Blackstone Inc (BX) 2019 Q4 法說會逐字稿

Good day, everyone, and welcome to the Blackstone Fourth Quarter and Full year 2019 Investor Call.

My name is Leslie, and I'm your event manager.

(Operator Instructions) I'd like to advise all parties that the conference is being recorded for replay purposes.

And now I'd like to hand you over to Mr. Weston Tucker, Head of Investor Relations.

Please go ahead, sir.

Great.

Thanks, Leslie, and good morning, and welcome to Blackstone's Fourth Quarter Conference Call.

Joining today's call are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; Tony James, Executive Vice Chairman; Michael Chae, Chief Financial Officer; and Joan Solotar, Head of Private Wealth Solutions.

Earlier this morning, we issued a press release and slide presentation, which are available on our website.

We expect to file our 10-K report later next month.

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

We do not undertake any duty to update these statements.

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

We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the Shareholders page of our website.

Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund.

This audiocast is copyrighted material of Blackstone and may not be duplicated without consent.

So a quick recap of our results.

We reported GAAP net income of $978 million for the quarter.

Distributable earnings were $914 million or $0.72 per common share, and we declared a dividend of $0.61 to be paid to holders of record as of February 10.

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

Good morning, and thank you for joining our call.

Blackstone reported an excellent set of results for the fourth quarter, capping a landmark year for the firm.

Our investors entrusted us with a remarkable $134 billion of capital during the year.

That's $134 billion of new money during the year.

And we deployed $63 billion around the world on their behalf, both record amounts.

We grew our AUM by 21% to a new industry record of $571 billion.

In terms of earnings, which Michael will discuss in more detail, we reported 27% growth in both distributable earnings and fee-related earnings for the quarter.

Very significantly for shareholders, in 2019, we successfully converted the firm from a partnership to a corporation, making it vastly easier to own our stock.

We've been pleased with the market response so far.

I should say very pleased with the market response so far and the positive migration in our shareholder base that's underway.

By removing the restraints of our former structure and the PTP discount, BX stock is starting to reflect the powerful trajectory of our firm.

Meanwhile, the firm continues to evolve and advance as one of the great public companies of the world.

With a market cap of $75 billion, Blackstone is now the 86th largest U.S. public company and ranks in the top quartile on key metrics, such as long-term revenue and earnings growth, profitability and dividend yield.

We continued to expand our global platform into new areas.

And since our IPO in 2007, AUM has grown by 6.5x.

We've also become significantly more diverse.

We've extended the dominant franchises we've built in the highest returning areas of alternatives such as opportunistic real estate and corporate private equity, further along the risk return spectrum into areas such as more stabilized core+ real estate, infrastructure and various credit strategies.

And we've launched several new business lines, including most recently, life sciences and growth equity.

These extensions allow us to offer a much broader menu of products to our limited partners and significantly increase the universe of potential investments we can make.

By having a laddered set of funds in each area with different return characteristics, Blackstone can become a single stop for limited partners looking to invest more in alternatives.

We also serve as a single integrated capital provider for companies and individuals seeking solutions.

We can provide control, minority or preferred equity, growth capital, mezzanine or senior loans and basically any other form of capital across sectors and geographies.

We can segment large investments across multiple vehicles as we did with the GLP logistics portfolio we discussed last quarter, which had an opportunistic element as well as a more stabilized core+ element.

Blackstone's scale and diversity allow us to do what others cannot and speak for the entirety of large investments.

A reputation for fair dealing means potential portfolio companies and partners prefer to do business with us, and they get more tangible benefits than just capital, including access to our world-class operational capabilities, our knowledge base and our global network.

And as Blackstone continues to grow, we benefit from making more introductions from one area of the firm to another, and we further increase our shared intellectual capital that moves around the firm.

All of this adds to our moat and our competitive differentiation.

Blackstone is today, more than ever, the partner of choice and reference institution in the fast-growing alternatives industry, and there is a long runway for growth ahead.

One final note from me.

As you've likely seen, Dave Calhoun, a former member of the firm's Management Committee, has recently accepted the position as CEO of Boeing.

Dave was originally the CEO of one of our portfolio companies before joining Blackstone as head of our Portfolio Operations Group.

He was instrumental in building this team into the world-class organization it is today.

His capabilities are mission-critical in driving change and creating value in our investments.

His appointment to such a key role at Boeing speaks to the unique strength of Blackstone's people and culture.

And while we will greatly miss Dave, having him at the helm of Boeing is both tremendously important to them and for our country.

And I have great confidence, he will be successful.

We wish Dave the very best and thank him for his significant contributions to our firm.

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

Thank you, Steve, and good morning, everybody.

We have consistently outlined a simple vision for Blackstone over the last couple of years, characterized by several key principles.

If we continue to deliver strong investment performance, we will attract more capital, both in existing and new areas.

Secondly, a shift towards more perpetual capital will grow and improve the quality of our earnings.

Third, we will emphasize deployment in faster-growing parts of the global economy, where we see more opportunity for capital appreciation.

Fourth, we will continue to expand our sources of capital to the retail and insurance channels.

Fifth, we will maintain a capital-light business, relying on our people, track record and brand to grow.

And sixth, we will simplify our story for shareholders, making the stock easier to understand and own.

As we move into the new year, I wanted to update you on how we're tracking against these priorities.

First, starting with investment performance and fundraising.

Our performance remains highly differentiated, as it has for 30-plus years, with 15% net returns from inception in opportunistic real estate and corporate private equity, 14% in secondaries and 11% in tactical opportunities and credit.

These returns have generated a deep reservoir of investor trust and powered the Blackstone innovation machine, allowing us to meaningfully exceed our fundraising objectives.

For 3 years in a row, we've achieved over $100 billion of inflows.

And while the fundraising for our largest flagship funds is behind us, we should be approaching $100 billion again this year.

Investors want access to Blackstone products more than ever.

Secondly, we're seeing faster growth in perpetual capital, which is transforming our asset base and earnings into something much steadier than what we generated historically.

In the past, our business primarily consisted of episodic drawdown funds and our capital deployment equated to planting the seeds of annuals.

That continues to be a terrific business, but as our perpetual AUM grows, we are increasingly planning perennials, which have a recurring and compounding contribution to the firm's financials.

In total, perpetual AUM increased 43% year-over-year to $104 billion.

These vehicles are generally characterized by lower return targets as well as management fees and performance revenues calculated on NAV and no mandatory return of capital.

This has helped drive our fee-related earnings to record levels for both the quarter and the year.

To give you a sense of the power of the Blackstone brand, coupled with the shift to perpetual capital, look no further than BREIT.

This vehicle, which just had its third birthday, saw $2.8 billion of inflows in the fourth quarter with AUM nearly tripling year-over-year to $13 billion.

Demand continues to accelerate as we add new distribution partners, resulting in an additional $1.4 billion of inflows on January 1. We're deploying the capital well into unique investments, including most recently sale leasebacks on the MGM Grand and Mandalay Bay in Las Vegas.

When you take our leading real estate franchise and offer an institutional-quality product to retail investors, the results are powerful.

Including BREIT, our real estate core+ business has grown to $46 billion, up 31% year-over-year.

Other perpetual vehicles include our $14 billion infrastructure fund and our credit BDC.

When we sold our interest in our prior $20 billion BDC platform in 2018, we told you that we would quickly rebuild one of the leading direct lending businesses in the world with full ownership of the economics.

Including separate accounts, our U.S. direct lending platform in total has grown to over $12 billion of AUM, a testament to the strength of our credit team and our brand.

Third, in terms of our shift towards faster-growing parts of the economy, you can see it in multiple places.

A little over a year ago, we acquired a small but highly talented life sciences team with tremendous domain expertise and plugged them into the Blackstone platform and fundraising engine.

We raised $3.2 billion in the first close for our new fund in December and fully expect to hit the $4.5 billion hard cap, representing a fivefold increase compared to the prior fund.

And we are incredibly proud of the lifesaving advances Blackstone Life Sciences is accelerating, most recently in the bladder cancer area.

In addition to life sciences, we just started raising our first dedicated fund in growth equity.

And in Asia, we'll be in the market this year with our second regional private equity fund, which along with our Asia opportunistic and core+ real estate funds will further augment our capital in this fast-growing region.

We also continue to invest in rapidly growing businesses.

In the fourth quarter, we announced a $3 billion acquisition of MagicLab, the parent of Bumble, an emerging leader in the online dating market.

Other promising investment themes include companies focused on cloud migration, content creation and last mile logistics.

In total, across the firm, we deployed over $17 billion in the quarter and a record $63 billion for the full year, setting the foundation for future realizations.

Fourth, we've talked about increasing our presence in the underserved retail and insurance markets.

In 2019, we raised a record $26 billion from retail investors, most of which came from customized products, and we hope to exceed that amount this year.

In insurance, we now manage over $60 billion of AUM, with significant runway ahead.

A few weeks ago, we announced hiring Gilles Dellaert to lead this initiative.

Gilles is a deep industry and investment expert with lots of experience and is a perfect choice to drive this business forward.

Fifth, even as the firm continues to grow rapidly, we've told you we do not need to utilize capital to produce that growth.

In fact, over the past 2 years, while AUM has grown approximately $140 billion to $571 billion, our balance sheet investments declined to just $1.9 billion.

We have no net debt and basically no need for capital.

As a result, we've been able to return 100% of earnings to shareholders over the past 2 years.

We continue to pay out enormous dividends, and our repurchase program has resulted in a share count that is lower today than 2 years ago.

Sixth, we told you we wanted to make our stock easier to understand and own.

We simplified our reporting to focus on distributable earnings, which reflect the cash earnings of the company.

We implemented a share buyback program with the commitment to keeping the share count flat.

And of course, we converted the firm to a corporation.

These changes have been met with a positive response by the market.

We're gratified that shareholders are starting to recognize the power of this franchise.

In closing, Blackstone is in terrific shape by any measure, and we are holding firm to the path we outlined.

Our clients are quite pleased with our performance and are entrusting us with more of their capital.

Our people are energized and proud to work at the firm.

And the opportunities for continued growth, even in a challenging investment environment, are significant.

With that, I will turn things over to Michael.

Thanks, Jon, and good morning, everyone.

Our fourth quarter results represent a very strong conclusion to an outstanding year.

Total AUM rose 21% year-over-year or approximately $100 billion to new record levels, the result of $134 billion of gross inflows and $33 billion of market appreciation despite $40 billion of realizations.

Inflows continue to be broad-based across the firm, including $57 billion in private equity and $34 billion in real estate, both record years for those segments, along with $31 billion in credit and $12 billion in BAAM.

As Jon alluded to, despite the successful completion of our flagship so-called super cycle, we expect another very strong year of inflows in 2020.

Indeed, 2/3 of 2019's inflows or $86 billion were from products outside of the 4 flagship funds, the majority of which were from strategies that continuously raise capital.

I'll discuss the fundraising pipeline in a moment.

Fee-earning AUM grew 19% to $408 billion, of which nearly 1/4 is now perpetual.

Fee-related earnings continued on the strong positive trajectory outlined previously, up 23% to a record $1.8 billion for the full year or $1.49 per share.

Despite the firm's numerous growth initiatives, FRE margin expanded over 200 basis points to 48.4% in 2019, the highest level ever.

Distributable earnings for the year rose 7% to $2.9 billion.

For the fourth quarter, DE rose 27% to $914 million or $0.72 per share, underpinned by 27% growth in FRE and a 33% increase in net realizations.

In terms of key drivers, the fourth quarter included the benefit of performance revenues crystallizing for both BREIT and BAAM.

As a result, in real estate, fee-related performance revenues more than tripled year-over-year to $150 million.

And in BAAM, performance revenues increased fivefold to $109 million, while DE more than doubled to $185 million, the result of a healthy 8.2% gross composite return for the year across a growing AUM base.

Fourth quarter also marked the best quarter for realizations in 2 years and included the final exit of our position in Invitation Homes and the sale of our Swedish residential platform, Hembla, among other sales.

These deals exemplify the firm's high conviction approach, in this case, the significant need for investment capital in high-quality residential housing stock.

In total, realizations in our opportunistic breadth and corporate PE funds were completed at an aggregate multiple of 2.2x invested capital, consistent with the strong long-term historical performance of these platforms.

Turning to investment performance.

In real estate, the BREP funds had another excellent quarter, appreciating 4.7%.

In private equity, the Tac Opps and secondaries funds reported similarly strong results, appreciating 7.7% and 5.4%, respectively.

The corporate PE funds appreciated 1.5%, with stable underlying performance, partly offset by declines in 2 public positions.

Excluding these, corporate PE appreciation was 4.7%.

In credit, the performing credit cluster rose a healthy 3.8% gross, while the distressed cluster declined 0.8% in a continued challenged distressed market.

And lastly, in BAAM, the composite gross return was 2.2% for the quarter.

Overall fund appreciation drove the net performance revenue receivable up 22% year-over-year to $4.3 billion, its highest level in nearly 5 years, despite strong realizations.

At the same time, performance revenue eligible AUM in the ground rose 18% year-over-year to a record $249 billion, while our dry powder balance increased to a record $151 billion.

This sustained momentum in terms of both fundraising and deployment puts the firm in an excellent position to continue building long-term value for shareholders.

Moving to the outlook, first in terms of fundraising.

The pipeline for 2020 remains extensive, as I mentioned.

We are in the market with and expect to complete fundraising this year for Life Sciences, the fourth real estate debt fund, the second GP stakes fund, the second European direct lending fund and the third infrastructure secondaries fund.

We've launched fundraising for our second core private equity vehicle and expect a significant first close in the next few months.

We've also started raising our new growth equity and impact funds, and later this year, we'll start raising our second PE Asia and fourth credit mezzanine funds.

In addition to the significant number of drawdown funds, we expect continued strong growth in real estate core+, including BREIT, along with ongoing inflows in U.S. direct lending, long-only credit and insurance, among other areas.

In total, 2020 should be another robust year.

Moving to the FRE outlook and our previously outlined road map.

In terms of key drivers, 3 of the 4 flagship funds are now raised and activated.

We expect to activate the fourth global private equity in the coming quarters following the execution of 1 or 2 more deals in the predecessor fund, BCP VII.

BCP VIII is then subject to a 4-month fee holiday.

We previously discussed a path to $2 per share of FRE, including achieving greater than $1.70 in 2020.

While we will not be giving specific guidance, our confidence in exceeding these original targets is very high.

In thinking about the shape of 2020 overall, I'd share the following thoughts.

We entered the year with a promising pipeline for 2020 realizations, which we expect to build and materialize as we move through the course of the year.

In addition, given the meaningful growth in scale and financial contribution of the firm's perpetual vehicles, which generally earn performance revenues at year-end, there is a seasonal benefit that was evident in our 2019 results.

And we expect the seasonality to continue going forward.

As such, we believe, more than ever, it is most informative to look at the firm's earnings over a full calendar year.

In closing, at our Investor Day in September of 2018, we shared a road map with respect to the near- and longer-term financial outlook for the firm.

We described then a path for record fundraising, and we subsequently delivered nearly $200 billion of total inflows.

We outlined a powerful step-up in FRE, and annual FRE has already increased 30% in the 6 quarters since that time and continues on a sharp upward trajectory.

And we made the case that our stock was substantially undervalued, ahead of the re-rating, which is now underway.

We entered 2020 in a position of tremendous strength and remain fully committed to continue to deliver for our investors.

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

(Operator Instructions) So your first question comes from the line of Glenn Schorr, he is from Evercore.

I appreciate it.

I guess just looking for an update on 2 of the business platforms, different questions, but just an update on insurance.

You've made some key hires there.

There is talk of a lot of risk transfer deals going on in the marketplace.

So an update there.

And then in the secondary business, where your performance is awesome, there's been a ton of money being raised in the market, including now Goldman Sachs in the market.

Like, just your thoughts for the secondaries business going forward?

And do you see that same supply of money coming in?

Thanks, Glenn.

I'll start with the secondary business.

Yes, there has been big fundraising in that space, including our fundraising.

But I think you have to put it in context.

Overall, alternatives are now, I think, a $6 trillion business.

And last year, about $100 billion transacted.

So less than 2% of the market.

So it's a market where as investors keep allocating, and by the way, as you know, alternatives are growing 8% to 10% a year, there's still not enough liquidity.

So if you're a fund manager and you want to sell interest in a certain sector or older vintage funds, it's hard to do.

And so what we're seeing is a market response where new capital is coming in.

I think the good news is that the discounts that exist in terms of buying these interests have persisted.

And so we still see it as a very favorable place to deploy capital.

And in fact, SP has already committed 50% of its latest private equity fund.

So even though the business is growing, we still think there's a lot of room here.

In terms of insurance, this is a market that has, obviously, a lot of capital that is under pressure as a result of the extremely low global interest rates.

There's a need to move out of investment-grade corporate and sovereign debt and to look at things like direct private credit, structured credit and alternatives.

We think we're pretty uniquely positioned to do that.

We announced, as I mentioned, the hiring of Gilles, and we're looking at a number of situations.

So I think this could be a little bit lumpier.

But we're spending a lot of time.

Tony, in particular, has been spending a lot of time on this, and we're hopeful, over time, we're going to announce some meaningful things here.

I might just jump in.

Considering we're still putting the building blocks in place, we think getting -- having 60 -- over $60 billion of AUM is a pretty good start.

From here, the growth will be a lot like infrastructure or private equity in the sense that we'll have spurts of growth as we close funds and we close on deals.

But we remain as enthusiastic as ever, I think.

And your next question comes the line of Michael Cyprys from Morgan Stanley.

So just curious thinking about a little bit bigger picture about the industry, some might describe the last decade, the 2010s, as the golden age for private markets, just given the supportive market backdrop and significant growth in the asset class.

But I guess, as we're sitting here today, the industry has $2 trillion in dry powder, you have purchased multiples, leveraged multiple levels that are elevated, debt terms that are looser with covenants.

So I'm just curious how you would characterize the last decade for private markets?

And looking forward, how would you describe what the 2020s, what the '20s will be like as a decade for the private markets and how different might this be?

Well, Mike, I think we're in the early stages of the maturity of the alternative space.

I think big picture, as you know, in asset management, we're seeing on the liquid side a lot of movement into ETFs and passives, because they've outperformed, over time, active managers; and on the other end of the barbell, big movement into alternatives, again, because the performance has been really strong, which is the Blackstone story.

That is what underpins our success.

If -- the question is, are we sort of at the end of the runway.

Just to put numbers on this, I talked about $6 trillion in alternatives.

I think the investable universe, if you look at institutional, retail and insurance, is something like, I don't know, $170 trillion.

So although it's grown a lot, as a percentage of assets out there, it's pretty small.

And if we are in an environment where interest rates will persist at a low level, I think investors will increasingly be looking for trading some liquidity for higher returns, which is what underpins so much of what we do.

So we think this is, as I said, still in the early stages of a maturity that this -- these businesses can continue to grow.

And I think what's also important to point out is people still think of this narrowly as private equity or real estate private equity, very high-returning strategies which obviously we continue to be market leaders in.

But what it's really about also is the spreading out here of all these different activities we're engaged in, many of which are longer duration and have lower return targets.

And it's obviously easier to deploy capital if you're buying more stable assets that you'll hold for a long period of time without those same high targets.

So think about that in our credit BDC or in infrastructure or in core+ real estate.

And we still think we're in early days there.

So we have a fair degree of optimism.

It doesn't mean there won't be economic cycles along the way.

It doesn't mean markets won't go down.

Of course, that will happen.

But if you look out 10 years from now, we envision the alternative space being much larger than what you see today.

Your next question comes from the line of Craig Siegenthaler from Crédit Suisse.

As we look towards the next annual Russell 1000 A-D in June, I was just hoping that you could provide us an update on your thoughts behind making small changes to your corporate governance, which could include moving a small amount in voter rights in the float, which would help BX qualify for the index?

I know tracking for this index isn't huge from ETFs in the mixed funds, it's around to 4%, but the shadow tracking from active managers that are benchmarked to the Russell is much higher.

So on structure, our structure and long-term approach has really worked for us.

It's worked for our limited partners.

It's worked for our employees.

It's worked for our shareholders.

We like what it does in terms of the way we look at the world, how we deploy capital.

And so the short answer is, we don't have any plans to change our structure.

Your next question comes from the line of Chris Harris from Wells Fargo.

A question on direct lending.

A lot of BDCs, if you look at the public markets, have not worked out very well.

I think quite a few of them are trading below NAV and experiencing credit losses.

Any thoughts on why the industry is having so many challenges in what's a pretty benign credit environment?

And how Blackstone, as you build this business out, can really buck this trend?

Well, what I would point to is we have a mortgage REIT, Blackstone Mortgage Trust, that has performed extraordinarily well now for quite some time.

I want to say something like 15% compounded returns, close to that, maybe it's 13% now for 6 or 7 years.

And there, we've been incredibly disciplined in being a first mortgage lender and being really thoughtful around credit.

As we build this direct lending platform, we're very focused on making this a senior-oriented lending platform.

If you look at a lot of the challenges that are out there, a lot of it's focused on people stretching for yield, doing things that take on undue credit risk.

And we think by staying very focused sort of in our lane, very disciplined in how we finance the business, much like Blackstone Mortgage Trust, we can deliver for our direct lending customers and for investors.

And I would just add on to that.

In addition to our superior risk management in this area, our origination capabilities, creating deals, our relationships with issuers, sponsors, corporates in this space, we think is second to none.

And that's both in the U.S. and Europe.

We have very large-scale direct lending businesses, as you know, in both regions.

So your next question comes from the line of Alex Blostein from Goldman Sachs.

So I was hoping to dig a little bit more into the perpetual capital and the performance fees that it generates for you guys and understanding the seasonality in the fourth quarter.

But it's obviously been important and will continue to be an important growth driver.

So maybe spend a couple of minutes there.

And what I'm trying to get to, I guess, is, maybe help us frame how much of the AUM within the perpetual capital segment kind of locked in 2019?

What that could look like into 2020?

Because I think there's like a 3-year kind of seasoning effect to it?

So just kind of help us frame the asset base and how meaningful that could be for you guys going forward?

I'll just -- one comment I'd make is there's a range of sort of realizations that occur.

So BREIT is an annual realization.

Actually, our credit BDC, I think, is quarterly.

Some -- the core+ BPP vehicles are every 3 years, infrastructure is every 3 years.

We have a couple of co-investments that are 5 years.

So there's a range.

And BREIT is the fastest-growing piece of this.

But I don't know, Michael, you want to add?

Yes -- no, I think that's a great setup, because it is a mix of those strategies across BREIT, BPP or BDC business, BXMT, infrastructure with different characteristics.

But what's happening here, and you really saw it reveal itself in this quarter and this year, the fourth quarter and '19, is, in particular, the BREIT driver of our business tripling our fee-related performance revenues in the real estate segment year-over-year.

And that sort of trajectory is going to continue between the fundraising, the deployment and the performance.

And again, it is scheduled, it's recurring.

We know it will happen on a date certain at the end of every year.

And so that, alongside the other products, which will in the case of BPP and in infrastructure layer in fees according to those sort of multi-year anniversaries, and then the BDC business, which as Jon said, has that quarterly cadence to it and is also in ramp mode over time.

All those things together are very powerful.

And as I pointed out in my remarks, perpetual capital is now on basically 1/4 of our fee earning AUM.

So -- and growing rapidly, as Jon said.

So those things together are a very important narrative.

And I would just add one additional point, which is, in BPP, it's every 3 years from when the investor comes in.

So it's not the same 3-year period.

So as BPP grows, you'll -- every quarter, there should be different investors, different times of the year as they come along.

So there's a maturity that's going on here.

That business continues to grow.

We announced a large deal in the last week in Japan, which will be another, I think, important piece as we grow our core+ real estate business in Asia as well.

And so having more and more of these vehicles that are open on a quarterly basis to raise capital, deploy capital and then take incentive fees based on NAV as opposed to sales, that really is what we're talking about in terms of perennials.

Your next question comes from the line of Bill Katz from Citi.

Maybe a 2-part question, if I can slip it in.

Just maybe both for Mike, perhaps.

First question is just thank you for sort of firming the sort of the pathway on FRE.

Just sort of wondering if you could update us on your thinking around the related margins to that?

And then a bigger picture question for either one of you guys.

Just given the significant multiple expansion that Blackstone has enjoyed over the last year post the C-Corp conversion, your thoughts on capital return in any way?

You go first one, I'll do the second.

I'll take the more narrow one.

Bill, on margins, you heard us say that over long periods of time, we sort of average 100, 200 basis points a year, but not always every year.

And we continue to see that sort of structural aspect of our business.

Obviously, in a year like 2019 and a year like 2020, where we're in a more rapid acceleration mode on FRE growth, the operating leverage benefit, among other things, is even more powerful.

So we're not going to make a call around margins this year, but we feel good about certainly staying on that sort of trajectory.

So as it relates to capital return, we like our model.

As I said on the call, we're paying out 100% of our earnings.

Today, it's roughly 85% in the context -- in dividends and 15% in share buybacks.

We think giving this capital back to shareholders is the right thing to do.

And we like the mix at this point, Bill, of how we're doing it.

And your next question comes from the line of Gerry O'Hara from Jefferies.

Maybe just a little bit on the $100 billion of fundraising that you kind of pointed to for this upcoming year.

Clearly, one of the flagship funds is in the mix there, but perhaps you could sort of point to the components of where you see some of the outsized fundraising coming from a product or a strategy standpoint as we look forward the next 12 months.

So I would say it's a mix.

We talked about -- what -- oh, yes.

I would say it's a mix in our core+ real estate area, which includes, obviously, as we've mentioned, BREIT, BPP.

It's continued growth in direct lending.

We talked about raising our next vintage of both corporate and real estate mez, those are -- both should be sizable funds.

It's some of these new initiatives like growth equity, impact, Michael touched on all of these things.

But it's just the breadth and depth of the platform continues to expand.

And that's why, as opposed to in the past where you could point to 1 or 2 things, very large flagships, today there are just multiple areas we're raising capital for, many of which are now open full year round.

Your next question comes from Ken Worthington from JPMorgan.

You've given us a bunch of outlook.

It was very helpful.

And I was hoping you could complete the picture with maybe some colors on the realization outlook for this year for private equity and real estate.

So if market conditions remained similar to where they are today, maybe how does the seasoning of investments, what does that suggest for this year for your pipeline versus maybe what you've experienced in 2019?

Yes, Ken, I'd sort of refer back to my comments in my remarks that, as always, it's early in the year by definition.

We don't give much by way of granular sort of guidance certainly.

But we entered the year with, as I said, a promising pipeline across both those businesses, and particularly, some pretty chunky projects we're working on.

And we'll see how they play out in the course of the year.

So our teams are working hard on all those fronts.

And we do have assets in companies in position in conducive markets for potential events.

And then, obviously, in terms of the big picture, you're asking about 2020, but longer term, as we talked about, the sort of the net accrued performance revenue receivable position, highest in over 4 years; where we are on invested performance eligible AUM in the ground, $250 billion, all those are basically mathematical indicators of the kind of the long-term trajectory for monetization potential.

Your next question comes from the line of Mike Carrier from Bank of America.

You've had great success in the retail channel.

I think you said $26 billion in '19.

Can you just give us an update on that opportunity, maybe in terms of platforms in the U.S. and even outside the U.S. that you have relationships with, maybe the types of products that are gaining traction in addition to BREIT and then any new initiatives in the pipeline?

Sure.

So as we've mentioned in the past, there are 3 ways that we're building that out.

One is to deepen and broaden the relationships in the channels that we're in, and that's a very real opportunity.

Second is grow the distributors, and that's both domestically and also regionally.

And third is new product.

And I would say all of those are happening in earnest.

The penetration remains incredibly low.

And just as Jon alluded to on the institutional side, if you think about individuals in a low interest rate environment where stock markets are pretty high, there's a real desire to reallocate to alternatives.

So I would say the current product set, as we talked about, the perpetuals that are out there, those continue to gain traction.

With advisers we're already working with as well as new advisers, there's been a lot of growth on that internationally, very attractive.

And then without going into detail, there is what we believe will be a category-killing product that we plan to launch by the end of this year.

And that will be a global launch.

And then we have a few other things that are in the lab as well.

So I still think it's quite early days.

So I would just add to Joan's comments by saying the retail channel is where you really see the power of our brand, that our ability to sell these products across not just the United States, but the world is very, very powerful.

And so as we create things that work for these markets and we spend a lot of time trying to develop them, we think we have a receptive audience.

And we're going to be disciplined.

Joan is talking about something that's a potential.

These things always take time to get done.

But when we deliver something, as we've done in BREIT, and we think we can do it with other products, we think the market is very large for the kind of things we do.

Your next question comes from the line of Devin Ryan from JPM Securities (sic) [JMP Securities].

I appreciate the question and most of have been asked and answered.

But just a question on the infrastructure opportunity, $8 billion of inflows last year, $2.5 billion deployed, almost $14 billion committed.

It feels like it's maybe a little bit quieter there, given all the other irons are in the fire.

But I'm just curious if we can get an update on the trajectory of the strategy and just kind of momentum and the opportunities there.

Sure.

As I said earlier, this is a space we have a lot of enthusiasm for.

We've deployed about 20% at this point of the fund.

It's a little bit lumpier just because of the nature of the assets you're buying, more concentrated.

We feel good about the pace.

I would tell you our pipeline actually looks robust today.

And I wouldn't be surprised in the first half of the year if we announced a number of transactions.

It's obviously competitive in a low interest rate environment.

Lots of institutions are looking at infrastructure, but we think our ability to source big opportunities, to deal with public market situations as we did with Tallgrass, our ability to intervene in assets, and I think that's really important for us as a firm to really add value, that will enable us to deploy the capital.

And this is a business, I would expect over time, that would be much, much larger than $14 billion.

And your next question comes from the line of Brian Bedell from Deutsche Bank.

Maybe just switching gears a little bit to deployment.

Jon, maybe if you want to just characterize -- I mean, a couple of thoughts there.

Obviously, the dry powder continues to build up, up over 1/3 year-on-year.

Deployment level is definitely healthy.

But maybe if you can just talk about what the plan -- the longer-term plan is for deployment, given your very robust fundraising?

Are you concerned that you're going to have too much dry powder hanging around?

And as you look at the valuations, where do you find challenges and where you find more opportunities that you think can keep those deployment levels healthy and returning -- high returning over the long term?

That is obviously a very timely question.

I was at a pension fund yesterday.

I was asked about this, and I talked about it being a challenging time.

I would just reiterate a few of the things I said earlier.

First is because of the expansion of the platform, we just have many more places to deploy capital.

And not all of them are super high-return strategies.

So the ability to do infrastructure and direct lending and core+ real estate deals and do them around the world is very helpful.

I talked about the sale leasebacks in Las Vegas.

Those are very innovative transactions done by the real estate team that we would not have done previously without these vehicles.

We talked about a bladder cancer drug that is very promising that our life sciences team deployed $400 million into.

Again, the expansion of the platform there allows you to invest in a sector that has, I think, pretty favorable dynamics, given limited competition.

I'd also say that for us, scale is still our calling card.

Steve talked about GLP, which was a $20 billion transaction.

We did the Merlin transaction in the theme park area, a $9 billion transaction, again, in a newer vehicle, core private equity.

So big deals.

There's still not as much competition.

Our ability to intervene -- I would point out that we bought Hilton in 2007, obviously not ideal timing.

And yet, because we brought in a terrific management team, worked closely with them, the company succeeded and thrived.

We ended up making $14 billion for our investors.

And so there are opportunities even in a challenging market, and I would not compare this to the excesses of '06, '07.

And then specifically, what I'd say is there are places in the world where we think value looks better.

I've talked in the past about the U.K. Brexit does make it grow more slowly, but the market has traded off considerably in dollar terms.

We're still big fans of India, which is a market that has a bit of financial turmoil, but has really great long-term fundamentals, particularly in the IT space, and we've done a lot in real estate and private equity.

Secondaries, I mentioned, an area we think there's a need for more capital.

The leverage loan market, which gets a lot of bad press, I think the fact that spreads there are wider than high yield, even though these loans are senior in the capital structure, doesn't make a lot of sense to us, particularly given the low default rates and very strong coverage ratios.

And then as I mentioned, a lot of focus on some of these thematic areas like last mile logistics, cloud migration or live entertainment, a bunch of things, aging populations, global travel, trying to get behind those.

Because in a world of high valuations and low growth, being a high conviction investor really makes a difference.

So I can see it's a tough time to deploy capital.

On the other hand, our platform are set up and the themes we believe in are still giving us the opportunity to put out money.

And your final question comes from Chris Shutler from William Blair.

Big picture question.

Just given the firm's tremendous growth in recent years, I'm wondering if you can talk about the process for approving transactions and how that's evolved, just given the significant jump in deployment?

I guess, ultimately, I'm trying to understand how, from a management standpoint, you're monitoring quality versus a few years ago, just given the increase in the throughput.

I love that question.

That is what our business is all about.

Fundraising is obviously important, but it's all about investment performance.

And we talk about it.

We had our partners meeting this week.

We talked about it at length.

We talk about it all the time, which is maintaining our discipline.

The most important thing is that we run a centralized investment process.

What we've done is made Mondays a lot busier at Blackstone in terms of the number of global investment committees.

We do not -- we have folks on the ground doing different activities all around the world, but we still allocate capital centrally.

And so it means the number of memos some of us are reading on a weekend are quite substantial, but we think that is very important.

And we can never let go of that.

And so we are spending more time.

We're also populating more of our people from different areas across the investment committees.

We're trying to make sure we have as much connective tissue as possible.

And so it doesn't matter if it's life sciences or growth equity, whatever new part of the firm we create, it all gets back -- sort of connected back into the mother ship.

And then we have the same process of Heads Up Committee memos, pre-IC Committee memos, Review Committee, Investment Committee memos, all going through multiple layers in each group so that we try to reduce the number of defects.

It doesn't mean there'll never be mistakes, but it greatly reduces the number.

It's the reason why the firm has been so successful for so long.

It's something that Steve has preached since the beginning.

And we're sticking with this formula.

So as we grow, we will continue to have a very, very disciplined and focused investment committee process.

And the final thing I'd say is the one thing today that worries us the most, and obviously, there are political issues, interest rates, all sorts of things, the big thing is the disruption that's happening in almost every industry, how it's impacting these businesses as technology changes.

And that, I can tell you, it doesn't matter if it's an infrastructure deal or a credit deal, real estate, private equity, doesn't matter, that is the #1 focus when we look at the risk and the downside of new investments.

Okay.

Thank you.

I now would like to hand you back to Weston Tucker for final remarks.

Great.

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

Thank you, everyone.

That concludes your conference call for today.

You may now disconnect.

Thank you for joining, and enjoy the rest of your day.