Operator: The next question is coming from Michael Cyprys with Morgan Stanley. Please go ahead.
Michael Cyprys: Great. Thanks. Good morning. Just more of a bigger picture question around growth and innovation. I guess, if we look at your growth in recent years, many of the products that are contributing today did not exist 5 or 10 years ago. So, if we look out over the next 5 to 10 years, can you talk about some of the white space that you see for innovation for new business opportunities, opportunities for new strategies and just the overall opportunity set for Blackstone to innovate from here? And ultimately, how different might the Blackstone of 2030 look versus today?
Jon Gray: So, I think there is still enormous opportunity in the alternative space. When you look at it aggregately, it’s roughly $10 trillion industry. We’re about 10% of the industry. That compares to stocks and bonds over $200 trillion. If you throw in commercial real estate, residential real estate, other things, you can get up to $300 trillion. So I think there’s a lot of room to grow, Mike. And I think where the most growth will happen as you’ve seen, if you think about sort of investments as a pyramid. At the very top are the highest returning strategies there, we’ve obviously done a great job in private equity, real estate, private equity growth, life sciences, but what we’re seeing is a lot of growth in strategies where the return profiles are not as high longer duration strategies.
We think about private credit is a huge area of opportunity, because investors, be it insurance companies or individual investors or institutions realizing now that they can lend directly to borrowers with help from somebody like Blackstone. That is a very, very big market, and we today are still a very small percentage of that. Specifically, we’ve talked a lot about insurance, but an industry where people are really now focused on performance and the incremental return that comes from originating private credit, we have this unique platform today that enables us to serve now four major clients. I don’t see any reason why that platform cannot continue to grow. And as we have more scale, we can generate even more favorable returns. Infrastructure, which we just touched on, I think, there’s a global opportunity.
We started initially in the US that can certainly be a bigger global opportunity. I would say Asia, which I’m going to in a couple of weeks, in real estate, in private equity across the board, I think that’s an area where there’s a lot of growth. And just credit and yield products generally are attractive for us. And the secondaries market, which you’ve seen, which benefits from the rise of the alternative space can grow. So when we look out across our business, we still see lots of engines of growth. Even core plus real estate, we’re still a tiny fraction of that market. And so, what we have, which is a great sort of special sauce of the firm, these wonderful people, but these relationships we’ve built up. So if you look at what’s happened with Cal Regents, $4.5 billion committed in a short period of time, the transaction we did with Nippon Life that I referenced.
We have a number of big investors who are looking at $1 billion plus commitments to various vehicles and funds. We’ve just got a lot of goodwill. And the key for us is to find the right talent to pursue some of these strategies and then scale it up. So again, our optimism remains high. And what’s interesting versus the last really sharp down cycle in 2008, 2009 is clients are actually talking about increasing their allocation to alternatives, something that’s very different than the sentiment back then, because investors continue to see the differentiated performance.
Michael Cyprys: Great. Thank you.
Operator: The next one is coming from Ken Worthington with JPMorgan. Please, go ahead.
Ken Worthington: Hi. Good morning. And thanks for taking the question. Wanted to dig into BPP and the outlook for growth in this product. So maybe first, have you gotten a reaction to the arrangement you made with UC and BREIT from customers of BPP? Maybe second, even outside of Mileway and BioMed, growth has been very strong for BPP. How’s the outlook for growth over the next few years changed as it seems like growth has stalled more recently there? And then lastly, do you see other Mileway and BioMed opportunities for adjacency growth in BPP? And what might the nature of those adjacencies look like?
Jon Gray: Thank you, Ken. A few things. We haven’t really heard much from our clients in the institutional world around BPP, vis-Ã -vis BREIT and the Cal Regents investment. I think there’s a different dynamic, given the different liquidity profile in BPP, where investors recognize you need new inflows in order to get redemptions done. In terms of the outlook, what tends to happen in these open-ended vehicles during periods of market dislocation is, you do see a deceleration of flows. People want to sort of wait and watch. Capital allocation is more constrained. And you will see, in this area, a slowdown. By the way, it’s happened in the past in the early 2000s in open-ended institutional real estate funds. It’s happened in the 2008, 2009 period.
And then as you come out of this, clients want to get invested in the fact that these funds can deploy the capital quickly into existing portfolios is attractive. But I would guess, in the near term here, this area won’t grow as quickly as other parts of the firm, like infrastructure we were talking about. In terms of large-scale recapitalizations, creating more perpetual vehicles, I think that’s an opportunity over time. We do it on a very selective basis. We’re focused on maximizing returns for our customers. We have a number of these mild way, BioMed, Logicor, which is another large logistics platform. We have some smaller vehicles. Interestingly, BPP at $73 billion is made up of more than 30 different entities. So there’s a lot of diversity in the customer base and the asset class here and it’s an area that we think can grow quite significantly over time.
But in the near term, I think the growth will be a little more muted.
Ken Worthington: Great. Thank you.
Operator: Our next question is coming from Finian O’Shea with WFS.
Finian O’Shea: Hi, everyone. Good morning. On private credit. I appreciate the color you had earlier on the US direct lending potential via your insurance relationships. Of course, the BDC can continue to grow as well that complex. But beyond these, can you talk about the broader institutional efforts? And if you have an eye on expansion into, say a fund complex or an evergreen for that asset class?
Jon Gray: We think there’s a lot of opportunity in both the US and Europe on direct lending with institutional clients. You rightfully pointed out obviously BCRED has been quite successful in that space, serving the individual investors. Some of this is in the insurance clients, but institutional clients see the same thing. If you look at a transaction we did in private equity, with Emerson, their climate technology business, we borrowed there about one-third loan to value and the spreads were 60-plus over. And if you think about where base rates are and upfront fees, that is a very attractive return. And so institutional clients, large pension funds and sovereign wealth funds are seeing this, we have a number of SMAs. It is an area that we would like to and plan to grow over time. And I think that will be another feature. I think that’s why this sort of direct lending capability, which has multiple ways to access capital can grow to be much larger than it is today.
Finian O’Shea: Thank you.
Operator: And the next one is coming from Brian Bedell with Deutsche Bank. Please go ahead.
