Blackstone Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 17, 2025
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Operator

Thank you for standing by. You're on hold for the Blackstone First Quarter '20 '20 '5 Investor Call. At this time, we're gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Good day, and welcome to the Blackstone First Quarter '20 '20 '5 Investor Call.

Operator

Today's call is being recorded. At this time, all participants are in a listen only mode. At this time, I'd like to turn the call over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Weston Tucker
Weston Tucker
Head of Shareholder Relations at Blackstone

Thank you, Katie, and good morning, and welcome to Blackstone's first quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO John Gray, President and Chief Operating Officer and Michael Che, Vice Chairman and Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, are available on our website. We expect to file our 10 Q report in a few weeks. I'd like to remind you that today's call may include forward looking statements, which are uncertain and may differ from actual results materially.

Weston Tucker
Weston Tucker
Head of Shareholder Relations at Blackstone

We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the risk factors section of our 10 ks. 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 audio cast is copyrighted material of Blackstone and may not be duplicated without consent.

Weston Tucker
Weston Tucker
Head of Shareholder Relations at Blackstone

Quickly on results. We reported GAAP net income for the quarter of $1,200,000,000 Distributable earnings were $1,400,000,000 or $1.09 per common share, and we declared a dividend of $0.93 per common share, which will be paid to holders of record as of April 28. With that, I'll now turn the call over to Steve.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

Good morning, and thank you for joining our call, thank you, Weston. Blackstone reported strong first quarter results, with distributable earnings up 11% year over year to 1,400,000,000.0 as Weston mentioned. Fee related earnings grew 9% and represented one of the best quarters in our history. We raised $62,000,000,000 of inflows in q one, the highest level in three years and approximately $200,000,000,000 over the last twelve months, reflecting broad based momentum across the institutional, insurance, and private wealth channels. This fundraising success lifted assets under management 10% year over year to a new record nearly $1,200,000,000,000.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

I'd say that 62,000,000,000 in the quarter is worth noting. The firm delivered these results against a turbulent market backdrop, which, of course, has further intensified since quarter end. Uncertainty around tariffs and their potential impact on economic growth and inflation has dramatically impacted investor sentiment. It's early it's too early to assess the full implications of tariffs, which depend on the outcome of unprecedented multilateral negotiations with perhaps over a hundred countries around the world. The complexity of the situation means that patience and staying power are key.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

Importantly, the economy entered this period in a fundamentally strong position. Productivity has increased significantly over the past several years, and technological innovation is accelerating, which are powerful tailwinds. Most important questions are, how sustained will this period of uncertainty be, and what are the second order consequences both domestically and for foreign countries. We believe that fast resolution is critical to mitigate risks and keep the economy on a growth path. For Blackstone, it is is the challenging environments that best showcase strength and stability of our firm.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

We built our business to navigate periods of uncertainty and dislocation with the vast majority of our assets under management committed under long term contracts for in perpetual strategies. These structures afford us the flexibility to invest, patience to sell when the time is right. Our LPs have come to view us as an essential partner, and they've entrusted us with a hundred and 77,000,000,000 of dry power, positioning us exceptionally well to take advantage of the opportunities that arise. Our experience through many economic and market downturns has taught us some of the best times to deploy capital are in a risk off world when sentiment is most negative. And for our shareholders, Blackstone is an asset light manager of third party capital with minimal net debt, no insurance liabilities.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

We therefore operate with a different risk profile than most other financial firms, giving us enormous flexibility to respond to changing conditions. In terms of announced tariffs, we believe that the direct first order exposure across our portfolio is limited, although there is potentially material impact to a relatively small group of our companies. In real estate specifically, tariff effects are likely to drive up construction costs and further reduce new supply, which is supportive for real estate values absent recessionary conditions. Construction starts in our two largest sectors in real estate, US logistics and apartments, have already fallen to their lowest levels more than a decade. We also benefit as a firm, many of our funds, from the strengthening of foreign currencies relative to the US dollar.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

With respect to new investments, we will look to take advantage of this moment to capture value for our LPs. We can continue to lean into areas where we have high conviction. We've invested $36,000,000,000 in the first quarter and committed 13,000,000,000 to new deals concentrated in areas benefiting from long term secular tailwinds. We're creating the foundation for future value, and we believe this is a favorable time. More volatile markets do mean we are less likely to sell in the near term, although that can change if conditions improve.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

We remain focused on building the long term value of our home. Meanwhile, the Blackstone innovation engine continues to power our growth. The firm's unique diversity and breadth with over 80 distinct investment strategies positions us well to navigate any environment. We're always working to identify the next paradigm shift in the market and investing in our future growth. We continue to see the substantial benefits of the decisions we've made in the past, including establishing a dedicated wealth business to serve individual investors nearly fifteen years ago when nobody in the alternative business is even thinking about that idea.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

Today, we manage over $270,000,000,000 in the private wealth channel, comprising near nearly a quarter of the firm's total AUM, which we believe is multiples of the size of our next largest peer. Our vision in this area from the beginning was to provide individuals the same access to private market solutions that many institutions have enjoyed for decades. This week, we announced a significant development in our mission to democratize private markets, a strategic alliance with Wellington and Vanguard, two exceptional leaders in liquid asset management. We plan to draw on the tremendous capabilities of our respective firms to collaborate on integrated public private investment solutions. Blackstone is ideally positioned for this initiative given our leadership in private markets and our expansive product lineup, including large scale perpetual strategies in private equity, private credit, real estate, and infrastructure.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

I'm very excited for this next frontier for our private wealth business. This alliance is yet another example of how Blackstone has been a pioneer in expanding the horizon of private markets across strategies, geographies, and new customer channels. We remain as innovative today at any point in our history. In closing, although the path ahead is now more uncertain, I'm highly confident in our firm, our people, to navigate it on behalf of our investors. Importantly, we have the significant advantages of long term committed capital, our unique brand, incredible talent, with an unmatched will to win.

Stephen Schwarzman
Stephen Schwarzman
Chairman, CEO & Co-Founder at Blackstone

We do some of our best works in times of volatility, and I have no doubt that will happen once again. With that, I'll turn it over to our television star.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Thank

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

you, Steve. Good morning, everyone. Despite the challenges of the current environment, Blackstone has multiple powerful engines that continue to drive us forward. I will highlight three of these areas this morning. One, our continued growth in private credit, two, our accelerating innovation in private wealth, and three, our strength in the institutional channel across key open ended and drawdown strategies.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Starting with our growth in private credit. There is a profound expansion underway in the traditional model of providing credit to borrowers, which is creating tremendous structural tailwinds for Blackstone. We've established the world's largest third party focused credit business with $465,000,000,000 across corporate and real estate credit, up more than 2.5 fold in the past four years. Inflows for the combined credit platform were $113,000,000,000 over the last twelve months, comprising nearly 60% of the firm's total. Driving these inflows, as always, is performance.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We continue to see outstanding results across both our investment grade and non investment grade strategies, including direct lending, asset based finance, leveraged loans and real estate high yield lending. One of the most exciting opportunities before us today is an investment grade private credit, where our business grew 35% year over year to $107,000,000,000 Here, we're focused on financing the real economy, including energy and digital infrastructure, real estate, commercial and consumer finance, fund finance and other types of asset based credit. Blackstone's scale and reach in these areas across both debt and equity position us extremely well. We've also established numerous contractual relationships and forward flow agreements with banks and other originators, and we expect to do more. In addition, one of the most significant areas of opportunity emerging is with large investment grade rated corporates who are looking for customized capital solutions.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Two weeks ago, we announced a $5,000,000,000 solution for leading Canadian telecom company Rogers, alongside the country's preeminent pension plans, backed by a minority interest in Rogers' wireless network infrastructure. This follows a $3,500,000,000 solution we designed for natural gas producer EQT Corp. In the fourth quarter with respect to their pipeline infrastructure. In both cases, we leveraged the expansive breadth of our credit platform to create something bespoke for our partner without taking on any balance sheet exposure at Blackstone. For our clients, these transactions represent yet another avenue to access high quality directly originated investments.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Since the start of last year, we placed or originated $55,000,000,000 of credits rated A- on average for our private investment grade focused clients, which generated nearly 200 basis points of excess spread over comparably rated liquid credits. This activity has been mostly on behalf of insurers, although pensions and other limited partners are starting to explore moving a portion of their liquid fixed income assets to private IG credit. We believe the potential here is enormous. Meanwhile, in the insurance channel specifically, we continue to see strong traction with our open architecture multi client model. Our insurance AUM grew 18% year over year to $237,000,000,000 across IG private credit, liquid credit and other strategies.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We have four large strategic relationships today, along with 24 separately managed accounts and expect this number will continue to grow. Last month, one of our four strategic partners Resolution Life announced the acquisition of a nearly $10,000,000,000 block of life insurance and annuities from Protective Life. We expect to manage nearly half of these assets over time on Resolution's behalf. This transaction is another illustration of Blackstone's ability to scale our insurance platform with key partners on a capital light basis. And for Resolution, it further affirms their strong competitive position in the closed block acquisition market, a position we expect will be meaningfully enhanced under their new parent Nippon Life, one of the world's leading insurers.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Turning to private wealth, our innovation is accelerating. Blackstone has built the largest private wealth alternative platform in the world, as Steve noted, with over $270,000,000,000 of AUM. We've continued to expand our product lineup, which now includes four large scale perpetual vehicles in The U. S, providing individual investors deep access to the scale and breadth of the firm. Following a very strong 2024, our fundraising in private wealth grew significantly in the first quarter of twenty twenty five.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And while it's still early in the second quarter, overall across private wealth, we have not seen a pullback in sales. We raised $11,000,000,000 in the channel in the first quarter, up nearly 40 year over year to the highest level in nearly three years. B credit again led the way with almost $4,000,000,000 raised on the back of outstanding performance, achieving 10% net returns annually for its largest share class since inception over four years ago. VxP raised 2,500,000,000 in the first quarter and has grown to over $10,000,000,000 in only five quarters, delivering an annualized platform net return of 15% through February for its largest share class. BXInfo received strong investor reception in its debut quarter with $1,600,000,000 despite only being on a small number of distributors to date.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And BREIT has continued to perform remarkably well through volatile markets with its best quarter of returns in eighteen months in Q1. BREIT has generated a 9.4% annualized net return for its largest share class since inception over eight years ago, equating to almost double the return of the public REIT index on a cumulative basis. It's hard to overstate how valuable the Blackstone brand is in this channel, built on our differentiated performance and extensive network of relationships. Our brand positions us extremely well to bring new products to market. We plan to launch our fifth perpetual flagship, Bmax, in the RIA channel on May 1.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

This diversified strategy reflects the evolution of private lending into many different areas beyond non investment grade corporate loans and will invest across our credit platform. BMAX will also have a ticker execution and daily subscriptions as compared to monthly sales and subscription documents for our existing perpetuals. We look forward to adding this new vertical to our product suite. Finally, we are particularly excited to collaborate with industry leaders, Wellington and Vanguard, and developing simplified access to public private solutions. Overall, we see a huge opportunity ahead for us in the wealth market.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

In addition to our private wealth and credit businesses, multiple other areas of the firm are showing strong results. Our dedicated infrastructure platform continues on its powerful growth trajectory with AUM up 36 year over year to $60,000,000,000 Performance has been outstanding with the commingled VIP strategy achieving 17% net returns annually since inception. Inception. Our multi asset investing business, BXMA, generated the twentieth straight quarter of positive composite performance in its largest strategy. These returns drove BXMA's fastest growth in over six years with AUM up 12% year over year to $88,000,000,000 In our drawdown fund area, we raised significant capital in the first quarter.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We expect that the market volatility and geopolitical concerns will have some effect, but we enter this period with a lot of momentum. In Q1, we held the final closings for both our European real estate fund, the largest of its kind ever raised based on third party commitments at approximately EUR10 billion overall, and our nearly $8,000,000,000 real estate credit fund. These are particularly remarkable achievements given the challenging environment for real estate, which speaks to the strength of our franchise in this area. We also held final closings for our $21,000,000,000 global private equity fund, along with our private equity energy transition fund, which reached more than $5,500,000,000 We held a first close of $4,400,000,000 for our new private equity Asia flagship, for which we're targeting a substantially larger size than the prior $6,000,000,000 vintage. Other strategies we're raising or expect to begin soon include private equity secondaries, life sciences, opportunistic credit, infrastructure secondaries, GP stakes and tactical opportunities.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Despite high levels of market uncertainty, we move forward with the strength of our brand and the confidence of our limited partners. In closing, we continue to lean in. We believe our brand heavy capital light open architecture model is the best way to serve both our clients and our shareholders. And with that, I will turn things over to the capable Michael Chae.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Thanks, John, and

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

good morning, everyone. In the first quarter, the firm delivered strong financial results and resilient fund performance despite volatile markets. Starting with results. The expansive breadth of our platform and the power of our brand drove excellent performance across inflows, AUM and management fees. Total AUM rose 10% year over year to nearly $1,200,000,000,000 as Steve noted, with $199,000,000,000 of inflows in the last twelve months.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Fee earning AUM also increased 10% year over year, listing management fees 11% to a record $1,900,000,000 in Q1. Fee related earnings rose 9% year over year to $1,300,000,000 or $1.03 per share, one of the three best quarters in our history. Distributable earnings increased 11% year over year to $1,400,000,000 in the first quarter or $1.09 per share, driven by the favorable growth in FRE along with a 22% increase in net realizations. While overall sales activity remained muted as expected, principal investment income increased significantly due to the sale of Bistro, a portfolio visualization software platform developed in house at Blackstone to Clearwater Analytics. We originally created Bistro as a portfolio management tool to provide our insurance clients with a comprehensive view of their private credit holdings.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

It will now be integrated into Clearwater's world class technology offerings with continued access for our clients. While Blackstone's culture of innovation is usually associated with new investment strategies, the monetization of Vistra reflects how that culture of innovation pervades the firm, including with respect to our internal technology capabilities. Looking forward, as Steve noted, we expect realization activity in the near term to be affected by policy driven uncertainty and market volatility. Ultimately, we believe the firm's ability to deliver significant realizations in more constructive markets is considerable. Net accrued performance revenue on the balance sheet, our store value, stood at $6,400,000,000 at quarter end or $5.24 per share, while performance revenue eligible AUM in the ground reached record $583,000,000,000 up 13% year over year.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Meanwhile, fee related earnings remain a powerful balance to earnings and dividends for shareholders. FRE for the last twelve months reached a record $5,400,000,000 up 20% from the prior year comparable period and has doubled in the past four years. We expect management fees to continue on a strong positive trajectory. Our platform perpetual strategies continues to expand substantially, widening the aperture for generating high quality fee related performance revenues, and our underlying margin position is strong. The firm's significant embedded earnings power continues to build.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Turning to investment performance. We entered this period of external uncertainty with a portfolio that we believe is fundamentally well positioned. With respect to the first quarter, the firm reported positive returns across all of our major strategies. Infrastructure led with 7.5% appreciation in the quarter and 24% for the last twelve months, including continued significant momentum in our data center portfolio, which benefited real estate and other areas of the firm as well. The corporate private equity funds appreciated 1.1% in the quarter and 14% for the LTM period.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Our operating companies reported mid single digit revenue growth and resilient margins in Q1, underpinning appreciation that was partly offset by declines in certain public holdings amid the market turbulence. In credit, our non investment grade private credit strategies delivered a gross return of 2.7% in the quarter and 15% for the LTM period. BXMA reported a 2.6% gross return for the absolute return composite in Q1, including positive performance in every month of a volatile first quarter. For the last twelve months, the composite return was 11%. And notably, in each of the last twenty four months, we generated positive returns.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Finally, in real estate, the core plus funds appreciated 1.2% in the first quarter, while the breadth opportunistic funds were up slightly, supported by positive cash flow growth across nearly every area of the portfolio. Overall, these returns reflect the resiliency and strength of the firm's portfolio positioning. With respect to the environment going forward, that positioning provides a strong foundation as we enter a complex backdrop that will continue to evolve. It will take time to see how tariff developments unfold, as Steve noted, and how they translate to the real economy and corporate earnings. As always, the breadth and diversity of our global portfolio is a source of strength.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

In closing, as with the many other challenging periods the firm has lived through in our four decade history, we are well prepared to navigate this one as well. Our long term committed capital provides us the staying power to weather storms, and we have enormous investment firepower to take advantage of the opportunities that arise. With multiple engines of growth and the support of our investors, we are confident in the future. With that, we thank you for joining the call, and we'd like to open it up now for questions.

Operator

Thank you. Our first question comes from Michael Suppers with Morgan Stanley.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Great, thank you. Good morning. Maybe just a question on the deployment opportunity set here with nearly $180,000,000,000 of dry powder across the platform. You've mentioned that this could be an attractive deployment opportunity and environment for Blackstone. But given that it is highly uncertain and volatile, can you talk about how you find the confidence to put capital to work here and how you see the cadence and type of deployment playing out near term versus medium term?

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

And also curious around any sort of leading indicators that would give you confidence that this is coming. Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So Mike, I guess I'd say a couple of things. What tends to happen in periods of dislocation is you see the reaction on the screen first. And we've certainly seen that the last couple of weeks.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So leveraged loans, high yield bonds, public equities, those have moved. And in our areas where we have appropriate capital for that, we have accelerated deployment because in some cases, there are opportunities where we think the value of the security has maybe decoupled on the screen just given the technical. So that's the first area. I'd say the next area is looking at public companies. And as you can imagine, we're across our different platforms, having discussions with public companies.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And when stock prices trade off, the receptivity from boards to our prices may be better. And so you're looking for those things. And then over time, there may be people who wanna sell assets. There does overall tend to be a bit of slowness as you know, in these periods. But this can change pretty significantly.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We saw this in 2020 where the year started off with no transaction activity. And by Q4, things had turned. And in this case, given how fluid the tariffs are, you could have a shift in sentiment. But I'd say for us having $177,000,000,000 of dry powder and some real long term conviction in the sectors we like, digital infrastructure, energy and power, life sciences, alternatives, the recovery in commercial real estate, what's happening in India and Japan, we're gonna see this as an opportunity to put out more capital. So it will take a little bit of time, but in terms of seed planting, this is certainly a better environment.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Great. Thank you.

Operator

We'll take our next question from Brian McKenna with Citizens.

Brian Mckenna
Director - Equity Research at Citizens JMP

Thanks. Good morning, everyone. So there's clearly been a lot of focus on the Private Markets over the past several weeks. I think it would be helpful to get your perspective on why Private Market Solutions work so well in any and all environments, some of the underlying characteristics of the business that allow you to be offensive when others are pulling back. And then if you look at past cycles or periods of volatility, the largest alternative asset managers, including Blackstone, have always emerged from these periods in an even stronger position with greater levels of market share.

Brian Mckenna
Director - Equity Research at Citizens JMP

So why is that? And then is there any reason to believe this time around will be any different?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

No. In short. Look, I think the model is very well designed for periods of stress. It starts with us at the top, of course, running a business with almost no net debt at all, no insurance liabilities, so that we can weather a storm. It then goes to the fact that for most of our vehicles, we have the capital.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We have 177,000,000,000 of dry powder. So when the dislocation occurs, we're not pro cyclical. We can do the opposite of what's happening in markets. And that allows you to generate excess returns. You wanna be able to lean in when the prices come down.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And the problem is on just flow related businesses so often, you don't have the money at the moment you most wanted. And I think that's very important. I also think the long term nature of our investing, what we do with our companies in private equity, where we buy a business, we intervene in this business, we add value, we work with the management teams. Those things are always positive, I believe, to the outcomes of the company. And that in good weather, bad weather, that proves to be the case.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Also on the sales side, because we have these long duration vehicles, we're not a forced seller. So we're not liquidating assets at the wrong moment. And then we take, as I mentioned, the last thing, a long term approach. Where do we see the global economy going? Where do we see the big opportunities?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

How do we take advantage of it? And I do think it's this lens that is longer and the staying power we have the patience that really works. We have the firepower to move quickly in dislocation, but the staying power with our structures to hold. And that's one of the reasons why again and again, investors have seen the power of private assets. It's why you've seen this growth in the institutional business now over almost four decades and why we have so much confidence individual investors will also be attracted to this.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So the strength of the model, there are always questions. The stocks always trade down. And yet when we reemerge, because of the ultimate returns we produce for the customers, we get even more strength. And so the short answer to your question is we absolutely believe the same thing will happen here again.

Brian Mckenna
Director - Equity Research at Citizens JMP

Very helpful. Thanks, John.

Operator

Thank you. We'll take our next question from Craig Siegenthaler with Bank of America.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Good morning, Steve, John. Hope everyone's doing well. We wanted to get your perspective on the North American institutional channel. It's the most mature market for privates globally. They've been facing DPI headwinds for three years and it's likely now that 2025 will be the fourth.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

So what is your outlook for fundraising this channel just given continued realization headwinds? And if you can differentiate between private equity and then other segments like infra and private credit where allocations are low, that would be helpful. Thank you, guys.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Good question, Craig. The North American channel is the most mature. I would also say that it has the most perspective having been through these cycles before. And versus twenty years ago, there's a strong sense when we're with our big clients in North America that they're staying with private, that this asset class has delivered for them. And yes, they may slow decision making a little bit in this environment, or they may anticipate getting less back in the way of DPI, but they're long term committed to the asset class.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And I think that's very important. Within the various alternative areas, there are definitely certain segments in more favor today. I think secondaries will be seen as attractive given the liquidity providing if it's difficult to exit through an IPO and M and A market. I think infrastructure where they're generally well below their new targets, I think there's an opportunity. And given the success we have in that area, that I think bodes quite well for us.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And then obviously in credit, first in non investment grade, but I think over time in investment grade, we've been having a lot of interesting discussions with some of our pension fund clients in North America about getting exposure. So I would say near term for the North America clients, yeah, you may see a little bit of a slowdown in decision making. There may be a little bit of a denominator effect, but the overall bias is towards more alternatives. Certain areas will be stronger. And I just feel like we'll continue this migration with them because of performance.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And that is the underlying thing for everything. If you deliver strong returns, you attract more assets, and that's certainly been the case for North American Funds.

Operator

Thank you. We'll go next to Bill Katz with TD Cowen.

William Katz
Senior Equity Analyst at TD Cowen

Okay. Thank you very much. And I did join the call a little bit, so I apologize if you may have covered this in your prepared commentary. I was wondering if you could comment a little bit on just the opportunity to continue to expand the global wealth management business. And in particular, I think those announcements just a couple of days ago working with Wellington and Vanguard.

William Katz
Senior Equity Analyst at TD Cowen

I was wondering if you could maybe flesh out how that may come together in terms of products or opportunities. And then some of the larger distributors including Schwab have continued to expand their selling arrangements. I was wondering if you were part of their initial foray into their high net worth segment. Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So, Bill, I think the wealth area is a very, very large potential growth opportunity for this firm. Steve did a good job laying out our history of going at this much earlier than others. The fact that we have a 300 plus person global team focused on the distribution, the fact that we started long ago doing our drawdown funds in the private wealth channel, then we created really the semi liquid perpetual model that has grown obviously quite a bit. We did that eight plus years ago. And then I'll talk about what I think is the next evolution here with Wellington and Vanguard and where this can go.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

But we positioned ourselves, I think, really well with both financial advisors and their underlying customers, given the strength of our brand and what we've delivered over time. What under, I think underpins all this is that individual investors want the same experiences pension funds get or those who are in defined benefit plans. They wanna have the diversification. They wanna have the higher returns. And I think the last three months have been a good example.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

The US stock market, the S and P 500, which contains amazing companies. But if you looked at it at the peak, thirty five percent of the value was with seven great companies, but it was still pretty concentrated. And shouldn't individual investors have the benefit of private equity and infrastructure, private credit, real estate, adds ballast and diversification and strong returns. And the fact that we've delivered very strong net returns in our flagship products, I think is so important. In terms of where this is going, we are continuing to try to enhance access to these products.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I can't say a lot about specifically what we're gonna do with Vanguard and Wellington, but the basic idea is to take two great world class leaders in liquid assets in both passive and active equities and fixed income and put that together with what we do in private assets and try to create holistic solutions for individual investors and expand the market in the process. And I think that the potential of this is quite significant, because if you can offer enhanced returns and enhanced diversification to individual investors in a more accessible way, more simplified way, I think that is powerful. So we feel really good about the wealth market. And again, the strength of the brand, the Blackstone name, and what it enables us to do with various distributors and with financial advisors is really quite impressive. I don't think we're going to comment on any specific platforms we may or may not be on.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

But I would just say in general, we continue to push out our distribution globally.

Operator

Thank you. We'll go next to Glenn Schorr with Evercore ISI.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

Hello, thanks. So you piqued my interest. In your comments, said there's limited direct first order tariff impact on your portfolio. I'm very curious on how you define that and how you assess that. And then big picture, we don't see big high yield maturity walls.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

We don't we haven't seen a huge push out in high yield spreads. So those have been well behaved. So I'm curious on what type of stresses you see out there and how specifically your direct lending business is holding up in the face of that? Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So on the first question, Glenn, we're defining sort of direct first order impact is companies affected by costs in the supply chain. So those are businesses who are often manufacturers or retailers where this is really gonna hit their margins, their profitability. That is not a large percentage. It's limited as we said in our comments. But we do have to note, of course, that the second order effects exist.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

One being what happens in the capital markets, the cost of capital, the ability to have realizations. When you have a volatile market, that's certainly a knock on effect. And then thirdly, just more broadly, what happens with the economy? Does this lead to a real economic slowdown? And if it does, that of course will impact many more businesses in our portfolio.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I do believe the push by the administration, the comments by the Treasury Secretary this week that they were hopeful to make some quick deals with some of our major trading partners. I think that will be very helpful because I do think that the faster this tariff diplomacy can play out, the better be for the economy and markets. That's sort of the basis of how we see the exposure. On the credit side, the reason you're not seeing, I believe credit stresses as you have in the past is because the overall system is much less leveraged. If you look at the typical direct lending loan we've made in our BDCs, they've been in the low 40 to 45% range of LTV compared to going back six or seven when it was 70 plus percent.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So the overall amounts of leverage are much lower. And I also think, today, people are much more focused on capital intensity of businesses. They're looking at EBITDA minus CapEx, more cyclical businesses are less leverage. You look in commercial real estate again, even though we've been through a cycle other than office buildings, there's been very little in the way of problems, again, because there wasn't a lot of leverage going in. So the lessons from the financial crisis have really carried over.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And that's why even when we get a shock, there may be individual industries that are impacted, but you tend to have much less systemic risk. And I would not expect based on looking at our portfolio that you're gonna see major issues just because we're starting off a low base. Today, we're at 50 basis points of defaults across our non investment grade credit portfolio. I expect that's definitely gonna go up over time. But I don't think this is anything like what we saw, let's say, in the GFC.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Just because we go in with such much lower leverage, I also don't think we're going into that kind of economic environment.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

That was great. Thanks, John.

Operator

We'll take our next question from Alex Blostein with Goldman Sachs.

Alex Blostein
Alex Blostein
Managing Director at Goldman Sachs

Hey, good morning, everybody. Thank you for the questions. Well, I was hoping we could double click into the investment grade opportunity, John, that you talked about in prepared remarks. Treasury Secretary earlier last week, I think, talked about some pretty meaningful regulatory changes to bank capital requirements. And one of the things he mentioned, I think, was something along the lines of leveling the playing field between banks and non banks.

Alex Blostein
Alex Blostein
Managing Director at Goldman Sachs

Now I think he was talking mostly around mortgages, but curious to kind of how you think about the origination opportunity for Blackstone in IG private credit in light of potentially looser lending requirements on the bank side? And I guess, what's the high level pitch to the investment grade borrower with going with a Blackstone solution versus cap markets or a bank?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Well, I think for the borrowers, I'll start there, that the pitches you described is really about the flexibility of the capital. So if you look at what we were able to do with EQT and Rogers is we could come up with very bespoke solutions for them that I think are much harder to execute in the public markets. And that's, I think very powerful. I also think we're able to deliver a level of certainty that these counterparties appreciate. So if you think about the Rogers transaction, we announced it after April 2 in the midst of all this market dislocation.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So the fact that we're showing up, we're placing this in long term hands, primarily insurance companies. I think that's very helpful for the underlying borrowers. I also believe on the flip side, the question is why does this work for investors? And the banks are gonna continue, by the way, to have a very important role. And in many cases, the banks are helping us set up transactions.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

They can be origination partners. So this is an environment where the two sides can collaborate a lot. But what's really driving the investment grade private credit, like everything in our business is the returns. And the fact that we can bring up, let's say, a large group of insurance companies directly to borrowers. And in that process, eliminate a lot of origination and securitization and distribution costs.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And they end up with gross 200 basis points of a higher return for an A minus rated credit. That is very compelling if you're an insurance company. And as I said, I think it'll expand to pension funds and sovereign wealth funds as well. So I think the banks will face a different regulatory environment. And in certain cases, they may be more competitive.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

But ultimately, what they're trying to do, I believe is drive their ROEs higher. So in many cases, if we can be a partner to them, if they can do consumer finance or other types of finance, they can hold a portion of the loan, continue to get fees, but give the bulk of the loan, which is a low ROE business for them. That makes a lot of sense. So I just think this is a structural shift. It's moving towards a place that generally works for borrowers.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

It's working for investors. And that's why you see this very fast growth. The fact that investment grade private credit grew 35% to over $100,000,000,000 That is a powerful sign of what's happening. And again, we're doing this on a capital light basis. For us, it's about the relative return we can deliver here.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

It's not about we've made promises in terms of borrowings or some other form of financing and we're trying to earn a spread. We're just trying to deliver for our underlying insurance clients.

Alex Blostein
Alex Blostein
Managing Director at Goldman Sachs

Great color. Thanks a lot.

Operator

We'll take our next question from Brian Bedell with Deutsche Bank.

Brian Bedell
Director at Deutsche Bank Securities

Great. Thanks. Good morning, folks. You could comment a little bit more on the international backdrop, I guess, in the terms of the corporate decision making with the tariff negotiations. But more importantly, on your view on your ability to deploy, do you see any friction in the system as a result of some of the tariff back and forth?

Brian Bedell
Director at Deutsche Bank Securities

And maybe if you can comment on that situation in both Europe and Asia? And if I can ask a second part to that on the other side of retail demand, I know you've been trying to do more in Japan in terms of brokerage sales? And also considering the European capital markets, efforts internally in Europe to expand their capital markets, does that expand your opportunity for retail sales there?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Well, definitely are questions from global investors, clients about what's happening here. I'd say there's just a handful of those who have issues around the geopolitical client and geopolitical environment and what it means in terms of allocating capital. For most of our investors, it's just questions about where's The US going, what's gonna happen here. I think they have a lot of confidence in The US given what returns have been over time. But this environment has created a bit of uncertainty, again, which is why I think a resolution of the issues outstanding the tariff diplomacy would be very helpful.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We have not really seen on a broad base, clients globally or private wealth, as you mentioned in Japan, seen sort of any material pullback as a result of some of these tensions at this juncture. And our companies continue to operate on a global basis. Interestingly, we have benefited as a large foreign investor from currency strengthening in places like The UK, Europe and yen. But right now, I would say there's mostly just questions about where this is heading, some with more heightened concerns, but mostly just questions. And our businesses continue to operate as usual.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I will say also, we're seeing a little more interest in diversifying a bit. And so for some of our exits in Europe and Asia, it may end up facilitating some things as investors diversify. But I'd still say it's early days, and my hope would be some of this stuff settles and we can sort of get back to terra firma.

Brian Bedell
Director at Deutsche Bank Securities

Great. Thank you

Brian Bedell
Director at Deutsche Bank Securities

very much.

Operator

We'll go

Operator

next to Mike Brown with Wells Fargo Securities.

Michael Brown
Michael Brown
SVP - Investments at Wells Fargo

Great. Thanks for taking my question. So, John, the wealth flows were tremendously strong in the first quarter. April sounds like it's off to a good start, but I believe the subscriptions would be April 1, so before Liberation Day, and we're in a fundamentally different world now. So how do you expect the wealth flows to hold up broadly?

Michael Brown
Michael Brown
SVP - Investments at Wells Fargo

And which asset classes do you think could remain in favor here, just given the uncertainty? Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Well, we're only two weeks into the quarter basically. And what we've seen so far overall is we haven't seen a pullback in sales in the wealth channel. So that has been encouraging to us. It's hard to make a lot of predictions about the future given the volatility in markets. But I think it does say something about financial advisors and clients growing affection for alternatives in their portfolios.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

In terms of specifics, I would expect there'll be a move towards a little more caution. So you would expect credit at the margin does better, but that's just anticipating. I the fact that private assets don't have the same volatility is something that I think investors, individual investors and their advisors appreciate. It's certainly something we're gonna have to watch. But again, I think the performance is really what matters over time.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Mean, the fact that Steve mentioned it, BREITs delivered 9.4% over eight and a quarter years. That's nearly double cumulatively what you've seen in the public REIT market. Investors have seen this experience and it makes a difference with them. So I think we're gonna have to wait and watch, but at least for the first two weeks, it's been encouraging.

Operator

Take our next question from Steven Chubak with Wolfe Research.

Brendan O'Brien
Senior Vice President at Wolfe Research

Good morning. This is Brendan O'Brien filling in for Steven. I just wanted to drill in on the real estate fundraising backdrop. Fundraising for the broader industry seemed to turn a quarter in 1Q before the recent macro and market volatility. However, as Steve pointed out, tariffs could end up being a pretty significant tailwind for the business, absent a recession.

Brendan O'Brien
Senior Vice President at Wolfe Research

And you've highlighted a number of other reasons why real estate is poised for strong returns over the next couple of years. So I just want to get a sense as to how much this pitch is resonating with your LPs at the moment and maybe how appetite for real estate has evolved.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Well, look, we were able to raise a large European fund in a period of time when both Europe and real estate were out of favor and similarly on real estate credit side. So that was promising. I would say the conversations with institutional LPs around real estate have really improved over the last six months. The tone now is much more open. But it's still a sector that has underperformed.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And you tend to see less allocation to those sectors. My gut is this period of time may slow some of the movement towards real estate. But as this recovery begins to take hold, I think you'll see the capital flow back. We've seen this historically in the 90s after the financial crisis. I don't really expect this to be any different.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

This may just create a little bit of a speed bump here. But the underlying facts of a lack of new supply, cost of capital coming down, that's gonna be the foundation for a recovery in real estate. And I think investors will wanna go to it. There'll be a little more hesitant in open ended funds, probably more biased towards drawdown funds and fresh capital. But as we get deeper and more positive performance, I think real estate will then start to get more traction.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

We're still in that sort of early recovery phase.

Operator

We'll take our next question from Ben Butish with Barclays.

Ben Budish
Ben Budish
Director at Barclays

Hi, good morning and thank you for taking the question. I wanted to ask one for Mike, just on some of the financial targets for the year. Last quarter, you indicated Q1 management fees would grow 10% year over year. I was wondering if you could give us an update. I realize there's a lot of moving parts, wealth flows, realizations, what it means for fee earning AUM.

Ben Budish
Ben Budish
Director at Barclays

But just curious if there's anything else you can share in terms of your expectations for management fee growth through the rest of the year. And along the same lines, I think you indicated stable margins year over year. I think this quarter shook out a little bit better than most expected. So curious if there's an update there as well. Thank you.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

Ben thanks. I'll just start with that. I think the picture is solid. Obviously there are uncertainties in the world but sort of underlying baseline of management fees, our margin position, sort of the broadening array of strategies eligible to earn fee related performance revenues. That's a really positive picture over time.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

I'll just start on management fees, and it's probably worth clarification from relative last quarter. Last quarter, we said a reasonable starting point for the year would be 10%, which was the fourth quarter management fee growth rate. And by that, we meant quarter '1. And that's exactly what we produced, 10%. In terms of the full year, we try to stay away from giving, as you know, specific guidance.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

But the key variables to think about remain in place and remain really the same as I talked about last quarter. We're going to see the embedded in this, the fiscal year benefit, the full year benefit of having activated a number of flagships over the course of last year. As we talked about, we're now raising new drawdown funds, which will layer into management fees over time. As I mentioned, we're continuing to see expansion and broadening and perpetual strategies, significant sort of management fee growth from that broadening array. And and also fee related performance revenues, and then significant momentum in our credit insurance segment.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

So the exact growth rate for the full year will be a function of these variables. But I think underlying this is a very fundamental stable picture on margins. Again, we were pleased with our performance in the quarter, results of healthy double digit management fee growth, strong underlying cost position. As I said last quarter, are a number of factors that could affect that this year. And so it's early in the year.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

We always guide you to look at the full year. And we would just reiterate margin stability as a guidepost notwithstanding the, overall uncertainties in the operating environment.

Ben Budish
Ben Budish
Director at Barclays

All right. Thank you very much.

Operator

We'll take our next question from Ken Worthington with JPMorgan.

Ken Worthington
Ken Worthington
Financial Analyst at JP Morgan

Hi, good morning. Thanks for taking the question. John, last year you referred to it being a gold moment for private credit. What is your assessment today? Are we still in that golden moment or have we moved outside it?

Ken Worthington
Ken Worthington
Financial Analyst at JP Morgan

And you mentioned to a prior question, less leverage and less downside in the outlook. What does a normalization in the credit outlook mean for the outlook for growth in private credit?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

So I guess I'd break it into two parts. The golden moment part was related to the fact that base rates were very elevated, spreads were quite elevated. You could earn equity like returns, mid teens returns, owning credit, senior credit. And some of that, of course, goes away as the Fed eased, ten years come down, spreads have tightened. And so the returns you can earn are not as high on an absolute basis.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

But this really is more of a golden era when you think about the durable spread difference relative to liquid fixed income. And there you continue to see a meaningful premium. And you can see it in our performance in the quarter. You can see it in our various BDCs that are out there, that you're still able, because of this farm to table model, basically bringing the investors right up to the borrowers, You capture that that incremental spread. That's not going away.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And that started, of course, in direct lending, non investment grade lending, and it's moving quickly to investment grade lending. And so I think that area of private investment grade lending is very early days. I think the non investment grade will continue. And it just feels to me there are a lot of tailwinds. Tailwinds as banks think about optimizing their balance sheets, companies look to these large bespoke corporate solutions.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And we also have this re industrialization happening, what's happening in data centers and what's happening in energy and power. Those things are gonna demand a lot of credit, and it works really perfectly for private credit. And so I just see a lot of engines in this direction. The adoption from the clients, both insurance and pension funds is accelerating. I still think we have a long way to go here.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

In terms of the credit cycle question, yes, there's lower leverage. Whenever you get an economic slowdown, a dislocation, in this case, if a certain portion of the economy, manufacturing retailers face some headwinds, yes, you're likely to see some elevated defaults in that area. But I just don't see it on a really broad base unless the economy slows much more than we expect. It's just lower leverage. And by the way, we've seen this over the last three years.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

If we had said to people, the Fed's gonna take rates up five fifty basis points, you would have expected to see a pretty meaningful default cycle across non investment grade credits, and you haven't seen that. So I do think we'll see in the course of the higher defaults. I do think we'll see, particularly if unemployment starts to move up in the consumer area, lower FICO scores, higher defaults there. But overall, it does not feel nearly as problematic as maybe some have speculated.

Ken Worthington
Ken Worthington
Financial Analyst at JP Morgan

Great. Thank you for the color.

Operator

We'll take our next question from Kyle Voigt with KBW.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Hi, good morning. Maybe just a follow-up on the Vanguard Wellington partnership. Vanguard obviously has a substantial presence in the 401 channel. So really just wanted to get your updated thoughts on how close the four zero one opportunity could be. And with this partnership announced, how do you feel about Blackstone's current positioning to capitalize on that opportunity?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Well, I think the four zero one opportunity at scale is going to require some regulatory changes. And so we're going to have to wait and see when that occurs. But it seems very logical to us that opening up access to individual investors to the returns of private assets and the benefits of diversification makes a ton of sense. And so I would guess, I don't know when, but I would guess this is going to come. And it does feel like it'll be a large opportunity.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I do think these two groups who we've created a strategic alliance with are excellent when it comes to liquid assets, both of them, both in fixed income and equities. And I think that offers a lot of potential. And of course, the fact that Blackstone has this slate of perpetual products at scale and the four zero one ks market is a scale market. And I think it'll be a brand focused high standard market. I think that positions us extremely well.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

But I wouldn't want to comment much beyond that.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

That's great. Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

Thanks, Kyle.

Operator

We'll take our next question from Patrick Davitt with Autonomous Research.

Patrick Davitt
Partner at Autonomous Research

Hey, good morning, everyone. I have a follow-up on the deployment question earlier. I think historically, one impediment, particularly for PE has been that bank loan market sees up and delay managers' ability to step in quickly. So do you think that is still the case? Or does private credit now having enough scale and dry powder to fill in that void and make it easier to step in quicker than in past drawdowns?

Patrick Davitt
Partner at Autonomous Research

And in that vein, is your direct lending business willing to step in now to fund other sponsors deal or still more in wait and see mode? Thank you.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

That is a great last question, Patrick. It's absolutely oh, we got one more after this. I was hoping to be done here. But anyway, I would say it's fundamentally different. As you know, in the past, when you'd have volatility in public markets, high yield spreads and leverage loans would gap out.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And that's exactly what's happened. As a result, banks logically would say, hey, look, the pricing now for loans, 150 basis points wider, plus I need additional flex. And that of course would make doing transactions too punitive. Both the cost of capital would go up and often the availability would go down. This time, because of the size and importance of private credit, you've seen things continue to move.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And so you've seen a number of deals announced, including several by us in our private credit area where we finance. And the pricing in private credit has not really moved materially at this point. And I would expect that private credit will continue to be there. It'll be available to our private equity businesses to borrow money, and then we'll provide it to other private equity firms. And I do think that is really a substantive difference from the way the world worked in the past.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I think it's an improvement because it allows the cost of capital to stay reasonable in periods of dislocation. It allows transaction activity to continue. And I think it's part of the reason the last few weeks, you've seen a number of announcements in a different environment. You just would not have seen that.

Michael Chae
Michael Chae
Vice Chairman & CFO at Blackstone

And I just add to put a fine point on that, Patrick, it's Michael, part of the essential proposition of private credit and direct lending, if they deliver certainty, certainty of cost of capital without flex and on rates and so forth. And I think that will be transformational for the ability of the private equity M and A market to continue to function even in time of uncertainty.

Operator

Thank you. We'll take our final question from Kristen Love with Piper Sandler.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Thank you.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

And sorry, John, not quite done yet, but hopefully this is the last one. How

Crispin Love
Crispin Love
Director at Piper Sandler Companies

would you characterize the capital markets environment today just from your seat? Is the window shut on M and A and IPOs? Is it slightly open? And then what do you expect to drive a better or worse environment in the coming months? And can it change relatively quickly with the change in policy or even with policy changes could still be delays just as uncertainty looms?

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I think it can change very quickly with policy changes. There's just a lot of underlying momentum. There was, if you looked at our portfolio in the first quarter, if you looked at what was going on in M and A and IPOs, think if we get back, as I said earlier to TerraFirma, if this tariff diplomacy is resolved more quickly, I think you could see markets recover. We've seen it in the past. And then you could see things open up again.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

I think I differentiate maybe different subsets of the capital markets, the IPO market, which is the most sensitive to market confidence and conditions that right now is probably been the most impacted and needs a better dynamic. As it relates to M and A, would bifurcate it. I would say strategics who may have been thinking of using their stocks are probably a little more cautious. Financial buyers with dedicated discretionary capital are still in the market. And to Patrick's earlier question, have access to direct lending.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And so that area, we continue to see deals getting done. And so I think to me, the key is, do we get back to a place that's more stabilized, less volatile, people have clarity more about the capital markets. There's less risk about the economic outlook. And then I think you'll see people wanna transact. We have been operating for the last three years well below historic levels in terms of M and A and IPOs.

Jonathan Gray
Jonathan Gray
General Partner, President, COO & Director at Blackstone

And I don't think that is the permanent state of affairs. I think when we get back to better conditions, those things will improve. And as to your question about the current conditions, I'd say they've slowed, but this is not completely shut. The IPO is the one area where the conditions are probably the toughest.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Thank you, John.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Appreciate it.

Operator

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
Weston Tucker
Head of Shareholder Relations at Blackstone

Great. Thank you, everyone, for joining us today, and look forward to following up after the call.

Executives
    • Weston Tucker
      Weston Tucker
      Head of Shareholder Relations
    • Stephen Schwarzman
      Stephen Schwarzman
      Chairman, CEO & Co-Founder
    • Jonathan Gray
      Jonathan Gray
      General Partner, President, COO & Director
    • Michael Chae
      Michael Chae
      Vice Chairman & CFO
Analysts
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Earnings Conference Call
Blackstone Q1 2025
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