Blackstone Inc. Q2 FY2025 earnings call

• Steve Schwarzman highlighted outstanding results with distributable earnings up 25% YOY to $1.6 billion, fee-related earnings up 31% YOY, inflows of $52 billion in Q2, and AUM at $1.2 trillion. - Jon Gray emphasized private credit growth (largest third-party credit business, $484 billion AUM), private wealth market-leading position (AUM almost $280 billion, sales $10 billion in Q2), and institutional business momentum (infrastructure AUM up 32% YOY, multi-asset investing business BXMA AUM up 13% YOY). - Michael Chae reviewed financial results (base management fees up 14%, fee-related performance revenues up, total fee revenues up 27% YOY), investment performance (funds generated strong appreciation, e.g., corporate private equity funds up 5.1% in Q2), and forward outlook (favorable multiyear picture with robust structural momentum in FRE).

Blackstone's segments showed strong performance. In private credit, the firm has built the largest third-party focused credit business with $484 billion across corporate and real estate credit, up threefold in 5 years, and revenue from this platform has increased more than fourfold. Private wealth has AUM of almost $280 billion, the largest private wealth alternative platform in the world, with sales in the wealth channel increasing 30% YOY to $10 billion in Q2. Infrastructure AUM rose 32% YOY to $64 billion, supported by 17% net returns annually to the commingled BIP strategy since inception. Fee-earning AUM rose 10% YOY to $887 billion, base management fees increased 14% to a record $1.9 billion in Q2, transaction and advisory fees rose 25% YOY, and fee-related performance revenues reached $472 million in Q2, up over 2.5 folds from the previous year.

• Base management fees expected to continue on a strong positive trajectory, with year-over-year growth in the second half resembling that of the first half. - Transaction fees: strong first half, lower baseline in second half with potential upside from rising transaction and market activity. - Net realizations: expect to close sale of 6% stake in Resolution Life, entering more constructive environment with acceleration of net realizations exiting 2025 and into 2026. Performance revenue-eligible AUM at quarter end was a record $604 billion, up 14% YOY.

• Uncertainty in policy and trade negotiations, which could impact transaction activity and realizations. - Potential impact of inflation and interest rate changes on asset values. - Impact of regulatory changes on the firm's various segments, especially in areas like life sciences and real estate.

Q: Alex Blostein asked about credit spreads and demand for private credit, including implications on fee rates longer term.

A: Jonathan D. Gray responded that demand for private credit remains robust, clients focus on the enduring premium between liquid markets and private credit, and the business continues to grow with strong demand for non-investment-grade and investment-grade credit, and the key is the relative premium for private credit.

Q: Glenn Schorr asked about real estate recovery, including drivers like pricing, financing, deal flow, and client flows.

A: Jonathan D. Gray said the building blocks for real estate recovery are in place, including new supply coming down, cost of capital coming down, and increasing transaction activity, with confidence in the ultimate outcome high as new supply is muted and cost of capital improves.

Q: Craig Siegenthaler asked about investment return and fundraising outlook for secondaries.

A: Michael S. Chae said returns were driven by a large new purchase and underlying fund appreciation, and Jonathan D. Gray added secondaries is in a sweet spot with strong demand, good deal volume, and strong returns making it attractive to investors.

Q: Michael Cyprys asked about alts accessing the 401(k) retirement channel, specifically target date vehicles.

A: Jonathan D. Gray said it depends on executive order and rulemaking, expects target date funds to be the initial vehicle, and Blackstone's scale perpetual products with track records give a competitive advantage.

Q: Bill Katz asked about FRE margin interplay and payout rate on realizations.

A: Michael S. Chae said margin outlook is positive with double-digit management fee growth, and payout rate is expected to be stable with mix of funds and strategies impacting performance revenues.

Q: Dan Fannon asked about confidence in dealmaking picking up.

A: Jonathan D. Gray said it's due to equity markets recovering, debt spreads tight, general business confidence, favorable regulatory environment, and pent-up demand in M&A and IPO volume.

Q: Brian McKenna asked about real estate performance-eligible AUM and accrued performance fees.

A: Michael S. Chae said about 60% of real estate performance-eligible AUM is above hurdles, with most of the AUM in BREP and opportunistic funds above hurdle, and expectation of realization cycle acceleration.

Q: Steven Chubak asked about BMACX launch and retail product scaling.

A: Jonathan D. Gray said BMACX will take time but has good reception, and Blackstone's retail products have a good path with new platforms and track records.

Q: Benjamin Budish asked about fee-related performance revenues, specifically BIP.

A: Michael S. Chae provided specifics on BIP fee-related performance revenues for the balance of the year, and Jonathan D. Gray said layering of products will be powerful to earnings power over time.

Q: Ken Worthington asked about Legal & General partnership and Vanguard/Wellington product development.

A: Jonathan D. Gray said the L&G partnership is focused on credit and insurance with $20 billion aspiration, and Wellington has filed for a product with Vanguard, but specifics on Vanguard/Wellington product development are limited due to SEC approval process.

Q: Patrick Davitt asked about Life Sciences exposure to government research funding cuts.

A: Jonathan D. Gray said there's uncertainty but huge innovation in Life Sciences and capital needs, and Michael S. Chae added supply coming down in real estate applies to Life Science office sector as well.

Q: Arnaud Giblat asked about BXPE sizing and vintage diversification.

A: Jonathan D. Gray said BXPE is designed to take in capital regularly with wide aperture to deploy across various areas, and Blackstone has capacity to deploy and create additional investment opportunities, differentiating the firm in the wealth channel.