis; you spoke about the tapering of growth in your private equity portfolio the last couple of years.

But what about now?

US housing seems like one opportunity where you're early to kind of be around the opportunity, but what are some of the others?

I'd say just to amplify on the housing thing you mentioned, then we can go on to some others.

But in terms of housing, we had -- we made a judgment about six months ago -- over a year ago, right?

Started [auctioning] things --.

Nine months ago, probably.

Although we can refine that for you, that we saw the bottom happening in housing -- US housing.

And because we're in so many different areas throughout the Firm, virtually every one of these areas has decided on a strategy to play that.

So, for example, the real estate group has thus far bought approximately $1 billion of houses.

We didn't buy a company; we're buying individual houses, this is hard to do, at somewhere around $150,000 a house.

And what we're doing is, we're renting those houses to people who are either in them, or we're taking foreclosed homes and we're renting to the people -- is only taking 26 days, from when we put a house on the market until somebody goes into it.

Now this is a very difficult strategy for almost anyone else to do because there is no housing market.

There are just individual cities.

And so you have to set up an infrastructure to make sure that when you take control of the house, the house is fixed up.

You have to find rental, and this requires experts all over the country.

And what we're doing is we're moving across the country, setting up first-rate operations everywhere.

It's not a secondary market where you want to buy size.

You're buying individual houses.

And we're buying there, just for example, over $100 million a week of houses.

This is a lot of houses.

We have our GSO group, for example, doing financing structures for homebuilders.

We have our Tac Ops group buying nonperforming loans.

And not only that, we're looking at investing in mortgage-related securities, which we think have a very significant upside.

Our BAAM group has its own strategy for taking advantage of this kind of play.

So this is the kind of thing that happens.

Once -- every once in a while, where you see something that's a market-turning trend, and we are loading the boat, as they say, I guess, colloquially, on this type of play, which is turning out to be sort of a very wise thing.

I think another trend we're seeing is for smaller types of companies that are looking for capital where the banking system, although it's strong in the United States, it's not strong through medium-sized to smaller banks, more in the large banks that have really done a good job with their capital.

And so we're taking an approach with our Capital Solutions Fund of putting a top to bottom type of lending operation.

We're looking in Europe -- in real estate, we've been the largest purchaser in Europe of distressed real estate bank loans, which we use to basically get control of individual properties or a group of properties, and take advantage of this selling trend that's happening there.

Another thing we're doing that's really quite interesting, because on the call with Tony earlier, we were talking about sort of our success in energy.

And as a trend, energy is one of the really interesting areas in which to make investments.

And the reason is, there's way more demand for capital than the world has to give.

And so, the opportunity set is really very large.

The return, if you actually know what you're doing, know how to structure transactions to protect your downside from commodity risk, and let the upside run, is very substantial.

And our performance just on the Energy Fund, which has been investing for, like, seven months and has invested 40% of its capital, is our mark in that fund -- can I say this, Joan?

[Fund] with the market?

Yes.

-- is like 1.6 times investor's money.

1.6 times in seven months average outstanding.

This is like really neat, okay?

So we're seeing that as a very interesting trend.

And I think we can take you around the world, both geographically, and also by theme.

And when we make investments, it really has to fit into what we see as a compelling opportunity.

And that's why, as Tony said when asked a question, how do we look at return?

Aren't returns really coming down in a world that isn't as interesting from an overall growth perspective?

I may be giving you too long an answer, but we're seeing in a way more opportunity around the world that's working for us.

I don't know how it works for everybody else but it's working for us.

Thanks, Steve.

That's all really interesting and comprehensive.

Thanks.

Just switching gears, you focused some of your LP commentary on the larger institutions.

But I was hoping you just could update us on your efforts to get deeper in the retail in the high net worth arena.

Yes.

I mean, we're very interested in that, that general area.

We've always raised money at retail here at the Firm.

Taking you back to the Middle Ages, when we started the Company that's now called BlackRock with Larry Fink, the first two capital raises were what was then called Blackstone Financial, we changed the name when the business was sold -- were big closed-end funds at retail.

And they were very successful offerings with terrific performance.

And so we like that channel and we have a variety of potential fund raises through different areas.

That's a market where people need return as well.

If you're like a sort of a normal type of retail investor and you've got surplus money, and you're looking at junk bonds getting down to the yield where they are, sort of a general 6% yield, you're looking at treasuries -- I don't know where they are today, whether a 10-year is 1.6 or 1.7% -- your opportunity to like have a return, if you're a retired person or almost any normal person who needs some yield, and you look at what's going on with our products that, historically, and what we think we're doing now is certainly mid-teens returns after fees, can vary a little bit, based on the type of product or sometimes higher.

Then if that's what you're looking at as an alternative to a world where central banks are driving rates down to the floor, you know the desire for our types of products is very, very high.

And we're pursuing that because they become a new, hopefully, loyal sort of customers of Blackstone and we can sell other things to them.

And as long as our performance is as it has been historically, very strong, we'll do more and more in that sector as well.

Thanks, Steve.

And just finally for me.

We've got a few policy events here in the country ahead of us over the coming months.

I realize your model is built to weather near-term volatility.

But just curious, how are those events potentially shaping your thinking about being tactical or positioning the Firm over the near-term?

Thanks.

I think that's a good question.

I mean, Tony and I think about that a lot because you've got some real built-in volatility.

And you know, as you get closer towards year-end, you've got this issue of a fiscal cliff.

What happens if you drive over the cliff?

There are some people who want to do that for tactical reasons to create a panic, so that it can be resolved by bringing all the parties together.

And we don't view that as a zero probability.

So, in terms of fashioning what the Firm does, you know I think we think there could be some risk to markets in terms of volatility as a result of that.

I think our overall view, if we had to articulate it, is that there will be a solution to a global budget deal at some point next year.

I think we don't look for that in the lame-duck; it's just too complex, too many pieces and too little time.

But I think in that sense, we believe that some rationality, regardless of who's President, will return and we'll start basically addressing our country's problems, which our country is capable of doing.

If we do that, then I think we believe that growth rates should go up for GDP.

If there is visible elements of getting our house in order as a country, and that will also affect the global economy, if we start paying attention to and resolving our problems.

So at least for myself, I'm actually somewhat optimistic on this.

Although I think we look at the prospect of genuine volatility either around year-end or accelerated earlier, as people declare where they come out, whether they're going to kick the can down the road or just drive off a cliff and see if they can wreck the car when it gets on the rocks at the bottom of the ravine.

So that's sort of how we more or less look at things.

Tony may have his own view on this one.

No.

I don't think we're betting on a strong upswing.

We think, as Steve mentioned that, we think we caught the bottom of housing just about right, and we're able to get conviction about that, and then sort of find ways to play that conviction.

But other than that, I think we're cautious.

Yes, this is an environment with slow growth and risk around that growth.

Because external shocks could knock -- whether that be the fiscal cliff or a problem in the Middle East or one thing or another -- could knock it askew.

It's not -- we don't have the kind of momentum that it can ride through much in the way of added headwinds.

So we're cautious.

We're cautious about markets.

Equity market has been on a tear.

The interest rates are really low, i.e., bond prices are really high and we're cautious about economies.

So what we buy needs to be resilient under all those different scenarios that we test.

And a number of the things we're actually looking at play on continued malaise, I would say, are premised on that and benefit from that scenario.

We can make really good money like that.

For example, if you're buying real estate asset in Europe where our expectation is for either very low rate of growth or a potential recession.

When you -- when we look at buying something there, we're not expecting, as a rule, for that -- those markets to help real estate improve.

You've got to make your money on the buy, because there's a lack of liquidity there and you've got to price it.

So when you put some leverage on it, you've got a successful deal close to when you create it.

Because growth is not going to take care of that problem.

Where, in the US, we look at it because of different fundamentals, even if the growth rate is low, we look at it incorporating growth.

So, each part of the world we have a different model where we feel it's safe, first of all, and also high return to make those investments.

Great.

Thanks for all the thoughts.

Michael Kim, Sandler O'Neill.

First, so Tony on the media call, you talked about being able to generate double-digit organic growth for the foreseeable future.

So I was just wondering if you could give us some color in terms of the drivers behind that growth?

So how much is related to continuing to gain market share across your existing businesses versus maybe further building out your capabilities beyond what you already have, similar to what L.T. just talked about?

Well, I think they're both -- I think both of those play in.

So as I mentioned in the press call, we're seeing the big institutions that we serve, I think there is a necessity for them to shift more of their assets to alternatives.

So you get the growth of AUM in general, that goes to the economy, and then you get alternatives getting a bigger share, because they must shift assets to alternatives in order to earn the returns to make -- meet their obligations.

And then on top of that, we have been and continue to expect to pick up market share.

So you've got the compounding effects of that driving organic growth.

In addition, you have, as Steve mentioned, or Howard asked, we have retail products.

In general, our industry is underrepresented in retail.

Most institutions have 10% to 20% of their assets in alternatives.

Retail has typically less than 1%.

And frankly, the return sacrifice that retail investors are making by not having, what I consider to be an appropriate allocation to hire returning products that aren't correlated to public market, so they actually reduce risk at the same time they increase returns, is -- that's a high cost to retail investor.

We'd like to help them solve that problem.

And you know drive more retail assets.

And so, I think that will be another source of growth for us, because as I say, it's underrepresented.

Within our different product categories, we have lots of growth opportunities that are adjacent to what we do now, utilize the same skill set, utilize, in many cases, the same information sources of information and market knowledge in real estate, for example, moving from real estate equity to real estate debt sort of less than investment grade debt, so to speak, to investment grade real estate debt.

It's all a continuum.

Moving from -- we had a global real estate fund and then we had a European real estate fund or an international real estate fund.

So they are regional plays.

And so, with each of our business areas has the ability to create adjacent products, and do so with a high degree of success because of it's already building on a platform that's been built.

The team is in place, the information is in place, the discipline and really the experience and track record is in place.

So we continue to see that and then, as I say, we will continue to tuck in acquisitions.

You know our investment in Patria in Brazil has been a dramatic success.

I think they've almost doubled their AUM in like 18 months, two years, since we invested in them.

So there's regional plays and then there's industry plays, like for example, in private equity adding an energy fund to our existing multi-industry global fund.

So, we see no shortage of growth opportunities.

Our challenge is to make sure that everything we do, we do really well and are best in class at it.

We never want to grow for growth's sake.

We pride ourselves, we get our fund, and only by being the best at what we do and the best is measured by returns to our investors.

And what limits that, our ability to do that, of course, is talent.

And so we're going to grow within the limits that are comfortable for us where we can put the best talent in the right seats and achieve the best results.

Okay, that's helpful.

And then just maybe moving on to the realization side.

I understand each individual investment is unique and they all carry their own timeline, but can you talk a little bit about maybe the dynamic of rising real estate realizations more broadly, versus just the amount of dry powder that you now have available with BREP VII?

And the fact that it sounds like you've already committed a good chunk of that capital for new investments.

Just maybe how that plays out and how you're thinking about sort of the different subsectors within real estate, so office versus retail versus hotels, et cetera.

Thanks.

Yes.

Let me take that just one second.

This is an interesting question.

Because just to set a scene for you, other than apartments where we're not a particularly important player, one way to think about real estate is to take a simplistic view where there is virtually no construction going on in the commercial real estate world.

And take a position where you have a 2% growth in the economy.

Nothing heroic.

And just take a model office building, which is -- just assume it's 10% vacant.

In two years, that will be 6% vacant.

And that what happens when you get down to a 6% vacant building or 2.5 years, 5%, that the pricing of the rents in that building tend to go up asymptotically.

And if you know that's coming by doing nothing, and you assume just for the moment that central bankers are good to their word, that they are going to keep rates very low, because most countries don't have the ability to stimulate fiscally, that you're going to have real estate values that continue to go up.

And that's doing nothing special to that piece of real estate.

It's just like rate fundamentals.

So every day, in effect, when we go to work, our properties should be worth more.

And they are virtually all one significant leverage, which means that that value accrues disproportionately to the value of those properties.

Now at some point you decide to get off of that train and stop at the station, and the train moves on.

And you're not on the train any more.

And that's a decision that we make for a variety of reasons, and sometimes it's because we've improved the thing as much as we can.

You know other time there may be something going on in that market.

But at the moment we are on a winning play, whether it's in hotels where virtually around the world, except in Europe, there's very good and strong RevPAR growth in the shopping center business, where we're experiencing that as well in the industrial area, where we're also seeing that, because there's very little construction there.

And so sort of the trend is really our friend.

And just to take real estate where you asked the question.

And so we'll reach a point where either we think that growth won't be good where we've completed our mission, like in the assisted living center that we talked about where two years, 2.4 times your money, that was fine.

And we'll do our best to monitor each of those trends.

What we think we are like winners virtually across the board in the kind of current market in the US.

And then we'll get off and we'll earn very substantial amounts of money for our investors, both as a limited partners and for our public shareholders.

And that time is closer than it was two years ago.

And as we're sitting here contemplating what we should do, we are making more money almost every day.

But it's not like a bad situation, because the flows to our investors will -- most of our assets in that area be very strong.

Very big realizations in that sector.

So, I'm not trying to talk around it.

I'm trying to give you the dynamic for decision-making.

So Michael, let me just comment a little bit sort of more aggregate.

As you know, we put a lot of money out in the last few years and we haven't harvested much.

We're into -- we're through BREP VI, we're into BREP VII.

And at some point, I think as Steve mentioned, we're not so much trying to -- we don't move our whole real estate portfolio in and out based on some cyclical view -- now is the time to sell real estate, now is the time to buy real estate.

It's property by property and we buy it, we fix it.

Once it's fixed and optimized, we sell it.

There's actually a pretty good bid today for real estate because cap rates are so low.

And so once something is fixed, we'll start to peel it off, but it takes us a few years to fix the properties.

And what you -- and so with the money we've put out in the last few years, a number of those investments will start to mature, and I think you'll start to see a ramp-up from here over the next couple of years in the real estate disposition.

So, what does that mean for AUM, which I think was underlying your question there.

Yes, we'll continue to draw down some BREP VII, but most of that money is already in AUM.

And we'll peel off some investments and harvest some investments that, as Steve mentioned, have done very well.

So you should -- I would expect real estate AUM not to grow very much in the short-term as we go through the disposition process in our core equity product.

Now, there are some other -- we -- our international funds coming in to end of its life, so there will be a fund-raising there.

There's some other opportunities.

And then in real estate too, when we do a really big deal and we bring in investors as co-invest, because of the economic arrangements on those deals, that adds to AUM in real estate where it doesn't in private equity.

So I do think you've got some growth engines in AUM, but it will be a bit against the tide of dispositions, so to speak.

So I wouldn't expect a lot of AUM growth in real estate equity.

I don't know if that's clear.

Yes.

That's very helpful.

Thanks for taking my questions.

Matt Kelley, Morgan Stanley.

Thanks for taking my question.

So, I was hoping to touch base on the energy platform.

Obviously you've put some money -- a small amount of money to work in a dedicated fund with a pretty strong return.

Just curious if this is something you see longer-term based on the performance of this fund, and past investments in your other private equity funds as a standalone platform, and how big it could potentially be?

Yes, so I think this could be huge.

There are dedicated funds in the industry that have as much as $10 billion in an energy fund.

And they don't have the record that we have.

Energy is our single best industry sector in private equity.

As I mentioned in the press call, we've never had a loss in energy.

Our average realization is six times our money.

The returns are very high.

And so we really like the sector a lot.

Every -- but it's not a separate business.

I just want to be clear about that.

It's a way for some of our LPs that want to be overweighted in energy to get added exposure, but yet let us maintain the diversification for risk management and other purposes that many of our LPs expect in a given multi-industry global fund.

So, the energy fund that we've raised, $2.4 billion, is essentially going to be invested 50/50 in any energy deal.

So to put that $2.4 billion -- the other half of that will be coming out of the main fund, the main global fund.

So, to invest that $2.4 billion, which by the way, is about half invested today, even though we had the final closing in August, you have to put out $5 billion, half of which -- or thereabouts half of which goes to the energy fund, half of which goes to the main fund.

When the energy fund is fully invested, it's absolutely our intention to go out and raise another hopefully larger energy fund.

But just so you understand our model, which you probably do, so maybe this is just redundant, but the way we grow the Firm is by doing a great job for limited partners.

So, if you look at the energy fund, it was actually agony to raise this $2.4 billion, given our record.

The marketplace regarded us as like a first-time fund where we just saw a complete continuity in what we were doing, as Tony mentioned.

The next time we come to market, assuming our performance is as impressive as it's been in the sector over the last 10 years, I would venture to say that the acceptance of this fund, Blackstone Energy Partners II, will be much greater.

And marketing to that would be infinitely easier than the original thing.

And what number that gets you to is not our job to predict right now, and what we think is comfortable, given the opportunity.

But just the ability to go to market with this type of product again, what one would think, would be just an example of drivers of the Firm growth, and delivering also great performance, which is our number one focus for our limited partners -- and new ones.

Great, thanks, that's helpful.

And then if I can ask on the European real estate side, I know you mentioned distressed European bank loans being more available.

Just curious, as a stepping back to a little bit of a higher level, are you seeing pretty substantial increase deal flow out of the European banks?

Or is that something that's still -- you're more waiting for down the road?

I'd say that's still a little cludgy on balance up, but not nearly what it should be.

And the reason for that is Basel III, because the banking system in Europe has been asked to double its equity capital.

And it's got a lot of loans that are probably not marked accurately on its balance sheet.

And if they want to clear out at market-clearing prices, they'll be taking losses, not gains, against their net worth mark.

So it's very difficult to double your net worth at the same time you're losing money on the sales of these assets.

Now, different parts of Europe will face up to these issues at different times and there are a variety of things that we're very actively buying.

If you turned on all the troubled loans in Europe that the banks could take the hit, you would dwarf what's coming out in the market.

As it is, we're seeing a lot of opportunities.

We've had a lot of success, in terms of buying this compared actually pretty much to the asset allocation we would have globally of how much we would want in Europe.

So it's actually pretty good for us, I would say right now.

And but for people other than one or two or three buyers through the whole European system, it doesn't provide as much opportunity as -- and we happen to be one of those, as one might think.

And Matt, let me also -- another -- even if the banks aren't selling directly selling troubled loans, which I think was the form of your question, in many cases, they're not making much in the way of new loans.

So there are still -- so some of our investing in Europe is in actually pretty good countries where there's a lot of growth, particularly Eastern Europe and places like that.

In some instances where they just can't get financing that they once did any more and that's opening up some nice opportunities for us as well in Europe.

I mean Tony's point is really -- I'm almost embarrassed to have forgotten it, it's such a good point -- but man, somebody just like turned the spigot off in Europe.

Trying to get real estate loans in Europe is exceptionally difficult and that's sort of understating it.

And so this is an enormous opportunity for us because of our size and scale to provide that function of advancing capital to people.

You can't refinance.

It's like big-time opportunity for us.

Big time.

Okay and one just quick housekeeping item for, I guess for L.T. On the GSO business, the credit business, the other operating expenses I see you have a $20 million cost, the one-time associated with a fund launch.

So fair for us to assume $13 million to $14 million run rate?

Or is there any other noise in that number?

No, that's it.

That's exactly the right number, Matt.

Okay, thanks.

Marc Irizarry, Goldman Sachs.

Steve, you definitely have a large array of what institutions clearly are looking to invest in these days.

A question on the business of distribution for you.

Where are you in terms of sort of cross-selling the Firm, if you will?

And are we sort of looking ahead at you maybe adding a more robust global distribution sort of footprint with -- and then adding some headcount there?

Or how should we think about how you sort of cross-sell the Firm and cross-sell some of the product?

Well, you know, Mark, we were just talking about this at Executive Committee yesterday.

Based on what I've seen is our costs for running our distribution operation globally.

We've got a big distribution.

And it's -- the Firm is coming together really in a terrific way.

And you know the way it works out is that certain accounts have got roughly 1200 LPs throughout the firm, and different accounts.

One of our businesses comes the first product in.

And assuming we do a really great job, which we have been then, there is a natural receptivity to other products, since they are also performing at a world-scale level.

And so there's a very high level of cooperation between the different parts of the Firm.

We have a lot of white space still to go.

I think Joan has the statistic, and if she doesn't, I'm shocking here to answer a question, in terms of how penetrated we are, you know, across our four major groups against a model LP.

Yes.

So we have two-thirds of our clients earn more than one product, but still less than 20% are in all four.

And so, I would say we've absolutely been focused on it, but it's still early days.

I mean, we just think it's a huge opportunity.

And if you think about how new the credit platform is to us, or a tactical opportunities and energy, and we've had new LPs to the Firm in energy, for example.

I mean it's just a long runway from here.

I would just add, Mark, that -- and we -- and Tony I think touched on this just about a year ago, that one of the key investments we made during the downturn, and one of the flexible -- one of the flexibilities of our, not only our growing asset base, but the way our fees are structured, was that one of the key investments was marketing.

So, we've been making investments over the last 24 to 36 months that you see us bearing some of the fruit of that.

There are certainly both LPs in areas that we can continue in, but I wouldn't expect a big uptick in expense, because we've been planting those seeds for some time.

It's been a key initiative for us for years.

Okay, and then --

Yes.

Sorry, go ahead.

Then just to get back on the real estate realization topic, can you talk a little bit about the -- your preferred means of exits from some of your real estate portfolios?

It looks like stuff that's coming out is clearly coming out at a higher value, where you have it marked currently.

But how do you think about sort of the portfolio in terms of public exits versus private sales?

I think it will be mostly private sales but we will definitely have some public exits as well.

A company like Hilton is not -- it's a multi-asset; it's an operating company.

It's more apt to have a public exit.

But an office building here or there is more apt to have a private exit.

In addition, when it comes to homes and things like that, we've got the opportunity to do some securitizations and some sort of dedicated REIT-type vehicles and some things like that.

So, it will be a mix of all those things, but mostly, we buy a large-scale commercial assets that will go private.

Those are private market.

I don't mean they'll be sold in the private -- privately in the private market.

We have a fairly long queue of questions, so I'm just going to ask if everyone could just ask one or two, and then get back in the queue if you still have follow-up, just so we can get to everyone.

(multiple speakers) Yes, it is fun for us.

We like talking about our business.

Great, thanks.

Robert Lee, KBW.

Question I had is actually on private equity business and maybe just an update on BCP V. I know there's still some ways to go to get to carry, but kind of curious, when you have conversations with LPs in that fund, what are you communicating to them about your own ultimate return expectations for that fund at this point?

We tell them and we believe that they'll be between 1.8 and 2 times their money.

Yes, I mean do you -- besides that, I mean, are we thinking of -- because obviously, if it's over 10 years versus (multiple speakers) -- you know?

Yes, well, it's -- that's a fund that was a '06 vintage funds, so we're 2012.

As you know we haven't harvested a lot of it so the average life of that fund is going to be fairly long.

I expect we'll have a bunch of dispositions in the next few years.

But you know it's -- given the cycle that they are in and when they put that money up, I think they're happy with the performance.

It doesn't necessarily lead to a lot of carry.

So that's -- and how much carry will be a function of the timing of the realizations, that's a function of economies and markets and the IPOs, et cetera -- you know, can we do the IPOs at reasonable prices and all that sort of stuff.

What we've been doing is that Tony and I have been meeting with each of the large companies.

In fact, we have a meeting with the CEO of another one today at 2.30.

We want to hear what everybody's growth plans are, whether they need more capital.

And what we're doing is, we're building these businesses rapidly.

Something like you know sort of Fund V is a little bit hostage to the economy.

If we have a increased growth in US GDP, which will then lead to higher stock prices, higher earnings growth, because this firm has a lot of US exposure, then you'll see some very nice acceleration of trend.

If you stay in a 1.7% GDP growth, it's not a particularly hospitable environment for companies generally.

So, I think a little bit of when are we going to be over that hurdle -- we're doing all this stuff that we can do to maximize the growth, but we actually could use a little bit of cooperation from the US government and the US economy.

And what we've seen in our experience managing these funds over 27 years, is that at some point, things look like they're slowing down and it's not as much fun.

And then something happens to the world in a favorable way, then you have this rapid sort of catch-up that works.

And if you keep your companies in great shape, investing in them and so forth, then that change in the growth curve gives us an opportunity for big gains.

I can't predict exactly when that will happen; from watching these presidential debates, I'm not sure that they can really predict that either.

And it's something that it's part of the real world today, but it's not going to stay like that, you know, forever.

The public won't tolerate it.

We have the ability as a society to address those issues and change it.

And that will be for the benefit of our private equity funds that were done more towards the top of the market than where we are over -- since that time with very high returns.

Yes, as Steve points out, when this thing swings, it can swing really big.

And I think one of our funds, PCB III, I think it swung from bottom to top, I think, by a factor of 4 times in terms of value.

So.

I mean, some of these are really funny.

I mean it's hard for you to have sort of real feel for this, but I mean, we had a company called Graham Packaging that was like hanging around for years doing next to nothing.

It was gaining market share, it was growing, but it was consuming a lot of capital to grow.

And we had this thing marked at (technical difficulty) cost for like eight years or something, and we ended up exiting because we bought a company, we got a lot of synergies, became much more interesting.

Somebody came and approached us at a very high price.

Somebody else liked it even more, so they wanted to pay.

But we ended up in a bidding war for this thing and we made 4 times -- is it 4.2, something like that?

-- our money, you know, out of something that had been hanging around you know as an investment for years.

And so we have a lot of experience with things like this.

And you know we keep investing and there's a moment.

And then that moment happens and everybody looks back and says, wow, how did that happen?

Well, it happens.

So we're in one of those more funky periods generally, because of low GDP growth.

But that won't last forever.

Well, I appreciate the color and maybe just one quick -- my follow-up question on capital management.

As you aptly pointed out, you now have a lot of growth potential through acquisitions, bringing on new products where you make your own commitments to.

And you obviously have a focus on distribution.

But at the same time, I'm assuming you're somewhat frustrated with how the stock has performed over time.

And you know so any thoughts or how should we -- thinking about maybe some of the recent cheap debt that you've raised, some of that being put towards buying back some of the common, particularly as there is some creep through share issuance over time to employees.

Oh, that's one thing we could do.

I think L.T. -- you know, you all on the receiving end of a call like this, get this blizzard of numbers and data we throw at you.

We go over this really careful because we think each number is meaningful but it's impossible to absorb.

If you have the time to go back over what L.T. was saying and look at the Firm's growth, and compare us to asset classes and Financial Services that grow infinitely slower, where your money can be redeemed like on a daily basis, and you look at the business model that we have growing at many, many times the rate of almost everyone in Financial Services, with the kind of multiple we have, I think you used the word, did you say frustrated?

Frustrated really doesn't adequately describe how I feel.

(multiple speakers)

I really wish you hadn't asked this, Robert.

(laughter)

And you know, we're going to -- I wouldn't give us an A for sort of getting our point across to a market, and having them truly understand the earning power of the Firm, the growth of the firm, the position of where we are.

So, we're going to really focus on this in a more fulsome way.

I mean we've done a really good job being pioneers in this industry, describing it.

And that has not been an easy task for either Joan or for L.T., particularly with some of the financial policies we've been given by sort of the government.

But the reality is that the Firm, in my view, is significantly undervalued.

Everybody you talk to says that; but actually this is one of the cases where it's true.

And we're going to demonstrate that to people.

And I think we have to take a more active role, which we've already decided on at the senior levels in the firm.

Tony and I spend only a very limited time on this part of our business.

I guess you would call it managing the multiple.

I mean we just haven't done it.

And because we are busy growing our business and we're going to have to, like, chop off a little piece of us to spend more time with that, along with the other members of our management committee such as John Gray, Bennett Goodman, Tom Hill.

So I think over the next six months, people are going to be seeing more of us.

Now whether that's a good use of your time I leave to you.

But I agree with your characterization.

We actually, in terms of stuff like share buybacks or whatever, you know we're more interested in terms of building liquidity on our balance sheet for a variety of reasons.

It's something we could (multiple speakers) --

Maybe some comments on the buyback.

One of the -- organic growth is great but our LPs expect us to have some skin in the game.

And the kind of organic growth we've had on the scale of the business we have requires capital.

And so we did the financing really to support growth.

It's not like it's excess cash we don't have a use for, that creates a lot of value for shareholders.

So that's -- I do not think you should expect any buybacks.

You started -- the question was asking us about different shareholders -- shareholder dilution over time.

Since the IPO, to be clear, we've issued only [3%] more shares for a company that's grown 2.5 times.

So we'd more than outgrown the issuance of the shares, so that's not an issue for us.

And we don't anticipate it will be.

And then following what Tony just said, it's a good use of capital.

At the time we did the bond deal, we were bumping up against AA.

There's not a lot of AA companies out there that grow anywhere near our level, so it made sense for us to effectively find that and then put it back in the business.

Great.

Well, I appreciate all the color and for taking all the time and taking my questions.

Thank you.

Roger Freeman, Barclays.

Actually it's perfectly into one of my two questions.

Just on that debt to raise that you did, you got I guess now about $2.3 billion of cash and liquid investments.

I think the June Q had $1.3 billion of commitment.

As you look at that, was this just kind of your longer-term sort of capitalization strategy to kind of fund to the co-investments that you anticipate making, as opposed to kind of the ramp over the intermediate term?

Actually, Roger, it's much less of that.

If you look at the $1.3 billion at the close of the second quarter, that's the gross commitment.

If you net out the commitments that are for the insiders that are not the responsibility of DX itself, it's only about $850 million.

And that number has actually come down over the last couple of years so, it was less -- it was -- as Tony said, we are growing, but it's not that we think our commitments as a percentage of the size of the firm will grow.

And the primary use of the capital will be I know it's a generic term, general corporate uses, and but some of the initiatives that you've heard us talk about as far as investing in the business or its growth over time, but there has not been an increase in the overall commitment of the fund and the Firm to the fund.

Okay, so you took advantage of cheap rates and receptive markets for the longer-term?

It was the right point in time we thought.

And we also thought frankly -- and I mentioned this in my comments that we thought the market had frankly mispriced Blackstone's credit, much like we've been working on the equity side of the story that Steve just mentioned.

And we were trading more like a BBB traditional asset manager rather than an A, and this gave Joan and I the chance to go out and meet with a lot of people.

And the proof is in the fact that we have tied into where we should be trading.

So we partially do that as well.

And just the other question is, Tony, on the earlier media call, you made an interesting comment about BCP VI potentially being off of the bat off to the best start of any fund in history.

I'm just wondering if you could kind of expand on that a bit?

If you look at the IRR that you reported, I think it's like 8% of which probably is hampered just by all the uninvested capital.

What are -- what is sort of the multiple on the NYSE of what you've invested already?

Or are you just saying that from a percentage of what you expect the returns eventually to be on what you've done?

Well, I guess really it's a combination of both, Roger.

We've had some deals like Auctioneer, which have an immediate markup.

We have made an investment in an Indian company that went public with an immediate double I think or close to it.

We've invested in Knight Capital where we had close to an immediate double.

So some of the investments we've put top have immediate public market marks, so it's not our own marketing.

Our general policy is when it's a private investment, not change the market in the first year.

But when there is an actual transaction or a public market, we do market to the public market that's required undercounting.

So we try to carry new investments at costs, figuring that our cost is the best indicator of value in which we would also try to be conservative in our marks, which is why you see virtually all of our dispositions at significant bumps over our marks.

But with a new fund, you're lugging the management fee on the entire corporate of the fund -- [$16 billion] and you've just got a few investments.

Maybe it's 20% to invest it -- maybe it's 10% on average over the last year; it's probably been less than 10% invested, trying to carry the management fees on the whole thing.

And it's very hard to get IRR's on a fund.

The fact that we're over that hurdle at all is unusual.

Sure.

Okay.

Knight was in BCP VI, not on the tactical fund?

Yes.

Okay.

All right, thanks a lot.

Jeff Hopson, Stifel Nicolaus.

Two questions.

One on the hedge fund upfront business.

I guess good flows on more customized products.

Can you remind us maybe one or two of these as far as where the growth in worthy interest is?

Then a follow-up on PE fund number V. So that is a bigger fund.

So if we assume decent returns but still lower than the previous and subsequent funds, what would the investor come out of that thinking that this is just the downcycle and over multiple funds he's done well?

Or how would you characterize that?

Okay, well, I'll do both, I guess.

On the -- on BAAM, I'm not quite sure I understand your question, but why do investors invest in BAAM?

Is that what you're asking?

No, I meant --

Which strategies?

Because you called it a fund of funds but really a hedge fund strategy solution.

Customize means customized.

So a lot of LPs will come to us and they will want a specific product for it to meet specific return and correlation objectives.

So you really can't generalize on that.

But in addition to creating those things, we do have some co-mingled funds where people can come in, and there's about -- there's 20 or something of them, and there might be some of them that are with emerging markets and some that are of high data, some that are low beta.

Some that are based on commodities.

Some that are based on different things like that.

Then we have several other products that are co-mingled products but are specialty products in that business.

We have sort of a strategic opportunities kind of fund taking advantage of market anomalies.

We have a fund that sees new hedge fund managers.

And by doing that owns a piece of the GP.

And we have a new product that we are working on which we'll be announcing shortly but haven't announced yet.

So it's quite a diverse -- all of these businesses are big businesses with diverse products and diverse business groups within them.

And the BAAM product is no exception to that.

Okay, thank you.

And then on Fund V, our LPs are happy.

I mean, frankly gets to make none of them have made 1.8 times their money on any of their other 2007 investment, so there is no issue there.

Okay, great, thank you.

Chris Kotowski, Oppenheimer.

The realizations or the realized carry and incentive fees in your real estate fund were the best in many years, I think, probably going back to 2007.

It was about what 2010 and 2011 was combined.

So that strikes me as something new.

And I'm wondering, is that reflective of a whole bunch of little transactions or just one big opportunistic sale?

And you've been talking about the fact that realizations in real estate would be more likely to increase.

Is this kind of the opening salvo of that?

I'll start and maybe Tony will finish it.

The answer is yes as to the small transactions.

And I noted in your research you're looking at big publicly announced deals.

That's actually not necessarily the nature of how we exit our real estate investments.

While we may have done deals in different packages when we did them, sometimes we break them up and sell pieces.

So, year-to-date, there's been 55 separate realization events inside of real estate, and there has been a strengthening of that trend as the year has progressed on.

Yes, and absolutely, Chris, we've been talking now for the better part of a year that real estate would start building to a fairly heavy realization part of the cycle.

And you're seeing the beginnings of that.

And the big chunky ones are still ahead of us.

Okay.

And then just as a follow-up, you announced a Capital Trust acquisition.

And it looked like you were just buying a real estate management company.

And I would have thought you would have had that or did that come with properties attached to it?

No.

That was not a fund investment.

That was a Blackstone investment.

So, we did, in fact, buy the management company and we wanted the management company.

Very good team there and it opens up a few opportunities for us.

The opportunities are, first of all, it gets us into the high-grade real estate debt business.

We've been in this sort of less than investment-grade real estate debt business, and so this extends the product line that we have in real estate.

Number one.

Number two, it gets us some new LPs that we didn't have before.

And, of course, we think they will benefit from some of the LPs we have that they weren't before.

Number three, it gives us a special service for which we can -- where we can feed some businesses, and we can also get a lot of information and, we think, some deal flow from having a special service for.

So we've got a lot of synergies and we think it will open up some nice opportunities for future growth.

Okay, great.

That's it for me.

Thank you.

Ladies and gentlemen, that's all the time we have for questions.

I would like to turn the call (multiple speakers).

Actually, we're going to -- we have one more.

We'll take it.

We have Bill Katz.

Disconnected?

He did?

Bill Katz is no longer in the queue.

Oh, okay.

Well, thanks, everybody.

If you have any follow-ups, just give us a call.

Thank you for joining today's conference.

That concludes the presentation.

You may now disconnect and have a great day.