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00:00John, this morning Blackstone posted a 25% jump in distributable earnings and a lot of this was
00:06due to retail activity flying into Blackstone more and more. How far does this trend go with
00:11more retail investors coming into private funds, especially in the middle of all this uncertainty?
00:19Well, Shanali, it's always great to be with you. I would just start with the quarter. It was
00:23tremendous for us. First off, we delivered for our investors. That's the most important thing.
00:29We had the most fund appreciation in nearly four years. We delivered for shareholders,
00:36as you noted, with strong growth in earnings per share. We also saw another $52 billion of inflows.
00:44And what gets us excited is we've got some cyclical tailwinds here in terms of deal activity picking
00:50up as we look into the new year. And then some of these secular growth trends in infrastructure,
00:56in private credit, and in private wealth, which you noted. And I think that area still has a lot
01:03of running room. It's early days. If you think about our institutional customers,
01:09there are about a third allocated to private assets. And yet when we look at individual investors,
01:15they've got just 1%, 2% allocated to private. So it's a big world. And we've done a very good job
01:22in that area, too. The performance of our products has been exceptional. So the market potential,
01:28our positioning, our brand, the breadth of what we do, the products we've offered, the track record,
01:33we think that sets up for a great outcome over time.
01:37John, how much are you feeling certain and confident about the second half of the year,
01:41given that there are still uncertainties around the administration's trade deals?
01:46Well, it's interesting. 90 days ago, we talked about this. And we have said consistently to sort
01:54of be a little bit patient, let this tariff diplomacy settle. We have seen good progress
02:01in terms of deals made with the UK and Japan and Vietnam. And there's sort of a contour of what these
02:08deals will look like. It's obviously not a straight line. We could have some more bumps here in early
02:14August. But I think market participants, businesses are beginning to get a sense that
02:20there will be resolution. And that 6, 12 months from now, tariffs and tariff diplomacy will not be
02:27the main thing. And the US economy has shown incredible resilience. And at the same time,
02:33we have this AI revolution coming towards us, huge investment around that. And that and the
02:41productivity gains that should come give us a lot of confidence. It's never a straight line. But there
02:46are a lot of good things when you sort of look out over the horizon, particularly as we get through
02:51some of these tariff issues. You mentioned deals a little bit earlier. But I want to note that
02:56realizations for the second quarter were just 63% of what they were just four years ago. The deal
03:02market industry-wide has been slow to come back in terms of private equity exits in particular.
03:08How fast and heavy could it come back in the second half of the year? And when will they be
03:13materially showing more IPOs and more M&A among portfolio companies for Blackstone and others?
03:20Well, Shanala, you're absolutely right. It has been a tough three years for realizations. They've been
03:26running down about two-thirds, M&A and IPOs generally, that activity capital markets that ties to
03:35realizations now for an extended period of time. But as we look forward, we are seeing good signs.
03:41The equity market's back at record highs. Debt spreads are back to pre-liberation day levels.
03:47The economy's hanging in there. We've got a more favorable regulatory environment for M&A.
03:53And there's a strong desire to do transactions. So when we look at our portfolio, we see an IPO pipeline
04:01that's the biggest since it's been in 2021. We did an IPO in Europe a couple of weeks ago,
04:07our first in many years. When we look in our debt area, the number of new credits we're screening is
04:14up 50% from year end. All of that is positive. But I would caution that it takes a bit of time. So
04:21getting an IPO done or bringing a company out for sale, that activity is definitely going to pick up
04:27as we move towards the end of the year. You're going to see exit activity. But that itself,
04:32it's like bringing a plane out to the runway. We'll take a bit of time. But the path of travel
04:37here looks good. And I do think we'll see a step function increase in transaction activity in the
04:43capital markets in the second half. I realize you're probably hesitant to talk about particular
04:48deals. But you are sitting on what was supposed to be one of the year's biggest IPOs,
04:52you and others of Medline. How long would it take to get a company like that back to market?
04:57What would you need to see before you had the ability to bring that to an IPO?
05:05Well, we're never going to talk about specific companies. But Medline is a terrific business.
05:10And we own a number of other terrific businesses. And there are often considerations to individual
05:17businesses in terms of operational things, transactions, other reasons why you make decisions.
05:23But it's also, as we've talked about, a function of the market backdrop. And as the equity markets
05:29stay healthy, as the IPO market grows, it's a little bit of a magnet pulling things in. So
05:35to me, on some of these great companies we own, it's really a question of when, not if. And when we
05:41think it's the right time, we'll do it. Market conditions getting better is obviously very
05:46helpful for our business. Now, I want to read you a quote from Oppenheimer off the heels of your
05:51results this morning. They said, Blackstone is deploying more in real estate than it is realizing,
05:56indicating some bullishness on its part as it puts more money to work than it's taking off the table.
06:01Do you agree with that categorization? Can you give any color around how bullish you might be?
06:07I would agree with that characterization. I guess what I'd say is real estate has also been through a
06:14tough patch here now for three and a half years. It was a combination of COVID and the office market
06:20and then just the rising cost of capital. Interest rates went up a bunch. And so multiples came down
06:27in real estate. Cap rates went up. But we're beginning to see some promising signs as we look
06:32forward. We're seeing new supply come down pretty sharply. And that takes a bit of time because of the
06:38lag between construction going down and new deliveries. That's going to start to show up
06:44in the fundamentals as we head towards the end of the year into next. And cost of capital is coming
06:49down. Borrowing costs, spreads, base rates. That's helpful. And we're seeing the early signs of
06:55transaction activity starting to accelerate, particularly amongst smaller assets. The CMBS market's up
07:02something like 40% year to date. And so real estate's a cyclical business. Apartment demand,
07:08logistic demand, these things are not going away. But you have to work through this cycle.
07:14We're at that point. We're getting closer, I think, to this tipping point where the market sort of
07:19bottomed 18 months ago. We talked about that. Then we said it wouldn't be a V-shaped recovery. That's
07:24what's happened. But when we look out over the horizon, things certainly look better for real estate.
07:29And of course, the way we react to that is by trying to deploy capital ahead of that recovery.
07:36What you're speaking to is an easing of conditions before we've even seen
07:39successive rate cuts this year from the Federal Reserve. Obviously, the president has been very
07:44vocal for his desire to see much more aggressive cuts than the market is pricing in. Do you worry that
07:51cuts, subsequent cuts, could spur another bout of inflation at this point?
07:56Well, I think the Fed has done a very effective job getting inflation down. They were a little
08:04late, as we know, originally to raise rates, but then moved quickly. And what we do is look at our
08:10proprietary data. We have 250 companies and 13,000 pieces of real estate. And consistently for the last
08:17couple of years, others have been talking about sticky inflation. We've just been looking at the
08:22proprietary data we have. And it continues to show inflation heading lower. Shelter costs,
08:29which are the biggest component of CPI, are running well below the government's 3.8%.
08:34And so we think that'll come down. Energy costs obviously coming down. And when we survey our
08:40companies about the labor market, they're saying it's the easiest to hire that it's been since COVID.
08:46Wage growth is now down back around 3%. So I think the Fed's going to have a lot of good data. We could
08:53see an uptick in goods inflation, given what's happening in policy. But in aggregate, I think
08:59inflation continues to drift down. As a result, I think the Fed has the room to cut rates. So I don't
09:06think, given where inflation is, that's going to reignite a bout of inflation. And so I think that
09:13will happen gradually, given the tariffs, given low unemployment, the Fed is being patient. But I
09:19think the facts will give them the room to cut rates. And that, again, should be helpful to the
09:24economy. It should be helpful to markets. With all the rhetoric, the push pull between the
09:29President and Federal Reserve that we've seen on and again, off again, threats to even let the Fed
09:34chair go, do you worry about Fed independence from where you're sitting? Well, in the last couple
09:40weeks, I think we've heard from both the President and the Treasury Secretary that they expect the Fed
09:45chairman to continue to the end of his term. I think the Fed will continue to be independent.
09:52The President will have a choice to make a replacement here. And I think this system has
09:58worked well over time. I think it continued to work well. There's a board of governors as well.
10:02So I think the system works. And ultimately, there have been friction between the administration
10:10and the Federal Reserve over time. This isn't the first time. But I have a lot of confidence,
10:16just like I do in the entire Madisonian system in the U.S. And ultimately, I think the Fed will make
10:22the right calls based on the data.
10:24John, what do you think of this move that we're seeing in terms of more CapEx spending as well? I
10:30want to shift gears and talk about data centers because you did see Alphabet report overnight
10:34coming in with a bigger CapEx plan than what Wall Street was expecting. You about a week ago were
10:40in Pennsylvania for a large summit that the president himself attended, as well as, of course,
10:45Senator David McCormick, who's been pushing more investment into the state. At what point does
10:52this become an issue where investors stop rewarding CapEx spending? You are already seeing
10:58a little bit of weakness in Alphabet shares on the heels of that announcement.
11:03Do you think that investors are going to ask for caution at some point?
11:08Well, investors will ultimately look at the returns on the invested capital. And the companies,
11:15the hyperscalers, the big tech companies are spending an enormous amount. But it's because
11:20they believe that there is a huge prize here at the end. And to date, their numbers have been really
11:27strong. They continue to deliver real earnings growth. I looked through some of the Google
11:32summaries. And what was powerful is how much growth in agents and AI they're seeing uptick in usage as a
11:41result of AI. And I think as long as these companies continue to see their revenue and earnings grow,
11:47they're going to continue to invest. And so I think this is a critically important part
11:53of this AI revolution. Yes, we need these large language models like a Gemini or an open AI.
11:59We need the chips that the NVIDIAs of the world create. But we need this physical infrastructure.
12:05We need the data centers where we've been the biggest investor in the world. We need the energy
12:09where we've also been a huge investor in generation and transmission and utilities. Both of these things
12:16in the physical world are hugely important. Ultimately, it's going to be about the prize. But I think it's
12:22pretty substantial. Bringing super intelligence at scale to the world is going to lead to a huge shift
12:29in productivity. And therefore, I think the investment makes sense. Now, there will be, as often
12:35there is, companies who lose out, investments that don't work out. But in aggregate, this movement
12:41towards AI, the movement towards greater efficiency, what's going to happen with autonomous vehicles,
12:47with robots, I still think we're in the early stage. And six months ago, when everyone was talking
12:52about DeepSeq and was the CapEx boom coming to an end, we were pretty consistent in our view then that
12:58that wasn't the case. We continue to feel that way today. So, and I should clarify for Alphabet itself,
13:05the initial reaction was negative. It later turned around. So clearly, investors are still making up
13:09their minds on how to assess out what all of the spending means. Last question for you. Is there
13:14something that investors are not seeing about the move into data centers and more spending in AI
13:22that you would point to would be the biggest payoff in the next 12 to 18 months?
13:29You know, I think that in the physical world, it's just the demand. You mentioned this conference we
13:35were out at Pittsburgh that Dave McCormick hosted. It was a terrific event. It was bipartisan in nature
13:40with Governor Shapiro there as well. Just the amount of capital that's needed, I think, is really,
13:46really important. I think that investment spend will continue at a pace that is quite significant.
13:55And then I think on the payoff side, it's what's going to happen to make consumer lives better,
13:59make companies more efficient, the coding, the customer engagement, the content creation.
14:07I think that is really going to be transformative to business, to potential earnings. And again,
14:13as we get through this tariff diplomacy, I think the world's going to shift to focusing on AI and its
14:20impact and the investment that needs to happen to make it a reality. And I think for investors globally,
14:26that's exciting. John, thank you so very much. I know you have a conference call to head off to.
14:31We appreciate your time. Blackstone shares now up more than 3.5% pre-market after those results.
14:36We appreciate it.
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