Blackstone Inc. (BX) September 2026 Conference Transcript

All right. Good afternoon, everyone. Welcome to day two of our financial services conference. If any of you don't know me, I'm Ben Budish. I cover the U.S. brokers, housing managers, and exchanges. And for this next Fireside Chat, really delighted to have Michael Che, CFO of Blackstone. Michael, thank you so much for being here. Hey, Ben. Great to be here. Nice to see everyone. It's hard to see everyone. All right. Maybe to kick it off, a macro question, can you talk a bit about your current view of the world? You know, what are you seeing in your portfolio? How do you see the environment shaking out over the next 6 to 12 months? And, you know, with the Fed decision tomorrow, you know, what are your thoughts on how it will play out?

Well, I'd first say, you know, we're obviously in the midst of a corporate earnings boom, I would say. And, you know, there's lots of attention, of course, on stock prices, but maybe not enough on the underlying context, which is this extraordinary earnings environment that we've been in. I think the second quarter saw like the fastest S&P earnings growth in five years, and I think 2026 right now is projected to be the best S&P earnings growth year in like 25 years, if you exclude sort of the bounce back years after the GFC and COVID. You know, the massive investment in digital energy infrastructure that's taking place is, of course, a historically powerful engine, which we're obviously experiencing. We see that now diffusing further into the economy. And, you know, despite the scale of the AI build out, these investments so far remain less than 1% of GDP. That's well below prior investment cycles, starting with railroads all the way through the dot-com era, which I think we're more like in the 2% to 5% of GDP range. And then, and we really see this in our companies, underpinning the earnings momentum is really robust margin momentum. And that's why companies are mostly just scratching the surface on AI-driven productivity gains at scale. And so the S&P EBITDA margins have expanded about 500 basis points in the last four years to the mid-20s or so in our own portfolio. We've seen margins expand around 700 basis points on average over that same time period up to the sort of high 30s. So it is, while it's a little bit uneven, we see it as a pretty strong environment for companies to grow and make profits. You asked about the Fed. I'd say in terms of the Fed and path of rates, you know, the market certainly seems to have made up its mind as to what's going to happen tomorrow. In terms of the actual data, you know, that we see and focus on, you know, the reality is core CPI excluding Shuster is at 2% year over year, 2.0% through August. And real-time market rent growth measures are also in the 2% area. And labor markets are in pretty good balance, which we certainly see in our portfolio. So, you know, in a vacuum based purely on data, on the data, you know, it's not clear a hike is absolutely called for. But we're not in a vacuum. And in the context of the criteria laid out at Jackson Hole and given the intensity of sort of market expectations that have built up, it does feel likely that we'll have some form, to me, of a dovish hike, whether those words are used or not or conveyed. with the desired effect, I think importantly, of keeping the longer end of the curve in check, which drives cost of capital in the real economy, importantly. So I do have high regard for Chairman Warsh, and we'll see what happens soon enough.

So with that in mind, what does this mean for the transaction environment? So maybe talk a bit about the near-term outlook for deployment and realizations. You guys have been particularly upbeat on the IPO opportunity. So what are your thoughts on the sponsor-backed M&A activity, which has been a lot more pluggish?

Well, I'd start with the overarching notion that to us it's never been more important to have scale of capital and breadth of platform. On deployment, there's lots to do and extraordinary opportunity if you're in the right places. So you have these enormous markets globally that are actually short of the capital required to support their growth. And that's where Blackstone, in our view, has a distinct advantage. We're a strategic capital provider at a huge scale across, you know, a wide array of strategies. And so specifically, obviously, in AI and related infrastructure areas, in power and electrification, but also life sciences, liquidity solutions for the private markets themselves, you know, including especially secondaries, private investment grade credit, including corporate solutions, And from a regional perspective, Asia, particularly for us in India and Japan, you know, 70% of our largest investments over the last 12 months have been in the areas I just named. And so if you're active in these areas, it's a great time for deployment. And it's probably, you know, a sharp contrast to maybe, you know, a traditional monoline manager built around a narrower set of focus areas. And then on realizations, which is, you know, sort of the other side of the same coin, again, I'd say maybe for the typical traditional private equity firm, regular way exits, you know, have been more constrained. You're seeing that in the overall sponsor volumes, as you mentioned, which have recovered more gradually than the broader M&A market. But the areas we've emphasized have, I think, positioned us more favorably. So I'd say two dimensions. One, IPOs. We've completed nine IPOs in the last year and five since May. Larger-scale, high-quality companies are what the IPO markets want, and that has favored our portfolio construction. And that's, in turn, led to more and more of our carry receivable. That's public and liquid. So about a third of our corporate private equity net accrued performance receivable, NAPR, is publicly traded. And as we continue to sow more seeds with six IPOs currently on file globally, that's going to create more public market cap and continue to grow what I would call our liquid NAPR. And then I'd also highlight our energy private equity business, you know, has been exceptionally productive in investing in the power and electrical equipment area and generated a really remarkable performance, doubling its NAPR over the last year to over a billion dollars. So I'd just step back and say the key question on selling assets is really, you know, are you exposed to the places the world wants? And fortunately, we think we've leaned into many of the right. Overall, I think it's a constructive environment for our firm. We think we're positioned well at the intersection of megatrends, and that creates a great flywheel in terms of transaction activities we've learned throughout the history of our business.

So maybe kind of building on what we've talked about so far, Blackstone's delivered some very strong fundraising results over the last 12 months. Looking ahead, how are you thinking about the overall environment for capital formation? Where do you see the most significant opportunities for growth across the platform?

So, you know, again, the balance in breadth of our firm continues to drive our fundraising and our fundraising success. We've had over the last 12 months over $260 billion of inflows. That's 24% growth over the prior LTM period. It's the best 12-month period for us in nearly four years. And really robust demand across our client channel. So we call them three I's, institutional, insurance, and individuals. I'll take them quickly one by one. In the institutional business, it's vibrant. Our second quarter inflows were up nearly 50% year over year. And I just say simply put, there is strong demand for high-performing strategies. multiple drawdown funds of ours hit hard caps this year with more to come our infrastructure business is experiencing explosive growth platform AUM there is up 40% year over year to 90 billion dollars as of the second quarter BXMA I think we'll talk more about it is a growth engine you know in July we saw the best month fundraising and BXMA history so that's institutions and insurance, you know, we think our multi-client model continues to resonate. We're the largest non-captive alternative insurance platform with $290 billion of AUM. That's up nearly four times over the last five years. It's supported at its core by 40 clients in what we call our dedicated solutions area. That's a number of clients that's doubled over the past two years. And just stepping back, insurance companies continue to turn to private markets as the destination for excess spread in an environment where competition in the annuity business and spreads in liquid markets are near historic tights, and we think in that context we're a partner of choice. You know, the vast majority of our growth to date has been U.S.-centric, and so we think we're just scratching the surface in terms of the international opportunity, and you've seen in the last year or two what we've done with Nippon Life and also with LNG and the UK and then finally in individuals or private wealth you know the secular growth opportunity remains as attractive as ever and we think we've continued to extend our leadership position in that channel our AUM there is $324 billion dollars that's up nearly two and a half times in the last five years we you know our flagships we have flagships across five major asset classes real estate private equity, infrastructure, credit, and hedge funds. And these strategies are, importantly, really foundational for a really important part of our next phase of growth, which is particularly around multi-asset products and the retirement channel, which represents a whole new dimension and where we think we're uniquely positioned. So, you know, we can dig in even more into that later. But I'd just say across those three areas, it all just speaks, I think, to the breadth of our platform. We're not dependent on any single product or any single channel. And if most industry experts estimate this channel is going to continue to grow at double-digit growth for the next decade and beyond, we, of course, see Blackstone as really well-positioned in that context.

So maybe putting those pieces together, what does it mean in terms of the broader financial picture for Blackstone? Near term, 2027, I think you previously cited double-digit management fee growth. Maybe you could unpack some of that a little bit more.

Yeah, so as we've said, we think the multi-year financial picture remains one of real strength, and we do see a robust 2027 from an earnings standpoint. As we talked about on our earnings call in July, we expect, as you said, a return to double-digit growth in base management fees in 2027 with the key building blocks of that, including, as I talked about on that call, the full-year benefit of multiple new drawdown funds in the private equity segment. Continued expansion of our perpetual platform, especially our infrastructure fund, our flagship private wealth vehicles like BXPE, and very positive momentum in BXMA. alongside that from an earnings standpoint an increasingly diversified and scaling corporate-based fee-related performance revenues a widening surface area across the firm for generating transaction fees and a quite constructive outlook I think for net realizations as I referenced earlier and then I'd add an important overlay here is what I would call the monetization of what we've been doing and building in the AI ecosystem, so I know you all may feel like Steve, John, and I have been talking at you every quarter about our AI deployment, but you'll, I believe, increasingly see the through line of that to earnings because deployment leads to performance and performance to performance fees and also management fee growth. And so, for example, in our institutional infrastructure strategy, we'll next see a large scheduled crystallization in the fourth quarter of 2027 in the context of outstanding performance. And that's been powered in significant part by our investments in digital infrastructure, data centers, and power. So that NAPR in the second quarter was over $900 million. You can see that in the earnings release sort of halfway through the three-year period. You're seeing very significant value in our energy private equity portfolio, as I mentioned. Again, our NAPR there, just our energy fund NAPR in private equity has doubled year over year. BXP is a very powerful engine. Our NAV there is already $27 billion and growing in less than three years with exposure to generational AI companies being an important part of the performance and quarterly incentive fee opportunity there. BREIT, you know, it's back in growth mode, and they're almost 30% of the portfolio is data centers, meaningful exposure in most of our recent vintages of our institutional real estate funds and also in tech ops to this space. And then we continue to plant seeds like our BXDC REIT. So, you know, again, a through line between what we've been building and doing here and earnings power over time. So putting it all together, we see a strong picture of financial performance in the years ahead.

Great. Well, you mentioned AI continues to be one of the biggest investment themes we're hearing at the conference. And you guys, as you've been talking about, have been very active across that ecosystem, including some recently announced partnerships, including with NVIDIA. How are you thinking about the most attractive opportunities along the AI value chain, and where do you see the biggest opportunities?

So, you know, what I'd start by saying is that the firm and investment business that we've developed over four decades, we think turned out to be built for this generational opportunity in terms of our scale, our breadth of strategies across asset classes and across the capital structure, up and down the capital structure, the long duration nature of our capital base, our deep relationships and reach with the largest corporate enterprises. and importantly, the integration of intellectual capital across our platform. But as I go through, which I will, this pretty extraordinary footprint of our activities across this ecosystem, I think it's really important to underscore that the true north is bringing the same focus of risk-adjusted returns, on risk-adjusted returns to this ecosystem of investment as we have for the past 40-plus years everywhere else. So just as I kind of walk through the buckets in AI infrastructure with data centers, where we're the largest owner and developer of data centers around the world, we're investing based on committed typically 15- to 20-year leases with the most creditworthy tenants in the world with built-in escalators at attractive, unlevered, and levered yields on cost, and that generates compelling cash-on-cash returns even before you get to terminal values and to platform values. And in the context of some of the development constraints that you're seeing that are being sort of externally imposed, that which you can build has that much more scarcity value. In power, we've been building a portfolio of companies over many years at attractive valuations based on an original pre-AI thesis around secular electrification and the need for grid modernization over the long term. And that's a thesis which obviously was subsequently turbocharged by the megatrend of the extraordinary demand from AI for power. You know, we took what we learned in the AI infrastructure side and have been making discreet, I would say sensibly sized bets with real right-tail optionality in the frontier AI companies themselves. And that's turned out to have had exceptional upside and a very positive impact on the performance in the number of vehicles. With our presence and positioning, you know, in this part of the investment ecosystem growing accordingly. In credit, we've been delivering large-scale financing against critical assets and contractual cash flows, generating excess spread with structural protection and very favorable counterparty risk in partnership with some of the most important and credit-worthy companies in the world. So, you know, we've been helping pioneer, I think, the development of compute as a financeable asset class. And then finally, just being in a unique position to develop new platforms in partnership with the players in this area that will be critical to the overall development of the market. So partnering with Google to create Crux AI and NeoCloud for TPUs, launching Ode with Anthropic in July as a service company to accelerate enterprise AI adoption for our portfolio companies and outside of our portfolio, and creating very large-scale financing platforms with Broadcom and NVIDIA to support the next phase of the AI build-out. So our activities in AI, I know that was a long answer, are multifaceted. They're at scale. They're done with a very long view, and they turn on a consistent assessment of risk versus reward. And all in all, we think we've positioned ourselves as the best positioned private investor in the world to lean into this opportunity.

Okay, great. So we heard a lot of detail about Blackstone's AI investment strategy. Can we talk a bit about how you're utilizing AI within Blackstone? So where are you seeing the most prominent, you know, promising use cases across the firm, you know, throughout the portfolio, and what impact is it having on, you know, efficiency and value creation?

So, I would say there's three legs to our approach. You know, we're focused on utilizing it to make better investment decisions for a second drive value across the portfolio, and then third, improving how we operate internally. We do this, you know, with a big organization focused on this, you know, 50, over 50 data scientists, 1,000-plus technology professionals within the firm, and 100-plus operating executives supporting the implementation of this. So first on better investment decisions, the most significant opportunity inside Blackstone lies in combining AI with our proprietary data, harnessing decades of information and insights from investments in our investment process alongside pretty rich data from our large portfolio companies to drive better pattern recognition, faster, you know, better informed decision-making on the portfolio driving value across the portfolio, and I mentioned the partnership with Anthropic. I would just say AI use cases are expanding really rapidly across our portfolio, but it's still early, you know, obvious opportunities in efficiency and productivity, but also, as importantly, over time in improving revenue growth. So process improvement, customer service, content creation, product innovation. Those are the main categories we're focused on today in our portfolio. And then third, from a Blackstone operational standpoint, we are definitely seeing tangible productivity gains across core processes. We're focused on software development, legal and compliance, cybersecurity our valuation process and so it's early but that's making us more and more efficient and this will largely be done in terms of our internal use cases with third-party vendors but our strategy is a firm also involves which we've been doing for a decade plus programmatically identifying emerging AI native solutions providers vendors and in a number of cases becoming an anchor customer, a design partner, and sometimes an investor, and that's a sort of playbook that we're bringing to this as well. So I just say we're just getting going on this, and there is a lot more to come.

Maybe pivoting a little bit, I think you mentioned BXMA. You alluded to the July inflows. I mean, this has been a pretty strong inflow recently. Again, the July inflows, I think you indicated were more than all of Q2 combined. I guess just talk a bit about this business. What are its key components? What's been going well lately? I think this is one that hasn't been on most investors' radars for a while, and all of a sudden things are looking pretty good.

Yeah, I'd start from our perspective. Some of the room will nod their heads to this. I think hedge funds as an asset class, I think, are increasingly back in favor. And I think it's fair to say that the leading, you know, multi-strat firms have led the way by, I would call it, you know, delivering sufficiently high absolute returns, i.e. double-digit returns in this recent three- to four- or five-year period, and doing so with low correlation in a market where stocks and bonds, you know, have been unusually correlated more of the time. We've done that, too, in our BXMA business. We've generated 12% annual returns on a three-year basis in our largest strategy. We've delivered 25 consecutive quarters of positive returns through the second quarter in absolute return, with the second quarter representing our best returns in six years. So perhaps given that, because it's all about performance, it's not a surprise that BXMA is experiencing a bit of a renaissance, as we've talked about. We're at $109 billion of AUM as of the second quarter. We just crossed the $100 billion milestone earlier this year. We're seeing that performance translating into greater investor interest, as you cited. In terms of the components of the business, you know, if you look way back, BXMA, when we started, was essentially a fund-to-funds business, but it's really evolved dramatically since then. And we have four core platforms serving different client needs, Absolute Return, our BSOF multi-strategy business unit, what we call Total Portfolio Management, TPM, and a business called Harvest. All the businesses, all four of those businesses have experienced double-digit AUM growth on the back of performance. Absolute Returns, as I mentioned, is really seeking to outperform liquid markets through manager selection and asset allocation. That's what we've done. We beat the traditional 60-40 portfolio by 180 basis points per year since the beginning of 2020. The second platform is BSoft, as I mentioned. That's our own multi-strat, where we're really doing that, and our edge is leveraging the intellectual capital and the flow of the firm. Our newest platform is what I call TPM, Total Portfolio Management, which helps LPs build really large customized portfolios under our management, and there's very significant demand for that today. And then we also have an MLP, Master Limited Partner Business, Harvest, which couldn't be in a better spot of the markets today given the tailwinds of energy and power. So, look, with the track record, the power of the Blackstone Platform brand, it was also, from an innovation standpoint, a great time to introduce a private wealth-oriented perpetual product, which we call BXHF. and that leverages the capabilities across the whole BXMA business and the firm and we had a strong start out of the gates in August with the first close of over $200 million. So overall, BXMA, I think, is positioned to, again, be a growth engine for the firm.

Great. That was a good segue to the wealth business, which I want to ask you about. So maybe just high level, can you give us your latest holistic view on the channel? How are advisors thinking about allocations? What inning are we in?

We're still in the early stages of investor adoption in a channel that has an addressable market of $140 trillion or so, depending on how you count it, but has low single-digit penetration today. We do think we have the market-leading business. You know, we've been on this journey in private wealth for 24 years with a dedicated business through the last 15. Today, individual investors are about a quarter of our assets as a firm. You know, we do think we offer the deepest and broadest product set, including the largest vehicles in the market in each of real estate credit and private equity. And we got here through relentless focus on performance and the client experience. That, in turn, gives us a license to innovate, and that powers the growth of the business overall. So that's the simple formula. We're continuing to see strong results in the channel despite the market turbulence. Sales for perpetuals in private wealth increased sequentially in the third quarter. And alongside that, we expect realizations to be down sequentially in the third quarter. And we are receiving a highly constructive tone with distribution partners, FAs, underlying clients. And longer term, to your question, we just think the business can be much larger than it is today. And with respect to the next legs of growth, the next elements of our growth plan, there are multiple pillars. First is product innovation, multiple product launches underway. I talked about the multi-asset opportunity through our alliance with Wellington and Vanguard, Two products have just been launched by Wellington. We're seeing good early indications of interest with more Blackstone products in development, including for the retirement channel. BXHF, which I just touched on, extends our wealth platform further into liquids. And as always, much more in the lab. Second, expanding distribution. We think there's a long runway. We can go much deeper within the existing footprint, expanding into new subchannels like the RIA area and around the world, Japan, Canada, Australia, looking at Korea and Taiwan in the near term. Third, just education efforts to drive growth. Our brand is a key enabler. We've hosted in the last 12 months more than 50 what we call these Blackstone Universities, BXUs. One metric is our web traffic across our own education platform is up three times year-over-year. Fourth, technology, which, you know, improves efficiency and I think will broaden access over time. Today, that largely sits at the distribution level, but I think that will be an increasing opportunity over time for us. And then retirement, you know, there's a massive opportunity course in retirement and defined contribution. Over time, you know, here we're the only firm with the key large-scale building blocks across key asset classes, and we think that positions us exceptionally well to deliver solutions to the channel when combined with our brand. And we're rolling out CITs, Collective Investment Trusts, prepping target date funds, and we're hopeful for the Department of Labor to provide the final rule by year-end or early 2027. And so just taken together in private wealth, we're really optimistic about the opportunity ahead.

All right. We'll talk about direct lending a little bit. So maybe, first of all, credit more high level. How would you describe the current health of the direct lending portfolio? Maybe touch on your software borrowers, which for the industry have been the topic of a lot of discussion. Are there any kind of differing trends within kind of that sub-asset class? And then maybe can you give us some color on the latest B-Cred redemption trends, what you're seeing around the world, and kind of your read on how the results shook out?

Sure. Just stepping back on the broader credit platform, if I could for a minute, we have the largest third-party-focused credit platform at $550 billion of AUM. That includes direct lending, where we have one of the two largest businesses globally, but that's just one piece of the broader business. Our credit platform includes the largest CLO business globally, the largest real estate private credit business, and something we call IABC, infrastructure and asset-based credit business, that's over $125 billion today and is growing rapidly. It grew 28% year-over-year in the second quarter. In terms of investor demand, there's lots of action today in private investment grade and the IABC area. And we're really seeing strong demand from insurance clients and also pension funds and other LPs increasingly interested as well in that space. In direct lending specifically, despite the recent softness in the individual channel, the demand from institutions remains favorable. They recognize, I think, increasingly attractive lending backdrop. Direct lending spreads have widened 25 to 50 basis points since the beginning of the year with lower loans to value, so that's a very attractive environment to allocate capital. In terms of the health of the direct lending portfolio, I just think credit quality remains resilient overall. EBITDA growth across our B-Cred borrower base was 10% over the last 12 months. Interest coverage up nearly 50% since the first quarter of 2024 to about 2.3 times on average. Defaults across our private credit portfolio remained low in the second quarter. We'd expect them to move higher off those historic low levels, but believe they'll be manageable and not suggestive of significant deterioration in overall credit. importantly as you know our direct lending portfolio benefits from a number of structural advantages that we've talked about senior secured 40% or so of loan to value it's set up high current income is a ballast to returns and over nearly 20 years and through multiple market cycles our realized loss experience has been exceptionally low on software specifically our borrowers in that area are performing well and overall continuing to post double-digit EBITDA growth at a higher growth rate than our broader portfolio that I mentioned. On B-Cred, we posted third-quarter purchase requests a few weeks ago, which to us was overall encouraging. We saw a sharp decline in new requests quarter over quarter. And importantly, investors who submitted redemption requests in Q2 and Q3 will have received about 75% of their capital back. And what this means is in two to three quarters, investors who sought liquidity will have been substantially redeemed. And that's the semi-liquid structure at work, all while receiving substantial current income, around 9% annualized yield. And then meanwhile, we had in the quarter $3.5 billion of repayments and inflows, which will cover the shares repurchased by about 160%. So that still allows us to build firepower to invest in attractive opportunities. So we launched B-Cred nearly six years ago, and it was based on the premise of delivering premium income and attractive risk-adjusted returns across market cycles. And the results reflect that. It's 9% net return to inception to date, outperforming leveraged loans by around 300 basis points over that time period. As I mentioned, the current 9.1% distribution rate, 180 basis points ahead of leveraged loans. And to us, these tests of a product like this are ultimately a good thing. We think they show the long-term durability and resiliency of these products and educate and validate the semi-liquid structures and how they work through the cycle.

Great. Maybe just one final question for you. You know, putting all this together as you think about Blackstone shares, to what extent do you think that your optimism is reflected in what you see in the market? And maybe what other pieces do you think, you know, the market may be missing?

Well, you won't be surprised to hear. I mean, we believe the market continues to underappreciate both our nearer-term earnings power and the long-term positioning of the business. I think with the passage of time, even just in the course of this year, many of the perceptions of headwinds that weighed on our sector earlier this year are abating, whether that's concerns about private credit, private wealth flows overall, capital markets, and longer term, the secular shift to private markets continues, and we think Blackstone is a clear leader and the reference institution. So we feel very good today about the direction of travel for our business, near, medium, and longer term. And, you know, our market, our market position, and our earnings power, all three of those. And we think our share price will be an output of that over time.

Great.

Well, we'll be there. Michael, thank you so much for being here. What a pleasure to have you. Appreciate your time.