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DATE
Thursday, July 24, 2025 at 9 a.m. ET
CALL PARTICIPANTS
Chairman & Chief Executive Officer — Stephen A. Schwarzman
President & Chief Operating Officer — Jonathan D. Gray
Chief Financial Officer — Michael S. Chae
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TAKEAWAYS
GAAP Net Income: $1.6 billion for the quarter, as directly reported.
Distributable Earnings: $1.6 billion in distributable earnings, or $1.21 per common share, up 25% year over year.
Dividend: Declared a $1.03 per share dividend, payable to shareholders of record as of August 4.
Fee-Related Earnings: Increased 31% year over year to $1.5 billion, or $1.19 per share.
Fee-Related Revenues: Fee revenues reached $2.5 billion in Q2, up 27% year over year and 14% sequentially from Q1.
Assets Under Management (AUM): Rose 13% year over year to a record $1.2 trillion in assets under management, supported by $212 billion in inflows over the last twelve months.
Fee-Earning AUM: Increased 10% year over year to $887 billion.
Base Management Fees: Grew 14% to $1.9 billion, marking the third consecutive quarter of double-digit growth.
Transaction & Advisory Fees: Transaction and advisory fees increased 25% year over year, with a record contribution from the capital markets business.
Fee-Related Performance Revenues: Fee-related performance revenues reached $472 million, up over 2.5-fold from the prior year's quarter, driven by eight different perpetual strategies.
Fundraising: Inflows were $52 billion.
Dry Powder: Ended the period with $181 billion available for deployment.
Private Credit AUM: $484 billion, up threefold in the past five years, while insurance client AUM rose 20% year over year to $250 billion.
Private Investment-Grade Credit Platform: AUM up 38% year over year to $115 billion; credited with generating approximately 190 basis points of excess spread over comparable liquid credits since the start of last year.
Private Wealth AUM: Approached $280 billion, with sales in the channel up 30% year over year to $10 billion.
Key Flagship Product Returns: BCRED delivered 10% annual net returns since inception (as of Q2 2025), BXP's NAV grew to $12.5 billion, with 17% annualized net returns for its largest share class in Q2 2025; BREIT posted 9% annual net returns since inception and achieved 3% year-to-date for its largest share class.
Infrastructure AUM: Rose 32% year over year to $64 billion in assets under management, supported by 17% annual net returns in the VIP commingled strategy since inception.
DXMA (Multi-Asset Business) AUM: Up 13% year over year to $90 billion, with the largest strategy achieving 21 consecutive quarters of positive composite returns.
Private Equity Asia Flagship: Raised a cumulative $8 billion to date, 25% above its predecessor, with expectations to surpass the $10 billion target.
Secondaries Business AUM: $91 billion, doubled over five years; fundraising for the new flagship PE Secondaries fund has begun, targeting at least $22 billion for its first close in Q4 2025.
Corporate Private Equity Fund Performance: Appreciated 5.1%, up 17% for the last twelve months.
Taxable Opportunities Funds: The taxable opportunities funds appreciated 4.1% over the last twelve months.
SP Secondaries Funds: Appreciated 6.6% and 11% over the last twelve months.
Infrastructure Platform Returns: Delivered 2.9%, and 19% over the last twelve months, with data centers noted as a key performance driver.
Real Estate Platform: Values were largely stable, with appreciation in opportunistic funds and BREITs; BPP funds declined modestly, attributed to life sciences office portfolio headwinds.
Portfolio Composition: Data centers, logistics, and rental housing made up about 75% of global real estate equity and nearly 90% of BREIT's equity exposure.
Private Credit Strategies: Non-investment grade private credit strategies reported a 3% gross return and over 13% for the last twelve months, with no new defaults in the quarter.
BXMA (Multi-Asset Absolute Return): Gross return of 2.8%, 12% for the last twelve months, with 27 consecutive months of positive composite returns.
Life Sciences Performance: Dedicated life sciences business appreciated 6.7%, 27% over the last twelve months; prior flagship fund earned 20% annualized net returns since inception.
Dividend Yield: $4.26 per share on a trailing twelve-month basis, representing a 2.4% yield on the current share price—twice that of the S&P 500.
Performance Revenue Eligible AUM: Record $604 billion at quarter end, up 14% year over year.
Net Accrued Performance Revenue: Sequentially increased to $6.6 billion, or $5.30 per share.
BREIT Fundraising: Noted best quarter for regular-way fundraising in two and a half years at $1.1 billion, while repurchases declined further.
New Strategic Insurance Partnership: A collaboration with Legal & General in the UK aims for up to $20 billion over five years, focusing on investment-grade private credit and public-private credit products for pensions and annuities.
Outlook on Management Fees: Management expects the year-over-year growth rate in the second half to resemble the first half, while transaction fees may be lower in baseline terms, with upside tied to market activity. This outlook applies to the fiscal year.
Real Estate Performance Fees: Approximately 60% of $200 billion eligible AUM in real estate sits above hurdle rates, including 100% of BREIT and a majority of opportunistic funds.
SUMMARY
Blackstone Inc. (BX -0.01%) delivered double-digit year-over-year growth across key earnings, fee, and asset metrics, citing broad-based platform expansion and strong investor inflows. Management reported inflows of $212 billion over the last twelve months, supporting record assets under management, and highlighted $181 billion in dry powder, providing flexibility for future capital deployment. Firm leadership outlined differentiated momentum in private credit, private wealth, and insurance channels, with notable acceleration in infrastructure and secondaries, while positive shifts in capital markets and policy were cited as paving the way for stronger realizations and future deal activity.
President Gray stated, "the environment we see emerging of lower short-term interest rates less uncertainty, and continued economic growth. Combined with a pent-up desire to transact, is the right recipe to reignite M&A and IPO activity." marking heightened confidence in transaction pipelines.
Firm noted that "Performance revenue eligible AUM in the ground reached a record $604 billion, up 14% year over year." signaling increased realization potential as market conditions normalize.
Chief Financial Officer Chae provided that the firm’s "Fee-related performance revenues reached $472 million" with granular guidance on scheduled crystallizations suggesting lumpy, but directionally rising, future fee streams.
The company affirmed that approximately 60% of real estate eligible AUM is above hurdles, with the majority of accrued performance revenue concentrated in opportunistic strategies and BREIT.
Management emphasized continued product innovation, referencing the BMAX launch and partnerships with Wellington, Vanguard, and Legal & General as positioning advantages for further expansion in private wealth and insurance segments.
INDUSTRY GLOSSARY
Distributable Earnings: Cash earnings available for distribution to shareholders, a key non-GAAP measure for alternative asset managers.
Fee-Related Earnings (FRE): Earnings generated from recurring management and advisory fees, excluding performance/incentive fees and investment income.
BREIT: Blackstone Real Estate Income Trust, a flagship perpetual real estate investment vehicle focused on generating income and appreciation.
BXP: Blackstone Private Equity perpetual vehicle designed for private wealth clients, offering diversified global private equity exposure.
BCRED: Blackstone Private Credit Fund, a non-traded business development company focused on making direct loans to private companies.
BMAX: Blackstone’s newly launched multi-asset interval fund offering retail investors expanded access to private credit.
VIP: Infrastructure flagship commingled fund ("Vintage Infrastructure Partners") generating performance fees.
DXMA / BXMA: Blackstone multi-asset investing platform focusing on liquid and absolute return strategies across asset classes.
BPP: Blackstone Property Partners, Blackstone’s core+ real estate funds.
Drawdown Funds: Private investment funds where investor capital commitments are called as investments are identified, instead of being fully funded upfront.
GP Stakes: Investments in the management companies of alternative asset managers, providing exposure to management fee and incentive income streams.
Performance Revenue Eligible AUM: Assets under management eligible to generate performance-based fees once return hurdles are met.
Full Conference Call Transcript
On results, we reported GAAP net income for the quarter of $1.6 billion. Distributable earnings were also $1.6 billion or $1.21 per common share. And we declared a dividend of $1.03 per share which will be paid to holders of record as of August 4. With that, I'll turn the call over to Stephen Schwarzman.
Stephen Schwarzman: Good morning, and thank you for joining our call. Blackstone Inc. reported outstanding results for the second quarter. Distributable earnings increased 25% year over year to $1.6 billion, as Weston mentioned. Fee-related earnings grew a remarkable 31% year over year and represented one of the best quarters in our history. The strength of these results, notwithstanding a muted backdrop for realizations, reflects the significant expansion of the firm's earnings power that has been underway as we continue to innovate and scale key growth initiatives. These include our platforms in private wealth, credit and insurance, and infrastructure.
Jonathan Gray: Along with the launch of multiple new funds in our drawdown area. The firm's expansion is also powering our fundraising, with inflows reaching $52 billion in the second quarter and $212 billion for the last twelve months, lifting assets under management 13% year over year to a record $1.2 trillion. In addition, there were reports that the US administration may soon issue an executive order that could help open another vast new market for the firm to deliver superior returns and diversifications for investors. The $12 trillion US defined contribution channel, the foundation of Blackstone Inc.'s exceptional long-term growth, of course, is investment performance.
We continue to deliver for our limited partners, and the second quarter represented the highest amount of overall fund appreciation in nearly four years. The firm achieved these results in a turbulent quarter for markets, which began with the S&P 500 falling 14% amid collapsing investor sentiment due to tariffs, policy uncertainty, and geopolitical instability. At the time, we advised patience to allow for trade negotiations to take place and to give tariff diplomacy a chance to work its way through the system.
Despite the significant external uncertainty, we were encouraged by the fundamental strength of the economy, the accelerating pace of technological innovation as a major growth catalyst, and what we were seeing on the ground in terms of declining inflation. We consistently shared our view that inflation was below the Fed's target when adjusting for lagging shelter costs based on the proprietary data from our large-scale portfolio and our unique position in real estate. As always, the firm's insights informed our views on investing, and we continue to lean into areas where we have high conviction.
We invested $33 billion in the second quarter and $145 billion in the last twelve months, one of the most active twelve-month periods in our history, setting the foundation for future value creation, and what we believe is a favorable time. Our deployment has emphasized areas benefiting from long-term secular megatrends, such as digital and energy infrastructure, digital commerce, private credit, life sciences, and India. These areas have also been among the largest drivers of appreciation in our funds. In particular, the enormous need for debt and equity capital to build the infrastructure powering the artificial intelligence revolution has created extremely positive dynamics for our business.
In real estate specifically, we called the bottom of the cycle eighteen months ago, and since then, we've been actively investing across our real estate equity and debt strategies. We also said it wouldn't be a V-shaped recovery. That is what's happened. Private real estate markets have appreciated gradually over this period. We are now seeing promising signs with new supply falling sharply, the cost of debt capital coming down, and transaction activity picking up.
Stephen Schwarzman: Overall, despite ongoing uncertainties in the environment, there are multiple supportive tailwinds for our business. In terms of the economy, the backdrop remains favorable with resilient growth. We see inflation remaining muted, but the likelihood for an increase in goods inflation but decelerating wage, energy, and shelter inflation. These factors should give the Fed room to lower interest rates over time, which is positive for asset values. In terms of policy, we continue to believe the focus of policy actions ultimately is to support growth. Tax cuts have now been passed into law, and a number of trade agreements have been reached, with many more under active negotiation.
It remains to be seen how individual negotiations will play out, but the direction of travel is toward more resolutions. As the policy environment settles, we expect transaction activity to benefit, including realizations. Greater clarity will lead to greater confidence for companies, financial sponsors, and market participants. We're seeing this dynamic start to take effect with the US stock market at record levels, M&A, particularly sponsor M&A, accelerating, and the IPO market reopening. Two weeks ago, we successfully executed a sizable IPO in Europe, the first from our private equity or real estate portfolios outside of India in several years. And we are preparing a number of other companies for public offerings over the coming quarters.
More conducive capital markets, if sustained, should lead to the acceleration of realizations for Blackstone Inc. over time.
Jonathan Gray: In closing, we are tremendously well-positioned to navigate today's dynamic backdrop on behalf of our investors. Our portfolio is in excellent shape, concentrated in compelling sectors, and we have $181 billion of dry powder to take advantage of opportunities. Since our founding four decades ago, Blackstone Inc. has continued to innovate and advance the frontier of alternative assets. We are never standing still, and I believe the best is ahead for the firm and for our investors. And with that, I'll turn it over to Jonathan Gray. Thank you, Stephen, and good morning, everyone. This was a terrific quarter for Blackstone Inc.
The firm's distinctive competitive advantages continue to drive us forward in multiple areas, leading to expanding earnings power, as Stephen noted. I will highlight three of these areas this morning. First, our robust growth in private credit. Second, our market-leading position in private wealth. And third, our strong momentum in the institutional channel. Overall, a cyclical recovery in transaction activity alongside multiple secular growth engines is a powerful combination for our firm. Starting with private credit.
Stephen Schwarzman: Blackstone Inc. has built the largest third-party focused credit business in the world.
Jonathan Gray: With $484 billion across corporate and real estate credit, up threefold in the past five years. Over the same period, revenue from this platform has increased more than fourfold. Today, we offer clients and borrowers a one-stop solution across the risk spectrum, with leading businesses in direct lending, leveraged loans, real estate lending, asset-based finance, and numerous forms of investment-grade private credit. The scale and breadth of our platform, distinctive origination capabilities, connectivity with borrowers across the market, and our open architecture multi-client model in the insurance channel are significant advantages. In insurance specifically, our decision to be an asset manager for insurance companies rather than becoming one positions us well to address the $40 trillion global insurance market.
Today, we manage over $250 billion on behalf of insurers across private credit, liquid credit, and other strategies, up 20% year over year. Our platform now includes 30 strategic and SMA relationships, and we continue to add more. Two weeks ago, we announced a partnership with leading UK-based insurer and the country's largest asset manager, Legal & General, in which we'll provide investment-grade private credit solutions to support their rapidly growing pension risk transfer and annuities businesses. We will also work together to develop public-private credit products for the UK wealth and retirement markets. We're targeting up to $20 billion for this partnership in the next five years.
Our expansion in the insurance channel is powering tremendous growth for our private investment-grade platform specifically, with AUM up 38% year over year to $115 billion in the quarter. As always, the key is investment performance. Since the start of last year, we placed or originated $68 billion of credits for our private investment-grade focused clients rated A-minus on average, which generated approximately 190 basis points of excess spread over comparably rated liquid credits. Stepping back, Blackstone Inc.'s innovation in private credit is allowing many borrowers to access this market for the first time, while dramatically widening our aperture to invest.
For example, we previously discussed a very substantial opportunity emerging with investment-grade rated corporates, illustrated by the bespoke solutions we designed for Rogers Communications and EQT Corporation. We closed a $5 billion Rogers investment last month alongside Canada's preeminent pension plan as co-investors. We believe few other investment firms could have executed this transaction given its size, complexity, and the depth of relationships needed. Blackstone Inc. has become a trusted, mission-critical solutions provider to many of the world's leading corporations, and we expect more of these types of partnerships over time. Turning to private wealth, where we continue to advance our market-leading position.
In this vast channel, a $140 trillion, including mass affluence and high net worth individuals, a new generation of investors is gaining access to the benefits of alternatives, which is a development led by Blackstone Inc. We started raising private wealth capital twenty-three years ago and established a dedicated organization nearly fifteen years ago, growing AUM to almost $280 billion today, by far the largest private wealth alternative platform in the world.
Stephen Schwarzman: Each of our flagship US perpetual vehicles is the largest
Jonathan Gray: or amongst the few largest of its kind. Revenue from these vehicles exceeded $700 million in the second quarter alone.
Stephen Schwarzman: Compared to approximately
Jonathan Gray: $50 million in the same quarter five years ago. As with credit, our scale is a major advantage in the wealth channel, alongside our extensive network of relationships with advisers and distributors. Our broad menu of high-performing products and the power of our brand, which is built on that performance. In the second quarter, our sales in the wealth channel increased 30% year over year, $10 billion. BCRED led the way, raising $3.7 billion underpinned by performance. 10% net returns annually since inception. BXP raised $1.7 billion in the second quarter, bringing its NAV to $12.5 billion in only six quarters, with an annualized platform net return of 17% for its largest share class.
BREIT had its best quarter of regular way fundraising in two and a half years in the second quarter at $1.1 billion while repurchases continued on their downward trajectory. BREIT's highly differentiated portfolio positioning has led to 9% net returns annually since inception eight and a half years ago, approximately double the public REIT index on a cumulative basis, including over 3% year to date for its largest share class. This has resulted in BREIT's second consecutive quarter of generating fee-related performance revenues for the firm. Finally, BXInfo saw healthy sales of roughly $600 million in the quarter, despite still only being on a small number of distributors.
We launched BMAX, our multi-asset credit product in May, which provides individual investors greatly expanded access to the private credit universe. And we'll be ramping up distribution over the coming quarters. Along with other products in development, and our previously announced alliance with Wellington and Vanguard, we are quite excited about our continued prospects in the private wealth channel. Moving to our institutional business, where we are seeing strong momentum across key open-ended and drawdown strategies. In this channel, again, the advantages of our brand, scale, breadth of products, and, of course, our long-term investment performance. Position us extremely well in an environment where limited partners are consolidating their manager relationships favoring the largest and strongest firm.
In infrastructure, our dedicated platform continues on its powerful growth trajectory. AUM rose 32% year over year to $64 billion supported by remarkable investment performance. 17% net returns annually a commingled VIP strategy since inception. Our multi-asset investing business, DXMA, reported its fastest growth in nearly seven years, with AUM up 13% year over year to a record $90 billion again, led by performance. Q2 marked the twenty-first consecutive quarter of positive composite returns with BXMA's largest strategy. In our drawdown fund area, we raised significant capital in the second quarter.
Stephen Schwarzman: We closed an additional $3.5 billion for our new private equity Asia flagship
Jonathan Gray: bringing the total raise to date to $8 billion already 25% larger than its predecessor. And we expect to exceed our original $10 billion target. In our $91 billion secondaries business, which has doubled in the last five years, we raised additional capital for our fourth infrastructure vehicle, bringing it to over $5 billion nearly 40% larger than the prior vintage. And we launched fundraising for our new PE Secondaries flagship targeting at least the size of the prior $22 billion fund with a first close expected in the fourth quarter. Other strategies we are raising include life sciences, opportunistic credit, GP stakes, and tactical opportunities. Overall, LPs continue to recognize the substantial benefits of investing in private assets.
Despite the cyclically slow realization backdrop. Looking forward, importantly, we believe the deal-making pause is behind us. As Stephen noted, the environment we are seeing is emerging from oh, I'm sorry. As noted, the environment we see emerging of lower short-term interest rates less uncertainty, and continued economic growth. Combined with a pent-up desire to transact, is the right recipe to reignite M&A and IPO activity. For Blackstone Inc., we have the largest forward IPO pipeline since 2021. These trends should be very favorable for dispositions exiting this year and into next year. In closing, we are highly optimistic about the road ahead
Stephen Schwarzman: supported by multiple powerful engines of growth Blackstone Inc.'s value proposition for both our limited partners
Jonathan Gray: and our shareholders. Is stronger than ever. With that, I'll turn things over to Michael Chae. Thanks, Jonathan, and good morning, everyone. We've previously outlined the building blocks for the favorable step-up in
Michael Chae: the firm's earnings power that has been underway. These included the onset of management fees, for multiple drawdown funds exiting fee holidays, the seasoning of perpetual capital strategies and their expanding financial contribution. Both in terms of NAV-based management fees and recurring fee-related performance revenues. Robust growth of our credit insurance business, and our healthy margin position. Firm's second quarter results perfectly illustrate these building blocks coming to fruition at the same time more significant embedded potential for net realizations. Continues to build. I'll first review financial results followed by investment performance and the forward outlook. Starting with results.
Stephen and Jonathan highlighted the continued scaling of the firm's platforms in key growth channels, and the powerful effect that is having on assets under management inflows and FRE. Total AUM increased 13% year over year to $1.2 trillion underpinned by inflows of $212 billion over the last twelve months. While fee-earning AUM rose 10% year over year to $887 billion. Base management fees increased 14%, to a record $1.9 billion in Q2, representing the third consecutive quarter of double-digit growth. Transaction and advisory fees rose 25% year over year, with a record contribution from our capital markets business. Related to the firm's significant investment activity in the quarter including in private credit and infrastructure.
Fee-related performance revenues reached $472 million due to up over 2.5 fold from last year's second quarter, generated by eight different perpetual strategies including BCREDID and BXSL in credit, BXPE in private equity, DIP in infrastructure, BREIT and real estate, along with smaller contributions from other strategies. These drivers, taken together, lifted total fee revenues to $2.5 billion in the second quarter. A remarkable 27% year over year. And up 14% sequentially from Q1. Coupled with the firm's strong margin position. Fee-related earnings rose 31% year over year to $1.5 billion second quarter. Or $1.19 per share. Distributable earnings increased 25% year over year to $1.6 billion in the second quarter or $1.21 per share.
For the LTM period, 26% to $6.4 billion or $5 per share. Despite net realizations remaining at unit levels. Leading to 26% growth in the dividend to $4.26 per share. This equates to an attractive 2.4% yield on the current share price. Double the yield of the S&P 500. And the forward outlook is favorable, as I'll discuss further in a moment. Moving to investment performance. Our funds generated strong overall appreciation in the second quarter. The highest amount in nearly four years, as Stephen noted. Despite the volatile environment. The corporate private equity funds appreciated 5.1% in the quarter, and 17% in the last twelve months. Brent was broad-based.
Despite the macro uncertainties at the outset of the quarter, our operating companies generated high single-digit year over year revenue growth, along with resilient margins. In addition to corporate private equity, our other PE strategies delivered strong returns in the quarter. The taxable opportunities funds appreciated 4.114% over the LTM period. The SP secondaries funds appreciated 6.6% in the second quarter. In the context of the well-positioned portfolio that benefited sizable recent investments executed in prices. The SP funds appreciated 11% for the LTM year. Our dedicated infrastructure platform appreciated 2.9% in the second quarter. And 19% for the last twelve months. Notwithstanding a decline in the public portfolio in Q2 of market.
With appreciation underpinned by continued significant momentum in data centers, along with other digital infrastructure, power, and transportation-related holdings. In real estate, values were largely stable overall in the second quarter. With appreciation in the opportunistic funds in BREITs, led by strength in data centers. Within the CORE plus platform, the BPP funds declined modestly driven by our life sciences office portfolio, which has been impacted by new supply coming online, and increased tenant caution. Overall, our real estate platform remains well-positioned. With data centers, logistics, and rental housing comprising approximately 75% of the global equity portfolio nearly 90% of BREIT's.
In credit, our non-investment grade private credit strategies reported a gross return of 3% in the second quarter, over 13% for the LTM period. Default rate across our 2,000 plus non-investment grade credits remains in the area of 50 basis points over the last twelve months. With no new defaults in private credit in the second quarter. BXMA reported a 2.8% gross return for the absolute return composite in Q2. And 12% for the last twelve months. Notably, the XMA has delivered positive composite returns in each of the past twenty-seven months. A remarkable achievement in liquid markets in any case, and particularly so given historic volatility as characterized this period. One final note on returns.
Our dedicated life sciences business reported outstanding performance again in the second quarter, appreciating 6.7%. And 27% over the LTM period. The quarter benefited from positive developments in our number of investments in the portfolio. Our life sciences platform provides investors with exposure to innovation and exciting growth area in a way that we believe is largely uncorrelated to broader public markets. Our prior $5 billion flagship has achieved annualized returns of 20% since inception. Net of fees. Overall, the strength in the firm's investment performance continues to power our growth. Turning to the outlook. Where as you heard this morning, there is a very positive multiyear picture of the front.
First, in terms of FRE, set up for this high-quality earnings stream is favorable. With a few drivers of note that will affect the second half of this year. We expect base management fees to continue on a strong positive trajectory with the rate of year over year growth in the second half resembling that of the first half. On transaction fees, following a very strong first half, we would anticipate a lower baseline in the second half, with potential upside from rising transaction and market activity. Looking forward to 2026 and beyond, there's robust structural momentum in FRE, driven by the firm's multiple pensions growth.
In terms of net realizations, in the 6% stake in Resolution Life, in connection with the sale of the company to Epot Life. With respect to fund dispositions, we believe we're entering a more constructive environment, as Stephen and Jonathan discussed, and that we're well-positioned to see an acceleration in net realizations. Exiting this year and moving into 2026. Performance revenue eligible AUM in the ground a record $6.00 $4 billion at quarter end. Up 14% year over year. Meanwhile, net accrued performance revenue on the balance earned store value grew sequentially to $6.6 billion or $5.3 per share. These are positive indicators of future realization potential.
In closing, the firm continues on its path of extraordinary long-term growth powered by our brand, investment performance, and culture of innovation against the backdrop of significant secular tailwinds. As always, we remain totally focused on delivering for our investors. With that, we thank you for joining the call, and we'd like to open it up now for questions.
Operator: Thank you. We'll go first to Alexander Blostein with Goldman Sachs.
Alexander Blostein: Thank you. Good morning. Appreciate the question. Wanted to start with a question around credit. Obviously, incredibly powerful driver for you guys and the industry broadly. It's been fueling growth for a couple of years now. At the same time, we're clearly seeing compression in credit spreads. And I'm curious how that's playing into your client conversations where the premium to liquid market is still there. But perhaps might start narrowing if there's more capital coming in there. So any conversations around demand for private credit, whether it's from retail channels or institutional channels, and any implications on fee rates longer term as we think about this product continuing to grow? Thanks. Great question, Alexander.
I would say on the credit fund, front, the demand remains extraordinarily robust. And we're seeing it broadly
Jonathan Gray: noninvestment grade,
Alexander Blostein: investment grade credit, which, as you know, is early days, We're seeing it in The United States, and we're seeing it around the world. And I would say clients are recognizing that base rates have come down. Short rates are likely to come down more. Spreads have tightened gradually.
Michael Chae: But what I think the clients are, enthused about is we are as well
Alexander Blostein: is that enduring premium between the liquid markets and private credit. And that's what they're focused on. And so long as that continues to exist, I think this makes this a very attractive space. In the second quarter for our insurance clients,
Jonathan Gray: we delivered that a rated premium of eight a 185 basis points, a 190 over the last eighteen months,
Stephen Schwarzman: So that's really what the clients are focused on. And to me, that's the key to this. That's why I think it will continue to grow. Also, I think there are some areas here where private credit has a unique capability Some of these corporate solutions we've done with Rogers and EQT Corporation which really work much better in a private format. And then tied to this, enormous investment spend around data centers and energy infrastructure. Again, that's harder to bring to the public market. And it lends itself to private credit. So I would say today, we continue to see very strong demand. The business, you can see it in the numbers in terms of the rate of growth.
20% insurance, 16% overall between credit and insurance, corporate, and real estate debt. It feels to us like this will continue. And the key is, yes, absolute returns may come down a bit, but the relative premium for private credit and what private credit can do and how it can solve solutions for borrowers that continues. So I'd say our optimism looking forward in this space and doing it the way we do it, which is purely as an investment manager with no capital risk and that open architecture which allows us to serve a broader universe We like all of that, and we have a lot of confidence looking forward. Thank you.
Operator: Thank you. We'll take our next question from Glenn Schorr with Evercore ISI. Hi, thanks.
Glenn Schorr: That's a good lead into this question because I feel like everything is going pretty darn good at Blackstone Inc. with the exception of the real estate
Jonathan Gray: in general in this environment. So the question is, maybe you could give us the mark to market of the expected recovery in terms of what's gonna drive it, meaning pricing, financing, deal flow, client flows to the asset class, are we are we all in on waiting on lower rates? What is the incremental over the next, say, year or two that's gonna drive demand for your real estate products? Thanks, Jonathan.
Glenn Schorr: Thanks, Glenn. I would say the good news now is it's all about a question of when not if. Because the building blocks for this recovery are clearly coming into place. The first and most important one is new supply coming down. And that takes time to work through the system because you start a project two, three years ago, then it comes online. It's it's excess capacity. Now because of the two-thirds to decline in building in The US, from the peaks in terms of logistics, and apartment construction, you're gonna begin as we get towards the end of this year and into next year have a much more favorable supply demand dynamic.
The other area is cost of capital. Some of its base rates, which you highlighted, and obviously, the Fed cutting rates will be helpful. But some of it spreads. And those have come back now back to pre Liberation Day levels. They're down significantly from the wides in 2023. And you're beginning to see those early green shoots in terms of a faster recovery. Transaction activity for smaller assets, has definitely gotten better. You see that for both apartments and logistics The US. There's a little more liquidity in Europe now as well. And that, to me, is an important sign. And then on the customer side, which you referenced, there's definitely now more openness to allocating to the space.
We're we're having more conversations there. We raised some capital for a dedicated core plus real estate industrial strategy of a couple billion dollars. We had, as we've seen, we announced the best quarter of fundraising regular way in BREIT that we'd had in two and a half, three years. So it's the early signs of this recovery. If rates come down faster, obviously, the recovery's quicker. If they don't, then new supply will continue to be muted. And then the recovery will take a little more time But, ultimately, we know the path of travel. It's not as if we're gonna disintermediate apartments or last mile warehouses.
So I'd say our confidence on the ultimate outcome high and we're getting closer and closer to that tipping point where real estate will start to move. We haven't quite gotten to that escape velocity yet. But it's feeling better and better given some of these key things The cost of capital and the decline in new supply are very supportive as you start to look forward.
Operator: Thanks, Jonathan. Thank you. We'll go next to Craig Siegenthaler with Bank of America.
Craig Siegenthaler: Hey. Good morning, Stephen, Jonathan. Hope everyone's doing well. We had a question on strategic partners. So in your secondary fund, returns accelerate in February. And there's a one or two quarter delay there too. So maybe they should get even better with endowments and a few Asian institutions selling their PEEF stakes and discounts wider. So wanna see if you could update this on the investment return and fundraising outlook for second half.
Michael Chae: Hey, Craig. It's Michael. On the return portion, as I mentioned in my remarks, it was a combination of factors that really drove pretty robust returns. It does reflect the purchase the gains from a very significant large new purchase, one of our biggest secondary deals. In history. And that had beneficial effect. And then in terms of the underlying funds, we had good appreciation, which contributed to that return as well. And then there was a minor portion of actually currency as well. So it's a combination of those factors, but I think what really kinda outsized returns in the quarter is the benefit of that very large exciting deal that we did that closed in the quarter.
And I would say on the broader
Jonathan Gray: segment, it's really in a sweet spot today. Obviously, there are investors who want liquidity Deal volume, investment volume, I think, for us is up something like is it 40%? I wanna say roughly in the first half of the year over last year. And the pipeline looks pretty good on the deployment front. The returns have been very strong over time in this area. And that's making it attractive to investors. We announced the progress we've made on the secondary's infrastructure fund We've just started on the flagship secondaries private equity fund. We expect we'll get a really good response given the performance over time.
So this is an area the firm has doubled over the last I guess, five years. I expect that it will continue to grow quite a bit. And it's it's another reason why Blackstone Inc. has this exceptional platform. Other firms have strength in one area or another. There are just so many areas. And so when we travel around, I personally travel around a ton, talk with CIOs around the world. The ability to talk about a range of solutions, a range of investing areas, They may be today more cautious on real estate or regular way buyouts, but they're excited about Asian private equity They love what we're doing in secondary. That's really the power of Blackstone Inc.
It's true in the institutional channel. It's true in the retail channel. Secondaries is a powerful example.
Craig Siegenthaler: Jonathan, Michael, thank you.
Operator: Thank you. We'll take our next question from Michael Cyprys with Morgan Stanley.
Michael Cyprys: Hey, good morning. Thanks for taking the question. I just wanted to ask about four zero one k and the retirement opportunity set. I was hoping you could maybe elaborate a bit on how you see the path unfolding
Jonathan Gray: for all accessing the four zero one k retirement title? It seems that target date is perhaps maybe the most likely vehicle. Just curious to get your views on that. How meaningful of an allocation could this be within the target date vehicle, not just for alts, but also considering fixed income replacement and other types. Of strategies that you have or may have in the future. And just more broadly, how you see this playing out and talk about some of the steps that you guys are taking? Thank you.
Operator: Thanks. Well,
Jonathan Gray: it starts with we'll wait and see if there is an executive order, and then ultimately, we'll make decisions. So I think we all need to be patient here. But as we've talked about in the past, we think this is compelling for individual investors today in the defined contributions world. The access to alternatives, both the returns and diversification benefits, So we would expect this is going to happen at some point over time. But, again, we have to wait and see. In terms of where it'll happen, the size, I've gotta wait. I do think it's logical that it happens more in the target date funds.
You know, it's obviously more appropriate for somebody earlier in their, sort of lifespan as opposed to somebody just on the cusp of retirement. And so I think the target date funds where we'll see this initially take hold. Obviously, it's a very large market. And for us specifically, the fact that we have created scale perpetual products that have track records that can absorb large amounts of capital that is a real competitive advantage. I do not believe drawdown funds will be the structure given the complexity of those. For defined contributions. And so I think it's going to be about large scale perpetuals. It's gonna be about firms with brand names.
And the right legal, approaches and track record that capital can get allocated to. So obviously, the dollars in the space are large. Our positioning in the space I think, will be fairly unique. And the range of offerings we have across asset classes, again, pretty unique to be a partner with distributors in this space. But we've gotta wait and see. Is there an executive order? How it rolls out? It will take time. But I do think there is a potentially significant opportunity here. Great. Thank you.
Operator: Thank you. We'll take our next question from William Katz with TD Cowen.
William Katz: Thank you very much for taking the question. So just coming back to some of your forward-looking guidance can you unpack a little bit how you sort of see the interplay for the FRE margin
Jonathan Gray: very strong quarter this quarter? And then relatedly, as we think through the realization up cycle, how do we think about
William Katz: the payout rate on that? That's been pretty steady in the mid-40s. Should we assume that's still the same kind of payout going forward? Trying to think through the overall earnings gearing here. Thank you.
Michael Chae: Hey, William. It's Michael. Thank you for the question. Look, on the margin, outlook and dynamics, we're obviously pleased with the performance year to date. It's the result of, you know, healthy double-digit management fee growth. And strong underlying margin position. We also benefited from higher fee-related performance revenues and transaction fees, which carry attractive incremental margins. I think in the second half, you know, a few variables to consider. There's you know, there is a level of sensitivity to fee-like performance revenues as we've as we've commented in the past.
There's, as we also said, seasonally higher OpEx in the second half of the year, but I think in that area, we previously pointed to low double-digit growth in 2025 overall, and we'd reiterate that view. But, like, overall for the fiscal year, we're tracking favorably against the initial view we gave in January of sort of stability as a guidepost. But as I mentioned, there's always a few variables that can ultimately impact us. But long term, we feel obviously very good about our positioning and the ability to generate operating leverage. On realizations and the sort of performance fee margins and comp ratios, Yeah.
I think broadly speaking, you should expect stability in that varies with the mix of you know, funds and strategies, that are the source of funds revenues in given in a given quarter. We have had the ability to you know, manage the mix of compensation between fee compensation and performance. Revenues. We'll still be able to do that, which will be beneficial to FRE margins directionally. And might trade off performance revenue margins somewhat as a result. But I think that's more directional and have the margin. But we feel very good about our sort of our leverage to drive margins in across the across the p mail.
Jonathan Gray: Thanks, William.
William Katz: Thanks.
Operator: Thank you. We'll go next to Dan Fannon with Jefferies. Jonathan, I wanted to follow-up on your comments around the deal-making pauses
Michael Chae: behind us. Just want to get a little bit more color on confidence around this. We've obviously been here before and waiting for activity to pick up, but you obviously
Jonathan Gray: sounded much more confident here this morning. So just would love a little more color.
Stephen Schwarzman: Well, it's a fair question. Because I think we expressed some confidence similarly at the outset of the year, and then we had the tariff issues and that slowed things down. You know, you can feel things sort of the tumblers falling into place. It's the combination of equity markets recovering to record levels. Its debt spreads now back to the pre Liberation Day types. It's general business confidence, particularly for businesses away from retailing? Who are in the teeth of some of the issues around goods and the cost of those goods. And so there's overall a more constructive environment. There's also a more favorable environment than there's been in a few years, of course, for M&A.
And when you just look at the levels of M&A and IPO volume over the last three plus years, it's running about two-thirds below historic levels. As a percentage of market cap of the stock market. So there's just a lot of pent-up demand in the system. And then when we look at our proprietary data, we've got the busiest pipeline we've had. Since 2021 of potential IPOs. We talked about getting one done in Europe a couple weeks ago. And then deal screenings, you know, on the BXCI, the credit side, up 50% new deals sort of coming in the door that we're looking at versus the end of the year. So lots of things are coming together. Yes.
You need a level of terra firma But if this holds, I do expect we'll see a step function increase in transaction activity. That, of course, on the realization side, as Michael noted, takes a little bit of time. It's like moving the plane out to the runway before it ultimately takes off. But those signs of getting companies public, public companies becoming more active, debt markets, there's been ton of refinancing activity as cost of capital comes down in the last few weeks. All the things are coming into place, and that's what's giving us this confidence you hear.
Operator: Thank you.
Stephen Schwarzman: We'll take our next question from Brian McKenna with Citizens. Okay, great. Good morning, everyone. So real estate performance eligible AUM totals around $200 billion today. Net accrued performance fees stand at less than a billion dollars today. So I'm curious, how much of the $200 billion is currently generating performance revenue And then is there a way to think about how much of this AUM, call it, is 10% away from the hurdle? I'm just trying to get a sense of the trajectory of accrued performance fees in real estate. From here as performance and underlying trends begin to normalize.
Michael Chae: Thanks for the question. Yeah. As you mentioned, the balance of eligible dollars in real estate is about it's over two $100 billion I would just frame it that about 60% of that is above their respective hurdles. In terms of the components in breadth and opportunistic importantly, as it relates to Carrie's, you know, the vast majority, you know, 80% plus of the AUM is above hurdle. And then as I said, that really represents the bulk of our accrued carry in real estate. A 100% of BREIT is also above that hurdle. So that's sort of the structure of it.
And so I think we're you know, as Jonathan just referenced, you know, with time, we expect the realization cycle to accelerate probably more in private before real estate than ultimately in real estate. And in those breadth funds as it relates to net realizations. That's the positioning, relative to hurdles, which is a
Brian McKenna: Great. Thanks, Michael.
Operator: Thank you. We'll take our next question from Steven Chubak with Wolfe Research.
Steven Chubak: Hi, Steven. Good morning. Katie, it sounds like Steven, we lost him. Do mean oh, sorry about that.
Michael Chae: Weston. I'm here. If you can hear me. Sorry. I was muted.
Stephen Schwarzman: Yeah. Good morning, Steven.
Michael Chae: My apologies. Good morning, everyone. Regarding the BMAX launch, I was hoping you could speak to your confidence level as to whether this could scale at a similar pace
Jonathan Gray: to some of your other retail vehicles? Just trying to gauge the early reception Any additional color you can offer on some of the retail products in the pipeline that were referenced in some of the earlier prepared remarks?
Stephen Schwarzman: Sure. I think on VMAX, it will take some time. We've launched this in a little bit of a different way in the RIA channel to start. You know, we've we've gotten a good reception, but this I think we'll we you know, because we have a number of interesting things in the marketplace today, I think this is obviously a little different as an interval fund. And what we're finding with new platforms in the marketplace, people wanna see the track record start to grow and build. Because this is easier to access, on the interval fund basis, I think the ultimate potential is quite significant. But I would expect a ramp up to take a bit of time.
You know, if you look at our track record, of course, in the flagship products, we've had great success. Obviously, BREED and BCRED. BXP in just eighteen months is remarkable where it's gone to be a essentially the market leader in the space in a short period of time. Our platform we talked about is on a small number of distributors. We have a European credit platform that's picking up some momentum. So you know, the conversations with our wealth partners is incredibly positive. And sort of the Blackstone Inc. positioning in that space because of the track record we have, the breadth of products the fact we've been at it so long is really special.
I think you'll continue to see us introduce new products. And I think we'll continue to get a good reception, and it'll be increasingly on a global basis. Each product will have its own sort of pace to how it picks up. And part of it is where we decide to launch these based on a whole variety of considerations. But the overall path is pretty darn good.
Jonathan Gray: Great. Thanks for taking my question.
Operator: Thank you. We'll take our next question from Benjamin Budish with Barclays.
Benjamin Budish: Hi, good morning and thank you for taking the question. I wanted to ask kind of specific on your fee-related performance revenues. It looked like the performance in quarter or at least the outperformance
Michael Chae: versus a lot of expectations was driven by private equity, which I would assume is more BIP than people were expecting. I know that's one that can be a bit lumpy based on the timing fundraising and deployment with the big sort of three-year crystallizations. But any color you could share in terms of what FRPR can or might look like over the at least the next couple of quarters would be helpful just for modeling purposes. Thank you. Yeah.
I think just as it relates to VIP, which was one of your question, And I think we at the end of last year or in the last couple of quarters, gave a sense of the shape of the year after that very large crystallization in the fourth quarter. You know, generally, as you know, infrastructure is subject to will be subject to more frequent crystallizations related to the layering in of new investors and the open-end fundraising over time In the second quarter, we did have nearly $100 million of revenues just to actually give you some specifics around that. In the quarter.
We'd expect about half that in the next quarter from a scheduled crystallization from the institutional fund. And then nothing in the fourth quarter from the institutional funds. We do expect a modest amount from VXN for a the private wealth infrastructure products from its first crystallization in the fourth quarter which will then be quarterly thereafter, which was the VXP structure when it started as well. So there's some fairly granular sense of infrastructure, and fee-like for the balance of the year.
Stephen Schwarzman: I would just say, generally, the layering of these various products will be powerful to earnings power over time.
Michael Chae: Okay. Thank you for that.
Operator: Thank you. We'll take our question from Kenneth Worthington with JPMorgan.
Kenneth Worthington: Hi, good morning. Thanks for taking the question. With regard to legal in general, so thanks for the highlights. You mentioned $20 billion over the five years. Is this based on new products expected to be developed and distributed
Jonathan Gray: Or is there an IMA or a more immediate asset management element of the partnership? As well? And then last quarter, you mentioned Wellington and Vanguard.
Michael Chae: Can you give us an update on product development, how that's progressing?
Stephen Schwarzman: And when we might see those products start to hit the market? Sure. With LNG, it's a partnership focused around
Jonathan Gray: credit and insurance. I'd say a couple things. $20 billion is ultimately our aspiration here with them. I'd say it's a combination of things. The main element of it will be managing investment-grade private credit for their pension risk transfer and annuities business. Something obviously we do for large clients here and SMA clients. So that's a relationship to make them even more competitive in that marketplace in The UK. And then we also said we're gonna try to do some things together in wealth, creating some products together for The UK market. And then potentially in retirement there and defined contributions. Again with our credit products. So it's broad range.
They are the leading insurer and asset manager in that market. We were very excited to be able to partner with a company of that quality and scale. And there's a real entrepreneurial energy now with the CEO, Antonio, there. And we're excited about what we can do with them together. On Vanguard Wellington, there's a limit to what I can say, I think, legally. At this point, we can say that Wellington has filed for our first product together. Obviously, that process of SEC approval will take some time.
But we're excited, as we talked about on the previous call, just the idea of bringing our best-in-class private capabilities with Vanguard and Wellington best-in-class and active and passive debt and equity. And we think for a portion of the wealth market, this could be particularly attractive just sort of one-stop shopping. But I can't really speak to specifics other than this one filing that's been made.
Kenneth Worthington: Great. Thank you.
Operator: We'll take our next question from Patrick Davitt with Autonomous Research.
Patrick Davitt: You mentioned the life sciences performance and the divergence real estate and have obviously built a great business there. Seems to be a fairly significant cut to government research and science funding coming through the pipe. Do you have any early thoughts on how much exposure your portfolios could have to that? And does that cut in funding change your view on the life sciences investment opportunity from here? Thank you.
Jonathan Gray: So it has certainly added to the uncertainty in the space. Michael talked a little bit about this on the tenant demand side in our life science office area. I think the key thing, though, is there is just enormous innovation happening in life sciences. That the AI is likely to accelerate that there are huge capital needs both from the pharmaceutical companies who wanna find partners to accelerate, their phase three process for products. As well as for smaller life science companies who don't wanna issue equity. And it is definitely a marketplace where we think we have a pretty unique offering and capability.
It is possible that we could see some changes in terms of reimbursements and MFNs outside The United States. But overall, the market is quite substantial. The need for these products is substantial. And the number of groups with expertise at scale to do these partnerships is limited. So we still see a very big investment opportunity here.
Michael Chae: The other final thing I'd add on life science offices. As Jonathan mentioned, the supply coming down in real estate apply personal estate applies to this sector as well. Starts are down something like 80% plus since sort of their peak a few years ago. So that is ultimately gonna be a real benefit for the sector. As well.
Operator: Thank you. We'll take our final question from Arnaud Giblat with BNP Paribas.
Arnaud Giblat: Hey, good morning.
Jonathan Gray: One quick question on BXP, please. So there's clearly been a lot of
Stephen Schwarzman: appetite for this product. I'm just wondering how you're thinking about sizing of the product in relation to capacity to deploy in retail, in particular as you might be thinking about vintage diversification. How we be thinking about the potential divergence in construction between the Swell's product and your flagship? Thank you.
Jonathan Gray: Well, I would say at Blackstone Inc., our greatest strength has always been a capacity to deploy and do it in a way that delivers strong returns. We designed BXP with the idea that this is a product that takes in capital on a regular basis. As we experienced with BREIT and BREIT. And, therefore, we wanted the widest aperture possible. So the product can invest in The US, Europe, and Asia It can do it in controlled private equity minority. Hybrid equity, secondaries, life sciences, growth. Opportunistic credit. We actually sacrificed a bit in terms of the market potential by making it only eligible to qualified purchasers.
So that we had the flexibility to deploy capital across these variety of areas To date, the performance has been exceptional. And I just think at Blackstone Inc., we're able to find lots of opportunities serve our institutional clients, which you were asking about, obviously is critically important. Both in terms of the main funds and also their co-investment desires but also create a whole new range of additional investment opportunities across firm. So I feel very good about our ability to deploy capital We've certainly been able to show across credit. We did it in real estate. We have the capabilities to scale up. And this is obviously beneficial in the wealth
Stephen Schwarzman: channel.
Jonathan Gray: As it grows. It's one of the things that really differentiates Blackstone Inc. as a firm.
Operator: Thank you. That will conclude our question and answer session. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks.
Weston Tucker: Great. Well, thank you, everyone, for joining us today, and look forward to following up after the call.
Operator: That will conclude today's call. We appreciate your participation.