Blackstone Inc (BX) 2015 Q2 法說會逐字稿

Welcome to The Blackstone second-quarter 2015 investor call.

Now I would like to hand the call over to Joan Solotar, Senior Managing Director, External Relations and Strategy.

Please proceed.

Great.

Thank you, Jasmine.

Good morning, everybody.

Welcome to Blackstone's second-quarter 2015 conference call.

Today we are joined by Steve Schwarzman, Chairman and CEO, who is joining us from overseas; Tony James, President and Chief Operating Officer; Laurence Tosi, CFO; and Weston Tucker, Head of IR.

So earlier this morning we issued our press release and slide presentation illustrating the results and that is all available on the website and we will be filing our 10-Q in a few weeks.

I would like to remind you that the call may include forward-looking statements which are by their nature uncertain and outside of the firm's control and may differ from actual results materially.

We don't undertake any duty to update any forward-looking statements and for a discussion of some of the risk factors that could affect the firm's results, please see the risk factors section of our 10-K.

We will refer to non-GAAP measures on the call and for reconciliations of those, please refer to the press release.

I would also like to remind you that nothing on the call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Blackstone funds and the audio cast is copyrighted and may not be duplicated, reproduced or rebroadcast without consent.

So a very quick recap of the results.

We reported ENI of $0.43 for the second quarter, that is in line with consensus.

I know one of -- Reuters had reported it incorrectly earlier but have since corrected that.

That is down from last year due to lower appreciation in the private equity and real estate funds, particularly the public's, which were down in line with markets.

Though performance was actually still quite good overall across all of the businesses.

Distributable earnings were up quite a bit, 35% to $1 billion for the quarter or $0.88 per common unit.

We will be paying a distribution of $0.74 to holders of record as of July 27, which brings us to $2.85 paid out over the last 12 months.

And just based on where the stock is today, that equates to a compelling yield of 7% on the current price which is one of the highest of any large company anywhere in the world.

And with that, I will turn the call over to Steve.

Thanks, Joan, and thanks to all of you for joining our call.

In the first half of 2015, Blackstone sustained strong momentum across all of our businesses, private equity, real estate, hedge fund solutions and credit and continued to distinguish us in the world of money management.

We remain the only manager with leadership positions and strong investment performance in every one of the alternative classes and our limited partner investors recognize that and are rewarding us with more and more of their capital as a result.

This is why Blackstone took in $94 billion of new capital in the last 12 months despite capping, which means limiting the size of all of our major funds.

In other words, the demand for our products significantly exceeded the money that we could accept and in that sense we could have raised much more than $94 billion.

This $94 billion is a record for Blackstone or any other alternative asset manager and is actually more than the combined fundraising of the other public alternative managers for any year in history.

Our fundraising success is unprecedented for our industry and has propelled Blackstone to a record $333 billion in AUM, up 19% year-over-year.

So what is driving this success and our sustained growth over many, many years?

Blackstone is very different from a typical asset manager.

We have been able to continually outperform and deliver outperformance for our LPs versus the relative indices since the firm's inception three decades ago.

When our investors give us a dollar, we've generated $2 to $2.50 on average in our private equity and real estate funds across markets and economic cycles for 30 years.

This is not a one-time event.

In the second quarter if you invested in the public stocks of basically any developed market in the world -- doesn't mean Japan -- we would have either achieved flat performance or lost money.

Blackstone however, despite the headwinds in the public markets, continued to deliver superior returns for our investors.

In private equity, we outperformed the S&P by 370 basis points in the quarter and in real estate, we beat the REIT Index by 1250 basis points.

Our credit and hedge fund solutions business meaningfully outperformed benchmarks which Tony mentioned with our mezzanine fund being up I guess somewhere around 24% which I think is what Tony said.

And when you have performance like that in flat markets, you will have loyal investors and you will have more money from them.

This is because when we invest with a specific view of operating and from improving assets in our portfolio, growing their cash flows and creating real and lasting value.

A great example of this was the IndCor Warehouse Company we sold last quarter.

We painstakingly built this platform through 18 different transactions over four years, in many cases buying assets from distressed sellers and we consolidated them and created an irreplaceable company of scale.

Now we are doing something similar in European logistics with our company, LogiCor.

In private equity, we have built up Merlin from the small London dungeon attraction which I think we paid about $85 million for to become the second largest theme park company in the world behind only Disney before exiting the investment earlier this year.

In the case of Central Park's investment in the UK, we leveraged the combined expertise of both our private equity and real estate groups to maximize the value of the property and operations.

And just last month we announced its sale for more than triple our original invested price.

What we do at Blackstone can't be replicated by investors in the public markets and very few can do it anywhere or at our scale.

Meanwhile the public market backdrop as everybody knows has been volatile and challenged lately largely driven by the drawn out situation in Greece as well as the sharp decline of the stock markets in China.

In the case of Greece, we seem to have a temporary solution now which is comm markets.

China's issues may have longer-lasting implications particularly in commodities and related areas.

Despite public market headwinds, our portfolio of companies, as Tony mentioned, overall are really in terrific shape.

In private equity, trends remain healthy with portfolio company revenue and EBITDA up 5% and 12% respectively over a year ago.

In other words, that is a 12% increase in earnings.

This compares to most estimates for S&P companies showing flat to down earnings.

So the outperformance of the company we own is really substantial.

In real estate, our office rents in the US and the UK are rising in the double-digit percentages while hotel RevPAR growth is healthy despite lodging stocks being down between 3% and 7% for the quarter.

We have also seen 15 consecutive quarters of base rent increase in our grocery anchored retail portfolio.

And surprisingly probably to most of you, Chinese shopping malls are reporting double-digit percentage same-store sales growth.

Trends in our portfolio companies compare favorably to the US economy which continues to grow somewhere in the 2% rate.

There has been much focus recently on the Fed potentially increasing interest rates which still hasn't occurred despite most predictions to the contrary.

I think this could happen in the next six months which Janet Yellen seems to be indicating in a well telegraphed and controlled way.

In a rising rate environment, I expect our portfolio including real estate and credit to continue to perform well which it has historically in that type of environment and that is because rising rates are usually accompanied by better economic activity which is obviously beneficial to the portfolio.

And I personally think that any rate increase would be very, very gradual.

As public markets move up and down you should expect our public holdings of course to move up and down as well.

That is the reality of our business and part of our financial results in the short-term.

Fortunately the capital in our fund is largely locked in with approximately 70% of our AUM not subject to any redemption risk.

In these businesses we are not forced sellers and can wait until the time is right to exit our positions, while at the same time continuing to compound value for our limited partners and ultimately for our shareholders.

A volatile market backdrop could also (inaudible) us to deploy greater capital to take advantage of dislocation whenever this occurs.

So ironically our E&I could be temporarily going down at a time of great opportunities for setting up future gains.

Blackstone has by far the industry's largest pool of dry powder at $82 billion and a fully integrated network built around the world positioning us very well to take advantage of any market dislocations.

Each of our businesses has continued, as Tony mentioned, to expand its platform and, by the nature of our size and diversity, we are investing more today than we were five years ago.

In real estate, in addition to the global fund, we have dedicated opportunistic pools in Europe and Asia; the real estate (inaudible) and now our core plus business.

In private equity we have our global fund and our energy fund and we have ramped up the size of our tactical opportunities business and have added our secondaries business.

In credit we have rescued lending, mezzanine, a dedicated energy fund, a dedicated Europe fund, CLO's, a hedge fund platform and so on.

So Blackstone is not limited to just being in a few big funds, we find unique opportunities and we grow those businesses to where they are at scale.

Because of our global footprint we are able to identify risk/reward around the world and move our scale capital quickly and decisively.

And our size and brand give us a significant competitive advantage to win deals that are in many cases the exclusive partner as we were in the GE deal announced in April, which was the largest real estate purchase since before the financial crisis.

Despite more difficult investing environments in both private equity and credit, we have still been able to deploy significant capital.

We have invested $5 billion for example in the second quarter bringing us to $26 billion invested over the last 12 months.

The dominant themes include distressed real estate in Europe, European credit, energy and opportunities created by the pullback of financial institutions globally, including mortgage lending and tactical opportunities, special situations deal flow.

On average over the past three years we have invested or committed more than $20 billion per year from our draw down funds alone, which is far greater than our investment pace prior to the crisis.

Although our capital deployed in a given year may be up or down depending on markets, we are functioning now with a completely different scale of operations than we were even five years ago and we are continuing to create fantastic performance despite that.

Our greater investment pace today is planting the seeds for future gains and distributions that I believe will be of a significantly larger order of magnitude than what we are harvesting even today, which is quite strong.

As we have expanded and further globalized our businesses we have kept a strong focus on keeping our internal culture intact and ensuring Blackstone quality across regions and products.

We never franchise out decision-making and we retain one single global investment committee for each of our business lines.

Our investors have confidence that when we invest anywhere in the world we are doing it with the same process driven, analytical rigor that has defined us in our performance for the past 30 years.

I expect it will continue to define us for the next 30 years as well.

That is why Blackstone remains one of the fastest-growing, most profitable asset managers in the world.

In fact, there are not many other companies of our scale in any industry that have grown at our rate on a sustained basis.

And unlike most other leading companies, we pay out a majority of our earnings on a current basis.

In fact, a lot more than a majority, equating to one of the highest dividend yields of any major company in the world at 7%, as Joan highlighted.

I believe these factors make Blackstone stock a very compelling value for investors and I'm confident that over time the public markets will come to the same conclusion driving a premium valuation for Blackstone.

In the meantime Blackstone will continue to operate as we always have, focused on generating exceptional long-term performance for our investors with very low risk of loss of capital.

With that I would like to thank everyone for joining the call and I'm going to turn it over to our CFO, Laurence Tosi.

Thank you, Steve.

As Steve pointed out, all of our global investment businesses grew double-digits over the last year, amassing a staggering $114 billion of incremental asset-based expansion from $94 billion of gross inflows and $20 billion of value created through positive fund performance.

That one year growth is 40% greater than the entire size of Blackstone at the time we went public.

In total Blackstone's businesses grew AUM at a combined rate of 19% with each business growing at a multiple of the industry average.

That growth comes from generating new ideas, new strategies and continuing to outperform broader market appreciation.

This quarter the contribution of each business shifted demonstrating Blackstone's unique balance.

GSO and [BAM] had the strongest economic income growth year-over-year.

Private equity had the highest total distractible earnings and real estate had the highest the revenues.

Each business is a market leader performing well and contributing materially to our results.

Total firm E&I is flat year to date at $2.1 billion or $1.80 at a margin of greater than 50%.

A few points to highlight about E&I and earnings momentum.

Sustainability, performance fee revenue momentum continued to rise to a record $2.2 billion year to date.

We have now added $4.5 billion of gross performance fees in the last 12 months which is more than our record level of realizations, and managed to grow the accrued performance fee balance year-over-year.

Earnings power, Blackstone's growth reflects our increasing asset base paying performance fees which grew 13% year-over-year to a record $158 billion, effectively lowering the level of appreciation needed for earnings growth.

Compounding effect, the compounding effect the performance fees paid a method appreciation is a key earnings driver and why cumulative results continue to show strong earnings momentum.

Total management fees are down slightly year to date and in the quarter as new assets raised are not yet earnings fees and lower levels of transaction and advisory fees impacted results.

There was also a reduction in PE management fees coupled with an increase in operating expenses related to one-time items consisting of fundraising fees and legal reserves.

Firm wide however base management fees were up 4% for the quarter and we expect we will return to double-digit growth levels as more of the $57 billion of committed capital we have raised begins paying fees.

Distributable earnings continued to accelerate in the quarter continuing a trend we have seen over the last few years.

Distributable earnings are up 35% in the quarter and 83% year to date on a 45% surge on realized performance fees.

Over the last year we have returned $46 billion of capital related to realizations representing $20 billion of gains.

We have now realized over 70% of performance fee we have accrued as of the end of the second quarter 2014.

That realization rate has accelerated from an average of 45% in the prior years to the current level of 70%.

And our pipeline for exits remains strong as more than 60% of the $4.5 billion of performance fees we have accrued relate to assets that are either public or are liquidating.

Additionally, more than half of the current $4.5 billion net receivable is related to pre-crisis deals and 90% of those are public or in liquidation.

Blackstone's deliberate strategic design, which we painstakingly assembled over many years, better positions us today to absorb and materially outperform in periods of market volatility, dislocations and a shifting global opportunity set.

Our outperformance comes from the fact that our core fund strategies for finding opportunities and creating value do not depend on public markets.

The value created in private equity and real estate comes primarily from operating earnings growth demonstrated this quarter and over the last year by double-digit fundamental growth, as Steve pointed out, compared to a backdrop of flat global growth.

In credit our expertise relies on analyzing borrowers, structuring collateral and pricing credit risk.

In hedge funds the returns come from our expertise and scale in picking managers, innovating new products and ideas and making active allocations across asset classes.

All of these strategies and skills are at their core sustainable competitive advantages that are not temporary, cyclical or market dependent.

Think about it this way, Blackstone has now generated $5 billion of performance fees from investments we made before the financial crisis in 2006 and 2007.

The only way to achieve that is by leveraging our unique operating platform to find opportunities to create value through active management and patient capital structures.

The Blackstone platform delivers outperformance even in periods of high asset prices as we have seen over the last few years where investments age more than one year are averaging gross IRRs in private equity of 27%, real estate of 31%, and credit of 28% as Steve pointed out.

Our culture learned from our pre-crisis experiences and we adapted by building firm capabilities to manage these markets.

Strong performance drives growth and sustained performance drives franchise value and investor loyalty.

Investors have validated Blackstone's distinctive patient investing and operating model by committing record levels of capital to our funds; a record of $31 billion of commitments in the quarter, $61 billion year to date and $94 billion over the last year.

It is of note that our investor base has drawn strong and growing interest from new, global and fast-growing pools of capital.

In fact, 14% of our capital over the last year came from sovereign wealth funds, 13% from retail investors.

Both capital pools were not meaningful contributors just a few years ago.

In fact, almost 50% of the capital from our most recent funds come from outside North America, up from just 15% a few years ago.

The loyalty to our performance runs so deep that BCP VII and BREP VII, our global flagship funds, raised $32 billion so far this year with demand far exceeding their caps.

Moreover as investors concentrate their capital with the best managers, Blackstone certainly benefits from that powerful consolidation with 81 investors in our recent flagship funds making commitments of over $100 million.

As of today, we have record levels of capital to deploy, $82 billion, to take advantage of opportunities in the marketplace.

Is that too much capital or will we compromise to put money to work?

Absolutely not.

Of the $82 billion, half was raised in the last two years so the timeframe for committing capital is long and we are patient by nature.

We have also built a unique platform to put that capital to work.

We have $15 billion committed and deployed year to date with approximately 15% of that outside of North America.

That puts us on pace to meet or exceed $20 billion of invested capital in 2015 providing further earnings growth in future years from the value created with that capital.

It is not just our differentiated platform, leading return profile or ability to access new pools of capital that drive our results.

It is a new, more diverse and capable Blackstone.

In private equity and real estate, $28 billion or [15%] of our total assets in those segments are public.

The rest are subject to long-term private values or in funds that are less susceptible to public equity market swings such as Tac Ops secondaries, multi-strat, real estate debt, real estate core.

All of those are new businesses which now amount to $40 billion in assets up from zero just a few years ago.

Our credit and hedge fund platforms are scaled drivers of our financial results.

Those businesses are now $150 billion of AUM or 40% -- 45% of the firm, up from $39 billion in 2007.

Those two businesses have generated over $1.4 billion in revenues over the last 12 months marking a significant part of the firm's performance in terms of diversity their performance is driven by very different dynamics than are other businesses.

In credit, we earn management and performance fees largely on collateralized assets paying current yield.

In hedge funds, the strategies are either designed to have one-third of the volatility of the S&P, be market neutral, long short or relate to asset growth of alternative managers, all of which is a step removed from public markets.

I always find it curious when people describe or value Blackstone on a sum of the parts largely because what makes Blackstone distinct is that the whole is far greater than the parts.

All you have to look at is the unprecedented speed and scale with which our newest initiatives have grown as extensions of that whole.

Tac Ops, which is two years old now is $11 billion; core real estate, 18 months old, has $7 billion.

Strategic partners purchased two years ago, has nearly tripled to $13 billion and new energy funds created over the last three years are reaching $20 billion between private equity and the BDC and GSO funds.

Retail distribution is ahead of our record year last year and has reached nearly $1 billion a month in flows, up from nothing just a few years ago.

These initiatives are still in their infancy and they are addressing the deepest markets Blackstone has ever accessed.

They are nimble extensions of core competencies gaining scale fast and will materially contribute to the firm's growth for years to come.

Lastly, when you think about forward earnings, consider the vintage and scale of assets that are in the ground as the primary driver of those earnings.

As of today, we have $220 billion of invested capital more than a year old and are earning close to $3.50 per unit in both ENI and distributable earnings.

That performance does not account for the $26 billion we have invested over the last 12 months or the $82 billion dry powder we have recently raised.

With the explosive growth of the last 12 months and continuing momentum in our fundraising, we will soon have over $330 billion of money at work creating earnings which will drive significant value for unit holders to a new level reflective of that 50% increase in assets at work.

While we do not and should not try to predict the timing of those earnings, our long history indicates based on prior performance, it is not if Blackstone will generate returns and reach higher levels of earnings but simply a matter of when.

With that we would be happy to take your questions.

(Operator Instructions).

Michael Cyprys, Morgan Stanley.

Good morning.

Thanks for taking the question.

Just on the management fees, is there any color that you could share just in terms of the mechanics of the flagship management funds turning on and the implications for fee related earnings?

I think you mentioned about $57 billion or so in committed capital that is not yet earnings fees.

Just what is the timeframe for that coming online?

And it looked like there was a disconnect in the quarter with management fees possibly stepping down in some of the predecessor funds but with no benefit from fees coming on on some of the new funds.

Did I get that right?

The second part no.

So there is not an impact on the step down yet because it doesn't impact in real estate but let me just go through the two major funds that you see.

In BREP VIII, we expect to begin earning management fees later this quarter and the first full quarter of those management fees will be in the fourth quarter this year and for BCP VII, that will begin sometime next year first or second quarter depending on the investment pace.

With respect to Tac Ops and the other fundraising, those will begin hitting in the next quarter.

So you are right, there will be an increase and that is why I mentioned we will be back to double-digit related base management fee growth shortly as those new funds come online.

Got it.

Okay, great.

Thanks.

And then just as a follow-up if I could just turn to the geographic split, you have certainly grown the platform substantially over the past couple of years and with large amounts coming from -- or an increasing amount coming from non-US clients and appreciate some of the disclosures you guys have showing the capital invested by region.

But just curious how much of your revenue and your client base today would you say breaks down by geographic region, how has that evolved over the past couple of years and how do you see that makes the evolving say over the next three years?

I would describe it this way which I did a little bit in my speech is that the more recent funds are closer to 50-50 North America and outside North America and that is from a level, we were 80% to 85% North America just in the last generation in funds.

So that clearly is a shift and those pools of capital outside the US are growing quite strongly.

We are also seeing balance on the high net worth side.

It started off primarily in North America.

Now we are starting to see some really nice growth internationally.

With respect to our revenues and businesses, they are all global funds so it depends where you put the capital to work.

The blended average of capital to work today is still about 70% North America versus 30% outside but that is shifting.

As you can see, we have now for the last 18 months been pretty close to 50-50 North America versus international investments.

And even international investors for the most part give us dollars, give us investment in dollars so we get our revenues in dollars from international investors if you will.

Got it.

So about 70% of invested capital base is in North America with 30% outside?

Right.

Luke Montgomery, Bernstein Research.

Good morning.

In credit you have been saying a lot of the capital deployment has been Europe.

Maybe you could just update on what you are seeing there and how we should think about the strategy in terms of origination versus buying assets.

AND more specifically, are you considering opportunities in Greece with the possible privatization of assets there and what is your appetite for buying nonperforming assets from so-called bad banks like real estate from the Irish bad bank, Nama?

Okay so, most of our investing in Europe are new loans as opposed to buying assets in the secondary market.

However, we set up some joint ventures with some European banks to do some things that around nonperforming loans.

We definitely have an appetite for that regardless of the seller.

It is kind of the question of the underlying asset quality although our real estate debt and our corporate debt are done by different groups.

But as you know collectively we have bought nonperforming loans substantially in Spain, in Italy, in Ireland and in other places.

We have not bought anything in Greece to your specific question and without a presence on the ground in Greece, I don't think that is ever going to be a big part of our mix.

And it is also hard to predict what is going to happen because it is such a political social process, not really an economic and business process.

In our kind of assets, it is for one thing for people to speculate on what is going to happen with Greece in public markets.

If you are (inaudible) you can sell out and stop the bleeding.

Once we buy an asset we own it for a long, long time so you have to be able to develop conviction around what is really going to happen and that is hard right now.

Okay, thank you.

Michael Carrier, Bank of America.

I had a few questions on the FRE, both the current quarter and that probably more importantly the outlook.

Just on the current quarter, if you can just give us a little bit of color.

I know you said on the transaction fees and (inaudible) there were some items.

And then also in the non-comp expenses, I am assuming there might have been fundraising costs in there.

But just those two line items kind of unusual so what is maybe more of a normal run rate?

And then if you look at the management fees in the real estate business, it looks like your fee even went up but your management fees didn't go in tandem and I don't open the past quarter there have been some catch-up fees that you have been getting as the fund-raising has been going on.

But just wanted a little color on that.

And then finally just in terms of the outlook given how broad the business is now, just trying to understand as the fees start to kick in on BREP VIII and BCP VII, what we should be thinking about in terms of the operating leverage or the scale for the margins because if we look back and compare the business in prior cycles, it is just vastly different.

I just want to get a sense of how much upside we can see on the margin across the cycle?

Okay a lot in that.

Let me take each piece.

Let me start with management fees in real estate.

You didn't have the impact of BREP VIII in the second quarter and so I think that is what you are seeing playing through there so you don't see the uptick that you did.

You did have asset sales which of course would have the opposite effect of bringing management fees down.

With respect to one-time items in the quarter, there is really two drivers and I will speak about it across the business is that you do have fundraising expenses that impact for example BCP VII, you have fundraising expenses now but you don't really have the management fees to offset that yet so it is a timing difference that we have seen in the past.

And you do have some legal reserves that we took inside of the private equity piece.

But I would say if you look back at the first quarter that is closer to the run rate we would expect, ex interest and fundraising expenses or non-compensation expenses are largely 1% or 2% growth year-over-year so we are keeping a tight rein on that.

If you ask about the outlook going forward, we are certainly having almost $56 billion of committed capital that is not paying fees, that will come online.

I gave you some timeline on that in my last answer and that will certainly have an uptick in our fees going forward.

Let's talk a little bit about margin.

Margin hovers in and around for fee related earnings in and around somewhere between 29% and 31%, 32% to 33% at the height.

And then it will fluctuate within that.

But you won't see a lot of earnings leverage other than a couple hundred basis points as those funds come back on and that is just by the way that we design the firm, we reinvest in the firm and the way that we do compensation ratios.

Okay, thanks.

And then just on DE, I think last quarter you gave like a percent of catch up related to BCP V. I don't know if you had an update.

But obviously the outlook is pretty good for distributable earnings but just wanted to get a sense on how far along we are in the other catch-up phase?

Sure.

So there is really two phases of catch-up, there is how it hits unrealized fees and then realized fees.

The way you might interpret that is what hits ENI and what hits DE.

On an ENI basis, we are 85% of the way through the catch-up and on a DE basis we are 70% through the catch-up so that is how I would model it.

Okay, thanks a lot.

Glenn Schorr, Evercore ISI.

This is Kaimon Chung for Glenn Schorr.

Just trying to isolate further the ENI drivers this quarter, there were big differences between first quarter and second quarter, public versus private, America versus EMEA and most of that took place in late June and on macro concerns of like recent China and higher rates.

Have any of those trends reversed lately and more importantly, has anything changed your overall outlook?

Thanks.

A couple of things.

I think it is always hard to take when you look at our business, it is really hard to take one quarter in isolation.

Actually if you look at the year to date numbers on appreciation for private equity and real estate, real estate is at 9, private equity is that 9.5.

You just had a particularly strong first quarter.

By the way you also had a really strong second-quarter of last year where we saw near record levels of realizations.

So I would always take a longer-term and look at the run rate of depreciation because that actually more fairly reflects the underlying operating fundamentals which Steve pointed out are really good in real estate and really could in private equity.

Just on that, Kai, I tend to look at LTM and they are in the -- real estate private equity 15.5, real estate at 20.

Chugging along at those kind of levels where they have been for the last several years.

So following on that, we have seen it come back in the primary driver of the public's was in real estate in the second quarter where you had real estate publics were down in line with the REIT Index about 10%.

About 35% of that has come back.

The disconnect which is good for investing, bad for mark to market, is that the operating fundamentals of our public real estate holdings are far better than the REIT Index which is flat.

So over time that disconnect will play out both in the values of the companies that we hold but also does create some investing opportunities that we like.

And then just one more, what portion of the GE deal is in the numbers and what is not?

Actually very little of it is in the deal.

It is a complicated transaction across several funds and the closings will take place over time.

There's been a couple of small closings but the bulk of it has not closed yet.

So it will take over the next quarter -- maybe quarter plus.

It might take more than just the third quarter.

Thank you.

So for example you closed in BXMT, which is the first most liquid assets but you haven't closed the other assets will take some time.

Remember there is loans, real assets, mix in the business.

And there is people to move.

There is organizational aspects of this as well that take some time to sort out with GE.

Craig Siegenthaler, Credit Suisse.

Thanks.

Good morning, everyone.

So I just have two questions here on real estate.

First, is it reasonable to expect an increase in capital raising from core plus just given the distribution resources allocated to BREP VIII over the last nine months?

And also could you provide a little more color on the $4 billion of uninvested reserves at the close of BREP VII?

Thank you.

Let me talk about core plus.

Yes, it is reasonable to assume that business will continue to raise substantial capital and that has been ramping up very nicely.

I think they raised several billion dollars just in the last quarter and the beauty of that business is it is a business where we can scale the money that puts to work -- it is really to match what is raised and we get that money in the ground very quickly.

And so we are doing some interesting things there which will extend the target audience for that product as well.

I think that will scale nicely.

In terms of the breakdown of the dry powder?

I will do that.

It does look a little unusual, Craig, because normally you see us take reserves of around 10% or so and then you will see that when we end of fund, you will see that capital be required.

In this case we had so much recall capital in BREP VII because there were a lot of deals that we actually exited quickly.

The fund returns have been excellent in that fund that the number looks bigger at $4 billion so the size of the reserve is larger than you would typically see because of that recall capital.

But of that also $1 billion has committed, it is just not invested yet.

They don't end up with $3 billion left over on top of that which again will be larger than you would normally have.

Patrick Davitt, Autonomous.

Good morning.

Thank you for taking my question.

There was an article this week about LPs and sovereigns increasingly setting up their own in-house management capabilities.

It reads like it is still in the very early stages particularly in your world and alternatives.

But to what extent are you seeing that and how does it affect the conversations you are having with them as you fundraise?

And I guess if this really is a trend in the long run, do you think you could coexist peacefully if that is where it is going?

This has been a trend for a long time actually and certain investors are far down the road than others.

To do that well and to do it in scale takes a big company so only our biggest LPs are set up to do that.

Of the biggest LPs, most of the public funds in the US which is the core of our business for the most part do not have the mandate to do that, do not have the staff to do that, do not have the budget to hire the staff to do that and will not do that.

So where we are seeing large LPs effectively doing direct investing is really the international.

It has been led by the Canadian pension funds but there are certain other international institutions that will do that as well.

But again there, many of those international institutions particularly when we are talking about Asia and the Middle East, they want to base their operations in their home country, they want to staff it with local nationals and it is very hard for them to be effective on a global basis.

So bottom line is we don't worry about this as a trend first.

Secondly, to the extent they want to do direct investing, for the most part the more enlightened ones -- and the Canadians are a bit of the exception -- what they want to do is they want to use that direct investing to look at co-invest with trusted sponsors.

So what they do is they give capital to funds, most particularly our funds and then in return they expect us to offer them some co-investment opportunities where their deal team will jump on and look at it.

T

hat has been a very symbiotic relationship frankly and in fact their goal for more direct investing has really encouraged them to concentrate more resources with the biggest players like us and so I think we are actually net benefiting from that.

However, it is definitely more capital in the market looking to be invested in deals than just the committed capital funds and then of course, just has an effect on the overall supply and demand of capital.

But generally speaking it has been a trend but not one that is going to threaten our core business.

Okay, great.

Makes sense.

And then just quickly, we have seen a few of the announced strategic deals but could you update us on kind of a file at the end maybe even close to filing IPO pipeline, maybe some numbers there how that is tracking?

Well, we have four or five things -- they are not all IPOs necessarily, most of them are secondaries frankly but we have four or five things in the pipeline I would say in private equity and possibly three or four in real estate all of which are possible depending on price and market appetite and one thing or another.

The real estate sales in light of the soft quarter for real estate related equities, that is probably a little cooler in the last 90 days especially because those companies continue to have great EBITDA growth.

So we really paid the way and we are accruing more value by holding it now and so that means bigger future gain.

So we are very patient about that but we keep chipping away at it.

Bill Katz, Citigroup.

Thanks very much.

I got cut off so this was answered, I apologize in advance.

You mentioned very strong year-on-year growth in the unrealized receivable.

Sequentially though it looks like it was down about 9%.

Just given the very strong pace of distribution, how do you think that receivable plays out over the next couple of quarters?

Are we at a peak or do you think that could actually start to reverse and climb again just given the pace of distributions going on right now?

First of all, I didn't say very strong, I said it was up year-over-year which I think is remarkable given the amount of realizations that we have had and it is almost I guess about $4.8 billion of total let's call it incremental realizations.

And you remember 70% of the receivable as of the close of the second quarter last year has now has been realized.

And so that realization rate has picked up.

It was 45% realization rate over the last couple of years.

Now it has picked up to 70.

I think the comparability sequentially is difficult because in the first quarter you always have the incentive fees related to annual hedge fund high watermarks that hit in so it is not surprising to us even with lower level of appreciation that the receivable didn't go up this quarter because you do have that comparability issue.

But I think we feel like what is in the ground now by way of example, the investments we have done over the last couple of years are only about 15% of the receivable.

So there is a long way to go with a lot of capital.

By the way, that is $40 billion of capital we have in the ground.

That is only 14% of the receivables.

So as those businesses click on, we think there will be forward momentum and growth in receivable.

I will also point out that the growth isn't uniform when we typically do a real estate or private equity deal.

You have relatively low level of value in the first year because you are basically holding it largely at cost.

What you see is an acceleration over time and then of course we are still exiting assets at a 20% to 25% premium to our prior quarter mark.

So that will kick in as well.

So we actually feel good about the forward outlook and that is why I gave you some of those stats in and around the growth of the underlying portfolio and the fact that even with these realization rates we are still adding to the receivables so we most certainly do not see it as a peak.

That is helpful.

You have been very successful in gathering assets in the retail business.

Could you talk a little bit about maybe geographically where you are seeing that growth US versus non-US and which products in the underlying demand you see going ahead?

Okay, so it is Tony.

The vast bulk of that is in the US and in fact, we built an international organization but we are really just coming in through the first year of that.

About $1 billion was -- various amounts that we have raised retail is international and the rest year-to-date, the rest has been domestic.

And so we have got a lot of potential, untapped potential still in the international markets but we are starting to get that.

We've got people on the ground, the organization on the ground to do it.

And just one last one.

Obviously just tremendous success in both the private equity and real estate respectively.

You mentioned you had more demand at the end of the day.

What drove you to cap it where it is right now given that you are deploying at a pretty high clip?

Is there any sort of supply and demand concept you are thinking through in your minds?

Which fund, Bill?

Both the private equity and real estate, right.

You said you were oversubscribed in both I believe, I recollect.

Maybe wrong there.

Obviously very impressive numbers so I'm not trying to quibble but just conceptually trying to understand why not go for $20 billion, what in your mind what was the hold back?

Sure.

Part of that is along with your LPs.

So you try to find that magic amount that they are comfortable with and that you can deliver on and balance that with demand.

The investment pace has been strong but particularly in real estate, it has been strong.

Private equity, it is a little more challenging to put out capital at record investment levels.

In real estate, an awful lot of the money that has been put out in America in the last few years and that market is becoming tighter and it is the biggest market.

So we are just trying to be smart about not so much what we are investing today but what if the right level through the cycle.

We've got four or five years -- actually have six years to invest in these funds but we try to target to invest in them four and five years, much quicker than what we have got in order to deliver on our LPs, for our LPs, keep the J curve down.

We thought these were reasonable levels.

They are the two biggest funds in the world and they are tight so we are hardly like being unduly conservative I don't think.

Thank you for taking my questions.

Robert Lee, KBW.

Thank you and thanks for taking my questions.

Maybe the first one just kind of a little bit of a modeling question but I notice that in the calculation of DE, I mean year-over-year the other payables is down 85% and I know typically I think the second half of the year tends to also be a little bit higher.

So I know it was zero this quarter so should we be expecting that is going to ramp back up to what I will call more normal levels in the second half of your?

You should, it has to do with how we calculate in on the different assets that go through as it relates to the tax receivable agreement.

Yes, you should look at it on a more normalized basis.

Okay, great.

And then a question on financial advisory, I know in the presentation you talked about that being on track for the second half.

But just kind of curious, I know the spin of the advisory business, when do you think we may be able to expect kind of more details on it so that we can start thinking about the value for BX shareholders that will be unlocked by that spin and putting some value on it?

So we filed a Form 10 which you can go through and it will show basically what the carved out financials for PJT are so that gives you the detail.

I think right now we are expecting that the spin will happen sometime this fall which we are expecting to do.

With respect to the earnings to date, and this is in the press release but let me reemphasize this, that business from time to time will be lumpy and with respect to returns and we think by the end of the third quarter it will be up year-over-year.

So there is a bit of a comparability issue.

In fact if I just took the results through today as we sit here, the 16th of July, they are actually up year-over-year so they had some scale deals close just after the end of the quarter.

With respect to the distribution itself and valuation, I think there's already some reports out there on valuation, I am not going to speculate on that piece.

The impact on Blackstone is it is about 3% on ENI and about 5% on DE both of which are numbers that we frankly would grow through in six to nine months with respect to the regular activities of Blackstone.

So it will be a good one-time distribution to the shareholders which as I said we expect to happen this fall and we think with respect to the impact on Blackstone, it will not be material over time.

And the timing to be a little more specific about the timing, somewhere near the end of the third quarter, the beginning of the fourth.

Right in there.

Great, I appreciate that.

Then my last question is and I'm sure it's probably one you have heard in the past.

But going back to the balance sheet and capital, you have done a great job expanding the business and it doesn't actually feel like you have had to commit a lot more capital to newer strategies or at least been able to maintain the very steady.

You've raised a lot of cash with a very cheap debt and I think you make a pretty compelling case about the stock being cheap and undervalued.

So I am still kind of wondering what they reticence is about putting share repurchase in the mix given your liquidity, given you haven't really used a lot of that, you haven't needed to use a lot of it to kind of expand the franchise and you do make a pretty good case about on the value.

Yes.

Well, we love the value but we also think we have a huge number of growth opportunities frankly.

And you are right, we have done a pretty good job managing down some of the percentage capital commitments in our core funds.

If you look at what we did a few years ago on BCB V and BREP V I guess, IIII, I can't remember -- they were much bigger percentages of the capital than they are today.

Having said that, some of these new vehicles we are doing have huge potential scale just core plus real estate that got to $50 billion which is I think certainly within the realm of possibility.

It could take a lot of capital.

Some of the things our businesses are doing could really scale.

The other thing is the acquisitions we have done all of them have been very, very accretive.

We have been disciplined about it but I think if you add up the number, it is more than people perceive.

That is probably, LT, six, seven acquisitions --

We have done eight acquisitions since the IPO, eight acquisitions and so the capital put to work was about 1.5 billion.

Those are very lumpy.

It is a little hard to predict those.

And the other thing is we don't generate positive cash really because we pay it out to our LPs.

So we do need to be careful about our balance sheet to be able to fund the growth and have available capital for the opportunistic things like acquisitions and then we are just very conservative financial managers.

We think that our LPs when they give us money for 10 or 12 years, they should know they are giving it to the Rock of Gibraltar in terms of its solidity and so that is kind of our view and that has been our driving view about the balance sheet is not to lever up.

Can I add two things.

The acquisitions have turned out really well, they are better than a 30% IRR in the deals that we've done and that reflects the fact that there is so much synergy when we find the right teams and the right thing.

The other thing I would say is that what is unusual is we don't have the same dilution you see in the lot of financial services companies or asset managers with giving out a lot of stock every year because the characteristics of performance fees has a certain vesting period with it.

So if you look out over the last eight years we have averaged just over 150 basis points of dilution from stock given out over time so we are not creating that type of headwind.

And of course we have done good things with the capital and have earned our way through it.

Great.

I appreciate the color.

Thank you so much.

Michael Kim, Sandler O'Neill.

Good morning.

Just first wanted to come at the outlook for realizations maybe a bit differently than others.

A lot of moving parts and it is difficult to make generalizations across the different businesses.

But just curious to maybe get your thoughts or perspective on sort of the potential trajectory for realized performance fees.

Just at a high level, it seems like there is a bit of a push/pull in terms of more seasoned portfolios on the one hand versus maybe a bit more volatile market backdrop going forward.

So just curious to get your thoughts on how that might play out as it relates to exit activity.

I think if the market conditions of today are reasonably stable, you will continue to see a high level of realizations.

Obviously if the markets fall out of bed, they will go down and if the market gets hotter, you will probably accelerate.

But in today's markets which the S&P is at about 16 PE; they feel not undervalued but not peak-y either, at least equity markets.

You will see a high level -- you will continue to see strong realizations.

Having said that and so our realization activity will be -- there is some variation in that but it is not near as big as I think what most -- what the market expects.

So I look at the kind of level maybe we are slightly above normal this year.

I think last year was about a normal level and an average year going forward that we could expect to distribute.

And there will be some years where we are a little below.

But we are not like at some kind of huge peak way of normal now.

So if you look at what we did last year and you think okay, a little higher in strong market years, a little lower in weak market years, you wouldn't be too far off in my opinion.

Got it, that is helpful.

And then just maybe a follow-up on the fund-raising side.

Obviously a lot of demand from LPs and it does seem like GP rationalization is starting to pick up.

So just wondering if maybe the balance of power if you will has shifted a bit back in favor of the GPs in terms of fees and/or structures to the point where maybe you are hearing less noise from LPs as it relates to the terms?

We are hearing less noise but we have also improved the terms for LPs.

So if you look at our private equity fund for example, you look at fee splits, it has gone from 50-50 -- we got 50% of each fee and they did to 65/35 to 80/20 and then our most recent private equity funds where essentially 100% of the fees go to LP.

So there has never been any particular pressure on carry in the core funds so I think at this point that is stable partly because sure, the market environment may be the balance of powers to the GPs that have good records but as much as anything, the LPs have made some progress.

On some of the newer funds that we started like Tac Ops and some things like that, you will see their rising fees and carry as we have established those track records and so there should be some good news for that with certain of our products.

But overall base fees for the core products really haven't changed.

They didn't go down from prior years and therefore they were --.

Got it.

Okay.

Really to flesh it out actually, we increased base the slightly on private equity as we shifted from base fees.

Generally speaking it is a very stable picture.

Okay, great.

Thanks for taking my questions.

Brian Bedell, Deutsche Bank.

Good afternoon.

Thanks for taking my questions.

Just quickly on the outlook on energy.

I don't know, Tony or LT, if you want to describe how you thought energy impacted the portfolio performance broadly across the franchise I guess between private equity and credit segments this quarter and then the deployment outlook near-term.

I know longer-term it is a good backdrop but if you can comment on what you are thinking over the next few quarters, where does it (inaudible) segments and energy areas?

Okay.

Energy prices -- maybe LT has a more specific answer but in general, energy prices have dampened the returns in both private equity and credit and by energy prices, I really mean oil and gas prices which is what I assume you mean.

And those are fully reflected in our returns.

And so -- however, we don't have that much exposure really to oil and gas, a lot of our energy portfolio is in power, power generation, renewable power and things and so on and so forth.

Most of our companies are in very solid shape so we haven't been hit near as hard as most of the other big energy investors.

We actually for the most part are guys are very nimble, they got into gas early, they got out of gas at the right time and got into oil.

They got out of the oil for the most part before the oil prices went down.

So our portfolio is very robust and they still are reporting good, positive returns notwithstanding what has happened in energy prices quarter by quarter.

We are very happy with that overall but if oil and gas prices -- if oil was up at $100, we would have higher remarks I am sure.

I haven't played that through but I'm sure we would.

In terms of deployment outlook, it is picking up and I think it will be very strong.

A high percentage of the likely closings in our announcements new commitments in our private equity portfolio are energy related and on the credit side too with the new fund and some big new deals they got handshakes on, that is about to pick up as well.

Great, that is helpful.

Maybe just a broader picture on the fund-raising environment.

Obviously it has been so incredibly strong dry powder now up to $82 billion from $64 billion last quarter.

You deployed about $26 billion in 2014 and I believe $10 billion so far in the first half this year.

If we think about going into the second half, just can you frame the conundrum of the heavy demand oversubscribed demand for the products and the ability to find new places to deploy that.

Does that make you want to slow down the fund-raising pace even inside from the two big flagship funds?

Remember the fund-raising for the kind of funds we do is episodic in the sense of we go raise -- we have a $16.7 billion closing, our fund-raisings for BCP VII.

Since there is a hard cap of $17.5 billion, all we can have left on that in the next few years is $800 million.

And similarly with BREP VIII closed, it is going to be a while before we do another big BREP VIII.

So the fund -- so we've been through a phase now where big flagship funds having very successful fundraisers and year to date both BREP VIII and BCB VII had closings and Tac Ops is in the market.

So those are major bites which will kind of be behind us.

Now there is a lot of other products and new products and other things which are coming up.

It is not going to fall out of bed but it is not something you decide let's raise a little more this quarter, a little less next quarter because we do it fund by fund and those are episodic.

But the investment pace I think is very sustainable at where it is now.

The returns have been great, we don't feel we are having to compromise at all to get higher returns.

And I don't see any reason why we can't run at a $20 billion investment pace for awhile.

Some markets are cooling a little bit but we are still finding things to do.

Other markets are heating up.

So -- and then as I say, some of the new products are just really big scale so I think we are in a pretty balanced area here.

But I think you also have to look at where your fund-raising is as Tony said.

So in areas like real estate credit after GE deal, they used up a lot of capital, European real estate, etc.

So it is really based on the pace of investing rather than when we want to take in money.

And I think you quoted a number for the core plus fund-raise in the quarter and I missed that.

What was that number?

So total in core plus is about $7 billion.

Great.

Thanks so much for taking my questions.

Devin Ryan, JMP Securities.

Thanks, good afternoon.

I appreciate the view that credit and real estate will do well when rates move higher.

Just given the expectation that rates could move over the next six months and looking I guess maybe within private equity specifically, I know that you guys underwrite every deal that the buyer is going to have more expensive financing and I think that has probably been a conservative assumption in recent years.

But with the view on potentially moving, does that change the premium relative to the existing market that you guys have kind of benefited from recently?

And then I guess also, do you see any shifts in competition from higher rates that could impact your ability to sell products or buy assets?

Okay.

Not sure I completely understand all of the questions but let me just meander around a little bit.

As you say, when we go into a deal, we assume that the buyer is going to be buying from us five years from now in a normal credit market whatever we think that may be.

By comparison, in today's world that would be lower debt to EBITDA multiples than is available today at higher rates.

Could we be wrong on that?

Yes.

But I don't think -- and if we are wrong, I think it is more apt to be better credit markets.

But we are already assuming that rates rise in that.

But a lot of our investments are not just public to private LBOs where you put the maximum amount of debt on them.

Many times frankly we are not taking all the jet unavailable because we want more conservative capital structures.

And the guiding principle in our investing in private equity is not levered returns, it is unlevered returns.

So we have to be able to drive unlevered returns zero, not a dollar of leverage on a portfolio company investment to higher rates than investors can earn in the S&P for us to want to do the deal.

So if we are doing that, we become much less sensitive in our investing to amounts of leverage.

Also to the extent we do a lot of things built on developing or building new assets whether they be energy or infrastructure, things like that, things in emerging markets.

Again those returns are driven not so much by the amount of leverage available.

The other big themes in private equity that we do are consolidations where we back a great management team to buy a company in an industry where we think we can roll up a lot of the other players at very, very attractive multiples of post-synergy EBITDA.

And the return is not at all driven by the amount of leverage, the return on those deals is driven by our ability to continue to effectuate acquisitions and get the operating synergies.

Then the other business that we have moved to actually because we felt like the most overpriced assets in this market are slow-growing cash-flowing assets, almost like bonds.

Bonds are the most overpriced financial asset but slow-growing mature companies with lots of cash flow are the values where leverage has pushed up the values the most -- so and where you are most vulnerable if rates come up.

So we have moved away from those kinds of assets in our acquisition activity and if you look in addition to energy and in addition to the consolidation plays, the other thing you will see us doing growth investing actually where you always had a high percentage of low capital structure for those investments in equity.

So if you are paying 12 times EBITDA for a company and you had 5 times debt, the fact that you can get 5.5 now doesn't affect your price very much and you are still getting a high quality company with real organic growth.

So again, I think that the value and returns on those companies will be contingent on us continuing to get the growth and continuing to have a franchise, not on credit markets.

So I feel very good about the fact that we are not premising our investment strategy on these credit markets, we are not even really in some ways even taking advantage very much of them.

Got it.

Thanks.

That answers my question.

I appreciate it.

Eric Berg, RBC.

Just a couple of questions.

First, I would have thought that given the strength of the fundamentals of your underlying investments in your portfolio companies' EBITDA and other measures of fundamental strength, and given to the strength of the stock markets especially outside the United States in the first quarter of this year, I would have thought that your year-to-date economic net income would have been up.

But it too was kind of flat.

What is your interpretation of that?

Why would that happen given the factors that I mentioned?

Let me take a whack at that and then maybe everyone will jump in if they want.

But first of all, our economic net income this quarter versus the same quarter last year is not so much a function of what is happening now.

Yes, we were accruing values, we are accruing good values.

That is why we gave you the returns on these funds which are private equity 16.5%, real estate 20% over last year.

Those are great returns.

But if we compare ourselves to a quarter last year when the markets boomed, you might have had even bigger markups.

And so it is a mistake to think about -- you are kind of conflating a little bit absolute return and relative return for a given quarter first of all.

Secondly, remember too that while the European foreign market has been strong, the dollar has been strong too so currencies are a factor here because we translate back into dollars.

Then we have different fund dynamics where some funds are in catch up and other funds aren't.

Some go in and out of catch up and that affects the amount of the gain which shifts -- and then some funds have different comp ratios than others.

So depending on where the gains are, it affects how much flows to ENI in a different quarter.

Okay.

My second question -- may I ask a second question real quick?

It is a broader non-numerical question.

It is more on the business plan at Blackstone.

One of the things that occurred to me, I am deeply involved with following the retirement savings business and given your success as both agents and principals -- let's talk about as agents for others -- given the fact that you have so far outperformed the stock market and credit market indices and given this retirement prices that we continue to have in this country, can a way be found to -- obviously you are contributing to the solution by working for your pension fund clients.

But what about defined contribution, 401(k) and related areas?

I was (technical difficulty) on how are they coming in the next year or in coming years, your investment success and prowess could be put to work in helping solve ordinary people's income needs and retirement or is that not realistic?

First of all, let me say that you are my new favorite person and we are going to get you on the road and have you spend some time in Washington and everywhere else in the world.

We completely agree.

Let's just start with that and frankly have been spending some considerable time on this.

I have the view that the hidden crisis in America that no one is talking about is what is going to happen with all of these 20-, 30-, 40-year-olds who no longer have corporate pension funds with defined benefits so they have got 401(k)s and they are making little contributions in there which is earning very, very little.

When they retire at 65 and they don't have enough to live on and it is an entire generation maybe two generations of people, we are going to go my God what happened?

And if they can't invest money at higher returns than 4% to 5% which is all the public markets are going to give you, we are going to be in trouble as a country.

So I think that Blackstone has an obligation to save the country by delivering superior returns consistently with reduced -- I say reduce -- lower risk in public markets to retail investors.

There's a lot of institutional barriers to do that but retail investors need these products just as badly or worse than institutional products because they have less options today.

And the reason that institutions have moved over the years from 5% of their assets into alternatives, the average pension being 20 and the average endowment being over 50, the more sophisticated the institutional investor, the higher the percentage of the assets they have it in all alternatives is because that is the only way they have been able and will be able to get returns.

But there are a lot of institutional barriers for retail investors not starting with the Department of Labor and a lot of other things which just now prohibit it because they require daily liquidity, daily mark to market.

Some of our products don't lend themselves to that.

We are creating products that can accommodate that but it is a small subset of what we do and a lot of the returns we make come from the fact that we can free ourselves from the tyranny of daily liquidity and take advantage of these substantially enhanced returns that come when you can do that without taking more risk.

So as a society, we will need to work on this and I promise you eventually people will recognize this has to happen and we are there to serve when it does.

Okay, I look forward to talking to you more about it.

This is Steve.

I would say that Tony has given a terrific answer on it.

This is basically a political issue and it is a misunderstanding of risk and somebody thinks that they are protecting the public from firms and asset classes like that we are in.

We have been doing this for 30 years and have averaged about double the stock market.

Some of our asset classes have lost virtually nothing and so any rational look at this situation would come to the kind of conclusion that was implicit in your question and explicit in Tony's answer.

And this should really happen.

But there are certain political beliefs that just don't want to encounter reality.

They have a theory that things actually are different than they are.

And so as we go through political cycles, there may be changes in this but there is an economic reality that the performance is there and people need this stuff, they need the returns.

They have solved that problem institutionally.

When we started the business alternative were somewhere around 2% of institutional portfolios.

They are now somewhere around 17 to 20.

Some institutions are at 40 and the public is at 2. And they are being held back unfairly in terms of their own retirements and well-being.

And I am optimistic that this will ultimately be addressed and it would be a terrific legacy frankly for an administration to do something like that for people.

Because if you don't have a good retirement given the age people live to now, I mean that could be 30% of your life and people need to be supported.

So you hit a hot button with us whether you could tell by Tony's answer or my answer and if we can unlock that, the scale of the firm would get to a really remarkable thing.

I mean there are people who have $4 trillion plus managing public money with returns that are a fraction of ours.

We can't deploy that much money in our current mode but just think about that, I mean it is huge opportunity for us at some point in the cycle.

Good luck to you on getting that done.

Thank you.

Thanks everybody.

If you have follow-ups, please feel free to give us a ring.