Brian Bedell: Great. Thanks. Good morning, folks. Just back on BREIT and BCRED. Just John, if you had a crystal ball, I guess, in the sort of near-term intermediate term on when you think the redemption requests might abate. And just in thinking about that, getting through the Asian investors, which, obviously, were a redeemer €“ heavier redeemers last year and then getting sort of burning through the €“ any of the folks that are not happier want to redeem and getting to those happy investors, so to speak. Just in terms of the redemption profile, when would you think you might burn through those requests and get to sort of more of a positive net positive profile. And if you can differentiate that with BCRED and then also just are there more potential institutional investor opportunities in BREIT like you see?
Jon Gray: Okay. A bunch of questions here. I guess I’d start by saying, we endured for a number of months of really negative press, as you know. And so, rebuilding momentum takes time. I think the good news is, if you talk with our distribution partners, financial advisers, underlying customers, the tone of those conversations has improved. There were a lot of concerns, many of which we saw as unfounded that needed to be addressed and the capital coming in from Cal Regents, $4 billion originally, another $500 million yesterday. It says a lot. It’s a real affirmation. There’s been a lot of discussion about that capital. But when you really look at what Cal Regents did, it was a subsidy we provided, Blackstone, not BREIT on the downside of about 4% annually.
And so, unless BREIT performs for them, then they don’t get the 11.25% that they’re hoping to achieve. And that affirmation of the quality of the portfolio and the valuation of the portfolio was very important for outside investors and for our individual private wealth customers and their financial advisers. In terms of, would we do more of this? We’ve had some people reach out. There’s a limit to the number of units we own. And we’ll just wait and see, but we have had some folks reach out. We’ll see what happens on that front. But we really like this transaction because, obviously, it gave a lot of valuable capital to BREIT. It gives — from a Blackstone perspective, we think the product can really perform as we talked about previously. We just need to achieve an 8.7% return well below the product’s historical returns in order to generate incremental gain.
And then above 11.25%, we get even more in terms of incentive fee sharing. So we look at this as a transaction that makes a lot of sense for us, certainly very helpful for BREIT, particularly the duration of the capital, but we’ll wait and see what happens in terms of more. On BCRED, and then I should answer, I guess, specifically on your question on timing, I’d say, the other positive sign out there, besides improved tone, is the majority of the redemptions we’re seeing in January, it’s still early, are coming from November and December unfulfilled requests. So that, to us, is encouraging. But because those are outstanding and because some investors now are making larger requests than they actually want to achieve, because they expect to be cut back, we expect here in January, we will see an uplift in redemptions.
But then, to your point, we think over time, we’ll be able to work down this backlog. Predicting the timing of that is not easy. I think, continued strong performance from us is obviously important, continued confidence from the investment community and rebuilding that momentum. So at this point, I wouldn’t put a time line on it, but I would say I think the investment from Cal Regents was really important in terms of psychological confidence, but we’re going to have to wait and see how this plays out. But we feel, what gives us our underlying confidence is what’s happening in BREIT. The fact that, in November, rents in the portfolio were up 10%, the fact that the rents in place are 20% below market. And in our major sectors, rental housing and logistics in Q4, we saw almost a 30% decline in new permits or starts and now the 10-year treasury, which has been a real headwind on cap rates has come back down.
So, that makes us feel better about the outlook. And that will be key, I think, to get more investors moving in our direction. On BCRED specifically, there we have continued to have positive net flows. The dynamic is a little different. There’s less negativity around real estate. There’s obviously the headwind on these vehicles — Oh, sorry, less than around credit. Thank you for the correction. There’s less pressure, negative press around the credit space there’s a benefit from rising rates. And there, we — again, we’ve positioned the portfolio 100% floating rate, 98% senior secured and the products yielding north of 10%, which should go higher as the Fed raises rates. So, I think the dynamic there is more positive. And again, I think performance will drive flows.
Brian Bedell: That’s super helpful. Thank you.
Operator: The next question is coming from Alex Blostein with Goldman Sachs. Please go ahead.
Alex Blostein: Hey good morning everybody. Thanks for the question. I was hoping to zone in on your secondaries business. You guys raised the potential amount of capital for the latest fund. And it feels like there could be quite a bit of activity in the secondary space, given changes LPs are making and obviously, significant macro movements. So, as you think about velocity of capital in the secondaries business, both LP and GP-led transactions. How do you expect that to shake out? What does that mean for maybe additional product innovation and fundraising within the secondary franchise for Blackstone?
Jon Gray: Well, what anchors the secondaries business is that growth in alternatives we’ve talked about. We just continue to see that industry grow our industry grow it has been now for 30-plus years, and we don’t see that slowing down. And of course, investors at times will want liquidity. Today, about 1% of the industry trades, that’s why there tend to be sizable discounts when you’re investing in secondaries. What we’ve seen growth and, of course, is in the private equity space, but we also have funds dedicated to real estate and infrastructure. And as you pointed out, GP continuation, which is very popular now where general partners like an asset or company they own, bring in outside investors, and may invest from their new funds as well.
And that scenario that we think can grow quite a bit. So, it feels to us like this is a business that’s sort of coming into its own that the industry can grow to be much larger than it is because of the need for liquidity and the growth in underlying alternatives. I do think the deal side will be a bit slow here as buyers and sellers have to find equilibrium. But I’m with you, Alex, that in the back half of the year, I would expect we’ll see a big pickup in activity. And our scale is a real competitive advantage because we can — we’re investing in 4,000-plus funds across all the geographies all the segments, and that gives us the ability to be a one-stop shop for the customer. So, it’s another area where there should be real growth over time.
This has now grown to be nearly a $70 billion business. Though by itself, it would be quite large. It just happens to be inside the Blackstone.
Alex Blostein: Great. Thank you.
Operator: Our next question is coming from Gerry O’Hara with Jefferies. Please go ahead
Gerry O’Hara: Great. Thanks. Hoping you could just clarify some comments I believe I heard with respect to where you are on the sort of 12 to 18-month fundraising time horizon towards $150 billion. And specifically, what is sort of ahead of you where you see some of the larger sort of fundraising and what vehicles? What the sort of makeup of the remaining sort of target goal looks like? Thank you.
Jon Gray: Well, thanks. I’m not sure we put sort of specific times. What we really focus on is sort of the vintage of funds we’re raising. And as we said and you pointed out, we had a $150 billion target that we’ve been talking about now for more than a year. The good news is we’re at $100 billion, so we’re two-thirds of the way through this. Obviously, large fundraises and secondary’s, opportunistic global real estate, Asian real estate. We’ve made a lot of progress on our private equity fundraising. In the balance of the $50 billion, we’re talking about raising a new BREIT 5 real estate debt fifth fund, which will be a meaningful chunk. We also said, we’re going to kick off this quarter, our seventh European opportunistic real estate fund €9.5 billion of third-party capital last time, and we’re going to target a similar size again.
And then we have more to get raised in green energy, both credit and equity. We have some smaller DSP funds that are going to work their way through the system. And then we will launch at some point in 2023, the next vintage of our Life Science business. So we’ve got a bunch going out there. And the good news, I think, for us is we obviously are large in the US institutional community, but we’re big in Canada. We’re big in Europe, the Middle East, Asia. And as you know, we’ve got insurance clients, individual investors and obviously, our institutional clients. Interestingly, everybody is focused on the semi liquids. But if you looked in the fourth quarter, in the drawdown funds, we raised, I think, $3 billion roughly across breadth in BXG, our growth fund in some other areas from individual investors in our drawdown funds.
And so that is just another tool we have in our toolkit to help us raise this capital. So we feel good about it, but I certainly would acknowledge it is a tougher environment than when we started.
Gerry O’Hara: Great. Thank you.
