Blackstone Inc. Q3 FY2021 Earnings Call

Good day, everyone. Welcome to the Blackstone Third Quarter 2021 Investor Call. My name is Faye, and I will be managing the call. During the presentation, your lines will remain on listen-only and will be addressed during the question-and-answer session at the end of the presentation. I would like to advise all parties that this conference is being recorded. Now I'd like to hand the call over to your host, Weston Tucker, Head of Shareholder Relations. Mr. Tucker, please go ahead.

Perfect. Thanks, Faye, and good morning. Welcome to Blackstone's Third Quarter Conference Call. Joining today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Chief Financial Officer. Earlier this morning, we issued a press release and a slide presentation, which are available on our website. We expect to file our Form 10-Q in a few weeks. I'd like to remind you that today's call may include forward-looking statements which are uncertain, outside of the firm's control, and may differ materially from actual results. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our Form 10-K. We'll also refer to non-GAAP measures on this call; you will find reconciliations in the press release on the Shareholders' page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent. A quick recap of our results: we reported GAAP net income for the quarter of $3.2 billion. Distributable earnings were $1.6 billion, or $1.28 per common share, and we declared a dividend of $1.09 to be paid to holders of record as of November 1. With that, I'll turn the call over to Steve.

Thanks, Weston. Good morning and thank you for joining our call. Today, Blackstone reported the best results in our 36-year history. Distributable earnings more than doubled year-over-year to $1.6 billion, while fee-related earnings increased nearly 30% with both metrics reaching records for the quarter and the 12-month period. Investment performance was extraordinary and represented one of the best quarters for fund appreciation in our history. Assets under management rose 25% year-over-year to an industry record $731 billion. On our last earnings call, I shared my view that it was the most consequential quarter in our history. It represented a defining moment in terms of our expansion into the vast retail and insurance markets and a step change in the firm's earning power and capacity to generate fee-related earnings. Today's results are proof of concept, and I believe we are only at the beginning of a long-term acceleration of growth. Our unique market position today is the outcome of the substantial investments we've made over decades to expand our capabilities and build out leading distribution platforms across customer channels. We're now experiencing record demand for products in the alternatives area. While our profitability continues to expand, we are reinvesting significantly to support current and future growth in terms of major personnel increases as well as our operational infrastructure. We are creating the foundation for a dramatically more profitable firm, further widening the competitive moat around our business. As the referenced institution in the alternative sector, we're now reinventing the asset class, both in terms of who can invest and what they can invest in. We continue to expand our traditional business lines meaningfully and are adding an entire platform of fast-growing perpetual capital strategies. We now offer 16 perpetual vehicles, which generated nearly half of total inflows over the last 12 months. At the same time, our active pace of deployment is leading to an acceleration of the fundraising cycle for some of our largest flagship funds. The overall outlook for fundraising is incredibly strong. We have unrivaled breadth and depth of product offerings with over 50 discrete investment strategies. Our flagship strategies have consistently outperformed the relevant benchmarks across market cycles, including the most recent one. In an environment that continues to be deeply impacted by the pandemic over the last 12 months, our corporate private equity funds have appreciated 49%, while our opportunistic real estate funds appreciated 36%. This remarkable performance is the result of the way we've positioned investor capital toward areas of the economy with superior secular growth, coupled with our world-class portfolio management capabilities. In real estate, for example, roughly 70% of our portfolio is concentrated in the fast-growing logistics, rental housing, and life sciences office sectors compared to less than 10% a decade ago. We believe our portfolio overall is well-positioned for future cycles, including a likely scenario of rising interest rates. In our credit business, the vast majority of our investments are in floating-rate debt, which should benefit in this scenario. In both real estate and private equity, we focused on high-quality companies and assets in the best secular neighborhoods. We believe the fundamental superior R&D of these investments leading to faster cash flow growth should help offset pressure on market multiples that might occur in response to rising rates. Moreover, our experience when exiting investments throughout our history has been at a significant premium to our carry in values given the strategic value we create. Across all of our businesses, we remain laser-focused on generating outstanding returns for our investors in any market environment. Everyone at Blackstone is dedicated to this mission. To work at our firm, you must believe in our mission and embrace our distinctive culture characterized by meritocracy, entrepreneurialism, excellence, cooperation, protection of capital, and the highest standards of integrity. As we grow, we strive to protect this culture. To that end, I've been spending substantial personal time with each of our groups and our new hires to ensure that everyone at the firm internalizes our core values. I couldn't be more impressed by the exceptional quality of the people coming to work at our firm. This year, we had 29,000 unique applicants resulting in 103 first-year analyst hires, an acceptance rate of 0.41%. We are assembling the next generation of outstanding talent that will continue to drive the firm's outperformance for decades to come. In closing, I've never been more excited about the firm's prospects, and I thank you for joining us on this remarkable adventure. With that, I'm going to throw the ball over to Jon.

I will catch it. Thank you, Steve. Good morning, everyone. This was, as Steve noted, an extraordinary quarter for Blackstone and our investors. We are extremely confident in the outlook from here. I say that because all the pillars for our success are in place: we continue to deliver for clients and they are entrusting us with more capital, increasingly perpetual. As Steve noted, this allows us to broaden who we serve and where we can invest. We've compared this to a ship moving from a narrow channel into open waters, and we believe this process has just begun. Most importantly, the last 12 months were the best for fund appreciation on record. We continue to benefit from our large-scale thematic approach to deploying capital. Our customers are responding favorably to this performance. Total inflows were $47 billion in the third quarter, and $148 billion over the last 12 months, nearly half of which was perpetual, as Steve highlighted. Perpetual AUM rose over 70% year-over-year to nearly $200 billion and is up threefold since our 2018 Investor Day. Our real estate Core Plus business remains the largest driver of perpetual capital, as well as fee-related earnings at the firm. In less than eight years, AUM has grown to nearly $100 billion across six vehicles, roughly the size of our opportunistic real estate business. We raised $10 billion for this platform in the third quarter alone, with strong demand from both institutional and retail investors, including $7.5 billion for BREIT. We launched BEPIF, our new vehicle focused on European real estate, earlier this month with inflows to start in Q4. In addition, our credit segment's non-traded BDC BCRED raised $3.5 billion of equity capital in the third quarter. We expect demand to grow over time for these and other products we plan to introduce. Turning to infrastructure, our $14 billion perpetual vehicle is now over 80% committed and we've reopened fundraising. Given the vast opportunity set and the strength of our team, we expect this business to grow significantly over time. In the secondaries area, our latest flagship vehicle is on track to reach approximately $20 billion, nearly double the size of the prior 2019 fund. We completed an initial close of $8 billion a few weeks ago, and we expect to begin the investment period this quarter. In credit, we saw $65 billion of inflows in the last 12 months with continued robust demand for direct lending and floating-rate liquid strategies. Our actively managed loan ETF, SRLN, is now the largest of its kind in the world at nearly $8 billion. Moving to Asia, our business will see meaningful growth this year with our third real estate and second private equity vintages in the region raising capital. In real estate Asia, we closed on $4 billion and expect to raise approximately $9 billion, 30% larger than the prior fund. In private equity Asia, we've raised $6 billion and will soon hit the $6.4 billion cap, nearly three times the previous fund. Lastly, in BAAM, we expect to finish fundraising our second GP stakes vehicle, another perpetual strategy, in the fourth quarter, reaching approximately $5.5 billion in size. We've been actively investing in this area, including acquiring stakes in two high-quality alternative managers recently, with a third in process totaling more than $1.5 billion. Looking forward, several of our drawdown funds are deploying capital faster than our original expectations and are now over 50% committed, including global private equity; global and European real estate; growth equity; private equity energy; European credit and energy credit; and our secondaries real estate fund. The timing of successor funds will be a function of investment pace. Together with our growing menu of perpetual strategies, the outlook is positive. Turning to deployment, the firm's expansion has opened up many new areas where we didn't have pools of capital previously. The third quarter was our busiest ever with $37 billion invested and an additional $30 billion committed to pending deals. The largest were in rental housing, transportation, infrastructure, logistics, and sustainability-linked businesses. Finally, on the realization front, we remain very active, which Michael will discuss. One transaction to highlight: a few weeks ago, we announced the sale by our real estate funds of the Cosmopolitan Hotel in Las Vegas at a gain of nearly 10 times original cost—the largest profit on a single asset investment in the history of our real estate business. This investment is a classic example of our buy-it, fix-it, sell-it model at work, in which we transform the asset and improve operations. Our long-term capital combined with our focus on value creation led to a tremendous outcome for our investors. In closing, it is impossible not to feel energized about the firm's prospects. Blackstone is a branded, fast-growing, capital-light asset manager with an enormous addressable market. The future is bright. With that, I will turn things over to Mike.

Thanks, Jon, and good morning, everyone. I'll first review the firm's record results, and then we'll discuss investment performance and the balance sheet. Starting with results, distributable earnings in the quarter more than doubled year-over-year, as Steve highlighted. For the last twelve months, distributable earnings nearly doubled to $5.4 billion, or $4.19 per share. This step-up in the firm's earnings power is being driven by two important underlying dynamics: first, the continued acceleration of fee-related earnings; and second, the significant expansion of the firm's performance revenue potential. First, with respect to fee-related earnings, which increased 28% year-over-year to $779 million in the third quarter. For the last 12 months, fee-related earnings rose 37% to $3 billion, or $2.47 per share, driven by the combination of 30% growth in fee revenues and significant margin expansion. Fee-related earnings margin for this period expanded to 54.8%, the highest level ever. We expect full-year 2021 margin to be approximately in this 55% area. As a reminder, our fee-related earnings are 100% driven by fee revenues from third-party contracts, and include all cash, operating expenses, and corporate overhead. At nearly $2.50 per share, fee-related earnings have more than doubled since 2018, and the outlook is very strong. The scaling of perpetual strategies in particular is transforming the firm's earnings profile with their compounding effect. These strategies primarily involve management fees that benefit from both accelerating inflows and depreciation in NAV along with fee-related performance revenues that crystallize on a recurring schedule without asset sales. The combination of drivers that you've heard about today gives us confidence in the trajectory of fee-related earnings. With respect to performance revenues, net realizations increased nearly fivefold in the third quarter to almost $1 billion and increased sharply to $3 billion for the last 12 months. Fund realizations in the quarter reached a record $22 billion, reflective of the scale of our global platform, and included the recapitalization of India-based digital services provider Mphasis, the sale of software company Blue Yonder, and certain logistics, multifamily, and office assets in the U.S. and Europe. We also monetized stakes in various public holdings and refinanced a number of portfolio companies. The firm's significant multi-year expansion in the breadth and scale of strategies, coupled with excellent investment performance across our businesses, has driven a step-function change in the firm's store of value. Invested performance-revenue-eligible AUM reached $393 billion in the quarter, up nearly 50% year-over-year, and nearly double its level three years ago. At the same time, the net accrued performance revenue receivable on the balance sheet has grown to $8.3 billion—the highest level in our history—up 23% sequentially, and importantly, more than double its pre-COVID level in Q4 2019. This is a dramatic upward reset in this forward indicator of performance revenues over time. Turning to investment performance, which as you've heard today was outstanding across the firm: the breadth opportunistic real estate funds appreciated 16.2% in the quarter while the Core Plus funds appreciated 7.6%, together leading to the best fund appreciation in the history of our real estate business. For the last 12 months, the breadth funds appreciated 36% and Core Plus appreciated 23%. Returns continue to be driven by gains in logistics, U.S. suburban multifamily and life sciences office. In private equity, the corporate buyout funds had another excellent quarter appreciating 9.9% in the quarter and 49% over the last 12 months. Appreciation in the quarter was strong across both the private and public portfolio, particularly in our technology-related holdings. Overall, our companies are seeing robust double-digit revenue and EBITDA growth. Our secondaries business reported a standout quarter with 17% appreciation and 53% over the last 12 months. Tactical Opportunities funds appreciated 2.3% in the quarter and 35% over the last 12 months. In credit, the private credit strategies reported a gross return of 4.5% in the quarter and 25% for the last 12 months, with the quarter's performance driven by improving fundamentals, tightening spreads, and strength in energy positions. Finally, in BAAM, the BPS composite return was 1.3% gross in the quarter and 13% for the last 12 months, outperforming the HFRX Global Index by over 400 basis points for the last 12 months. When market volatility spiked in September and the S&P declined 5% in the month, BAAM produced a positive return in BPS, protecting capital in a down market. Overall, strong returns across the firm equated to $28 billion of total fund appreciation in the quarter and a record $110 billion over the last 12 months, reflecting exceptional value creation for our investors. Finally, a note on the firm's financial position. In early August, we opportunistically issued $2 billion of 7-, 10-, and 30-year notes at a weighted average pre-tax cost of 2.2%. Our average debt maturity now stands at 14 years with a 2.7% overall pre-tax cost on fixed-rate long-dated debt. We maintain our A+ credit rating, one of the two best ratings in the asset management industry. To recap, the firm reported record or near-record results across all of our key metrics this quarter and our forward momentum has never been stronger. We believe these records reflect the reality of the continuing transformation of our business and its earnings power. With that, we thank you for joining the call and we'd like to open it up now for questions.

Thank you. We ask that you limit your questions to one only. If you would like to ask a follow-up, please redial back into the question queue. Thank you. Your first question is from the line of Glenn Schorr from Evercore. Please go ahead.

Hi. Thank you very much. If I could, I wanted to ask a question on the high-net-worth space. It's pretty amazing to see $11.5 billion across BREIT and BCRED. You mentioned BEPIF. How can we think about that market relative to what we've seen in Europe versus the U.S., size-wise and expectations? Taking a bigger step back, retail obviously has lower allocations so the capacity to handle more is a lot. I'm curious how you're thinking about what other types of products you might introduce and as the flood of competition comes in, how big of a deal is the 10-year head start that you have?

Good question. I'll start with the BEPIF question, Glenn. In Europe, the overall market is not as large as the U.S., and it's very early days for this type of product. We're going to do it deliberately; we'll start with one distributor as we did with BREIT and then over time add others. I think it could be meaningful, but it will take a number of years. There's a lot of savings in Europe, and alternatives are something different relative to traditional products. Historically, the way real estate products have been distributed there has been different. We're a bit of a trailblazer here, a bit like we were when we revolutionized the non-traded BREIT market. We're starting out and our expectations are that we likely won't get to the scale of BREIT, but we think it could be meaningful over time. On other products, we think there is potential to do more products across multiple geographies and multiple asset classes. The key consideration for us is that we deliver returns and focus on our brand long-term, delivering for individual investors just as we do for institutions. We'll act in a deliberate and thoughtful way when we have the right program and the right setup. The short answer is yes, there is more to do. Regarding the head start, we think it's very helpful. It's helpful to get to scale earlier. It's helpful to have several hundred people in our private wealth area and relationships we've built over a decade. It's helpful to have the plumbing, the legal, compliance, disclosure—all of those matters—and it really helps to have the platform to deploy the capital. Others will come into the space; like everything there's competition. But we do have a big head start and a powerful brand. One thing to emphasize about Blackstone, and the reason we've been so successful as a capital-light firm, is the power of the brand. You see that nowhere more than in the retail channel, and that is a durable advantage we believe, and we're going to continue to build on it.

Thank you.

Thank you. Your next question is from the line of Alexander Blostein from Goldman Sachs. Please go ahead.

Good morning, Alex. Alex, I'm not sure if you're on mute there; why don't we move to the next caller and Alex can dial back into the queue.

Thank you. Your next question is from the line of Robert Lee from KBW. Please go ahead.

Great. Thanks. Good morning. The first question for Jon: your fundraising is so strong and you have this scale of capital coming in. Can you talk about on the deployment side how you are able to deploy that to keep returns going without affecting the market just from a pricing perspective given the wall of capital? And then maybe a follow-up for Steve: you hit your $100 billion core target ahead of schedule. What's next?

I'll start on deployment. We've been dealing with this question of how to deploy as we grow larger for a long time. One of the advantages we have is scale: year-to-date we've been involved in 13 take-privates, which are transactions often harder for other firms because of size and complexity. The second thing is we've broadened our platform and we're redeploying capital. If you looked in the quarter, the ten largest transactions we did in terms of investments and commitments were all done in vehicles that did not exist five years ago—BREIT, infrastructure, BCRED, Core Private Equity. Deploying capital at scale has gotten easier because we have more strategies, and that has helped as capital comes in. We deploy geographically across the globe and across risk and return profiles. Another key is our thematic approach—focusing on strong neighborhoods and secular tailwinds like online migration, sustainability, life sciences, global travel recovery, and rising middle-class in India. We deploy capital directly on scene in these areas and sometimes via derivatives. For example, we bought Chamberlain, the parent of LiftMaster garage door openers: it's a play on housing and on e-commerce delivery to the home, with connected technology. We have unique advantages at scale, breadth of products, and are making high-conviction investments across the firm, and we're leaning in on those areas. That combination has allowed us to deploy a lot of capital. With that, I'll let Steve set a new very high target for what's next.

Robert, thanks. I think you were asking about how I feel about what we accomplished in the Core Plus area. Whenever we go into a new area or introduce a new product, it's fun for me to have a vision of how big we can be consistent with great performance for our investors. We've certainly got this one right and have a lot of momentum behind it. Every one of our areas sets similar expectations internally. Part of managing a great firm is having amazing people, great prospects, and discipline when we go into something and set targets for success both investment-wise and scale-wise. We're all used to that system here.

Thank you so much for taking my questions.

Thank you. Your next question comes from Gerry O'Hara from Jefferies. Please go ahead.

Great. Thanks for taking my question this morning. Perhaps one for Michael. Clearly, there's a lot of performance fees in the pipeline. Could you give us a little sense of what's to come into Q4? I know you don't give short-term guidance, but is there anything you can say? The Cosmopolitan sale is material—anything you might be able to help us think about would be helpful as well. Thank you.

Sure, Gerry. As you know, we don't give near-term guidance, but the big picture is captured in the net accrued performance revenue receivable, which is double what it was pre-COVID. Much of it is relatively liquid—about a third of the private equity portfolio at fair market value is publicly traded. We'll take advantage of that based on market conditions. The invested performance-revenue-eligible AUM has grown considerably. We entered this quarter with some locked-in realizations that are under contract and we'll expect those to crystallize this quarter and over the several quarters to come. The Paulson transaction we expect to close in the first half of next year, not in the fourth quarter. There are other things in the pipeline, some we've mentioned and others we have not. Quarter-to-quarter it's not fruitful to try to predict exact timing, but big picture we're in a remarkably good position over time.

Fair enough. Thanks for the call.

Thank you. Your next question is from Michael Cyprys, Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking the question. Could you update us on some of the technology investments you're making across the firm? As you think about digitizing and automating parts of the business, how do you think about the opportunity set there? Where can digitization of Blackstone be most helpful, and what challenges do you face in building the tech stack architecture of the future?

Hey Mike, it's Michael. Thanks for the question. We've been active in technology and innovation for years—both in product development and in how we run our business, transforming middle and back-office work and improving investing processes. We put ourselves second to nobody in that effort. We've been investing in people, hardware, and software for a number of years and currently have nearly 400 employees in technology and data science. It's the fastest-growing part of the firm and one of two or three fastest-growing areas overall. That includes our data science team, which has around 20 people and will be about 30 soon. They are doing excellent work and the discipline is being embedded across the business, particularly in evaluating new investments and helping our portfolio companies. Our Global Head of Portfolio Operations, Gen Morgan, historically co-led in the technology area. We've internally developed a suite of products in fund accounting and investor reporting for both institutional and retail investors. When we leaned into this about 15 years ago, the alternative industry lacked comprehensive solutions, so we developed many of these internally. We believe our stack competes well with third-party solutions. For example, products similar to third-party solutions purchased at high valuations have equivalents in our internally developed stack that LPs and others rate well. We also have an Innovations Program—small, but active—where we invest in early-stage companies in fintech, proptech, enterprise tech, and cyber. We've made roughly 30 investments over several years, which have been mutually beneficial for relationships and access to cutting-edge products. It's a multipart answer, but in short: we've been at this for a long time, we've scaled people, organization, and process, and we'll keep investing. It's still early days and there's a long way to go.

Great. Thank you.

Thank you. Your next question is from Brian Bedell of Deutsche Bank. Please go ahead.

Great. Thanks. Good morning. Two-parter on fundraising: looking at this year, I think your initial target was to approach $200 billion of inflows, including the insurance partnerships. It looks like you'll easily exceed that—can you sanity check that? And for next year, is there a possibility of raising the next vintages of the flagships in private equity and real estate given the faster drawdown pace? Given your retail traction, is it possible to get to $200 billion even without insurance partnerships next year? Also, could you comment on the potential for any ESG impact offerings and the simple investments you've been making within the funds as well?

Maybe Michael will speak to this year, but overall we've got a lot of momentum. Perpetuals have great momentum—not just in retail and insurance, but also institutionally. Institutional real estate Core Plus is still bigger than what we're doing on the individual investor side. Regarding drawdowns, the good news is the fund performance is very strong, which is the best forward indicator of investor desire to invest in future Blackstone funds. Fundraising timing will be a function of how quickly we deploy capital. A number of funds are now over 50% committed; when they approach north of 70% that's when we start thinking about fundraising. It's hard to predict exact timing, but we expect good reception when we go back out. One headwind is some investors are overallocated to private equity given its strong recent performance, which could be bullish for secondaries. We expect investors to raise allocations to private equity and alternatives in general over time. Overall, it's a picture of strength in fundraising, combining larger drawdown funds, a big step-up in perpetual funds, and expansion into insurance. It's hard to quantify exactly how it will all land in timing, but the path is clear and positive.

And then just on ESG?

On ESG, three areas are most relevant for us. First, in energy credit and energy debt, we've deemphasized hydrocarbons and E&P over the last three to four years and are doing much more around the energy transition and sustainability. We announced a big transmission line project to move hydro power from Quebec to Queens and invested in companies supporting solar deployment. I expect future vintages of our energy equity and energy debt funds will be heavily oriented toward the transition and sustainability. Second, we'll do more in infrastructure, which is another way investors can play ESG themes with us. Third, in some of our more liquid structures and areas like insurance on asset-backed solutions, you'll see more ESG-oriented products. Overall, demand for capital addressing the transition is enormous and a lot of it will come from private capital, which bodes well for our ability to meet that demand across multiple areas.

Great. Thank you for all the color.

Thank you. Your next question is from Patrick Davitt of Autonomous Research. Please go ahead.

Hi. Good morning. One takeaway from a competitor's investor day this week was a focus on building investment-grade direct origination capacity to address fixed-income replacement for insurance money desperate for higher yields. That opens you up to a bigger piece of the client AUM pie. Could you discuss to what extent Blackstone is focused on building similar fixed-income replacement strategies, particularly as you bring in so many large insurance partnerships this year?

We agree this is a huge theme. Fixed-income investors—individuals and institutions, especially insurers—are finding traditional liquid bonds can't meet long-term needs. Asset managers with origination capabilities are being awarded more assets over time. We've been a leader in real estate origination and corporate credit origination, and in structured and asset-backed areas like renewables and aircraft. There are many verticals with room for growth. We'll build our capabilities because this is important. You will see a movement of pools of capital wanting credit assets closer to the borrowers, and origination facilitates that. We will focus on being a third-party manager of capital in this area, not taking on large-scale liabilities to do spread investing against them. We'll be a manager of capital as we've historically done.

We are ready for the next question, Steve.

Thank you. That question is from the line of Arnaud Giblat at BNP. Please go ahead.

Hi. Good morning. We've seen a lot of U.S. insurance deals like your AIG partnership. Do you see opportunities to do similar insurance-type deals in Europe? Is the regulatory environment conducive and is there availability of books in general?

There could be some opportunities in Europe, but there are challenges. The structure of insurance in many countries—concepts like 'with profits'—and regulatory frameworks make it more challenging in places. Some Asian countries may be easier to adopt similar models. Our hope is to find ways to do more in Europe over time, but currently it's behind the U.S. The driver will be the need for insurers to earn higher returns than they can get from buying corporate or government fixed income today, so I think it will head that way over time, albeit with more frictions in Europe.

All right. Thank you.

Thank you. Your next question is from Ken Washington of J.P. Morgan. Please go ahead.

Hi. Good morning. Senator Warren put out legislation aimed at private equity investing. Blackstone invests all over the world with dollars raised from clients globally across various asset classes. First, how much of Blackstone could be impacted by the proposed Wall Street Looting Act and what parts might not be? Second, are you seeing political and regulatory scrutiny of private markets rising in Europe and Asia as well?

I'd start with the fact that what we do is something we're remarkably proud of, though there is an outdated view from the 1980s that private equity harms companies and communities. Nothing could be further from the truth when you look at how we accelerate growth. We invest in companies like Spanx, Hello Sunshine, Bumble, and others to help them grow. We're investing heavily in green energy—$11 billion over the last two years—and in life sciences, accelerating development of technologies that improve and extend lives. We grow businesses, and private equity is the highest-returning asset class for many of our clients—pension funds, police officers, firefighters, teachers, city workers. As we engage policymakers around the world and in the U.S. with the facts, they increasingly understand this. I don't expect specific legislation like that to pass in the near term. We're proud of what we do and will continue to articulate the positive impact our investments deliver.

Thank you.

Thank you. Your next question is from Christoph Kotowski of Oppenheimer. Please go ahead.

Yeah, good morning. You used words in the opening about being poised for an even greater breakout in earnings. With a roughly 55% fee-related earnings margin, were you implying there's significant upside to that as you launch the next generation of flagship funds, or should we expect earnings growth to follow AUM growth over the next couple of years?

Chris, that was meant as a broad positive comment about the overall picture and not an implication of a specific magnitude of earnings growth. The firm has strength in both fee-related earnings and performance revenues, and historically we've shown the ability to expand margins over time. We would expect that to continue generally, but there's no need to overread the comment.

Okay. Thank you.

Your next question is from the line of Devin Ryan, JMP Securities. Please go ahead.

Hi. Good morning. A question on infrastructure: at $14 billion you said the fund is about 80% committed and you're reopening fundraising. Could you update us on LP appetite right now, how relevant legislation in Washington is to influencing opportunity or sentiment, and how you think about the addressable market? It still seems like a big area of whitespace relative to the firm and opportunity set.

We feel terrific about the infrastructure business because we've delivered great returns for our customers out of the box. Investors are interested in infrastructure as an asset class, particularly given long-duration hard assets and some yield in a potentially inflationary environment. This business should attract strong responses. Our infrastructure vehicle is not a drawdown fund like some institutional strategies—it will raise money on a quarterly basis. You'll see surges of fundraising as we deploy capital, then more fundraising as the queue goes down. We like the types of assets we can invest in: datacenters, digital infrastructure, fiber-to-the-home, transportation assets like ports, roads, and airports. At $14 billion today it's small relative to its long-term potential.

I'll add that our strategy, demand, and the deals we've been doing do not rely on whether public-private partnerships arise from current legislation. The organic demand for digital infrastructure and other assets is large, and private capital is already the primary solution today. If government-private partnerships expand, that's additional opportunity, but it's not something we're depending on.

Okay. Great. Thank you.

Our final question comes from the line of Alexander Blostein, Goldman Sachs. Please proceed.

Great. Good morning. Sorry for the phone issues earlier. I wanted to follow up on the discussion around retail product and capacity. Jon, you addressed some capacity dynamics earlier, which sounds like you have plenty of origination capabilities. The capacity concern I have is more about concentration with various distribution platforms. Given the size of the business today and how quickly it's been growing, are there concerns about how much capital each single distribution platform can allocate to a single manager?

Good question. The market is so large that even with an individual distribution house, what can seem like a lot of capital remains a small percentage of their total assets. Many distribution platforms manage multi-trillions of dollars. Even $30 billion, $40 billion, or $80 billion is still a small percentage. Also, we're early in the path of IRAs in the U.S., and globally—particularly in Asia—there's a lot of savings looking for alternatives and exposure to what we do. There are roughly $70 trillion of wealth among people with more than $1 million of investable assets globally, and allocations to alternatives are still very low. When we think about where this can go, it's significant. We're early days on the retail journey and similarly early in insurance relationships for managers like us. In the institutional world, we're still growing fast. Having multiple scalable channels and a powerful platform is a strong combination and a reason for our enthusiasm and optimism.

Thanks very much.

Thank you. I will now hand you back to Weston Tucker for closing remarks.

Great. Thanks, everyone, for joining us today. I look forward to following up after the call.

Goodbye.